Fat Brands, Inc

FAT Brands Inc. operates as a multi-brand restaurant company, primarily functioning as a franchisor of quick service, fast casual, casual dining, and polished casual dining concepts globally ¹. The company's business model is "asset light," generating revenue through initial franchise fees and ongoing royalties based on franchisee sales, which is designed to provide strong profit margins and an attractive free cash flow profile while minimizing restaurant operating risks ². As of December 29, 2024, FAT Brands Inc. had approximately 2,300 locations open or under construction, with about 92% being franchised ³. The company also directly owned and operated 181 restaurants as of the same date ⁴. System-wide sales for fiscal year 2024 reached $2.4 billion ⁵.

The company's core business model is centered on franchising, where it charges franchisees an initial fee, typically ranging from $20,000 to $50,000 per store ⁶, and an ongoing royalty fee of between 0.75% to 7.0% of net sales ⁷. Franchisees also generally pay an advertising fee based on net sales for local and brand marketing ⁸. This model minimizes direct restaurant operating company risks such as real estate commitments or capital investments ⁹. The company also generates revenue from its directly owned and operated restaurants and a manufacturing and production facility in Atlanta, Georgia, which supplies cookie dough, pretzel dry mix, and other ancillary products to its franchisees ¹⁰.

FAT Brands Inc. owns and franchises 18 restaurant brands across four main categories: Quick Service, Fast Casual, Casual Dining, and Polished Casual Dining ¹¹. The Quick Service brands include Round Table Pizza, Marble Slab Creamery, Great American Cookies (GAC), Hot Dog on a Stick (HDOS), Pretzelmaker, and Fazoli's ¹². Fast Casual brands consist of Fatburger, Johnny Rockets, Elevation Burger, and Yalla Mediterranean ¹³. Casual Dining brands are Buffalo's Cafe and Buffalo's Express, Hurricane Grill & Wings, Ponderosa Steakhouse / Bonanza Steakhouse, and Native Grill & Wings ¹⁴. The Polished Casual Dining category includes Twin Peaks and Smokey Bones, which are owned and operated through its majority-owned subsidiary, Twin Hospitality Group Inc. ¹⁵.

For the fiscal year ended December 29, 2024, total revenues were $592.652 million ¹⁶, an increase from $480.457 million in fiscal year 2023 ¹⁷. This $112.2 million increase ¹⁸ was primarily driven by the acquisition of Smokey Bones in September 2023 and revenues from new restaurant openings ¹⁹. Royalties contributed $90.035 million ²⁰, restaurant sales $413.480 million ²¹, advertising fees $39.473 million ²², factory revenue $37.949 million ²³, franchise fees $6.487 million ²⁴, and other revenue $5.228 million ²⁵. Total costs and expenses for fiscal 2024 were $644.872 million ²⁶, leading to a loss from operations of $52.220 million ²⁷. Net loss for the fiscal year was $189.847 million ²⁸, with basic and diluted loss per common share of $11.60 ²⁹. Cash and restricted cash totaled $67.389 million ³⁰ as of December 29, 2024, and total debt was $1,286.5 million ³¹.

Comparing fiscal year 2024 to fiscal year 2023, total revenues increased by $112.2 million ³². Restaurant sales saw a significant increase from $299.029 million in 2023 to $413.480 million in 2024 ³³. Total costs and expenses increased from $458.127 million in 2023 to $644.872 million in 2024 ³⁴, primarily due to the Smokey Bones acquisition and increased activity from company-owned restaurants ³⁵. General and administrative expenses rose by $35.4 million ³⁶, and cost of restaurant and factory revenues increased by $110.2 million, or 39.0% ³⁷. Depreciation and amortization increased by $10.4 million ³⁸. The company recorded non-cash impairment charges for goodwill and other intangible assets of $30.6 million in 2024, up from $0.5 million in 2023 ³⁹. Net loss widened from $90.110 million in 2023 to $189.847 million in 2024 ⁴⁰.

During fiscal year 2024, FAT Brands Inc. completed the acquisition of Barbeque Integrated, Inc., operator of Smokey Bones restaurants, in September 2023 ⁴¹. In November 2024, Twin Hospitality I, LLC, a subsidiary, refinanced its secured notes through the issuance and sale of four tranches of fixed rate secured notes totaling $416.7 million ⁴². In January 2025, the company distributed approximately 5% of the fully-diluted shares of Class A Common Stock of Twin Hospitality to its common stockholders, and Twin Hospitality began trading as a standalone public company ⁴³. The company also repurchased $36.4 million of its securitized notes and sold $108.2 million of retained notes during 2024 ⁴⁴.

FAT Brands Inc. aims to organically grow its new store pipeline and attract new franchisees, having developed a pipeline of approximately 1,000 restaurants under development ⁴⁵. The company believes that global markets for its brands are not saturated and can support a significant increase in units through new franchisee relationships ⁴⁶. New franchisee activity is strong, and existing franchise partners continue to demand development of other brands within the portfolio ⁴⁷. Prospective franchisees often have experience in and knowledge of new markets, which facilitates smoother brand introduction ⁴⁸.

The company plans to expand its factory business, which currently operates at approximately 40% capacity ⁴⁹. The strategy involves offering batter to other brand categories within its portfolio and entering into third-party manufacturing contracts to increase production ⁵⁰.

FAT Brands Inc. intends to capitalize on growth opportunities in its Polished Casual Dining category, specifically with the Twin Peaks brand. Twin Peaks has grown from 85 units to 115 units since its acquisition in October 2021 ⁵¹, and the company will pursue continued growth through additional company-owned and franchised units ⁵².

The company is driving store growth through co-branding and tri-branding initiatives. It franchises co-branded Fatburger / Buffalo’s Express, Johnny Rockets / Hurricane Grill and Wings, Great American Cookies / Marble Slab Creamery, and Pretzel Maker / Great American Cookie locations ⁵³. Additionally, it tri-brands Fat Burger / Buffalo's Express / Hot Dog on a Stick and Great American Cookies / Marble Slab Creamery / Pretzel Maker locations ⁵⁴. These strategies offer franchisees flexibility, shared kitchen space, and are estimated to result in a 20%-30% increase in average unit volume compared to stand-alone locations with minimal incremental cost to franchisees ⁵⁵.

FAT Brands Inc. plans to optimize its capital structure, having funded acquisitions primarily through whole-business securitization facilities, which reduced its net cost of capital ⁵⁶. The company has refinanced and may continue to refinance these notes, potentially seeking an investment rating to further reduce capital costs ⁵⁷.

The company also plans to continue expanding internationally, leveraging its significant global presence with franchised stores in 34 countries ⁵⁸. It is targeting further penetration of Middle Eastern and Asian markets, particularly by expanding the number of units for several existing brands ⁵⁹.

FAT Brands Inc. intends to acquire new brands that enhance existing categories, utilizing its management platform designed for cost-effective and seamless scaling with new restaurant concept acquisitions ⁶⁰. The company has identified additional categories of potential acquisitions that appeal to a broad base of U.S. and international customers and would be accretive to its existing portfolio ⁶¹.

The company's ability to pay regular dividends to common stockholders is currently restricted. Under a letter agreement executed in November 2024 in connection with the refinancing of the Twin Securitization Notes, the company agreed not to pay a dividend on its common stock (FAT and FATBB) until at least $25,000,000 in proceeds from Qualified Equity Offerings have been used to prepay the Twin Securitization Notes ⁶². This restriction does not apply to dividends on its outstanding Series B Cumulative Preferred Stock (FATBP) ⁶³.

FAT Brands Inc. faces several material risks. The company has significant outstanding indebtedness under its whole-business securitization facilities, totaling $1.3 billion as of December 29, 2024 ⁶⁴, which requires sufficient cash flow to satisfy payment obligations and exposes the company to default risk and lender remedies ⁶⁵. Geopolitical and macroeconomic events, including supply shortages, interest rates above historical norms, unemployment, significant cost inflation, and health emergencies, have impacted consumer spending and operational costs, and may continue to do so ⁶⁶. The retail food industry is highly competitive, with many well-established competitors having substantially greater financial resources ⁶⁷. Food safety and foodborne illness concerns, such as E. coli, hepatitis A, trichinosis, and salmonella, may occur within the system, potentially leading to negative publicity, reduced sales, product liability claims, litigation, and temporary restaurant closures ⁶⁸. The sale of alcoholic beverages at Twin Peaks and Smokey Bones restaurants subjects the company to additional regulations and potential dram shop liability, with recent litigation against restaurant chains resulting in significant judgments and settlements ⁶⁹. The company is also subject to pending government charges, including a May 10, 2024 indictment by the U.S. Department of Justice on two violations of Section 402 of the Sarbanes-Oxley Act for extending credit of $2.65 million to its former CEO in 2019 and 2020 ⁷⁰, and a concurrent SEC complaint alleging failures to disclose related party transactions, maintain proper books and records, and making false statements regarding liquidity ⁷¹. These charges and related stockholder litigation could result in additional expenses, fines, penalties, and materially adversely affect the company's business, financial condition, and reputation ⁷². Furthermore, the company's subsidiary Fog Cutter Acquisition, LLC, is a party to environmental litigation seeking damages in the range of $12.0 million to $22.0 million for alleged environmental contamination ⁷³, with reserves recorded on the balance sheet relating to this litigation ⁷⁴.

Management's message to shareholders emphasizes the company's "Fresh. Authentic. Tasty." (FAT) values as the anchor for its marketing efforts and commitment to consistent delivery of high-quality food. They highlight the robust and comprehensive management and systems platform designed to support the expansion of existing brands and the accretive and efficient acquisition and integration of additional restaurant concepts, with distinct teams focused on Quick Service, Fast Casual, Casual Dining, and Polished Casual Dining categories. Management has developed a pipeline of approximately 1,000 restaurants under development ⁷⁵ and is seeing strong new franchisee activity and continued demand from existing partners to develop other brands. Strategic priorities include organically growing the new store pipeline, expanding the factory business, capitalizing on growth opportunities in the Polished Casual Dining category (specifically Twin Peaks, which has grown from 85 units to 115 units since October 2021 ⁷⁶), driving store growth through co-branding and tri-branding (estimated to increase average unit volume by 20%-30% ⁷⁷), optimizing the capital structure through securitization facilities, continuing international expansion, and acquiring new brands that enhance existing categories. However, management has also explicitly stated that under a letter agreement from November 2024, the company will not pay a dividend on its common stock until at least $25,000,000 in proceeds from Qualified Equity Offerings have been used to prepay the Twin Securitization Notes ⁷⁸.