FAT Brands Inc (FAT) Q1 2025 Earnings: Growth Amid Headwinds

FAT Brands Inc (NASDAQ: FAT) has long been a bellwether for franchising-driven expansion in the restaurant sector. Its Q1 2025 earnings call, however, revealed a company navigating a complex balancing act: delivering aggressive growth while confronting near-term financial pressures. Let’s dissect the numbers and strategies shaping its path forward.

Financial Performance: Growth vs. Headwinds

FAT’s Q1 results underscored the tension between expansion and profitability. Revenue dipped 6.5% year-over-year to $142 million, driven by lower same-store sales and temporary store closures during brand conversions. Net losses widened to $46 million, with Adjusted EBITDA falling to $11.1 million from $18.2 million in 2024. These figures reflect short-term pain points, including labor inflation, food cost pressures, and a 10% rise in legal expenses (to $33 million in G&A costs).

Yet, the company’s operational momentum remains undeniable. 23 new locations opened in Q1—a 37% increase over last year—keeping it on track for over 100 openings in 2025. The development pipeline stands at 1,000+ signed agreements, with international expansion accelerating, including 40 new units in France by 2030.

Strategic Initiatives: Building Long-Term Value

FAT’s leadership emphasized three pillars for turning the tide: refranchising, manufacturing synergies, and international scale.

1. Refranchising Dominance:
   The company aims to return to a nearly 100% franchised model by refranchising its 57 company-operated Fazoli’s restaurants. This shift reduces operational overhead and aligns with the proven profitability of its franchise-heavy business. The recently amended Fazoli’s securitization deal also freed up capital, a critical step toward debt reduction.

2. Factory Utilization:
   A new $5 million annual EBITDA boost is expected from a third-party contract with a national entertainment chain for dough and mix production. FAT’s factories, which now operate at 60% capacity, could become a hidden revenue engine as partnerships expand.

3. Global Ambitions:
   With 2,300 system-wide units across 40 countries, FAT is capitalizing on its portfolio of 18 brands—from Fatburger to Marble Slab Creamery—to tap into international markets. The French expansion alone represents a 16% increase in its current European footprint, signaling confidence in brand appeal abroad.

Challenges and Risks

The earnings call didn’t shy away from obstacles:
- Same-Store Sales Decline: A 3.4% drop year-over-year highlights execution challenges, particularly in integrating newly acquired brands.
- Cost Pressures: Rising labor and food costs, along with litigation expenses, are squeezing margins.
- Debt Management: Despite the $50 million dividend from the Twin Hospitality spin-off, FAT’s net debt remains a concern unless refranchising proceeds and factory revenue materialize as planned.

Outlook: Why the Long Game Matters

FAT’s strategy hinges on two critical assumptions:
1. Pipeline Execution: The 1,000-unit pipeline must convert to open stores at scale, driving top-line growth.
2. Factory Synergies: The $5 million EBITDA uplift from manufacturing partnerships needs to offset margin pressures.

If these levers click, FAT could stabilize Adjusted EBITDA by late 2025 and resume profit growth by 2026. The refranchising of Fazoli’s alone could reduce net debt by $30–40 million, improving liquidity.

Conclusion: A Risky but Strategic Bet

FAT Brands is a company at a crossroads. Its Q1 results reveal a business under pressure from execution hiccups and macroeconomic headwinds, yet its playbook for growth—refranchising, manufacturing diversification, and global expansion—is clear and ambitious. The $50 million dividend from Twin Hospitality and the $5 million factory upside provide near-term hope, while the 1,000-unit pipeline offers long-term visibility.

Investors must weigh the risks: short-term losses, integration challenges, and debt. But for those willing to look past the next 12–18 months, FAT’s model—owning high-demand brands while leveraging franchisees to scale—retains its core appeal. With 2,300 global units and a portfolio spanning 18 concepts, FAT is primed to capitalize on a rebound in casual dining demand, provided it can navigate its current turbulence.

In short, FAT’s Q1 results are a snapshot of growing pains, not failure. The question for investors is whether they can stomach the volatility while waiting for the strategy to pay off. The data suggests patience may be rewarded—but only if execution meets ambition.

Data Sources: FAT Brands Q1 2025 Earnings Call Transcript, SEC Filings, Company Presentations.