Good Times $GTIM Part 2

Q2 2025 Earnings, More Numbers, and Better Opportunity

Disclaimer: This is not investing advice. Everything written here is my own opinion and is for informational purposes only. Everything written here is subject to my own errors, biases, and other types of mistakes. You should do your own research and consult a financial advisor before making any investment decisions. I own shares of GTIM.

Good Times released quarterly results on May 8, 2025. Interestingly, there wasn’t a single question asked during the Q&A portion of the call. Normally, there are a small handful of analysts who will ask questions, and this call’s lack of questions added to my feeling that this company has gotten rather overlooked.

The earnings themselves were somewhat disappointing, with total sales down 3.3% relative to the same quarter in the previous year. Same store sales for both brands were down by a similar amount (as opposed to one brand growing same store sales and the other brand shrinking).

GTIM reports a non-GAAP “Restaurant Level Operating Profit” measure for each brand, and by this measure of profitability, Bad Daddy’s had a more promising result than Good Times. According to management, good cost control at Bad Daddy’s kept the restaurant level operating profitability in line with previous periods (around 13%), whereas a number of higher costs, particularly labor, affected the Good Times restaurants negatively (restaurant level operating profit falling from the 12% range to 8% for this quarter).

These results weren’t rosy, but they also didn’t cause me to feel panicked. The broader picture is that this is just one quarter in a challenging environment - the restaurant space is a competitive place to operate, and recent years have been particularly challenging as ingredient prices and labor prices have increased. Without adding any new locations, better results for GTIM overall must come from growth in same store sales or improved profitability. This quarter was disappointing because there wasn’t much good news to report on either of those fronts. That said, I think it’s worth thinking about how a private owner would be viewing this business and these results.

If you were a private owner of this business, I imagine the ~3% year-over-year decline in sales would not be terribly alarming. Rather, I suppose you might think to yourself “this year was about the same as last year” and ask yourself what you might be able to improve about your business to have a better chance of increasing same store sales going forward. Regarding the profitability measure, I think your thought process would be about the same: “what can I do to make this business better” so that in the future you have a good shot at reaching the profitability level you desire.

Fortunately, I think GTIM’s actions show that the company is thinking this way. Both brands are focused on more efficient, high-quality operations. Sometimes people who operate restaurants forget that the food actually needs to be good in order for the restaurant to be successful. It’s important to me that both Good Times and Bad Daddy’s are focused on making good, high-quality food and then also working to make the process of producing that food more efficient.

CEO Ryan Zink spent quite a bit of time during his prepared remarks talking about some of the operational changes that are taking place inside the restaurants. One of these jumped out to me: while discussing some changes to the burger build, Ryan Zink mentioned that Good Times will be transitioning from whole-leaf lettuce to shredded lettuce on its burgers, acknowledging that the whole leaf lettuce had been done poorly. I appreciate this candor, and this comment stuck out to me because the whole leaf lettuce would have been my #1 criticism of the average Good Times burger in the past.

For context, in the past, Good Times burgers often had one very large, prominent piece of lettuce right in the middle of the burger that was often just a little too big or thick, maybe a little bit wet, and sometimes reduced the overall quality of the burger. Sometimes that lettuce turned into a slipping point that caused the burger to slip into top and bottom halves. I will give Good Times credit for that big piece of lettuce always being super fresh and crisp. But it was usually too big for the burger and I often found myself thinking how much better the burger would be if the company switched to a shredded lettuce.

Lo and behold, shredded lettuce! It is supposed to be rolled out throughout May, and I’ll let you know how it is. Trying not to spend too much time talking about lettuce, my point here is that Good Times as a company is finding the negative things that customers notice and actually doing something about them in an effort to make itself better.

I recognize that shredded lettuce isn’t likely to single-handedly change the fortunes of a company, but I see these improvements as one of those “aggregation of marginal gains” situations. Most importantly, I respect the company’s attitude towards admitting when something is bad and telling investors what they are doing to make it better. Slightly hidden in these results, the fact that Bad Daddy’s was able to maintain its restaurant level operating margin despite the decline in sales is, to me, evidence that its efforts to reduce costs and increase operational efficiency (which began a number of quarters ago) are working as intended.

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I think it’s worth spending a little bit of time discussing my personal opinion that both of these brands have some room to increase menu prices. This opinion mainly comes from my experience at Good Times and Bad Daddy’s as a customer, and understanding what you receive for the price you pay, especially relative to other restaurants. In short - both of the brands offer really good value in my experience. I’ve been surprised at how inexpensive the food is compared to how good it is, and think some modest price increases across the board wouldn’t make me feel like I was paying for more than I received.

Let’s start with Good Times, and I happen to have a picture of the main menu from the last time I was there:

Apologies if the image quality is less-than-excellent, as it was a picture of a TV screen menu that I took with my phone. Hopefully you can see the prices and see that the sandwiches and combos are very affordable. In fact, in my area these prices are quite in line with the likes of McDonald’s and Wendy’s. This is understandable, since Good Times thinks of its set of competitors as the other fast, drive thru, burger focused QSRs.

But I would argue that Good Times pricing doesn’t need to fall exactly in line with restaurants like Mcdonald’s and Wendy’s. That is not to say that it needs to be radically different from those prices, but I think Good Times offers food which, based on its quality, deserves to be priced at a premium to Mcdonald’s, which realistically should be approximately the cheapest.

In the first post, I briefly compared Good Times to Culver’s, and I will bring back that comparison here. Culver’s is more expensive than McDonald’s, and the customer expects to receive better food than McDonald’s, even if there are comparable-looking menu items. In other words, I doubt most customers consider McDonald’s and Culver’s to be good substitutes for each other. I think the same is true of Good Times.

I don’t think Good Times customers are expecting it to be the cheapest burger QSR option. I think they go there because they like the food. I imagine the average Good Times customer would find premium pricing relative to McDonald’s to be acceptable because the food is premium compared to McDonald’s. And I doubt new customers would exit the drive thru or window line upon recognition that the prices were, say, 25% higher than McDonald’s prices.

All of this is to say that, in my opinion, Good Times has some room to make some price increases over time. The brand has leaned into the notion that it is better fast food, meaning better quality ingredients. Furthermore, it has recently been engaged in many efforts to revitalize the brand and improve it inside and outside. It is possible that higher prices could go hand-in-hand with these many improvements, signaling to the customer that the products are premium because the prices are premium.

The discussion of Bad Daddy’s will be shorter and less specific. Mainly, I just want to express that I’ve been surprised at how good the value is at Bad Daddy’s. You get a decent amount of good food for the price, and that’s fantastic, but I wouldn’t think less of Bad Daddy’s if the pricing were higher and the value didn’t pleasantly surprise me as much.

I don’t want people to have the impression that I believe every business should charge its customers the maximum amount possible. I absolutely understand the benefits that come from sharing the value with the customers and the powerful positive feedback loops that can come about as a result of giving your customers great value. The Nomad Investment Partnership letters are the place to go if you want to learn more about this dynamic. But I highlight the possibility of price increases here because it’s a lever the company could pull in the face of continued weakness in same store sales and restaurant level operating profitability.

I also have the opinion that, in the generally inflationary environment that we live in today, a business can make a conscious decision to be continuously raising prices in an effort to stay in line or slightly ahead of inflation. If a business chooses the strategy of always waiting as long as possible until it is forced to raised prices, it will always be a little behind inflation and will probably also have to raise by larger amounts when it finally does. For restaurants like Good Times and Bad Daddy’s, the main prices that matter are ingredients (beef) and labor. These prices are increasing steadily over time. I argue that Good Times and Bad Daddy’s would be wise to adopt a strategy where small, more or less continual price increases are the norm.

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