FAT Brands' Twin Peaks Rebrand: A Strategic Play for Operational Efficiency and Margin Dominance

FAT Brands' decision to rebrand Smokey Bones locations into Twin Peaks restaurants marks a bold strategic pivot toward operational efficiency and margin optimization. By downsizing Smokey Bones—a brand plagued by declining relevance—and doubling down on Twin Peaks, a higher-margin sports bar concept, the company aims to transform its financial trajectory. This move not only reflects a shrewd reallocation of resources but also underscores the power of brand consolidation in a competitive restaurant landscape.

Operational Efficiency: The Foundation of the Rebrand

The rebranding process is designed to minimize costs and accelerate growth. Converting existing Smokey Bones locations into Twin Peaks restaurants reduces construction timelines by 18 months compared to new builds, leveraging pre-existing infrastructure. With plans to convert 30 Smokey Bones locations over several years, FAT Brands avoids the capital-intensive process of acquiring new real estate. By closing 9 underperforming Smokey Bones units, the company also eliminates drag on profitability, retaining only 15 top-tier locations. This ruthless prioritization of efficiency ensures capital is directed toward higher-potential assets.

The operational synergy between Smokey Bones and Twin Peaks is critical. Twin Peaks, which shares similarities with Hooters in its sports bar model, boasts a fourfold higher margin profile than Smokey Bones. This stark contrast in profitability metrics—driven by Twin Peaks' higher average-unit volumes (AUV) and streamlined operations—justifies the aggressive rebranding push.

Margin Optimization: From Survival to Profitability

The financial case for Twin Peaks is undeniable. Its AUV has grown from $4.1 million in 2019 to $5.4 million in 2023, with targets to reach $6.5 million by the third year of operations. These figures are underpinned by a 16% target restaurant-level contribution margin and cash-on-cash returns of 28.9% for conversions and 37.1% for new builds—metrics that signal a brand primed for scalability.

The shift also addresses FAT Brands' debt burden. By focusing on Twin Peaks' conversions—80% of its locations are now conversions—the company reduces capital expenditures while accelerating payback periods. The planned spinoff of Twin Peaks and Smokey Bones into Twin Hospitality Group further sharpens the focus, allowing Twin Peaks to operate independently and attract investors drawn to its high-margin growth story. FAT Brands' retention of 95% of Twin Hospitality shares ensures control while enabling the spinoff to access capital markets separately.

Expansion Strategy: Franchising as the Growth Engine

Twin Peaks' expansion hinges on franchising, with a target of 75% franchised locations (currently at 71%). This model reduces upfront costs while amplifying geographic reach. The brand's pipeline includes over 100 franchised locations, with plans to open 11 new units by year-end . Long-term goals of 650 U.S. and 250 international locations** are ambitious but achievable given the brand's appeal in underserved markets like Nevada and South Carolina.

Co-branded models, such as combining Great American Cookies with Marble Slab Creamery, further optimize foot traffic and revenue streams. These strategies exemplify FAT Brands' ability to extract maximum value from its portfolio while minimizing operational complexity.

Challenges and Risks

The rebrand is not without hurdles. Smokey Bones closures contributed to a 6.57% year-over-year revenue decline in Q1 2025, though adjusted EBITDA has grown steadily from $9 million in 2019 to $28.3 million in 2023. Near-term volatility in same-store sales and investor skepticism about the spinoff's execution could pressure the stock. Additionally, state-specific decisions—such as the uncertain fate of Smokey Bones locations in Illinois and Michigan—add regional uncertainty.

Investment Thesis: A High-Reward, High-Conviction Play

FAT Brands' rebranding initiative is a calculated gamble with asymmetric upside. The Twin Peaks franchise's margin profile and expansion potential position it to outperform peers in the casual dining sector. Investors should monitor two key metrics: the pace of Smokey Bones conversions and Twin Peaks' ability to achieve its $6.5 million AUV target.

The spinoff of Twin Hospitality Group is a pivotal catalyst. If executed smoothly, it could unlock value by separating underperforming assets and allowing Twin Peaks to pursue debt reduction and growth independently. FAT Brands' stock, currently trading at a discount to its peers, offers a compelling entry point for long-term investors willing to overlook near-term headwinds.

Conclusion

FAT Brands' rebranding of Smokey Bones to Twin Peaks is a masterclass in operational and financial discipline. By channeling resources into a higher-margin, faster-growing brand while ruthlessly pruning underperformers, the company is setting the stage for a turnaround. While execution risks remain, the strategic clarity and financial upside make this a compelling story for investors seeking exposure to a turnaround narrative in the restaurant sector. For those with a long-term horizon, FAT Brands' pivot to Twin Peaks could prove to be a winning bet.