Fat Brands (FAT) Q2 Revenue Falls 3%

Key Points

• Non-GAAP earnings per share for Q2 FY2025 was ($2.88), This missed estimates by $5.06. and This compares to ($1.93) in the same period last year.

• GAAP revenue for Q2 FY2025 was $146.8 million, narrowly beating expectations (GAAP revenue of $146.8 million vs. consensus estimate of $146.6 million), but down 3.4% from the prior year.

• Adjusted EBITDA for Q2 FY2025 was flat year over year at $15.7 million, as the company faced higher costs and ongoing losses.

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Fat Brands (NASDAQ:FAT), the restaurant franchising company behind a portfolio spanning burgers, pizzas, and snacks, released its latest quarterly earnings on July 30, 2025, covering results for the second quarter. The most significant news from the release: Non-GAAP earnings per share for Q2 FY2025 was ($2.88), This was below the estimated ($2.18). Total GAAP revenue for Q2 FY2025 was $146.8 million, slightly ahead of the $146.6 million GAAP consensus, but fell 3.4% compared to the same quarter last year. The quarter showed persistent cost pressures, increasing net losses for both Q1 and Q2 FY2025, and only marginal outperformance on the top line. Overall, Q2 FY2025 highlights a company managing through declining sales and higher expense levels, even as it maintains a sizable development pipeline and cost-cutting focus.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Understanding Fat Brands' Business

Fat Brands operates as a franchisor under an "asset light" model. This means it earns revenue primarily from franchise fees and royalties, but for some brands, it also directly owns and operates restaurant locations in addition to franchising. The company’s portfolio includes 18 brands across quick service, fast casual, casual dining, and polished casual dining segments. Examples include Fatburger, Great American Cookies, and Round Table Pizza.

This business approach allows the company to expand rapidly with minimal capital outlay and operational risk. Key areas of focus for Fat Brands include digital engagement, new store openings, and cost control. A robust development pipeline of roughly 1,000 signed agreements underscores its ambition to expand.

Quarter Highlights and Key Drivers

The company opened 18 new restaurants in Q2 FY2025, This kept pace with its goal of over 100 new openings this year. However, this new unit development could not offset overall sales declines. System-wide sales, which measure total sales across all franchise and company-owned restaurants, fell 3.7% year-over-year. Same-store sales—a metric comparing sales at locations open at least a year—declined 3.9%, signaling lower demand at established locations across most major categories, except for pizza and snacks.

Brand performance varied. The snack segment, including Great American Cookies, benefited from increased digital promotion. For instance, digital sales at Great American Cookies accounted for 25% of sales, with loyalty-driven sales up 40%. Round Table Pizza saw 21% loyalty-driven sales growth. and Customer engagement increased 18%. These digital and loyalty initiatives reflect how the company is adapting to evolving consumer habits. However, core segments like burgers and wings showed continued pressure, mainly reflecting wider trends reported by management as industry-wide.

The company also made notable moves in refranchising and portfolio optimization. Five Smokey Bones locations closed during the quarter due to underperformance, and one was temporarily closed for conversion into a Twin Peaks lodge. These shifts brought down revenue in the short term but align with Fat Brands' plan to move toward a business model with more franchised and fewer company-owned stores. The refranchising of Fazoli's company-owned units could yield up to $25 million, according to management, with proceeds earmarked for debt reduction.

Cost pressures were a central theme. General and administrative expenses jumped 50.3%, reaching $44.4 million. Management attributed this to higher share-based compensation at affiliate Twin Hospitality Group and the recognition of $2.1 million in Employee Retention Credits during the prior year quarter. Interest expense rose to $39.4 million, reflecting the company’s heavy debt burden. Advertising costs fell in line with advertising revenue, as ad spending is tied directly to contributions collected from franchisees for brand marketing. Taken together, these factors led to a widening net loss and a notable miss on non-GAAP earnings expectations. A $2.31 million preferred dividend was declared, but no common dividend was paid due to an ongoing pause required by debt agreements.

Looking Ahead

For the remainder of FY2025, management reiterated its goal to open over 100 restaurants, supported by a signed pipeline of roughly 1,000 franchise development agreements. The company is actively working to trim expenses and drive free cash flow, including securing a bondholder deal to shift some debt to interest-only payment, projecting $30–40 million in annual cash flow savings, as disclosed in Q2 FY2025. Additional cost reductions of $5 million have already been implemented based on the 2024 run rate, with further opportunities identified within the portfolio.

However, Fat Brands provided no specific quantitative guidance regarding revenue or earnings for upcoming quarters. Leadership stated a continued focus on debt reduction, refranchising, and driving positive cash flow as critical priorities. The recent dividend pause for common shareholders will remain in place until a $25 million debt principal reduction is reached, as stipulated in the November 2024 Twin Hospitality indenture, which could free up $36–40 million in cash flow annually. FAT does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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