Boyd Hoback - President and Chief Executive Officer Jim Zielke - Chief Financial Officer.

Will Slabaugh - Stephens Jeremy Hamblin - Dougherty & Company Mark Rosenkranz - Craig-Hallum Capital Group Mark Smith - Feltl and Company.

Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2016 Third Quarter Earnings Call. [Operator Instructions] By now, everyone should have access to the company’s third quarter earnings release. If not, it can be found at www.goodtimesburgers.com, in the Investors section.

As a reminder, a part of today’s discussion will include forward-looking statements within the meaning of federal securities laws. These statements are commonly identified by words such as anticipate, continue, plan, expect, intend, should, will and other terms with similar meanings.

These forward-looking statements are not guarantees of future performance and, therefore, you should not put undue reliance on them.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect and, therefore, investors should not place undue reliance on them, and the company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call.

The company refers you to the recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. Lastly, during today’s call, the company will discuss non-GAAP measures which they believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliation to comparable GAAP measures available in our earnings release. Please note, this event is being recorded. And now, I would like to turn the call over to Mr.

Boyd Hoback, President and CEO of Good Times. Please go ahead, sir..

Thank you, Allison and thanks everyone for joining us again this afternoon. With me today is Jim Zielke, our CFO. I will cover again a summary of our third quarter and current developments and Jim will then provide more details on our financial results, our fiscal 2016 outlook, along with additional color on our guidance for fiscal 2017.

During the quarter, total revenues increased 40% to $18,066,000, with comp sales increasing 3.6% of Bad Daddy’s and we were down 2% at Good Times as we previously announced. The sales of Good Times represents a 3-year compound growth of approximately 14.6% and the 3.6% increase at Bad Daddy’s was right in line with our expectations.

Given the macro, consumer and the industry environment, our plan for the balance of fiscal 2016 is for 1% to 2% same-store sales increase at Bad Daddy’s and approximately 1% to 2% decline at Good Times. That said our July sales were a bit better than that, with Bad Daddy’s up 3.3% and Good Times essentially flat.

However, the competitive discount environment remains pretty intense for Good Times along with a slowing in overall restaurant sales reflected in the industry trends.

Our Cherry Creek Bad Daddy’s restaurant is again being negatively impacted by some construction disruption next door with the new Marriott AC Hotel that comes right up to the edge of our building and that shifted that store from being up 8.5% during the first 7 months of the year to down 7% during the last 3 months and with our small same-store sales base that obviously impacts that as well.

As discussed last quarter, we were back on TV with the new Good Times ad and we began featuring our PawBender for dogs that was augmented by a free giveaway in concert with donations with the – to the Denver Dumb Friends League in June.

It’s an unusual approach for us, but it continues to allow us to connect our brand emotionally with our customers with a product that’s proven to be wildly popular over the past few years.

We will be consistently on air till the end of the fiscal year, including during the Olympics right now and we are shifting to an ad around our new breakfast sandwiches in September. And since we introduced those, those have increased our breakfast sales by about 15%, so it’s proven to be a good product.

We are continuing to work on quality improvements and some innovation in our core burgers, our chicken tender platform and frozen custard. And we think that will continue to separate us from the QSR pack with those moves.

Our goal, as we talked about last quarter, is not only to continue to leverage our all-natural positioning as deeply as we can, but more importantly, boost the quality of what’s going into our guest’s meals on those items that represent over 50% of our sales.

In addition, over 80% of our sales are done through the drive-thru at Good Times, so opportunities for new are limited without compromising our core products and speed of service.

So, our overarching strategy is really to expand our leadership and quality in a way that’s appreciable – that’s an appreciable improvement to the customer without added cost or increase prices.

Strategically for us, that means really going deep on the craveability aspect of our existing menu versus focusing on a lot of new LTOs, or necessarily, innovation.

In order to implement all the elements for an upgraded bun, a hotter burger with better cheese melt and a higher level of cheese-to-meat ratio, improvements to our chicken tender holding platform and potentially offering our breakfast burritos all day, which we believe have really turned into an iconic product for the brand and have one of the highest sales incidences of any individual product on our menu, we estimate we will spend about $20,000 per store on upgraded equipment and a more efficient production line.

We also plan to continue to push and promote the top end of our menu with unique offerings, but our goal is also to enhance our core value proposition with wider price choice in our burger lineup that has wide appeal for the heavy QSR user and also increase the size of our current Bambino burgers, which again are very high incidence sales item.

That pricing and product test is being implemented later this month and our goal is to have the new equipment line and all the product improvements implemented in all the stores by March 2017.

We continue to make good progress on lowering our cost of sales, obviously partly through the benefit of lower commodity cost, but also through some continued improvements in purchasing and systems with a year-over-year improvement of about 0.8% in Good Times and 1.7% in Bad Daddy’s.

That said the labor market remains really challenging, particularly for Good Times. Not so much for Bad Daddy’s, but for Good Times, where we have given back our cost of sales gains to labor increases, all of which has been really driven by about a 7% increase in our average wage.

We will be shifting entirely to an hourly management pay scale at the store level within Good Times beginning this fall.

Even though some of our management are well above the new Department of Labor requirement for an exempt employee, we anticipate a very small increase in our overall labor as a result of that, less than a 0.25 points and we have built into that system the anticipated increase also on the Colorado minimum wage and we are maintaining our 48-hour work week for our management team even though we shift to an hourly pay system.

We don’t anticipate any net increase at Bad Daddy’s as most of our management are paid above the new statutory requirements for exempt employees. We have opened 5 new Bad Daddy’s restaurants so far this fiscal year, our sixth will open in a few weeks on September 2 in Fort Collins, and we anticipate two more will open by the end of the calendar year.

We plan to open a total of 9 to 11 stores in fiscal 2017 of Bad Daddy’s plus 1 Good Times, with the pace of the Bad Daddy’s stores of approximately two in the first quarter, 1 of which is in Denver, 1 is in Fayetteville, North Carolina; 1 in the second quarter, which is in Raleigh, North Carolina; and then 3 to 4 in each of the third and fourth quarters, 1 to 2 of those will be in Denver, 2 of those are signed in Charlotte and 3 will be in new markets.

Six of those leases are signed, our seventh and eighth are anticipated to be signed this month, if not this week and several more that are on the LOI, letter of intent, or due diligence stage for the balance of the year as well as for fiscal 2018 development. We are finalizing our loan documents with Cadence Bank for a $9 million debt facility.

We anticipate closing on that this month and we believe that we will have sufficient capital to fund our growth in new Bad Daddy’s as well as the continued reinvestment in Good Times through the end of fiscal 2017. And our plan is to increase our senior debt facility still at a relatively conservative level to support fiscal 2018 growth.

Last quarter, we discussed bringing on additional experienced full service operational talent as we plan to open up the two new markets for Bad Daddy’s this next year and we recently announced the hiring of John Madrick and Nick Leach, both very experienced multiunit operating partners at Texas Roadhouse and that includes Nick’s experience who opened their initial Bubba’s 33 concept in Fayetteville, North Carolina.

The flattening in same-store sales trend at Good Times has certainly been disappointing after several years of tremendous growth, but we believe we have got the initiatives and focus in place to return to above average growth by the middle of fiscal 2017.

Bad Daddy’s is our growth engine as we look forward and we continue to refine its operating model to optimize its return on investment and really across all sales volumes and in selecting sites where we think it will do the best sales.

Our newest five Colorado Bad Daddy’s stores average $48,400 per week during our third quarter, so they are right on track with our target and we anticipate those will continue to mature into 2017. But as we look with our guidance into 2017, we are being conservative on our first year expectations on new stores.

Our North Carolina locations are averaging $2.6 million on annualized sales and they continue to show year-over-year increases.

A large part of our G&A expense increase this year, which Jim will talk a little bit more about and what we project for next year, is comprised of excess management trainees that have already completed their training program and have not yet been slated into a permanent position in a new store.

We take their training program and the cost during that time and put it into pre-opening expense. But any extra holding or seasoning time, we carry at the G&A level, which really provides us adequate bench strength for our planned unit growth of over 50% this next year as well as in the turnover we have.

I will turn it over now to Jim and he can review more of our financial results for the quarter..

Thanks Boyd. As it relates to the Good Times brand, for the first time in 23 quarters, we did fail to achieve the positive comp store sales for the quarter as we posted negative 2% as Boyd mentioned.

We were lapping a 3-year comp sales stack of over 32% for the quarter and certainly we are not immune to the competitive discounting environment within the industry right now. As was the case last quarter, we had about a 3% year-over-year price increase in place. So traffic was down about 5% this quarter versus last year.

Cost of sales at Good Times declined 72 basis points to 32.1% during the quarter from 32.9% last year. We did have a large meat [ph] credit last year to hit the third quarter which was about a 45 basis point impact on cost of sales last year. So on a more normalized basis, cost of sales actually improved about 117 basis points over last year.

This decrease versus last year was primarily due to the 3% price increase I just spoke of and also about 18% decline in beef costs versus last year. But that was offset by about – over 30% increase in bacon cost versus last year.

Beef cost did tick up slightly from the March quarter to the June quarter by about 9% and as a result cost of sales did increase a little bit over the March quarter by about 46 basis points.

Total labor costs at Good Times increased to 31.7% from 30.6% last year, most of which is comprised of an increase in the average wage rate of about 7% as Boyd mentioned. This is due to the very competitive labor market here in Colorado as we have mentioned on the past calls.

Restaurant-level operating profit at Good Times decreased to $1.508 million from $1.565 million last year. As a percent of sales, restaurant level operating margin was 19.5% this quarter compared to 20.4% last year. As it relates to the Bad Daddy’s brand, sales nearly doubled versus last year from $5.1 million to $10.164 million this year.

This was due to the five new units that opened this fiscal year as well as the seven Bad Daddy’s in North Carolina which were only included for a part of the quarter last year as we purchased those units on May 7 last year. We did achieve positive 3.6% comps for the quarter, meeting our expectations of low single-digit comps.

And eight Bad Daddy’s restaurants were included in the comp base for the entire quarter, including six of the seven North Carolina units and two of the Colorado units. The seventh North Carolina unit and the third Colorado unit will enter the comp base this July and this August, respectively.

Cost of sales at Bad Daddy’s improved to 30.3% of sales for the quarter compared to 31.7% last year and compared to 31.5% for Q2. We did have some credits in North Carolina that hit this quarter. So on a normalized basis, comp sales was approximately 30.8%.

So we did still see some real improvement over the previous quarter by seven-tenths and by nine-tenths over last year. The decrease in comp sales over last year was primarily a result of lower beef costs, but also better purchasing and in addition, a small price increase that we took earlier this fiscal year in North Carolina.

Bad Daddy’s labor costs increased to 35.6% from 34.5% last year. We were down from 36.9% in the previous quarter. The increase versus last year is primarily due to a higher mix of stores in Colorado than last year which has a higher tip credit wage rate than North Carolina as well as some inefficiencies in the newer units.

The decrease from the previous quarter was due to the leveraging of higher sales volume as Q3 is a higher indexing sales quarter than Q2. Overall, restaurant level profit for Bad Daddy’s was $1.889 million for the quarter or 18.6% of sales compared to $984,000 last year or 19.3% of sales.

Total restaurant level operating profit for both brands combined for the quarter increased $3.397 million from $2.549 million last year. The general and administrative expenses increased to $1.585 million during the quarter from $1.131 million last year. It did increase slightly versus the previous quarter.

The increases over last year consisted of an increase in operational supervision and administrative positions. As Boyd mentioned, the cost of manager on hold prior to new store openings and also an increase in stock based compensation and some legal and accounting expenses as we equipped the company for rapid growth.

We anticipate that G&A expenses will begin to decline as a percent of revenue in fiscal 2017 and continue to decline in future years as we expand our base of restaurants even as we increase the G&A spending in some key areas. Our net income for the quarter was $547,000, which included $127,000 in pre-opening during the quarter.

Last year, our net income was $106,000 and we had $156,000 of pre-opening and we also had the $365,000 of one-time acquisition costs related to the Bad Daddy’s acquisition in May last year. Our adjusted EBITDA for the quarter increased by 21% to $1.432 million compared to $1.118 million last year.

We also did announce a change in our fiscal year from a September 30 year end, with each quarter ending on the last day of the calendar quarter and we switch that to – or we are going to switch that to a 52-week, 53-week year ending on the last Tuesday of September.

For fiscal 2016, this means we will end the year on September 27 instead of September 30. Our fiscal 2016 fourth quarter will then consist of just 89 days versus 92 days last year. Beginning in 2017, we will start the new fiscal calendar with four 13-week quarters.

Losing these three days at the end of the fiscal year will have a small impact on this year’s sales and EBITDA which I will discuss in a moment. Our expectations for fiscal 2016 are revenues of $64.5 million which includes a reduction of approximately $550,000 related to the change in year end.

This revenue estimate includes same-store sales assumptions of approximately negative 1% to negative 2% for Good Times and plus 1% to plus 2% for Bad Daddy’s. In addition, we expect to open one additional Bad Daddy’s restaurant in the first week of September.

Total adjusted EBITDA is expected to be $3.3 million, which includes a reduction of approximately $150,000 related to the change in year end. The normalized amount of $3.45 million of EBITDA does represent a 38% increase over fiscal 2015 EBITDA.

Pre-opening expenses not deducted in calculating adjusted EBITDA are expected to be approximately $1.8 million and G&A expenses are approximately $6.2 million to $6.3 million. That’s what we are expecting for this year. This G&A figure does include approximately $725,000 of non-cash equity based compensation expense.

Capital expenditures, net of tenant improvement allowances are expected to be $5.5 million to $6.5 million, a lot of that depending on the timing of expenditures for fiscal 2017 development that would be incurred this year.

Our expectations for fiscal 2017 were revenues of $80 million to $84 million, with the revenue run rate at the end of fiscal 2017 of $94 million to $98 million. This revenue estimate includes same-store sales assumptions of plus 1% to plus 2% for both Good Times and Bad Daddy’s.

Based on the current trends, we expect Good Times comps to start out slightly negative in Q1, but return to positive territory in the latter part of Q2 and improve to 3% of 3.5% positive in Q3 and Q4, reflecting the impact of the initiatives Boyd mentioned earlier.

We expect to open 1 new Good Times restaurant in the second quarter and, as Boyd mentioned, 9 to 11 new Bad Daddy’s restaurants during fiscal 2017. We also expect that 1 Good Times restaurant will be closed during Q2 for 6 to 8 weeks for a major remodel. During that time, the store would not be included in the comp sales calculation.

Total adjusted EBITDA is expected to be $4.5 million to $5 million next year for an increase of 30% to 45% over the expected fiscal 2016 results as normalized for the year end change. We expect approximately $7.1 million in G&A expenses next year, including approximately $900,000 in non-cash equity compensation expense.

We also expect pre-opening expenses of $3.5 million and capital expenditures of approximately $14.1 million. Included in that is about $1.8 million of cost for fiscal 2018 development that would be incurred in fiscal 2017. We did finish the quarter with $7.2 million in cash.

So, as Boyd mentioned, we believe that with the addition of the Cadence facility, we can support our total CapEx needs related to new store development and the continued remodeling of Good Times through the end of fiscal 2017. Now, I would like to turn the call back over to Boyd..

Thank you, Jim.

While we have slightly lowered our guidance based on the softening in our same-store sales trends at Good Times, we are hopefully being conservative in our projections and still certainly firmly believe we can deliver 35% to 40% growth rate in our top line and greater than that in our adjusted EBITDA not only next year, but in each of the next few fiscal years which we think will continue to build significant shareholder value.

We are excited about taking the Bad Daddy’s concept into new markets this next year and we have got those sites well along and in the pipeline and we are also optimistic about regaining our sales momentum at Good Times. We again appreciate your time with us today. With that, operator, we will open the call for questions..

Thank you. [Operator Instructions] And our first question will come from Will Slabaugh of Stephens. Please go ahead..

Yes, thank guys. I wanted to ask on the guidance, you are breaking down the difference between your outlook now versus where we were three months ago. I am curious how much of the lowering of that guide for ‘16 is what you would consider structural labor inflation versus how much of the slowdown you have seen in same-store sales growth.

And if you talk about ‘17 in that same context, that would be helpful? Thank you..

Yes, Will, since we really haven’t – I guess, we gave a little bit of sales guidance last call, but not the EBITDA guide. So, I will probably just stick to ‘16 a little bit, maybe touch on ‘17.

But for ‘16, again roughly, we are looking at about $700,000 decline in EBITDA guidance versus what we have talked about before, of the $150,000 of that we talked about being related to the change in the year end.

So, that remaining $550,000, a little over $300,000 of that is just directly related to Good Times sales projections, where we were – we have given guidance of about 4% positive for the balance of Q3 and Q4 on our last call and obviously, with negative 2% comps in Q3 and then negative 1% in Q4, that – and we had 1 store just opening near the end of the year.

We do have about $900,000 to $1 million of sales shortfall from the earlier guidance and again, that’s about a little over $300,000 and then another $100,000 in G&A over the previous guidance and then the balance then about $100,000 related to Bad Daddy’s. But most of the labor struggles were anticipated and were in the original guidance.

So, it’s really – really, this is top-line driven.

On fiscal ‘17, again, timing of some of the units were a little more back ended for fiscal ‘17 than we first anticipated as well as the Good Times comps being for the year, plus 1% to 2% versus 3% to 4% that we are anticipating earlier as well as like as Boyd mentioned, on the new units in Colorado just being – we hope being conservative on what the sales volumes of those units are, so kind of combination of all that resulted in the decline in the fiscal ‘17 sales guidance..

Okay. And then on pre-opening that number seemed a little bit elevated versus what we have seen on a per store basis lately.

So, can you help us build to that $3.5 million number you have guided to for ‘17? It seems like a pretty meaningful increase there on the Bad Daddy’s side, so I am curious what’s driving that?.

Yes, some of it might be just the timing of stores this year or developments for fiscal 2017 and hitting in ‘16. But basically, the build of that is about $280,000 of cash pre-opening per store. And that’s – that really is pretty consistent with what we have been experiencing what we said before.

We are hoping when we stay in market to lower that number, but if we take stores out of market, some of the new development out of market, that probably will be a little bit higher. So, we are kind of using that as still kind of our baseline amount.

Then we do need to throw in about another $35,000 to $40,000 of non-cash pre-opening costs related to accounting for rent on a GAAP basis. From the time period the locations turned over to when we open, we do have to record rent even though we are not paying rent. So, that’s – that gives you about $315,000 to $320,000 average.

So with, let’s say, 9 to 11 stores that puts us kind of in that $3.2 million range, plus we do have a one Good Times unit that’s going to be a little over $100,000 of pre-opening, plus we are anticipating just a little bit $100,000 to $200,000 of pre-opening related to 2018 development that would be incurred in 2017..

Got it, got it.

Okay, can you give us an update on what you are seeing in terms of performance of new stores in the Bad Daddy’s side in newer markets as you open up in a market that may not be as familiar with the brand and kind of contrast to that with what you have seen with some of the more core markets and how that can give you confidence going into summer markets next year?.

Yes. Will, this is Boyd. We haven’t opened really in any new markets. Everything we have opened this year have been pretty much in Denver. That said we have opened in Colorado Springs. We have opened in Longmont.

Colorado Springs being an hour south of Denver, there really wasn’t any awareness of the Bad Daddy’s concept and that’s been a very, very strong opening in the Briargate shopping center well above our system average. Longmont has been a little bit lower than our system average.

I don’t think the dynamic is really driven by the newness of the concept as much as it is just to site specifics themselves. And so as we look into Nashville and Phoenix and Atlanta, the new markets that we are looking at, we are really focused on the trade area and the dynamics of the individual sites.

I think between Charlotte, Raleigh, Denver, Greenville, South Carolina, where we are operating, it certainly proved that it can travel. It’s really, I think, trying to optimize where we put these things in each of those markets.

I went through of the 9 to 11 stores we have got slated for next year, most of those are already in our existing markets of Colorado and Charlotte and Raleigh, with anticipated three to four probably in new markets towards the latter part of the year. We have one of those deals pretty well done and we are working on some new ones.

We have got our operating partners hired for those markets. And so I think – I don’t think it’s again as much a function of the market as it is the individual sites..

Got it. Thanks, guys..

Our next question will come from Jeremy Hamblin of Dougherty & Company. Please go ahead..

Hi guys.

I wanted to ask about your same-store sales guidance for next year and just by brand, think a little bit about how you are building into those numbers, how should we be thinking about menu pricing heading into 2017 for both Good Times and then on the Bad Daddy’s side?.

It’s a good question. I think we are going to – we anticipate we will probably be a little bit more cautious given the environment and given the commodity environment on pricing in 2017 less than where we were in ‘15 and ‘16, probably more in the sub-3% range on Good Times.

And then on Bad Daddy’s, we anticipate we will probably be – and on Good Times, our history is to do probably two a year and that’s what we have got slated this year, very small in this fall and then another small one mid-year, probably in tandem with these improvements and this menu reengineering that we are doing on Good Times.

We will be doing some pricing reengineering as well. The net effect of that will be sub-3% on Good Times. On Bad Daddy’s we are anticipating probably less than that, in the 2% to 2.5% range on Bad Daddy’s..

And in terms of thinking about how the environment has changed a bit or maybe significantly over the last six months to nine months specific to the Good Times side, has there been thought about going for maybe more promotions to help drive traffic, do you think that some of this nice product innovation that you are doing, is it getting lost in the mix because consumers are looking for discounts and value offering?.

I think certainly somewhat, that’s true somewhat.

I think our challenge is that, in the midst of everybody banging on the $4 and $5 price points with our marketing budgets; one, is that going to be meaningful; two, is it somewhat antithetical to where we are positioned, we don’t appeal quite as much to that really heavy user that’s more price sensitive.

We are being impacted and I can’t give you a percentage on what our consumer base, what percentage of that is comprised of those. We have lived through this in the past and each time we have gone out to try and get aggressive on pricing, while we can move the top line a little bit, it doesn’t pay for itself on the bottom line.

And so we would rather focus, I think on our core brand tenets and we are really focused on this mid-year change to provide more price choice rather than discounting existing items. We really don’t have much of a low tier other than our slider combos in our Bambino’s and we are really looking to leverage those in a much, much more significant way.

But that requires not just discounting existing products that we have got. On the Bad Daddy’s side, I think it’s also getting fairly priced competitive with some of the same stuff that we have seen before, unlimited appetizers and $6 lunch price points and two for $20 and all those things.

Again, our strategy is not so much offering discounts as trying to hit some specific price points, particularly at lunch and targeting some ways to be able to do that with some new products on the Bad Daddy’s side, but again not discounting existing products.

We are continuing to see pretty strong momentum on the Bad Daddy’s side and so continue to bang away on what we stand for there..

Okay.

And then I think in the prepared remarks, I caught that North Carolina new unit productivity is about $2.6 million, what did you say it was for the non-North Carolina markets?.

Thank you.

The average volume…?.

Yes..

Yes.

But the new unit AUVs?.

So that’s all stores in North Carolina, all seven. And as Boyd mentioned, the five new units for fiscal Q3 ran right about that $2.5 million mark and the other three stores in Colorado are again closer to the kind of that $2.6 million for the three.

And again, they have been opened all year, so it’s a little easier to – I can’t give you a specific number on those, but the new units is one that – again, none of those have been opened even nine months yet, so it’s still kind of guesswork on where those will even out or end up..

Okay.

And I wanted to make sure on the Bad Daddy’s openings for ‘17, you are looking at two in the first quarter, one in Q2 and then three to four each in Q3 and Q4, is that correct?.

That’s correct. And again, the way those lay out, we have got – the first two are under development in Colorado and Fayetteville. And then we have got one here in Arvada in Denver and one in Raleigh. That will be in that second – very early third quarter.

And then we have got two more in Charlotte, another two in Denver and the new market stores will be the balance for that third and fourth quarter..

Okay.

Just last question on commodity costs and maybe beef prices in particular, as we look to the guidance for next year, what are you assuming in terms of commodity cost basket, up, down, flat, kind of…?.

Yes. Pretty flat, I mean again, we ticked up just a bit in three versus two. And we are looking at fairly flat to maybe ticking up just slightly in four versus three.

And then again we pretty much have hit our modeling pretty flat cost of sales sequentially from where we are now which would provide us about a flattish to a little bit of benefit year-over-year on cost of sales versus ‘16..

Okay, great. Thanks for taking my questions. I will hop back in the queue..

Our next question will come from Mark Rosenkranz of Craig-Hallum Capital Group. Please go ahead..

Hi, good afternoon guys. Thanks for taking my questions..

Hi Mark..

Yes.

So most have been answered already, but I was wondering if you could talk a little more about the new breakfast items you just talked about in the recent press release, when you first had the breakfast menu with the extended store hours, we saw a nice boost in comps, what kind of impact are we seeing on these new items in the business and has that played any type of factor in the guidance for ‘16 and ‘17?.

Sure. Last question first, no it really hasn’t impacted our guidance. It’s – we implemented two new breakfast sandwich egg sandwiches and potatoes, which were the most requested items. We have been running about in the low-8s say, and 0.25% or so of our total mix on breakfast.

The sandwiches and potatoes since we have introduced them have increased to about 9.5%, so it represents about a 15% increase in our total breakfast sales which is good. We are going to go on television here in late September with those and promote those.

But we really haven’t – we haven’t factored that into any real incremental improvement next year in our same-store sales..

Okay, great. Thanks for taking my questions..

Thank you..

[Operator Instructions] Our next question will come from Mark Smith of Feltl and Company. Please go ahead..

Hi, guys.

First off, just can you give us any update on initiatives to improve labor costs and is there much you can do other than building new Bad Daddy’s outside of Colorado?.

That’s a good question. And the answer is yes, we are working on all kinds of things. Labor on the Bad Daddy’s in terms of just its absolute effect has been lasting on Good Times just because we have so many tipped employees. But for our kitchen line and our back of the house staff, it’s a fairly labor intensive concept.

And so we are looking at ways to be able to improve efficiencies in those prepped items. We are looking for improved efficiencies on the line in terms of how much volume certain man-hours take to handle on the line itself. We are looking at our management structure.

We run a pretty heavy management structure on a store-by-store basis with five salaried managers in those stores that are not yet mature or that in the low-2s.

We think there is some opportunity there to reduce that management structure and take non-management hours, but hours where they are just in kind of functional positions and move those to some key employee hours. So there is lots of things that we are doing. We anticipate we will be able to make some improvement next year as a result of all those.

Same thing on Good Times, we continue to look at how can we get some efficiencies. Our COO on Good Times, Scott LeFever, we have got very, very defined matrix, down to almost 15-minute sales increments on how many man-hours it takes to produce a certain amount of volume.

And part of the investment in new equipment on the production line is to gain some labor efficiencies through equipment that we don’t have today, everything from how we open and close the restaurants to the actual production line itself. So, we are working hard on looking at everything that we possibly can.

Obviously, with the elections being hanging in the balance, but looking like it maybe heading into a certain direction, not sure what that means from a minimum wage, we still capture about 3.5 points on our labor line on stores that are non-Colorado or non – where we don’t have the higher tip credit minimum wage.

So, until that changes hopefully we will be able to capture that as we move into some of these new markets..

Okay. And then just looking at Good Times comps, it looks like we have got another quarter or two here where things maybe a little more depressed still.

What can you do in a tough competitive environment to turn those comps back to positive? It sounds like you have said you have been through this before as you have seen a lot of promotions and discounting from peers.

Is there anything in the short-term that you guys can do to drive better traffic?.

We can drive – we can do certain things to go out and discount and drive traffic certainly, that doesn’t do much for our profitability. And I don’t think we are too concerned about losing permanent share. I think certainly temporarily we go through these as this ebbs and flows from a competitive standpoint.

Again, we are really trying to work and what our best defense has been in the past is to elevate our core brand tenants and really continue to focus on differentiation.

That said, we are just tests that we are going into on a new burger lineup, we think is at a very attractive price point that we think will be a much bigger appeal for that value-oriented consumer.

It’s not a 4 for $4 or 5 for $5 and it’s not discounting any existing items, it’s creating a new item that is very attractive both individually and in a combo that we think we will strike that cord. We think that’s our best offense. But to go out and discount heavily our core items is really painful. I don’t know what the franchisees are experiencing.

I know the larger guys have moved almost to an all franchise system. And so it’s hard to see the true impact on the bottom line when you have 4 for $4, 5 for $5 and 2 for $5 and 2 for $10 combos and all the things that are going on out there. Short answer is I do not have any – we don’t have any silver bullets and believe me, we look for them..

Right. And you said that you are on TV through the rest of the year.

Can you remind us if that’s the fiscal year or the calendar year? And then also on TV, how does that compare to last year? And then did you have to pay a little more with rates just being in at least what used to be a swing state in an election year?.

Yes. Our levels and our weights are about the same year-to-year. We will be on – when I say the balance of this fiscal year, we will be also right back on, but we will wait till after the elections. What we have done is we have changed our mix in cable and broadcast.

With the elections, we get kicked out of broadcast just because of availability and pricing.

So, we are going here very shortly to a 100% cable buy and then we will shift back to pull in then some broadcast into that buy as we get after the elections, but we will still be on TV at very similar weights that we were this year as we have this year to last year, we have been on very similar weights..

Okay.

And then last one from me, can you just walk through the cadence of comps at both brands? And then any additional insight you can give us into kind of what you are seeing in the competitive marketplace today?.

Again in July, we actually – we maintained where we have been running on Bad Daddy’s. We ticked up a little bit to flat from down two on Good Times.

And so we saw some benefit of the PawBender promotion and the traffic that that’s driving which has also been really well received on social media and getting a lot of buzz and so we saw some incremental improvement there. Jim, I think if you want to go back through May, June – April, May, June....

Yes, April, May, June, they were all about – April was a little better than negative 2%, but we did have a benefit of the timing of Easter which helped a little bit. So, kind of on a normalized basis, really April, May and June we are all about around that negative 2% on the Good Times side.

On the Bad Daddy’s side, we actually had – the weakest month of the quarter was actually June, which was relatively close to flat. But then again, July was up again above 3%. So, it really – it wasn’t that choppy for Q3, it was somewhat consistent for both brands..

Excellent. Thank you..

Ladies and gentlemen, having no further questions, this will conclude the question-and-answer session and conclude the Good Times Restaurants’ third quarter earnings conference. Thank you for attending today’s presentation. You may now disconnect your lines..