FAT Brands Inc. (FAT) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals a decrease in total revenues and increased expenses, leading to a higher net loss. The Q&A section highlights uncertainties around debt restructuring and reduced store opening targets. Despite some positive developments like improved margins at Twin Peaks, the overall sentiment is negative due to financial losses, restructuring delays, and reduced growth expectations. The lack of clear guidance on debt restructuring further contributes to the negative outlook, suggesting a potential stock price decline over the next two weeks.
Key Financial Performance
Total Revenues $140 million, a 2.3% decrease from $143.4 million in last year's quarter. This was driven primarily by the closure of 11 underperforming Smokey Bones locations as planned, the temporary closure of 2 Smokey Bones locations for conversion into Twin Peaks lodges and lower same-store sales, partially offset by revenues generated by our new Twin Peaks Lodges.
General and Administrative Expense $42.7 million in the quarter, an increase of $8.2 million from $34.5 million in the year-ago quarter. This increase was primarily due to a $6.9 million store closure reserve, a $1.4 million noncash impairment of fixed assets related to the closure of underperforming Smokey Bones locations, and higher noncash share-based compensation expense related to the public listing of Twin Hospitality Group earlier this year.
Cost of Restaurant and Factory Revenues $94.6 million in the quarter, a decrease from $96.8 million in the prior year. This was primarily driven by the closure of underperforming Smokey Bones locations, the closure of 2 Smokey Bones locations for conversion, and lower same-store sales, partially offset by wage and food cost inflation.
Advertising Expense $12.2 million in the quarter, an increase from $10 million in the year-ago period. This varies in relation to advertising revenues.
Total Other Expense (Net) $41 million in the quarter compared to $35.8 million in last year's quarter. This consisted primarily of interest expense.
Net Loss Attributable to FAT Brands $58.2 million or $3.39 per diluted share compared to a net loss of $44.8 million or $2.74 per diluted share in the prior year quarter. On an as-adjusted basis, the net loss was $45.4 million or $2.67 per diluted share compared to $38 million or $2.34 per diluted share in the prior year quarter.
Adjusted EBITDA $13.1 million for the quarter compared to $14.1 million in the year-ago quarter. This reflects a decline in same-store sales and other operational factors.
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Operating Highlights
New Co-branded Locations: Opened first co-branded Roundtable Pizza and Fatburger location in Rancho Cordova, California, doubling weekly sales and transactions. Approximately 50 co-branded locations are in the development pipeline.
New Stand-alone Openings: Roundtable Pizza opened its first Colorado location and a third location in Las Vegas. Hot Dog on a Stick opened at Downtown Commons in Sacramento.
International Expansion: Johnny Rockets opened 7 new locations in Iraq, Chile, UAE, Mexico, and Brazil. Fatburger announced a return to Japan with 4 locations planned in Okinawa over the next 5 years.
Digital Sales Growth: Year-to-date digital sales increased 19% from Q2 to Q3.
Franchise Development Agreements: Secured over 190 agreements year-to-date, contributing to approximately 900 committed locations scheduled to open over the next 5 to 7 years, potentially generating $50-$60 million in incremental earnings.
Strategic Partnerships: Partnership with Virtual Dining Concepts to make Great American Cookies available for delivery from Chuck E Cheese locations nationwide, targeting 500 additional locations by year-end.
Cost Savings: Achieved $10 million in SG&A reductions and paused dividends, preserving $35-$40 million annually in cash flow. Dismissal of legal cases provides $30 million in additional annual savings.
Debt Restructuring: Advancing plans for a $75-$100 million equity raise at Twin Peaks to pay down debt and fund new unit development.
Manufacturing Scale-up: Georgia production facility generated $9.6 million in sales and $3.8 million in adjusted EBITDA during Q3, operating at 45% capacity. Partnership with Virtual Dining Concepts aims to increase production volume.
Leadership Changes: New leadership appointments at Twin Hospitality Group, including President, COO, Chief People Officer, and Chief Marketing Officer, to drive growth and operational excellence.
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Risk or Challenges
Legal and Regulatory Challenges: The company recently resolved significant legal matters, including DOJ charges and Delaware derivative cases. While these resolutions provide financial relief, they highlight the potential for future legal and regulatory risks.
Debt and Financial Restructuring: The company is actively negotiating debt restructuring and plans a $75-$100 million equity raise to pay down debt. High interest expenses and the need for financial restructuring pose risks to cash flow and long-term financial stability.
Operational Costs and Closures: Closure of underperforming Smokey Bones locations and associated costs, including a $6.9 million store closure reserve and $1.4 million noncash impairment, indicate challenges in managing operational efficiency.
Same-Store Sales Decline: Despite narrowing the decline, same-store sales are still down 3.5%, which could impact revenue growth and profitability.
Economic and Industry Headwinds: The restaurant industry continues to face economic challenges, including wage and food cost inflation, which could pressure margins.
Execution Risks in Expansion and Co-Branding: The company has ambitious plans for organic expansion and co-branding, but execution risks, including delays or underperformance of new locations, could impact growth projections.
Dependence on Asset-Light Model: The company’s reliance on an asset-light model for growth, while cost-effective, may limit control over franchise operations and quality.
High Advertising and Administrative Costs: Advertising expenses increased to $12.2 million, and general administrative expenses rose significantly, driven by store closure reserves and share-based compensation, which could strain profitability.
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Guidance & Outlook
Equity Raise: The company is advancing plans for a $75 million to $100 million equity raise at Twin Peaks to pay down debt and fund new unit development.
Dividend Pause: The dividend pause remains in effect, preserving $35 million to $40 million annually in cash flow.
Cost Savings: The dismissal of the DOJ case and the resolution of derivative matters provide at least $30 million a year in additional annual savings. The company has already executed more than $10 million of SG&A reductions and continues to look for additional savings.
Debt Restructuring: The company is actively negotiating a debt restructuring with noteholders to reduce debt and achieve positive cash flow in the coming quarters.
New Unit Development: The company targets 80 new openings in 2025, with 60 locations opened year-to-date. Over 190 franchise development agreements have been secured year-to-date, contributing to approximately 900 committed locations scheduled to open over the next 5 to 7 years. These units are expected to generate $50 million to $60 million in incremental earnings.
Co-Branding Expansion: The company has approximately 50 co-branded locations in the development pipeline, with significant expansion potential across California and beyond.
International Expansion: Fatburger is returning to Japan with a new franchise agreement to open 4 locations in Okinawa over the next 5 years, with the first restaurant slated to open before year-end.
Remodeling Plans: The company plans to complete 100 remodels in 2025 to refresh brand presence and enhance customer experience.
Digital Sales Growth: Year-to-date digital sales increased 19% from Q2 to Q3, hitting a new record high.
Manufacturing Scale-Up: The Georgia production facility is operating at 45% capacity, with expansion potential at low incremental cost. A partnership with virtual dining concepts aims to make Great American Cookies available for delivery from Chuck E Cheese locations nationwide, targeting 500 additional locations by year-end.
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Shareholder Return Plan
Dividend Pause: The company has paused its dividend program, preserving $35 million to $40 million annually in cash flow.
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Key Q&A
Q:Can you provide a timeline for the debt restructuring?
A:Andrew Wiederhorn stated that he is hopeful to resolve the restructuring during this quarter. He mentioned that the equity raise for Twin Peaks is delayed due to the government shutdown, and once the government reopens, the proceeds will be used to reduce debt.
Q:Have all underperforming Smokey Bones locations been closed?
A:Andrew Wiederhorn confirmed that all underperforming Smokey Bones locations have been closed and reserved for. However, there are some underperforming stores within a larger master lease that will be addressed in the coming quarters.
Q:What is the status of the Fazoli's refranchising effort?
A:Andrew Wiederhorn mentioned that material progress has been made, and they are evaluating proposals to decide whether to move forward or continue negotiations.
Q:Why has the target for new store openings in 2025 been reduced from 100 to 80?
A:Andrew Wiederhorn explained that the slowdown is due to franchisees delaying store openings rather than project cancellations. He emphasized the financial impact of delays and their efforts to accelerate the process.
Q:Can you elaborate on the $10 million SG&A reduction and potential for further cost optimization?
A:Andrew Wiederhorn detailed that the reduction came from staff and executive cuts, office closures, and consolidations. He noted that further savings might come from reassessing spending on new business development in the current restaurant recessionary environment.
Q:Which chains are included in the casual dining category?
A:Andrew Wiederhorn listed Hurricane Grill & Wings, Buffalo's Cafe, Native Grill & Wings, and Ponderosa and Bonanza Steakhouse brands.
Q:What is the opening program for Twin Peaks next year?
A:Kenneth Kuick stated that new stores are planned, including Smokey Bones conversions and new franchise locations. The timeline depends on permitting and franchisee actions, but the brand has a robust pipeline.
Q:How are Twin Peaks' store-level margins performing?
A:Andrew Wiederhorn noted that Twin Peaks' store-level margins improved by 50 basis points year-over-year to 17%. He expects further improvements as initiatives are implemented.
Q:What is the plan for Smokey Bones locations that cannot be converted to Twin Peaks?
A:Andrew Wiederhorn explained that some Smokey Bones locations will remain as they are due to location or landlord restrictions. These profitable stores will be retained and properly managed.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the exact timing of the debt restructuring, citing the government shutdown as a reason for delays. Additionally, the response about further cost optimization was somewhat vague, focusing on general areas of potential savings without specific details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bones Chief
California
Chairman Chief
Chief Executive
Colorado
Development
Executive Officer
Franchise
Grill Wings
Group
Japan
Officer FAT
President
Roundtable Pizza
Smokey Bones
action
approval
asset light
capital
case
delivery
dining concept
driver
effort
expansion location
expansion potential
foundation
light model
list
location year
manufacturing scale
matter
position
priority
recognition
role
saving
settlement
unit development
FAT Transcript
FAT Brands Inc. (FAT) Q3 2025 Earnings Call Transcript
Unknown11-5
The earnings call reveals a decrease in total revenues and increased expenses, leading to a higher net loss. The Q&A section highlights uncertainties around debt restructuring and reduced store opening targets. Despite some positive developments like improved margins at Twin Peaks, the overall sentiment is negative due to financial losses, restructuring delays, and reduced growth expectations. The lack of clear guidance on debt restructuring further contributes to the negative outlook, suggesting a potential stock price decline over the next two weeks.
FAT Brands Inc. (FAT) Q1 2025 Earnings Call Transcript
Unknown5-9
The earnings call reveals several challenges: a 6.5% revenue decline, widening net loss, and increased expenses. The executive transition and paused common dividends add uncertainty. Despite a strong franchise pipeline and debt reduction plans, these are overshadowed by market apprehension and vague management responses in the Q&A session. The announced equity raise and paused dividends could further pressure the stock. The negative sentiment is reinforced by the lack of strong positive catalysts or partnerships, leading to a likely negative stock price reaction.
FAT Brands Inc. (NASDAQ:FAT) Q4 2024 Earnings Call Transcript
Unknown3-3
The earnings call reveals several negative factors: significant net loss, declining revenues, and increased operational costs. Despite some positive elements like brand expansion and dividend distribution, the high debt level, economic pressures, and competitive challenges overshadow these. The Q&A section highlights additional concerns, such as delays in openings, litigation costs, and unclear management responses. These factors, combined with the absence of a buyback program, suggest a likely negative stock price reaction in the short term.
FAT Brands Inc. (FAT) Q4 2024 Earnings Call Transcript
Unknown2-28
The earnings report reveals significant financial challenges, including a net loss of $67.4 million, declining revenue, and increased debt, which are concerning. The Q&A section highlights operational risks and competitive pressures, with management providing vague responses about litigation costs and future brand strategies. Despite a dividend distribution, the commitment to debt reduction and lack of clear guidance suggest financial instability. These factors, along with a significant debt load and restructuring risks, indicate a negative sentiment, likely leading to a stock price decline in the near term.
FAT Report
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