FAT Brands Inc. (FAT) Q4 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Total Revenue $145.3 million, an 8.4% decrease from $158.6 million in the prior year quarter due to the incremental operating week in the prior year contributing $11.3 million in revenue.
System-wide Sales $580.2 million, a 7.4% decrease from the last year's quarter, again due to the incremental operating week last year.
Net Loss $67.4 million, or $4.06 per diluted share, compared to a net loss of $26.2 million, or $1.68 per share in the prior year quarter.
Adjusted Net Loss $29.9 million, or $1.87 per diluted share, compared to $17.3 million, or $1.15 per diluted share in the prior year quarter.
Adjusted EBITDA $14.4 million, compared to $27 million in the year ago quarter, with the extra operating week in the fourth quarter of 2023 contributing $1.9 million to adjusted EBITDA.
General and Administrative Expense $34.5 million, increased from $30.3 million in the year ago quarter, primarily due to $5 million in Smokey Bones store closure costs.
Cost of Restaurant and Factory Revenues $97.2 million, decreased from $105.1 million, primarily due to lower company-owned restaurant sales.
Total Other Expense Net $36.4 million, compared to $31.9 million in last year's quarter, primarily consisting of interest expense.
Non-cash Goodwill and Other Intangible Asset Impairment $30.6 million, primarily resulting from the decline in restaurant performance during 2024.
Advertising Expense $11.8 million, decreased from $13.8 million in the year ago period, as advertising slowed down at Smokey Bones.
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Operating Highlights
New Restaurant Openings: Throughout 2024, we opened 92 new restaurants. This year, we plan to open over 100 new locations, having already opened 17 units year-to-date.
Co-branding Success: Co-branding continues to be a key driver of growth, with Great American Cookies and Marble Slab Creamery growing to over 160 co-branded locations since 2014.
International Expansion: In 2024, we opened 11 new international locations across multiple markets, including Brazil and Mexico.
Spin-off of Twin Hospitality Group: In January, we distributed 5% of Twin Hospitality's Class A Common Stock to shareholders, amounting to approximately a $50 million dividend.
Market Positioning of Twin Hospitality: Twin Hospitality now trades separately on NASDAQ under the ticker TWNP, enhancing transparency and market appreciation for Twin Peaks.
Debt Reduction Commitment: We are committed to reducing debt by $75 million in 2025, including a minimum of $25 million by late April.
Manufacturing Operations: Our Georgia facility generates approximately $38 million in annual sales with a profit of about $15 million, operating at only 40% capacity.
Focus on Organic Growth: Our strategy includes generating organic growth across our existing brand portfolio's 1,000-plus new unit pipeline.
Acquisition Strategy: We are focused on synergistic acquisitions that complement our existing portfolio, particularly in cookie concepts.
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Risk or Challenges
Regulatory Issues: The company is committed to raising equity at Twin Hospitality and reducing debt by $75 million in 2025, which may involve regulatory scrutiny during the refinancing process.
Supply Chain Challenges: The company faces potential supply chain challenges as it continues to convert Smokey Bones locations into Twin Peaks lodges, which may impact operational efficiency.
Economic Factors: The company reported a net loss of $67.4 million in Q4 2024, indicating economic pressures affecting profitability, including lower same-store sales and increased operational costs.
Competitive Pressures: FAT Brands is experiencing competitive pressures in the restaurant industry, which may affect its growth and market share, particularly as it expands its brand portfolio.
Debt Management: FAT Brands has a significant net debt of approximately $850 million and preferred stock of $150 million, which poses a risk to financial stability and may limit future growth opportunities.
Operational Risks: The company is undergoing a significant restructuring with the spin-off of Twin Hospitality, which introduces operational risks related to the integration and performance of the new entity.
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Guidance & Outlook
Spin-out of Twin Hospitality Group: FAT Brands successfully spun out Twin Hospitality Group, distributing 5% of its Class A Common Stock to shareholders, valued at approximately $50 million.
Debt Reduction Commitment: FAT Brands is committed to reducing debt by $75 million in 2025, including a minimum of $25 million by late April.
Organic Growth Initiatives: FAT Brands plans to open over 100 new locations in 2025, having already opened 17 units year-to-date.
Development Pipeline: The current development pipeline consists of signed agreements for approximately 1,000 additional locations, expected to generate approximately $50 million in incremental annual adjusted EBITDA.
Co-branding Strategy: FAT Brands is focusing on co-branding strategies, with successful examples like Great American Cookies and Marble Slab Creamery.
International Expansion: FAT Brands opened 11 new international locations in 2024, with significant growth in Brazil and Mexico.
Manufacturing Expansion: FAT Brands aims to increase utilization of its Georgia manufacturing facility from 40% to 60-70%.
Revenue Expectations: FAT Brands anticipates strong organic growth across its portfolio in 2025.
Financial Projections: The company expects to complete the $25 million debt reduction by late April and declare the Q1 dividend thereafter.
Adjusted EBITDA: The new locations from the development pipeline are expected to generate approximately $50 million in incremental annual adjusted EBITDA.
Future Acquisitions: FAT Brands remains focused on strategic acquisitions that complement its existing portfolio, particularly in cookie concepts.
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Shareholder Return Plan
Dividend Distribution: In January, FAT Brands distributed 5% of Twin Hospitality's Class A Common Stock to shareholders, amounting to approximately $50 million.
Cumulative Dividends: FAT Brands has paid more than $9 in cumulative dividends since its IPO.
Expected Q1 Dividend: FAT Brands expects to declare and pay the Q1 dividend after completing a $25 million debt payment.
Shareholder Return Plan: FAT Brands is committed to raising equity at Twin Hospitality and reducing debt by $75 million in 2025.
Debt Reduction Commitment: FAT Brands agreed not to pay a common dividend until a minimum of $25 million in debt is paid.
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Key Q&A
Q:Can you quantify the Smokey Bones impairment loss of stores closed?
A:It was about $2.6 million for the year - full year.
Q:Can you provide any thoughts on the expectations of litigation costs going forward?
A:We're hopeful that the bulk of this litigation gets resolved during this year, and we eliminate further legal expense.
Q:Can you update us on your liquidity and cash on hand?
A:We have approximately $150 million in available-for-sale securities and anticipate raising equity at the Twin Peaks level.
Q:What portion of your remaining 16 brands could be used similarly to Twin Peaks?
A:I don't see us spinning off additional restaurant brands today. I think we'll probably acquire more brands.
Q:Can you explain the delay in openings compared to your expectations?
A:There's definitely a little slippage into '25 from '24, mostly due to franchisee financing and construction delays.
Q:Have any brands been hit harder than others with respect to consumer spending?
A:We saw high single-digit same-store declines in the QSR sector, but some categories like Round Table Pizza have positive same-store sales.
Q:Can you expand on the M&A pipeline post-election?
A:We see a lot of deals, but we're focused on reducing leverage rather than adding to it.
Q:What is the realistic timetable for disposing of Smokey Bones locations?
A:The majority will get through in 2025-2026.
Q:Are you still thinking that 30 of the 58 Smokey Bones locations will be suitable for conversions?
A:Yes, 30 is a good number.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the future of litigation costs, using vague language about being 'hopeful' without providing specific details or timelines.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bones location
Brazil
Cookies Marble
Dog Stick
FAT share
Georgia facility
Group
Hot Dog
Los Angeles
Marble Slab
Slab Creamery
Smokey Bones
TWNP
community support
cookie dough
crisis response
dividend FAT
dough mix
focus
foundation
listing
location Hot
manufacturing capability
market price
noise
portfolio American
price FAT
production
spin
stock
success brand
venue
FAT Transcript
FAT Brands Inc. (FAT) Q3 2025 Earnings Call Transcript
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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
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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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