Operations

Fat Brands reports wider Q1 loss amid COVID-19

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June 1, 2020

Fat Brands Inc., the owner of eight fast casual restaurant brands, including Fatburger and Elevation Burger, reported a wider loss in the first quarter as the COVID-19 outbreak forced the company to close much of its in-store dining business.

“We had ended 2019 with solid momentum across most of our brands that continued into January and February of this year,” Andy Wiederhorn, president and CEO of FAT Brands, said on the company’s quarterly conference call with analysts. “March was a challenging month across the restaurant industry, and we all began feeling the impact of the pandemic.”

He said prior to the pandemic, many of the company’s franchisees, especially in the burger and wings area, had a strong presence in using delivery platforms like Uber Eats, Postmates and Grubhub. 

He noted that for the week ended May 24th, the company’s burger brands showed resilience, with Fatburger being off only 6.9% on a same-store sales basis and 26% systemwide for that particular brand. The difference in the company’s performance is that other brands that operate inside casinos have been completely closed.

Overall about 90 of the company’s 372 restaurants remain closed, the majority of them involving steakhouses and Fatburgers located inside casinos. 

The company reported a net loss of $2.4 million or 20 cents a share, compared with a net loss of $710,000 or 6 cents a year earlier. 

Systemwide same-store sales fell 10.5% year-over-year. Systemwide same-store sales, excluding Ponderosa and Bonanza, fell 12.1% year-over-year. 

Same-store sales in the U.S. fell 10% year-over-year, while same-store sales in Canada fell 10.2%. For the rest of the international market, same-store sales fell 13.1%.

Systemwide sales, excluding Ponderosa and Bonanza, fell 1.6% 

Revenue fell to $4.4 million in the quarter, compared with $4.9 million in the year-ago quarter. The company attributed the decline to a loss of royalty revenue related to the impact of COVID-19 and decreases in store opening fees related to the preferred application of ASC 606 in the fourth quarter of 2019. 

As it begins to reopen many of its domestic and international locations, the company is moving from a to-go model to a modified in-store dining model with certain capacity restrictions. 

The company has provided guidance to franchisees regarding the use of personal protective equipment, updates to seating layout including the use of outdoor dining spaces and changes at Ponderosa and Bonanza to shift from buffet concepts to either table service or cafeteria-style dining.