FAT Brands is leveraging its manufacturing facility in Atlanta to build out and enhance dessert programs across its portfolio. It recently introduced cookie offerings at all Elevation Burger locations and has begun introducing sweet menus to other burger concepts, namely Johnny Rockets and Fatburger, with the nationwide rollout for both brands expected to be completed by the end of the summer. 

The manufacturing facility, which also produces pretzel mix for several brands, generated $9.6 million in sales in Q2. That marked a 13 percent increase from the same period a year ago. It currently operates at around 45 percent capacity, up from 30 percent in Q2 of fiscal 2022. Former CEO and current chairman of the board Andy Wiederhorn said the company has two strategies for utilizing more of the excess capacity. 

“One is rolling out the cookies and pretzel program across as many of our brands as we can,” he said during the company’s Q2 earnings call last Thursday. “That’s going to see an uptick in utilization over the coming rest of the year. Plus, we also have this 1,100-store pipeline, and many of those new restaurants will be selling cookies and pretzels, so that’s going to chew up a bunch of capacity as those restaurants open.”


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The second strategy centers around third-party manufacturing. FAT Brands is currently negotiating with several different groups about producing cookie and pretzel dough for them. While there are plenty of opportunities out there, Wiederhorn said the key going forward is balancing the margin on that production. 

“With the quality of ingredients and the wholesale pricing that we can offer our franchisees, it’s a healthy margin in the 30 percent range or more for cookie and pretzel mix,” he said. “Some of the third-party manufacturing contracts have a 10 percent margin. We don’t want to use up capacity for low-profit business where we can save it for our own business or better third-party contracts, so we’re just trying to be thoughtful about which contracts we enter into.”

FAT Brands has said in the past that utilizing more capacity at the manufacturing facility will build up the value of that asset ahead of a future liquidity event, which would go a long way toward paying down debt after its acquisition spree and a busy few years of borrowing. The company is pursuing a similar strategy with Twin Peaks, which it plans to take public next year. Wiederhorn didn’t disclose any details on the timing and size of that transaction, but he did say the bulk of the proceeds from the IPO will go toward a substantial pay-down of debt on the FAT Brands side. The company will also use some of the funds to build corporate Twin Peaks stores while still maintaining a heavy balance of franchise to company-owned locations. 

“While we see franchisee interest across our diversified portfolio of restaurant concepts, we remain especially focused on the expansion of the polished-casual segment through Twin Peaks,” Wiederhorn said. “Units continue to produce industry-leading average unit volumes of around $6 million, with some of our highest volume locations in Florida generating AUVs between $9 million and $12 million. These restaurants also have very strong margins.”

The company plans to open as many as 20 new lodges in fiscal 2023. Eight lodges have been completed to date, bringing the total unit count to 103. That number is expected to reach 115 by the end of the year, a nearly 40 percent increase since the brand was acquired by FAT Brands in October of 2021. Twin Peaks is projected to double its unit count to more than 200 lodges and increase the mix of franchise locations from 70 percent today to more than 80 percent over the next few years. The planned unit growth could push systemwide sales to approximately $1 billion, according to Wiederhorn. 

He said the company is considering acquiring concepts with locations that can be turned into Twin Peaks restaurants, with up to half of the brand’s future growth coming through those conversions. 

“It takes almost 2.5 years to find a location, build it, and get it opened, with permitting and things like that,” Wiederhorn said. “But if we’re able to convert some of these second-generation restaurants—and we’ve done a bunch of conversions in the past quite successfully—then we think it will dramatically accelerate those openings.” 

Along with increasing utilization of the manufacturing facility and bolstering the success of Twin Peaks, FAT Brands remains focused on increasing organic growth through new store openings to reduce its leverage ratio. To that end, it opened 25 units in Q2, bringing its year-to-date total to 66 new locations. At least 35 units are slated to open in Q3, and the company expects to open a total of 175 new units in fiscal 2023, a 25 percent increase in net new openings versus fiscal 2022. 

FAT Brands has signed franchise development deals for over 150 locations so far this year, pushing its total pipeline to over 1,100 signed agreements for new units over the next few years. Wiederhorn estimated the pipeline of organic growth to be worth approximately $60 million in incremental adjusted EBITDA. That would bring the company’s total adjusted EBITDA to around $150 million and would naturally delever the balance sheet. 

FAT Brands is seeing consistent growth in its burger concepts. It opened a Fatburger in the Tampa market in Q2, the first of four locations that will open in the area. It also plans to open 10 Fatburger locations in Orlando with the first slated to open by the end of the year. Johnny Rockets is charting domestic and international growth with new locations in Arizona, Chile, Peru, and multiple locations in the United Arab Emirates. The brand also signed a development agreement to open 20 new franchise locations in Texas. 

Great American Cookies recently debuted in Alaska and hit a key milestone with its 400th location. FAT Brands also opened its second Pretzel Maker drive-thru location in Cedar Rapids, Iowa. Wiederhorn said expanding the snack concept’s drive-thru only is an important objective, “thanks to the strong returns we have generated right out of the gate.” 

Co-branding remains another key strategy for driving sales and leveraging margins. The company is gearing up to open the first co-branded Fatburger-Round Table Pizza location in Texas later this year. 

Total revenue at FAT Brands grew 3.9 percent to $106.8 million in Q2, driven by a 5 percent increase on royalties, a 4.6 increase in company-owned restaurant revenues, and a 10.3 percent increase in revenues from the manufacturing facility. The company reported a net loss of $7.1 million, compared to a net loss of $8.2 million in the same period a year ago.

Fast Food, Finance, Franchising, Story