Fat Brands Inc., owner of Johnny Rockets and Fatburger, is installing new leadership in an effort to spur organic growth, climb out of debt and mitigate the controversial impact of its troubled former chief executive.
In May, the Beverly Hills-based restaurant operator named Ken Kuick and Rob Rosen as co-chief executives after former chief executive Andy Weiderhorn stepped down amid a federal investigation into the company, Wiederhorn and his family. The company’s goal is to continue its fast-paced growth.
“Looking ahead, we will aim to build on our positioning as one of the largest U.S. restaurant companies through a combination of organic growth, brand synergies and acquisitions,” Kuick and Rosen wrote in an email.
Wiederhorn will remain board chair and, per the company, “remain a key part of Fat Brands’ formula for success, focusing less on the day-to-day and more so on overall strategic direction, capital allocation.”
Growth mode
Kuick and Rosen joined the company in 2021 as chief financial officer and executive vice president, respectively. The pair will maintain those roles in addition to their duties as co-CEOs. Kuick previously served as chief financial officer at Broomfield, Colorado-based Noodles & Co. and Reno, Nevada-based Caesars Entertainment Operating Co. Rosen spent two decades at Stamford, Conneticuit-based Black Diamond Capital Management and has held roles at multiple banking institutions.
Fat Brands (an acronym for “fresh, authentic, tasty”) went public in 2017, raising $24 million. In the past three years, the company has gone on an acquisition spending spree, snapping up Round Table Pizza, Marble Slab Creamery, Great American Cookies, Twin Peaks, Global Franchise Group, Fazoli’s, Native Grill & Wings and others. The acquisitions have slowed, but the company said it is always evaluating opportunities, adding that targets need to be “extremely strategic.”
“Our focus now is to fully realize the potential of the new brands we acquired by taking advantage of the scale of the Fat Brands platform and tapping into synergies, such as co-branding, and the utilization of our manufacturing facility to expand the product mix at our restaurants,” said Kuick and Rosen. “That said, we would consider acquiring concepts with locations that can be converted into Twin Peaks, as well as other categories to round out our portfolio such as salad, sandwich or coffee brands.”
The company has agreements for more than 1,000 new, primarily franchised, locations in the next few years, and 175 of those stores will open this year. The company maintains 2,300 locations across its portfolio.
Fat Brands is particularly focused on the accelerated growth of the Twin Peaks restaurant, a chain of sports bars with a tavern atmosphere and waitresses with exposed midriffs. Twin Peaks produces average unit volumes — AUVs — around $6 million per location, with some high-volume locations in Florida generating AUVs between $9 million and $12 million per location.
“We anticipate opening 18 to 20 new Twin Peaks in 2023, closing the year with approximately 115 lodges, an almost 40% growth in unit count in just two years since the FAT Brands acquisition,” said Kuick and Rosen.
Plans call for similar growth for Twin Peaks in 2024.
Other brands that are seeing strong organic growth include Great American Cookie, with more than 30 anticipated store openings; Fatburger, with 25 anticipated openings; Marble Slab Creamery, with more than 20 planned openings; and Johnny Rockets, with more than 15 immediate openings in the pipeline. The company will also open 22 franchised locations in Iraq in partnership with Augusta, Georgia-based Global Vita USA. There will be 12 co-branded Fatburger and Buffalo’s Express locations and 10 co-branded Great American Cookies and Marble Slab Creamery units, with the first units to open in 2024.
Executive shakeups
This month, the company named a new chief marketing officer and two new brand presidents after posting a first-quarter net loss of $32.1 million. The total revenue for the quarter was $105.7 million, an increase of 8.5% from $97.4 million in the first fiscal quarter of 2022. The company announced that revenue growth was driven by same-store sales and revenues from new restaurant openings.
Stock is currently trading around $5.24, about the same as it was at this time in 2022. The stock steadily rose in mid-2022, peaking in August at $9.90 before a steady decline to $4.80 by the end of the year. The company’s five-year high stock price hit $12.32 in July 2021 when the company spent $442.5 million on Global Franchise Group, which included Round Table Pizza, Marble Slab Creamery, Hot Dog on A Stick, Great American Cookies and Pretzelmaker.
“Organic growth at Fat Brands remains strong. We opened 41 new units during the first quarter and plan to open 45 additional units in the second quarter,” Wiederhorn said in a statement on the first-quarter results.
In February 2022, the Los Angeles Times reported that an FBI special agent accused Wiederhorn in an affidavit of receiving millions in “sham loans.” The executive’s son’s home was raided in December 2022 by federal agents, who removed tax documents, computers and other records.
Wiederhorn and his family’s company, Fog Cutter Capital Group Inc., maintain a controlling interest (55.5%) in the company. Accusations against Wiederhorn and his relatives’ company include securities and wire fraud, money laundering and attempted tax evasion.
In 2004, Wiederhorn pled guilty in federal court to charges of paying an illegal gratuity to an associate and to filing a false tax return. He spent 15 months in federal prison and was required to pay a $2 million fine.
“The company intends to cooperate with the U.S. Attorney and the SEC regarding these matters and is continuing to actively respond to inquiries and requests from the U.S. Attorney and the SEC,” Fat Brands said in a recent filing. “At this stage, we are not able to reasonably estimate or predict the outcome or duration of either of the U.S. Attorney’s or the SEC’s investigations.”
Initially anchored by Fatburger, Fat Brands acquired 12 companies in the last three years by seeking out and buying struggling restaurant brands. In 2020, Fog Cutter Capital merged with Fat Brands, which allowed it to use stock to make acquisitions, rather than cash and debt financing. However, by the end of last year, the company had amassed almost three times the amount of debt to income after assuming the liabilities of its acquisitions. At the beginning of this month, the company maintained $95 million in current assets and $267 million in current liabilities.
