A Twin Peaks IPO could come as early as the second or third quarter of 2024, according to FAT Brands founder and chairman Andy Wiederhorn. He said the timeline could be delayed depending on market conditions, and if the right buyer comes along that wants to purchase the brand outright, that’s always an option, too.
“It’s hard to say whether this will be a 2024 Q2 or Q3 deal, or whether we’re better off waiting,” Wiederhorn said during the company’s Q3 earnings call last week. “The good news is that the Twin Peaks brand is killing it in terms of growth and new store openings.”
That growth stems from the company’s ongoing focus on bolstering its polished casual segment, which now includes Smokey Bones along with Twin Peaks. FAT Brands purchased the barbecue chain for $30 million in September. It plans to convert up to 40 of its 61 units into Twin Peaks while also growing the newly acquired brand through franchising.
Twin Peaks is on track to open 16 new locations in 2023, pushing its total footprint to 111 lodges. That’s a 34 percent increase in unit count since FAT Brands took over two years ago. It is expected to grow to more than 200 lodges over the next couple of years and increase its mix of franchised locations to approximately 80 percent.
Twin Peaks already had 20 percent annual expansion locked in for the next five years when FAT Brands acquired Smokey Bones. The converted restaurants will accelerate the pace of growth and increase the value of the sports lodge business ahead of a sale or spin-out of the brand, with the proceeds primarily used to pay down debt.
“We have 125 committed franchise units in our system with franchisees obligated to build stores next year and the year after, and now we have 40 locations that can be converted,” Wiederhorn said. “If we have to wait a little while, it just means that the brand is going to be even bigger, even more profitable, and the valuation should be better. If anything, waiting helps us.”
The company won’t be acquiring another brand that could be converted into Twin Peaks anytime soon, he added.
“We’re sort of full with all we need to check the box for development opportunities,” Wiederhorn said. “I don’t think we could find another 40 stores that we could open at the same time in the next 12 to 24 months. It’s just too much to ask from our team in terms of openings and capital to be deployed.”
That doesn’t mean all acquisitions are off the table. The company is still looking for opportunities to purchase brands in categories that could round out its portfolio, including salad, sandwich, and coffee concepts.
“Our focus remains on identifying strategic and EBITDA accretive opportunities with brands that have demonstrated long-term sustainability and robust profitability,” Wiederhorn said. “They also must be scalable and synergistic with our existing platform, including leveraging our existing manufacturing capacity when possible.”
The company’s Atlanta-based manufacturing facility provides cookie and pretzel dough for several brands. It currently is operating at around 40-45 percent capacity, up from 33 percent two years ago. It generated $9.3 million in revenue in Q3, an 18.9 percent increase from the same period a year ago, thanks in large part to the introduction of cookie offerings across the company’s burger portfolio.
Like Twin Peaks, FAT Brands is aiming to build up the value of the manufacturing facility ahead of a future liquidity event that would be used to pay down debt. The third lever for delevering the balance sheet is organic growth. To that end, the company has opened a total of 107 units year-to-date, including 30 that opened in Q3. It aims to open a total of 150 units in 2023. It also has signed franchise development deals for over 200 new locations, bringing its pipeline to over 1,100 signed agreements, on top of the 2,300 restaurants already open.
“This pipeline of organic growth is estimated to be worth approximately $60 million in incremental increase to adjusted EBITDA, which massively de-levers us organically,” Wiederhorn said.
A “significant portion” of stores in the pipeline have co-branding attached to them, he added. FAT Brands has around 280 co-branded locations today, most of which are a combination of cookies, ice cream, and pretzels, along with approximately 100 Fatburger and Buffalo’s Express locations. The first Fatburger-Round Table Pizza location is slated to open in Texas later this year.
Wiederhorn said co-branded locations typically see higher average volumes and a 10-20 percent increase in overall sales.
“It’s a very modest incremental equipment investment for a pretty decent increase in total sales,” he said. “So, it’s a smart investment by a franchisee.”
Nontraditional locations are emerging as another avenue of growth. FAT Brands opened a Fatburger location at a Six Flags in New Jersey last year that has continued to outperform expectations. As a result, it is expanding the partnership with a new restaurant at another amusement park in Texas. Similarly, the company recently opened a co-branded Marble Slab Creamery and Great American Cookies concept at a hospital in Texas, with plans to expand that partnership to another hospital in the state.
There also is strong demand in the company’s snack and dessert category, including Great American Cookies, Marble Slab Creamery, and Pretzelmaker—all three of which were named to QSR’s annual Best Franchise Deals report in September. FAT Brands signed a deal to open 25 new Pretzelmaker locations in Canada over the next 10 years. The deal came on the heels of a Q3 rebrand for the snack chain, which Wiederhorn said was designed to complement the shift toward online and to-go orders.
Great American Cookies also has experienced accelerated growth over the past few years, opening 80 new locations while entering new states like Arizona, Oregon, Illinois, and New Mexico. It celebrated its 400th opening this summer, including its first location in Philadelphia. Since then, Great American Cookies also has opened in the Orlando market and debuted for the first time in the Pacific Northwest.
FAT Brands saw same-store sales grow 1.3 percent in the quarter. Total revenue increased 6 percent to $109.4 million, driven by a 4.8 percent increase in royalties, a 2 percent increase in company-owned restaurant revenues, a 228.5 percent increase in franchise fees, and the 18.9 percent increase in revenues from the factory business. The company reported a net loss of $24.7 million, compared to a net loss of $23.4 million in Q3 of 2022.