Fat Brands, Inc SEC 10-K Report

Fat Brands, Inc., a leading global franchisor of restaurant brands, has released its annual Form 10-K report, detailing significant financial and operational performance metrics for the fiscal year. The report highlights the company's strategic initiatives, business growth, and the challenges it faces in the competitive restaurant industry.

Financial Highlights

Total Revenue: $592.7 million, an increase from $480.5 million in the previous year, primarily driven by the acquisition of Smokey Bones and new restaurant openings.

(Loss) Income from Operations: $(52.2) million, compared to $22.3 million in the previous year, reflecting increased costs and expenses.

Net Loss: $(189.8) million, compared to $(90.1) million in the previous year, due to higher costs and expenses, including impairment charges.

Basic and Diluted Loss Per Common Share: $(11.60), compared to $(5.85) in the previous year, reflecting the increased net loss.

Business Highlights

Franchise Model: FAT Brands Inc. operates primarily as a franchisor of restaurants, leveraging an 'asset light' model that minimizes risks associated with restaurant operations, such as real estate commitments and capital investments. This model allows for strong profit margins and attractive free cash flow profiles.

Brand Portfolio: The company owns and franchises 18 restaurant brands across four main categories: Quick Service, Fast Casual, Casual Dining, and Polished Casual Dining. Notable brands include Fatburger, Johnny Rockets, Twin Peaks, and Smokey Bones.

Franchise Network: As of December 29, 2024, FAT Brands had over 730 franchise partners operating approximately 2,300 restaurants globally, with a significant presence in 34 countries and 46 U.S. states.

Manufacturing Facility: The company owns a manufacturing and production facility in Atlanta, Georgia, which supplies franchisees with cookie dough, pretzel dry mix, and other products, operating at approximately 40% capacity.

Co-Branding Strategy: FAT Brands employs a co-branding strategy, offering franchisees the flexibility to operate multiple concepts within a single location, which has been shown to increase average unit volume by 20%-30% compared to stand-alone locations.

Geographical Expansion: The company is targeting further penetration in Middle Eastern and Asian markets, leveraging the global appeal of its Fresh, Authentic, and Tasty concepts.

New Store Pipeline: There is a pipeline of approximately 1,000 restaurants under development, driven by both existing and new franchisee relationships, indicating strong growth potential.

Twin Peaks Growth: The Twin Peaks brand has expanded from 85 to 115 units since its acquisition in October 2021, with plans for continued growth through additional company-owned and franchised units.

Future Outlook: FAT Brands plans to continue expanding its brand portfolio through acquisitions and organic growth, focusing on co-branding opportunities and international expansion to drive future growth.

Strategic Initiatives

Expansion and Acquisitions: FAT Brands Inc. is focused on expanding its restaurant portfolio through acquisitions and the opening of new franchised locations. The acquisition of Smokey Bones in September 2023 significantly contributed to revenue growth. The company is also involved in a worldwide expansion of franchise locations, which requires significant liquidity primarily from franchisees.

Potential Listing of Twin Hospitality: FAT Brands is exploring the potential listing of Twin Hospitality as a standalone public company, which could provide additional strategic opportunities.

Capital Management: The company has been actively managing its capital through various debt issuances and refinancings. It issued several tranches of fixed rate secured notes through its subsidiaries to finance acquisitions and operations. FAT Brands also completed a refinancing of Twin Hospitality's secured notes, raising $416.7 million in aggregate principal. The company has liabilities of $91.8 million related to put options on its Series B Cumulative Preferred Stock, with options to extend repayment. Dividends were declared on common stock, totaling $9.6 million for the year, and on Series B preferred stock, totaling $7.8 million. The company also issued new shares of preferred stock, raising $1.6 million in net proceeds.

Future Outlook: FAT Brands plans to continue its growth strategy by acquiring additional restaurant concepts and expanding existing brands. The company anticipates that future acquisitions will require additional financing through debt or equity transactions. It believes it has sufficient liquidity to meet its needs for the next twelve months through cash on hand, cash flows from operations, and access to capital markets. The company is also considering the potential listing of Twin Hospitality as a standalone public company, which could provide further capital and strategic opportunities.

Challenges and Risks

Franchised Business Model Risks: The company's reliance on franchisees for the majority of its operations means that its financial success is closely tied to the performance and cooperation of its franchisees. Franchisees' financial distress, inability to implement growth strategies, or failure to maintain operational standards could adversely affect the company's results.

Regulatory and Legal Risks: The company is subject to various laws and regulations, including those related to food safety, labor, and franchising. Noncompliance could result in litigation, fines, or reputational damage. Recent government charges and stockholder litigation related to financial disclosures and transactions pose additional legal risks.

Market and Economic Risks: Economic conditions, such as inflation, interest rates, and consumer discretionary spending, can impact the company's performance. The company is also exposed to risks from geopolitical events and changes in consumer behavior.

Operational Risks: The company faces challenges related to supply chain disruptions, labor shortages, and cybersecurity threats. These could lead to increased costs, operational inefficiencies, or data breaches.

Brand and Reputation Risks: Negative publicity, whether from food safety issues or franchisee actions, could harm the company's reputation and brand value, leading to decreased sales and customer loyalty.

Management Strategies: Management is focused on expanding the company's footprint through new franchisee relationships and the development of existing brands. The company is also pursuing co-branding opportunities to increase average unit volumes and optimize its capital structure to reduce costs. However, the success of these strategies depends on the company's ability to manage integration challenges and maintain brand consistency.

Market Risk Management: The company is exposed to market risks, including fluctuations in commodity prices, interest rates, and foreign exchange rates. These could impact the cost of operations and profitability. Management is actively monitoring these risks and exploring strategies to mitigate their impact, such as adjusting pricing and sourcing strategies.

SEC Filing: Fat Brands, Inc [ FAT ] - 10-K - Feb. 28, 2025