FAT Brands Navigates Turbulent Waters Amid Strategic Shifts

FAT Brands Inc (NASDAQ: FAT) posted a challenging quarter in Q1 2025, with revenue declining 6.5% year-over-year to $142 million and a net loss of $2.73 per share. Yet, the company’s long-term strategy—centered on refranchising, brand transitions, and capital-light growth—remains intact. Investors must weigh near-term pain against the potential for debt reduction, cash flow improvement, and a pipeline of over 1,000 new units.

Revenue Pressures and Strategic Trade-Offs

The top-line decline reflects deliberate strategic choices rather than a broad industry slump. Smokey Bones closures, part of a plan to convert 30 locations into Twin Peaks lodges, shaved $2 million off quarterly results. Meanwhile, the refranchising of Fazoli’s restaurants—expected to generate $20–$25 million in proceeds—will further reduce overhead.

System-wide sales dipped 1.8% year-over-year to $571.1 million, though domestic brands like Buffalo’s Cafe and Round Table Pizza showed resilience. Casual dining same-store sales rose 1.6%, while Marble Slab Creamery’s new app-driven strategy boosted average checks by 17.6%. International markets, though lagging, showed signs of recovery in late Q1, with France emerging as a key growth region.

Debt Reduction: The Critical Lifeline

FAT Brands’ financial health hinges on its ability to deleverage. The spinoff of a 5% stake in Twin Peaks (NASDAQ: TWINPK) delivered a $50 million dividend to shareholders, with the remainder retained to bolster Twin Peaks’ capital structure. The company aims to raise an additional $75–$100 million in equity during 2025, 75% of which will target debt repayment.

Current market volatility has delayed the first equity tranche, but management remains confident in meeting its annual target within 12 months. Refinancing $300 million in securitized debt maturing in July 2026 is another priority, alongside slashing $5 million in annual SG&A costs.

Manufacturing and Co-Branding: Hidden Levers

The Georgia production facility, which supplies frozen pizza dough and desserts to Round Table Pizza and Marble Slab Creamery, is a quiet engine of value. Generating $8.8 million in sales and a 35% EBITDA margin in Q1, the facility aims to boost utilization from 45% to 70% by 2026. A new contract with a national entertainment chain could add $10 million to annual sales, with management noting its long-term potential as a $300 million asset if sold.

Co-branding initiatives, such as tripling locations with Fatburger and Round Table Pizza pairings, could amplify profitability. With 10 such models already operational, the strategy aims to maximize foot traffic and cross-selling opportunities.

Risks and Uncertainties

The Smokey Bones transition remains a near-term drag, with two conversions completed and more underway. Litigation costs, which plagued prior quarters, are expected to drop in Q2, but construction cost inflation and delayed equity raises pose execution risks.

The Bottom Line: A Bumpy Road to Reward

FAT Brands’ Q1 results underscore the trade-offs of a restructuring phase: short-term pain for long-term gain. The company’s path to success relies on executing its equity raise, accelerating refranchising, and leveraging its manufacturing and co-branding strengths.

Consider these key data points:
- Debt Paydown Potential: $20–25 million from Fazoli’s refranchising + $75–$100 million equity raise = ~$100 million toward reducing $600 million in total liabilities.
- Pipeline Momentum: 1,000 units in development could add $50 million in annual EBITDA once operational.
- Brand Turnaround: Marble Slab’s app-driven sales growth (8%) and Round Table’s sequential digital sales rise (5%) signal operational agility.

While FAT’s stock has underperformed peers this year, patient investors may find value in its fragmented restaurant sector exposure and asset-light model. Management’s focus on deleveraging and unit growth suggests the company is prioritizing survival over short-term gains—a necessary step if it aims to thrive in an increasingly competitive dining landscape.

In conclusion, FAT Brands’ Q1 results are a mixed bag, but the groundwork for a turnaround is visible. Success will depend on navigating debt, capitalizing on its manufacturing assets, and accelerating the rollout of high-margin co-branded locations. For now, the path forward is clear—though the journey remains bumpy.