BT BRANDS, INC. The following discussion of the financial condition, results of operations,
liquidity, and capital resources of
Introduction
As of
· Nine Burger Time fast-food restaurants and one Dairy Queen franchise, all
of which are in the North Central region of the United States ;
· Bagger Dave's Burger Tavern, Inc, a 41.2% owned affiliate, operates six
Bagger Dave's restaurants in Michigan , Ohio , and Indiana ;
· Keegan's Seafood Grille in Indian Rocks Beach, Florida ;
· Pie in the Sky Coffee Shop and Bakery in Woods Hole, Massachusetts .
· Village Bier Garten is a German-themed restaurant, bar, and entertainment
venue in Cocoa, Florida .
The first Burger Time restaurant opened in
Operationally, we strive for efficiency at our Burger Time restaurants,
including maintaining an inventory of approximately
The average customer transaction at our Burger Time restaurants increased by
approximately 4% in the first nine months of fiscal 2022 compared to 2021 and
currently is about
Recent Events
During the 39 weeks ending
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Keegan's
In
In
In
Material Trends and Uncertainties
Industry trends have a direct impact on our business. Current trends include difficulties attracting food service workers and rapid inflation in the cost of input items. Recent trends also include the rapidly changing area of technology and food delivery. The major companies in the restaurant industry have rapidly adopted and developed smartphone and mobile delivery applications, have aggressively expanded drive-through operations and developed loyalty programs and database marketing supported by a robust technology platform. We expect these trends to continue as restaurants aggressively compete for customers. Competitors will continue to discount prices through aggressive promotions.
The cost of food has increased over the last two years, and we expect to see continued inflationary pressure in the remainder of 2022. Beef costs rose in 2021, continued to increase in 2021, and have recently risen by approximately 7% per pound. Given the competitive nature of the fast-food burger restaurant industry, it may be difficult to raise menu prices to cover future cost increases fully. During 2020 and early 2021, as the pandemic peaked, our Burger Time business experienced a significant increase in volume, contributing to improved profit margins. Future margin improvements may be difficult to achieve and will be achieved through operational enhancements, equipment advances, and increased volumes offsetting food cost increases.
Labor is a critical factor in operating our stores. Securing staff to run our locations at full capacity has become more challenging in most areas where we operate our restaurants. The current labor market has resulted in higher wages as the competition for employees intensifies, not only in the restaurant industry but in practically all retail and service industries. We must develop and retain quality employees.
Although moderating recently, since
We can't predict the effects of public health matters and their impact on our business. The response to public health matters may influence restaurant customer traffic and our ability to staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level. Further, such conditions could impact the availability of the menu items we offer and the ability of suppliers to deliver such products. We also may be adversely affected by mandatory closures, seek voluntary closures, or impose restrictions on operations. Even if such measures are not implemented, the perceived risk of infection or significant health risk may adversely affect our business. We continue to monitor public health issues and their impact. It is difficult to predict the future considering the many factors, including the spread of new variants of the original coronavirus disease.
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Our strategy to acquire additional restaurant properties presents numerous risks and uncertainties to our operations, including our management's ability to:
· identify suitable targets;
· complete comprehensive due diligence as to targets,
· integrate a target's operations with our existing operations,
· retain management and key employees of the target;
· operate new restaurant concepts in new geographic areas outside of our
traditional Burger Time platform;
· develop and implement appropriate and effective sales and marketing
strategies
· maintain and grow revenue at our new properties;
· identify and retain experienced managerial personnel to effectively
administer our operations;
· improve existing, and implement new operational, financial, and management
controls;
· install enhanced management information systems; and
· create a corporate brand identifying our restaurants as BT Brands'
properties.
Our failure to manage any aspects of our growth could adversely impact our business and our results of operations
Future conditions may influence restaurant customer traffic and our ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level. Further, such conditions could impact the availability of the menu items we offer and the ability of suppliers to deliver such products. We also may be adversely affected if jurisdictions impose mandatory closures, seek voluntary closures, or impose restrictions on operations. Even if such measures are not implemented, the perceived risk of infection or significant health risk may adversely affect our business.
Growth Strategy and Outlook
We are seeking to increase value for our shareholders in the food service industry. Our principal strategy comprises acquiring individual and multi-unit restaurant properties at attractive earnings multiples. Though we do not plan to do so, we may develop additional Burger Time locations by acquiring and converting existing properties under certain circumstances. Other critical elements of our growth strategy include increasing same-store sales and introducing a campaign to boost brand awareness.
Expansion Through Acquisitions
We intend to continue to make strategic and opportunistic acquisitions that provide an entrance into targeted restaurant segments and geographic areas. Restaurant businesses become available for acquisition frequently, and we believe that we may be able to purchase either individual restaurant properties or multi-unit businesses at prices providing an attractive return on our investment. We may acquire operating assets where a franchise program of the acquired foodservice business is the most appropriate growth plan. We intend to follow a disciplined strategy of evaluating acquisition opportunities to ensure and enable the accretive and efficient acquisition and integration of additional restaurant concepts. Successful execution of our acquisition strategy will allow us to diversify our operations into other dining concepts and geographic locations.
In evaluating potential acquisitions, we may consider the following characteristics, among others, that management considers relevant to each opportunity:
· the value proposition offered by acquisition targets and the potential
return on our investment;
· established, recognized brands within their geographic footprint;
· steady cash flow;
· track records of long-term operating performance;
· sustainable operating results;
· geographic diversification; and
· growth potential.
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Assuming we acquire new businesses, we will operate the business or businesses with a shared central management organization. Following the acquisition, we expect to pursue a growth plan to expand the number of locations and increase comparable store sales and profits, as described below. We anticipate that by leveraging our management services platform, we will achieve post-acquisition cost benefits by reducing the corporate overhead of the acquired business. If we acquire one or more restaurant chains or individual units near each other, we believe the concentration of operations will provide economic synergies for management functions, marketing, advertising, supply chain assistance, staff training, and operational oversight.
Increase Same-Store Sales
Same-store sales growth reflects the change in year-over-year sales for the comparable store base and is a benchmark for the performance of our restaurants. We use a multi-faceted same-store sales growth strategy to optimize restaurant performance. We use techniques proven in the restaurant industry to increase same-store sales. We utilize customer feedback and analyze sales data to test and improve existing and new menu items. In addition, we may use social media and public relations, and experiential marketing to engage customers. Our strategies to increase same-store sales will evolve as we acquire new restaurant concepts in new markets.
Increase Brand Awareness
Increasing brand awareness is essential to the growth of our Company. We intend to develop and implement forward-looking branding strategies. We will seek to leverage social media and employ targeted digital advertising to expand the reach of our brands and drive traffic to our stores. In addition, we intend to develop mobile applications that will allow consumers to find restaurants, order online and earn rewards. We expect to deploy internet advertising to match specific menu items targeted to demographic groups. We will deploy cross-over ads with radio and social media. Our branding initiatives will evolve as we acquire restaurant concepts that appeal to distinct consumer markets in differing geographic areas.
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Results of Operations for the Thirteen Weeks Ended
The following table sets forth our consolidated condensed statements of income and percentages of total revenues for the thirteen-week fiscal periods. The percentages below may not reconcile because of rounding.
13 weeks ended, 13 weeks ended,
October 2, 2022 October 3, 2021
Amount % Amount %
SALES $ 4,023,920 100.0 % $ 2,280,999 100.0 %
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs 1,604,858 39.9 944,177 41.4
Labor costs 1,336,039 33.2 607,780 26.6
Occupancy costs 367,872 9.1 132,542 5.8
Other operating expenses 248,383 6.2 102,943 4.5
Depreciation and amortization 168,855 4.2 60,405 2.6
General and administrative 288,922 7.2 74,415 3.3
Total costs and expenses 4,014,929 99.8 1,922,256 84.3
Income from operations 8,991 .2 358,743 15.7
INTEREST EXPENSE (33,638 ) (.8 ) (32,916 ) (1.5 )
INTEREST INCOME AND OTHER (28,618 ) (.7 ) - -
EQUITY IN AFFILIATE LOSS (121,641 ) (3.0 ) - -
INCOME TAX (EXPENSE) - - (90,000 ) (3.9 )
NET INCOME (LOSS) $ (174,906 ) (4.3 )% $ 235,827 10.3 %
Net Revenues:
Net sales for the third fiscal quarter of 2022 increased
Restaurant unit sales for Burger Time for the 13 weeks ranged from a low of
approximately
Costs of Sales - food and paper:
Cost of sales - food and paper decreased for the fiscal 2022 period as a percentage of sales to 39.9% of sales from 41.4% of restaurant sales in the third quarter of fiscal 2021. This decrease was the net result of generally a higher cost of sales for Keegan's, inflationary pressures offset by menu price increases and the acquisition of PIE which operates at a significantly lower food cost than our Burger Time business.
Restaurant Operating Costs:
Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants but do not include general and administrative expenses and depreciation and amortization) as a percent of restaurant sales increased to 88.4% of sales in the third fiscal quarter of 2022 from 78.4% in the similar period of fiscal 2021. This increase was because of higher labor and occupancy cost, including lease costs associated with our recently acquired locations and the matters discussed in the "Cost of Sales," "Labor Costs," and "Occupancy and Other Operating Costs" sections below.
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Labor Costs
For the third quarter of fiscal 2022, labor and benefits cost increased as a percentage of sales to 33.2% of restaurant sales from 26.6% in fiscal 2021. The increase in the percentage cost resulted from tighter labor markets leading to higher hourly wage costs offset by leveraging existing staffing and higher labor costs associated with the PIE acquisition. Payroll costs are semi-variable, meaning they do not change proportionally to changes in revenue.
Occupancy and Other Operating Expenses
For the third fiscal quarter of 2022, occupancy and other expenses increased to 15.3% of sales from 10.3% in 2021. This increase results from higher occupancy costs, including lease costs associated with our three new locations.
Depreciation and Amortization Expense:
For the third fiscal quarter of 2022, depreciation and amortization increased to
General and Administrative Costs
General and administrative costs increased by
Income from Operations
The income from operations for the third quarter of fiscal 2022 was
Restaurant-level EBITDA
To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses restaurant-level EBITDA, which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. This measure is not indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute or superior to operating income calculated under GAAP. The reconciliations to operating income set forth below should be carefully evaluated.
We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization, and impairment charges. General and administrative expenses are excluded as they are generally not specifically identifiable as restaurant-specific costs. Depreciation, amortization, and impairment charges are excluded because they are not ongoing controllable cash expenses and are unrelated to ongoing operations' health.
13 weeks ended,
October 2, 2022 October 3, 2021
Revenues $ 4,023,920 $ 2,280,999
Reconciliation:
Income from operations 8,991 358,743
Depreciation and amortization 168,855 60,405
General and administrative, corporate-level
expenses 288,922 74,415
Restaurant-level EBITDA $ 466,768 $ 493,563
Restaurant-level EBITDA margin 11.6 % 21.6 %
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Our Results of Operations for the Thirty-nine Weeks Ended
The following table sets forth our consolidated condensed statements of income and percentages of total revenues for the thirty-nine-week fiscal period. The percentages below may not reconcile because of rounding.
39 weeks ended, 39 weeks ended,
October 2, 2022 October 3, 2021
Amount % Amount %
SALES $ 9,621,996 100.0 % $ 6,604,554 100.0 %
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs 3,637,814 37.8 2,580,224 39.1
Labor costs 3,122,867 32.5 1,794,499 27.2
Occupancy costs 803,792 8.4 436,196 6.6
Other operating expenses 577,035 6.0 355,024 5.4
Depreciation and amortization 351,084 3.6 173,799 2.6
General and administrative 1,035,639 10.8 295,397 4.5
Total costs and expenses 9,528,231 99.0 5,635,139 85.3
Income from operations 93,765 1.0 969,415 14.7
INTEREST EXPENSE (88,099 ) (.9 ) (161,148 ) (2.4 )
INTEREST INCOME AND OTHER (99,384 ) (1.0 ) - -
EQUITY IN AFFILIATE LOSS (135,813 ) (1.4 ) - -
INCOME TAX BENEFIT (EXPENSE) 5,000 - (225,000 ) (3.4 )
NET INCOME (LOSS) $ (224,531 ) (2.3 )% $ 583,267 8.9 %
Net Revenues:
Net sales for the 39 weeks representing the first three-quarters of fiscal 2022
increased
Burger Time unit sales for the 39 weeks ranged from a low of approximately
Costs of Sales - food and paper:
Cost of sales - food and paper for the 39-week period of fiscal 2022 decreased as a percentage of sales to 37.8% from 39.1% of restaurant sales in the same period in 2021. This decrease resulted from the seasonally strong performance at PIE which operates at lower food and paper costs than our traditional business and Keegan's.
Restaurant Operating Costs:
Restaurant operating costs, which are associated with operations, not including general and administrative expenses, and depreciation and amortization, increased as a percentage of restaurant sales to 84.6% of sales in the first 39 weeks of 2022 from 78.2% in the same period in fiscal 2021. This increase was due to the rise in sales activity from new locations and its impact, as further discussed in the "Cost of Sales," "Labor Costs," and "Occupancy and Other Operating Costs" sections below.
Labor Costs:
For the 39-week period in fiscal 2022, labor and benefits cost increased to 32.5% of restaurant sales from 27.2% in the fiscal 2021 period. Shortages in staffing levels combined with higher hourly wage rates at all locations increased the overall labor percentage. The hiring markets have become more challenging in terms of filling open positions. Payroll costs are semi-variable, meaning they do not change proportionally to changes in revenue.
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Occupancy and Other Operating Expenses:
For the first 39 weeks of fiscal 2022, occupancy and other expenses increased to 14.4% of sales from 12.0% in 2021. Many of these costs are fixed, and the percentage reflects lower maintenance costs offset by higher lease occupancy costs at our new locations.
Depreciation and Amortization Expense:
Depreciation and amortization expenses for the 39 weeks of fiscal 2022 ending
General and Administrative Costs:
General and administrative costs increased 250.6%, or
Income from Operations:
Operating income was
Restaurant-level EBITDA:
To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use restaurant-level EBITDA, which is not a measure defined by GAAP. This non-GAAP operating measure is helpful to both management and, we believe, investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. This measure is not indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute or superior to operating income calculated under GAAP. The reconciliations to operating income set forth below should be carefully evaluated.
We define restaurant-level EBITDA as operating income before general and administrative costs, depreciation and amortization, and impairment charges. General and administrative expenses are excluded as they are generally not specifically identifiable as restaurant-specific costs. Depreciation, amortization, and impairment charges are excluded because they are not ongoing controllable cash expenses related to the continuing health of the business.
39 weeks ended,
October 2, 2022 October 3, 2021
Revenues $ 9,621,996 $ 6,604,554
Reconciliation:
Income from operations 93,765 949,415
Depreciation and amortization 351,084 173,799
General and administrative, corporate-level
expenses 1,035,639 295,397
Restaurant-level EBITDA $ 1,480,488 $ 1,438,611
Restaurant-level EBITDA margin 15.4 % 21.8 %
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Liquidity and Capital Resources
In its peak period, the public response to COVID positively impacted our sales
and liquidity. More recently, as customer activities have returned to normal
patterns, our Burger Time business has experienced a decline from the peak level
experienced at the height of COVID restrictions. For the 39 weeks that ended
In the future, public health matters may again impact the economy. It is
difficult to predict the ultimate impact on
Our liquidity funds our working capital needs, capital expenditures, general corporate needs, and investments in or acquire businesses. Our operations do not require significant working capital. Our primary liquidity and cash flow sources are operating cash flows and cash on hand. We use available cash to service debt, maintain our stores to operate efficiently and increase our working capital. Our working capital position benefits from the fact that we collect cash from sales from our customers at the point of purchase or within a few days from our credit card processor; generally, payments to our vendors are not due for thirty days.
Summary of Cash Flows
Cash Flows Provided by Operating Activities
Operating cash flow for 39 weeks ending
Cash Flows Used in Investing Activities
During fiscal 2022, we have focused on identifying acquisitions in the food service and related industries, purchasing three operating restaurants, and acquiring a 41.2% interest in a publicly traded casual dining business.
Cash Flows Used in Financing Activities
A significant portion of our cash flow used in financing activities is allocated to service our debt.
Contractual Obligations
As of
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