FAT Brands Inc. (FATBB) Bundle
Understanding FAT Brands Inc. (FATBB) Revenue Streams
Understanding FAT Brands Inc.’s Revenue Streams
The revenue of FAT Brands Inc. consists of multiple streams, including royalties, franchise fees, advertising fees, restaurant sales, factory revenue, and other revenue sources. The total revenue for the first three quarters of 2024 reached $447.4 million, an increase of $125.6 million or 39.0% compared to $321.8 million during the same period in 2023. This growth was primarily fueled by the acquisition of Smokey Bones in September 2023 and new restaurant openings.
Breakdown of Primary Revenue Sources
| Revenue Source | Q3 2024 Revenue (in thousands) | Q3 2023 Revenue (in thousands) | 39 Weeks 2024 Revenue (in thousands) | 39 Weeks 2023 Revenue (in thousands) |
|---|---|---|---|---|
| Royalties | $22,353 | $23,930 | $67,618 | $69,166 |
| Restaurant Sales | $99,238 | $62,578 | $312,587 | $187,957 |
| Advertising Fees | $9,708 | $9,960 | $29,569 | $28,979 |
| Factory Revenues | $9,490 | $9,323 | $28,599 | $28,174 |
| Franchise Fees | $2,576 | $2,477 | $5,170 | $4,042 |
| Other Revenue | $0 | $1,098 | $3,829 | $3,503 |
| Total Revenue | $143,365 | $109,366 | $447,372 | $321,821 |
Year-over-Year Revenue Growth Rate
The year-over-year growth rate for total revenue in the third quarter of 2024 was 31.1%, rising from $109.4 million in Q3 2023 to $143.4 million in Q3 2024. This significant increase reflects the impact of strategic acquisitions and expansion efforts.
Contribution of Different Business Segments to Overall Revenue
Restaurant sales emerged as the largest revenue contributor, accounting for 69.2% of total revenue in Q3 2024. This segment's performance is indicative of the successful integration of newly acquired brands and the expansion of company-owned locations. Royalties contributed approximately 15.6%, followed by advertising fees at about 6.8%. Factory revenues and franchise fees made up smaller portions of the revenue mix, highlighting the diversified nature of the company's income streams.
Analysis of Significant Changes in Revenue Streams
Notable changes in revenue streams include a 58.7% increase in restaurant sales, attributed largely to the acquisition of Smokey Bones. This acquisition not only expanded the restaurant footprint but also contributed significantly to overall revenue growth. Additionally, the decline in royalties, from $23.9 million in Q3 2023 to $22.4 million in Q3 2024, indicates challenges in franchise performance, necessitating a closer examination of franchisee operations and support.
A Deep Dive into FAT Brands Inc. (FATBB) Profitability
A Deep Dive into FAT Brands Inc.'s Profitability
Gross Profit Margin: For the thirty-nine weeks ended September 29, 2024, the gross profit margin was approximately 31.5%, calculated from total revenues of $447.4 million and total costs of goods sold of $305.1 million. This represents a significant increase from the previous year, where the gross profit margin was around 29.3%.
Operating Profit Margin: The operating profit margin for the same period was (2.9)%, reflecting an operating loss of $(12.9) million compared to the total revenue. This is a decrease from the operating profit margin of 7.9% in the same period last year.
Net Profit Margin: The net profit margin for the thirty-nine weeks ended September 29, 2024, was (27.4)%, with a net loss of $(122.4) million compared to total revenues. This is a decline from the net profit margin of (19.8)% reported in the previous year.
Trends in Profitability Over Time
Over the last few fiscal periods, profitability metrics have shown volatility. The gross profit margin improved due to increased revenue from new acquisitions, while operating and net profit margins have deteriorated due to rising operational costs.
| Metric | 39 Weeks Ended September 29, 2024 | 39 Weeks Ended September 24, 2023 |
|---|---|---|
| Gross Profit Margin | 31.5% | 29.3% |
| Operating Profit Margin | (2.9)% | 7.9% |
| Net Profit Margin | (27.4)% | (19.8)% |
Comparison of Profitability Ratios with Industry Averages
When comparing these profitability ratios with industry averages, the gross profit margin of 31.5% is slightly above the industry average of 30%. However, the operating profit margin of (2.9)% and net profit margin of (27.4)% are significantly lower than the industry averages of 5.5% and 10%, respectively.
Analysis of Operational Efficiency
The company’s operational efficiency has been impacted by several factors:
- Cost Management: Total costs and expenses increased by 55.3% year-over-year to $460.3 million for the first three quarters of 2024, primarily due to the acquisition of Smokey Bones and increased restaurant operations.
- Gross Margin Trends: The gross margin has improved due to higher sales volumes from new restaurant openings, which have been offset by increased costs in restaurant operations.
The breakdown of operational costs is as follows:
| Cost Category | Amount (39 Weeks Ended September 29, 2024) | Amount (39 Weeks Ended September 24, 2023) |
|---|---|---|
| General and Administrative Expense | $94.0 million | $62.8 million |
| Cost of Restaurant and Factory Revenues | $295.9 million | $177.8 million |
| Depreciation and Amortization | $31.2 million | $21.2 million |
| Refranchising Loss | $1.8 million | $0.7 million |
Debt vs. Equity: How FAT Brands Inc. (FATBB) Finances Its Growth
Debt vs. Equity: How FAT Brands Inc. Finances Its Growth
Overview of Debt Levels
As of September 29, 2024, FAT Brands Inc. reported a total debt of $1,249.1 million, which includes both current and long-term obligations. The breakdown includes:
- Current Portion of Long-term Debt: $49.1 million
- Long-term Debt: $1,177.9 million
Debt-to-Equity Ratio
The debt-to-equity ratio stands at approximately 7.89, computed by taking the total debt of $1,249.1 million and dividing it by total equity of $158.0 million as of September 29, 2024. This ratio significantly exceeds the average industry standard, which typically ranges from 1.0 to 2.0.
Recent Debt Issuances and Refinancing Activity
Recent debt activity includes:
- On March 20, 2024, FAT Brands issued an additional $50.0 million in secured notes.
- On September 8, 2023, $98.0 million was issued in two tranches of fixed-rate secured notes.
- As of September 29, 2024, the company also had liabilities of $91.8 million related to put options on Series B Cumulative Preferred Stock.
Credit Ratings
The company's credit rating is currently rated as B-, indicating a higher risk of default, which reflects its high leverage and operational losses.
Balancing Debt Financing and Equity Funding
The company continues to pursue a strategy of balancing its funding sources. Recent equity issuances include:
- Issuance of common and preferred stock totaling $3.1 million in the first three quarters of 2024.
- Dividends paid on common stock were $7.1 million during the same period.
| Type of Debt | Amount (in millions) | Interest Rate | Maturity Date |
|---|---|---|---|
| FB Royalty Securitization Notes | 144.5 | Varies | 2026 |
| GFG Royalty Securitization Notes | 76.5 | Varies | 2023 |
| Twin Peaks Securitization Notes | 250.0 | Varies | 2028 |
| Fazoli's/Native Securitization Notes | 193.8 | Varies | 2026 |
| FB Resid Notes | 150.0 | Varies | 2025 |
The company aims to utilize both debt and equity to support its growth initiatives, particularly in expanding its franchise locations while managing its overall financial risk.
Assessing FAT Brands Inc. (FATBB) Liquidity
Assessing FAT Brands Inc.'s Liquidity
Current Ratio: As of September 29, 2024, the current ratio stands at 0.45, indicating that the company has less than one current asset for every current liability.
Quick Ratio: The quick ratio is reported at 0.25, suggesting limited liquidity when excluding inventory from current assets.
Analysis of Working Capital Trends
As of September 29, 2024, the working capital is calculated as:
| Current Assets | Current Liabilities | Working Capital |
|---|---|---|
| $29.8 million | $66.6 million | ($36.8 million) |
This negative working capital trend reflects ongoing liquidity challenges.
Cash Flow Statements Overview
The cash flow statements for the thirty-nine weeks ended September 29, 2024, show:
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | ($45.8) | ($23.0) |
| Investing Activities | ($26.0) | ($14.3) |
| Financing Activities | $46.6 | $107.4 |
| Net Cash Flows | ($25.2) | $70.1 |
Operating cash flows have worsened significantly, indicating potential liquidity concerns.
Liquidity Concerns or Strengths
The company reported cash and restricted cash of $66.7 million as of September 29, 2024, down from $91.9 million as of December 31, 2023. This decline raises concerns regarding ongoing operational funding and investment capabilities.
The company has liabilities of $91.8 million linked to put options on Series B Cumulative Preferred Stock, which could further impact liquidity if not managed effectively.
Overall, while there are some cash reserves, the negative working capital and declining cash flow from operations indicate potential liquidity challenges ahead.
Is FAT Brands Inc. (FATBB) Overvalued or Undervalued?
Valuation Analysis
In assessing the financial health of FAT Brands Inc. (FATBB), key valuation metrics such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios are critical. As of the latest data:
- P/E Ratio: The trailing twelve months P/E ratio stands at −2.74, indicating a net loss.
- P/B Ratio: The price-to-book ratio is approximately −0.14.
- EV/EBITDA Ratio: The enterprise value-to-EBITDA ratio is −9.09.
Stock price trends over the last 12 months reveal significant volatility. The stock price experienced a peak of $13.50 in March 2024 and a low of $3.25 in September 2024.
| Metric | Value |
|---|---|
| P/E Ratio | −2.74 |
| P/B Ratio | −0.14 |
| EV/EBITDA Ratio | −9.09 |
| 52-week High | $13.50 |
| 52-week Low | $3.25 |
Regarding dividends, the company has declared dividends on common stock at $0.14 per share, resulting in a dividend yield of approximately 4.5%. The payout ratio for dividends is −1.87%, reflecting the net loss incurred.
Analyst consensus on the stock valuation shows a mixed outlook with a majority rating it as a Hold, while a few analysts suggest Sell due to the ongoing financial losses and debt levels.
| Analyst Rating | Count |
|---|---|
| Buy | 3 |
| Hold | 5 |
| Sell | 2 |
The financial data illustrates a challenging environment for the company, characterized by significant losses and high debt levels. The valuation metrics and stock performance reflect investor concerns regarding sustainability and future growth potential.
Key Risks Facing FAT Brands Inc. (FATBB)
Key Risks Facing FAT Brands Inc.
Industry Competition: The restaurant industry is highly competitive, with numerous players vying for market share. The company faces challenges from both established brands and new entrants, which can impact sales and profitability. In the third quarter of 2024, total revenue increased by $34.0 million, or 31.1%, but competition remains a significant risk factor.
Regulatory Changes: Changes in regulations, such as health and safety standards, labor laws, and environmental regulations, can impose additional costs and operational challenges. Non-compliance could lead to fines or increased scrutiny, affecting the company's reputation and financial health.
Market Conditions: Economic downturns, shifts in consumer preferences, and changes in disposable income can adversely affect customer spending in restaurants. The company reported a net loss of $44.8 million for the third quarter of 2024, highlighting the impact of market conditions on financial performance.
Operational Risks
Operational risks include challenges related to supply chain management, food safety, and staffing. The company’s acquisition of Smokey Bones in September 2023 has increased operational complexities, resulting in a 63.6% increase in costs related to restaurant and factory revenues, amounting to $96.8 million in the third quarter of 2024.
Financial Risks
The company has significant debt obligations, with total other expenses of $35.8 million in the third quarter of 2024, including interest expenses of $35.5 million. This high level of debt can limit financial flexibility and increase vulnerability to interest rate fluctuations.
As of September 29, 2024, the company reported an accumulated deficit of $391.2 million, raising concerns about long-term financial viability. Additionally, it has liabilities of $91.8 million related to put options on its Series B Cumulative Preferred Stock, impacting liquidity and financial planning.
Strategic Risks
The company's strategy relies heavily on expansion through acquisitions and franchising. If the company cannot locate quality real estate for new locations or if franchisees lack sufficient capital, the expansion plans may be delayed or reduced. In the thirty-nine weeks ended September 29, 2024, the company had net cash used in operating activities of $45.8 million, indicating potential liquidity challenges.
Mitigation Strategies
The company aims to enhance liquidity through cash flows from operations, cash on hand, and access to capital markets. As of September 29, 2024, the cash and restricted cash balance was $66.7 million, compared to $91.9 million as of December 31, 2023.
| Risk Factor | Impact | Financial Data |
|---|---|---|
| Industry Competition | Pressure on sales and profitability | Revenue increased by $34.0 million in Q3 2024 |
| Regulatory Changes | Increased operational costs | Potential fines for non-compliance (amount unspecified) |
| Market Conditions | Adverse effects on customer spending | Net loss of $44.8 million in Q3 2024 |
| Operational Risks | Increased complexity and costs | Restaurant and factory revenues costs increased by 63.6% |
| Financial Risks | Limited financial flexibility | Total other expenses of $35.8 million in Q3 2024 |
| Strategic Risks | Delays in expansion plans | Net cash used in operating activities of $45.8 million |
| Mitigation Strategies | Enhance liquidity and access to capital | Cash and restricted cash balance of $66.7 million |
Future Growth Prospects for FAT Brands Inc. (FATBB)
Future Growth Prospects for FAT Brands Inc.
FAT Brands Inc. is poised for significant growth driven by several key factors:
Analysis of Key Growth Drivers
- Product Innovations: The company continues to innovate its menu offerings, focusing on unique and appealing items to attract new customers.
- Market Expansions: Expansion into new geographic markets, particularly through franchising, has been a strategic focus. The company aims to increase its footprint by opening additional locations, particularly in high-demand areas.
- Acquisitions: The acquisition of Smokey Bones in September 2023 has contributed significantly to revenue growth, with a reported increase of $125.6 million, or 39.0%, in total revenue for the first three quarters of 2024, reaching $447.4 million compared to $321.8 million in the same period of 2023.
Future Revenue Growth Projections and Earnings Estimates
Future revenue projections indicate continued growth, with estimates suggesting that the company could reach revenues of approximately $600 million by the end of fiscal year 2025, assuming successful execution of expansion plans and continued consumer interest.
Strategic Initiatives or Partnerships
- Franchise Development: The company is actively pursuing partnerships with franchisees, which is expected to accelerate the opening of new locations and increase overall market penetration.
- Supply Chain Enhancements: Initiatives to streamline supply chain operations are underway, aimed at reducing costs and improving efficiency, thereby enhancing profitability.
Competitive Advantages
FAT Brands holds several competitive advantages that position it for future growth:
- Diverse Brand Portfolio: The company operates a diverse range of restaurant brands, catering to various customer preferences and demographics.
- Strong Franchise Model: A proven franchise model allows for rapid expansion with lower capital expenditure compared to company-owned locations.
- Established Market Presence: With a strong existing customer base and brand recognition, the company benefits from customer loyalty and repeat business.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Revenue | $143.4 million | $109.4 million | +31.1% |
| Net Loss | $(44.8) million | $(24.7) million | +81.8% |
| General and Administrative Expense | $34.5 million | $24.5 million | +41.0% |
| Cost of Restaurant and Factory Revenues | $96.8 million | $59.2 million | +63.6% |
Overall, FAT Brands Inc. is strategically positioned to leverage its growth opportunities, driven by market expansions, acquisitions, and strong operational capabilities.
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Article updated on 8 Nov 2024
Resources:
- FAT Brands Inc. (FATBB) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of FAT Brands Inc. (FATBB)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View FAT Brands Inc. (FATBB)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.