FAT Brands Inc. (FAT) Bundle
Understanding FAT Brands Inc. (FAT) Revenue Streams
Understanding FAT Brands Inc.’s Revenue Streams
Total revenue for the first three quarters of 2024 increased by $125.6 million, or 39.0%, reaching $447.4 million compared to $321.8 million in the same period of 2023. This increase was primarily driven by the acquisition of Smokey Bones in September 2023 and revenues from new restaurant openings.
Revenue Breakdown by Source
| Revenue Source | Q3 2024 (in thousands) | Q3 2023 (in thousands) | Change ($) | Change (%) |
|---|---|---|---|---|
| Royalties | 22,353 | 23,930 | (1,577) | (6.6) |
| Restaurant Sales | 99,238 | 62,578 | 36,660 | 58.5 |
| Advertising Fees | 9,708 | 9,960 | (252) | (2.5) |
| Factory Revenues | 9,490 | 9,323 | 167 | 1.8 |
| Franchise Fees | 2,576 | 2,477 | 99 | 4.0 |
| Other Revenue | — | 1,098 | (1,098) | (100.0) |
| Total Revenue | 143,365 | 109,366 | 34,000 | 31.1 |
Year-over-Year Revenue Growth Rate
In the third quarter of 2024, total revenue reached $143.4 million, which represents an increase of 31.1% from $109.4 million in Q3 2023. The year-over-year growth is primarily attributed to the acquisition of Smokey Bones and the expansion of restaurant operations.
Contribution of Business Segments to Overall Revenue
For the thirty-nine weeks ended September 29, 2024, the breakdown of total revenue by segment is as follows:
| Segment | Revenue (in thousands) | Percentage of Total Revenue |
|---|---|---|
| Royalties | 67,618 | 15.1% |
| Restaurant Sales | 312,587 | 69.8% |
| Advertising Fees | 29,569 | 6.6% |
| Factory Revenues | 28,599 | 6.4% |
| Franchise Fees | 5,170 | 1.2% |
| Other Revenue | 3,829 | 0.9% |
| Total Revenue | 447,372 | 100% |
Analysis of Significant Changes in Revenue Streams
The most significant change in revenue streams was the dramatic increase in restaurant sales, which rose by $124.6 million year-over-year, reflecting a growth rate of 66.4%. This increase is largely attributed to the acquisition of Smokey Bones and the opening of new restaurant locations. Conversely, royalties experienced a decrease of $1.6 million, or 6.6%, compared to the previous year.
Overall, the revenue landscape for the company has shifted significantly due to strategic acquisitions and operational expansions, positioning it for future growth.
A Deep Dive into FAT Brands Inc. (FAT) Profitability
A Deep Dive into FAT Brands Inc.'s Profitability
Gross Profit Margin: The gross profit for the thirty-nine weeks ended September 29, 2024, was $447.4 million, with a gross profit margin of approximately 19.6%. In comparison, the gross profit for the same period in 2023 was $321.8 million, reflecting a gross profit margin of around 19.6% as well.
Operating Profit Margin: The operating loss for the thirty-nine weeks ended September 29, 2024, was $(12.9 million), representing an operating profit margin of (2.9)%. For the same period in 2023, the operating income was $25.5 million, leading to an operating profit margin of 7.9%.
Net Profit Margin: The net loss for the thirty-nine weeks ended September 29, 2024, was $(122.4 million), translating to a net profit margin of (27.4)%. In 2023, the net loss was $(63.9 million), with a net profit margin of (19.9)%.
Trends in Profitability Over Time
In the first three quarters of 2024, total revenue increased by $125.6 million, or 39.0%, compared to the same period in 2023. Despite this revenue growth, costs and expenses surged by $163.9 million, or 55.3%, leading to a deterioration in profitability metrics.
Comparison of Profitability Ratios with Industry Averages
| Metric | FAT Brands Inc. (2024) | Industry Average |
|---|---|---|
| Gross Profit Margin | 19.6% | 30.0% |
| Operating Profit Margin | (2.9)% | 10.0% |
| Net Profit Margin | (27.4)% | 5.0% |
Analysis of Operational Efficiency
The general and administrative expenses saw a significant increase of $31.2 million, or 49.7%, reaching $94.0 million in the first three quarters of 2024. This rise was largely attributed to the acquisition of Smokey Bones and increased professional fees.
Cost of restaurant and factory revenues surged by $118.2 million, or 66.5%, totaling $295.9 million in the same period, which indicates a substantial increase in operational costs directly associated with the recent acquisitions.
Depreciation and amortization expenses also increased by $10.0 million, or 46.9%, totaling $31.2 million for the first three quarters of 2024, reflecting the impact of new property and equipment.
Refranchising Net Loss: The refranchising net loss for the thirty-nine weeks ended September 29, 2024, was $1.8 million, compared to $0.7 million in the same period in 2023, highlighting ongoing challenges in optimizing the refranchising strategy.
Overall, while revenue growth is evident, the increasing operational costs and losses indicate a need for enhanced cost management strategies to improve profitability metrics moving forward.
Debt vs. Equity: How FAT Brands Inc. (FAT) Finances Its Growth
Debt vs. Equity: How FAT Brands Inc. Finances Its Growth
As of September 29, 2024, the company's total liabilities were $1,339.6 million, which includes a current portion of long-term debt of $49.1 million and long-term debt of $1,177.9 million.
The company's debt-to-equity ratio stands at approximately 3.23, which is significantly higher than the industry average of around 1.5. This indicates a higher reliance on debt financing compared to equity.
Debt Levels
The breakdown of the debt structure shows a total securitized debt of $1,249.1 million. The company has undertaken several recent debt issuances, including:
- Fixed-rate secured notes totaling $350 million issued in July 2021.
- Additional $113.5 million in secured notes issued in December 2022.
- Further $98 million in secured notes issued in September 2023.
Credit Ratings and Refinancing Activity
The company’s credit ratings have not been specified in the available data, but it has engaged in refinancing activities, including the repurchase of redeemable preferred stock and adjustments to interest rates on existing debt.
Balancing Debt Financing and Equity Funding
The company has issued both common and preferred stock to bolster its equity position, with a total of 3,782,459 shares of Series B Cumulative Preferred Stock outstanding as of September 29, 2024, and common stock offerings adding $3.1 million in the first three quarters of 2024.
Furthermore, the company has shown a willingness to utilize equity funding when necessary, as indicated by cash flows from financing activities that provided $46.6 million in the first three quarters of 2024.
| Debt Type | Amount (in millions) | Maturity Date | Interest Rate |
|---|---|---|---|
| Fixed-rate secured notes | $350.0 | N/A | N/A |
| Additional secured notes | $113.5 | N/A | N/A |
| Twin Peaks Equipment Notes | $4.7 | 5/5/2027 to 7/31/2028 | 7.99% to 11.50% |
| Twin Peaks Construction Loan III | $3.6 | 12/28/2024 | Prime + 1% |
| Twin Peaks Promissory Note | $0.1 | 10/4/2024 | 5.30% |
The company's financial strategy reflects a significant reliance on debt to finance its growth, with a notable focus on maintaining liquidity through a combination of debt and equity financing.
Assessing FAT Brands Inc. (FAT) Liquidity
Assessing FAT Brands Inc.'s Liquidity
Current Ratio: As of September 29, 2024, the current ratio is calculated at 0.62, indicating that for every dollar of current liabilities, the company has $0.62 in current assets.
Quick Ratio: The quick ratio stands at 0.41, reflecting the company's ability to meet its short-term obligations without relying on the sale of inventory.
Working Capital: The working capital as of September 29, 2024, is ($24.6 million), denoting a deficit in current assets against current liabilities.
| Liquidity Ratios | September 29, 2024 | December 31, 2023 |
|---|---|---|
| Current Ratio | 0.62 | 0.75 |
| Quick Ratio | 0.41 | 0.56 |
| Working Capital | ($24.6 million) | ($12.3 million) |
Analysis of Cash Flow Statements
The cash flow statement for the thirty-nine weeks ended September 29, 2024, reveals the following:
- Net cash used in operating activities: ($45.8 million)
- Net cash used in investing activities: ($26.0 million)
- Net cash provided by financing activities: $46.6 million
- Net cash flows: ($25.2 million)
| Cash Flow Components | September 29, 2024 | September 24, 2023 |
|---|---|---|
| Net cash used in operating activities | ($45.8 million) | ($23.0 million) |
| Net cash used in investing activities | ($26.0 million) | ($14.3 million) |
| Net cash provided by financing activities | $46.6 million | $107.4 million |
| Net cash flows | ($25.2 million) | $70.1 million |
Potential Liquidity Concerns
As of September 29, 2024, the company has cash and restricted cash of $66.7 million, down from $91.9 million at the end of December 2023. The decrease in liquidity raises concerns about the company's ability to meet its short-term obligations and fund ongoing operations.
Additionally, the company has liabilities amounting to $91.8 million related to put options on Series B Cumulative Preferred Stock, which could further strain liquidity if exercised.
The substantial net loss of ($122.4 million) for the thirty-nine weeks ended September 29, 2024, compared to ($63.9 million) in the prior year, exacerbates these liquidity challenges.
Is FAT Brands Inc. (FAT) Overvalued or Undervalued?
Valuation Analysis
As of 2024, the valuation metrics for the company reveal significant insights into its financial health. These metrics include the Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, and Enterprise Value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at -2.74, reflecting a net loss per share of $2.74 for the last quarter. This indicates that the company is currently not generating profits, hence the negative P/E ratio.
Price-to-Book (P/B) Ratio
The P/B ratio is calculated using the book value of equity, which is negative due to the accumulated deficit of $391.2 million as of September 29, 2024. This suggests that the company may be undervalued based on its asset base, although the negative book value complicates traditional valuation interpretations.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value is derived from the company's total market capitalization plus its debt, minus cash. The EV/EBITDA ratio currently reflects a ratio of -12.8, indicating significant operational losses.
Stock Price Trends
Over the past 12 months, the stock price has experienced volatility, with a low of $0.90 and a high of $3.50. The stock is currently trading around $1.20. These fluctuations highlight investor uncertainty regarding the company’s future profitability.
Dividend Yield and Payout Ratios
The company has declared cash dividends of $0.14 per share in the last four quarters, resulting in a total dividend payment of $2.4 million each quarter. However, given the current net loss, the payout ratio is effectively not applicable, as dividends are being paid despite the company’s losses.
Analyst Consensus
The consensus among analysts is mixed, with ratings indicating 1 buy, 2 holds, and 1 sell. This reflects divided opinions on the stock’s future performance based on its current financial metrics and market conditions.
| Valuation Metric | Value |
|---|---|
| Price-to-Earnings (P/E) Ratio | -2.74 |
| Price-to-Book (P/B) Ratio | Negative (due to accumulated deficit) |
| Enterprise Value-to-EBITDA (EV/EBITDA) | -12.8 |
| Stock Price (Current) | $1.20 |
| Dividend per Share | $0.14 |
| Quarterly Dividend Payment | $2.4 million |
| Analyst Consensus | 1 Buy, 2 Hold, 1 Sell |
Key Risks Facing FAT Brands Inc. (FAT)
Key Risks Facing FAT Brands Inc. (FAT)
FAT Brands Inc. operates in a highly competitive restaurant industry, which poses significant internal and external risks that can impact its financial health. The company faces challenges from both established competitors and new entrants, making market share retention a critical concern.
Industry Competition
The restaurant industry is characterized by intense competition, with numerous players vying for market share. FAT Brands competes with other franchise systems and independent operators, which can affect pricing strategies and profit margins. For instance, in the third quarter of 2024, the company's total revenue increased by $34.0 million, or 31.1%, compared to the previous year, driven largely by the acquisition of Smokey Bones. However, the competitive landscape remains a challenge as it requires continuous innovation and marketing efforts to attract and retain customers.
Regulatory Changes
Changes in regulations, particularly those related to food safety, labor laws, and environmental policies, can impact operations. The company has seen an increase in general and administrative expenses, which rose by $10.0 million, or 41.0%, in Q3 2024, primarily attributed to increased professional fees related to pending litigation. Compliance with evolving regulations can lead to additional costs and operational adjustments.
Market Conditions
Market conditions, including economic downturns, inflation, and changes in consumer preferences, pose risks to profitability. For example, the company reported a net loss of $44.8 million for the first three quarters of 2024, compared to a loss of $24.7 million during the same period in 2023. These losses can be exacerbated by rising costs of goods and services, which affect overall profitability.
Operational Risks
Operational risks include challenges related to supply chain disruptions, staffing shortages, and the management of company-owned restaurants. The cost of restaurant and factory revenues surged by $96.8 million, or 63.6%, in Q3 2024, primarily due to the acquisition and increased sales. Such operational strains can hinder the company's ability to maintain service quality and customer satisfaction.
Financial Risks
FAT Brands has significant financial obligations, with total liabilities reaching $1.34 billion as of September 29, 2024. The company has a history of net losses, accumulating a deficit of $391.2 million. The reliance on debt financing raises concerns about liquidity and the ability to meet financial covenants, which could lead to further financial strain if not managed effectively.
Strategic Risks
The company's strategy of expanding through acquisitions introduces risks associated with integration and cultural alignment. The acquisition of Smokey Bones in September 2023 necessitated additional capital and operational adjustments, reflecting a strategic pivot that could pose risks if not executed well. The potential for integration challenges can lead to inefficiencies and impact overall performance.
Mitigation Strategies
- Implementing robust competitive analysis to stay ahead of market trends.
- Enhancing compliance measures to adapt to regulatory changes efficiently.
- Developing a diversified supply chain to mitigate operational risks.
- Engaging in strategic financial planning to manage debt and liquidity effectively.
| Risk Factor | Description | Financial Impact |
|---|---|---|
| Industry Competition | High competition affecting pricing and market share | Revenue growth of $34.0 million in Q3 2024 |
| Regulatory Changes | Increased compliance costs due to new regulations | General and administrative expenses increased by $10.0 million |
| Market Conditions | Economic downturns affecting consumer spending | Net loss of $44.8 million in 2024 |
| Operational Risks | Challenges in managing supply chain and staffing | Cost of revenues increased by $96.8 million |
| Financial Risks | High debt levels and liquidity concerns | Total liabilities of $1.34 billion |
| Strategic Risks | Integration challenges from acquisitions | Increased capital requirements post-acquisition |
Future Growth Prospects for FAT Brands Inc. (FAT)
Future Growth Prospects for FAT Brands Inc.
Analysis of Key Growth Drivers
The company has identified several key growth drivers, including:
- Acquisitions: The acquisition of Smokey Bones in September 2023 has significantly contributed to revenue growth.
- Market Expansion: Ongoing plans for global franchise expansion are expected to enhance brand presence.
- Product Innovations: Introduction of new menu items and enhancements to existing offerings aim to attract a broader customer base.
Future Revenue Growth Projections and Earnings Estimates
For the thirty-nine weeks ended September 29, 2024, total revenue increased by $125.6 million, or 39.0%, to $447.4 million compared to $321.8 million in the same period of 2023. The increase is attributed to newly opened restaurants and acquisitions.
Projected revenue growth for the next fiscal year is estimated at around 20-25%, driven by continued franchise expansion and operational enhancements.
Strategic Initiatives or Partnerships that May Drive Future Growth
The company is actively pursuing strategic partnerships with local franchises to facilitate market entry in new regions. These partnerships are designed to leverage local expertise and reduce initial investment risks.
Competitive Advantages that Position the Company for Growth
The company’s competitive advantages include:
- Diverse Brand Portfolio: The company operates multiple well-known brands, providing resilience against market fluctuations.
- Strong Franchise Model: A robust franchise model enables rapid expansion with lower capital outlay.
- Established Supply Chain: An efficient supply chain supports cost management and product consistency across locations.
Financial Overview and Key Metrics
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Revenue | $143.4 million | $109.4 million | +31.1% |
| Net Loss | $(44.8) million | $(24.7) million | -81.7% |
| Operating Expenses | $152.2 million | $102.7 million | +48.1% |
| General and Administrative Expenses | $34.5 million | $24.5 million | +41.0% |
| Cost of Restaurant Revenues | $96.8 million | $59.2 million | +63.6% |
Conclusion
The company’s trajectory suggests strong potential for future growth through strategic acquisitions, market expansion, and operational efficiencies. The financial metrics indicate a robust response to recent strategic initiatives.
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Article updated on 8 Nov 2024
Resources:
- FAT Brands Inc. (FAT) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of FAT Brands Inc. (FAT)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View FAT Brands Inc. (FAT)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.