International Franchising Will Expand Off-Premise Dining Markets

Key Takeaways

• A strong pipeline of new franchised units and growing digital engagement are set to drive future revenue, margin growth, and customer retention.
  
• Shifts toward a franchise-focused, asset-light model and significant cost reductions are improving capital efficiency and cash flow for debt reduction and global expansion.
  
• High debt levels, operational challenges, and shifting consumer preferences threaten FAT Brands' revenue growth, profitability, and long-term sustainability in a changing dining landscape.

Catalysts

A multi-brand restaurant franchising company, acquires, develops, markets, and manages quick service, fast casual, casual dining, and polished casual dining restaurant concepts in the United States, Canada, and internationally.

• FAT Brands' robust pipeline of approximately 1,000 new franchised units-already paid for and committed to open over the next 5 to 7 years-positions the company to capitalize on sustained demand for convenient, off-premise dining, directly supporting future recurring royalty revenue and accelerating long-term top-line growth.
  
• Digital sales and loyalty platform adoption continue to drive higher customer engagement and increased per-guest spending, with Great American Cookies and Round Table Pizza experiencing double-digit digital sales and loyalty growth-poised to lift sales mix, improve customer retention, and widen EBITDA margins.
  
• Ongoing shift to an asset-light, nearly 100% franchise model-bolstered by potential refranchising of 57 corporate Fazoli's locations-reduces operational leverage and G&A expense, increasing capital efficiency and supporting expansion while structurally enhancing net margins.
  
• Acceleration of international expansion and virtual brand launches (e.g., planned 20-unit Fazoli's entry into Canada, virtual Great American Cookies partnership) leverages the global trend towards US-style QSR and boosts exposure to new markets, driving system-wide sales and diversification of earnings streams.
  
• Material cost reductions from $30 million+ in eliminated legal and litigation expenses, $35 million to $40 million in cash savings from suspended dividends, and SG&A optimization initiatives are expected to generate significant annual cash flow improvement, providing balance sheet flexibility for debt reduction and enhancing future net earnings.

FAT Brands Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FAT Brands's revenue will grow by 5.3% annually over the next 3 years.
• Analysts are not forecasting that FAT Brands will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate FAT Brands's profit margin will increase from -38.2% to the average US Hospitality industry of 8.0% in 3 years.
• If FAT Brands's profit margin were to converge on the industry average, you could expect earnings to reach $54.1 million (and earnings per share of $2.71) by about August 2028, up from $-220.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.1x on those 2028 earnings, up from -0.2x today. This future PE is lower than the current PE for the US Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 5.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.82%, as per the Simply Wall St company report.

FAT Brands Future Earnings Per Share Growth

Risks

• The company's revenue decreased by 3.4% year-over-year in Q2 2025, primarily due to lower same-store sales, closures of underperforming units, and continued weakness in the QSR segment-reflecting broader secular headwinds in core dining categories and raising concerns about revenue growth and top-line stability.
  
• FAT Brands faces persistently high debt and interest expenses ($39.4 million in the quarter, up from $34.8 million YoY), with ongoing reliance on debt-financed liquidity and future refinancing needs, which pose long-term risks to net earnings and cash flow, especially if macro conditions or interest rates worsen.
  
• There are operational risks associated with refreshing and remodeling its largely franchisee-operated network, as rising interest rates, inflation in labor and equipment costs, and varied franchisee financial health may limit the company's ability to execute needed store investments-potentially compressing margins and impeding future growth.
  
• The portfolio's heavy orientation toward traditional QSR and snack brands remains exposed to secular trends of shifting consumer preferences for health-conscious, sustainable, and convenience-forward dining, raising long-term risk that core offerings may lose relevance and erode recurring royalty revenue.
  
• Closing and converting underperforming brands (such as Smokey Bones) into new concepts introduces ongoing execution complexity and integration risk, with potential for further impairment charges, brand dilution, or disruption to system-wide sales and EBITDA margins.

Valuation

• The analysts have a consensus price target of $12.5 for FAT Brands based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $673.7 million, earnings will come to $54.1 million, and it would be trading on a PE ratio of 6.1x, assuming you use a discount rate of 9.8%.
• Given the current share price of $2.01, the analyst price target of $12.5 is 83.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.