UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended October 4, 20203, 2021
or
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☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34851
RED ROBIN GOURMET BURGERS, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 84-1573084 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
6312 S. Fiddlers Green Circle, Suite 200N
Greenwood Village, Colorado 80111
(Address of principal executive offices) (Zip Code)
(303) 846-6000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large Accelerated Filer | ☐ | | Accelerated Filer | ☒ |
Non-accelerated Filer | ☐ | | Smaller Reporting Company | ☐ |
| | | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Exchange Act:
| | | | | | | | | | | | | | | | | | |
Title of each class | | Trading symbol(s) | | Name of each exchange on which registered | |
Common Stock, $0.001 par value | | RRGB | | NASDAQ | (Global Select Market) | |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of November 4, 2020,8, 2021, there were 15,541,85115,716,181 shares of the registrant's common stock, par value of $0.001 per share outstanding.
RED ROBIN GOURMET BURGERS, INC.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | (Unaudited) | | |
(in thousands, except for share amounts) | | October 4, 2020 | | December 29, 2019 |
Assets: | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 27,367 | | | $ | 30,045 | |
Accounts receivable, net | | 9,024 | | | 22,372 | |
Inventories | | 24,496 | | | 26,424 | |
Income tax receivable | | 63,066 | | | 5,308 | |
Prepaid expenses and other current assets | | 11,652 | | | 21,338 | |
Total current assets | | 135,605 | | | 105,487 | |
Property and equipment, net | | 446,083 | | | 518,013 | |
Right of use assets, net | | 415,948 | | | 426,248 | |
Goodwill | | 0 | | | 96,397 | |
Intangible assets, net | | 25,440 | | | 29,975 | |
Other assets, net | | 10,195 | | | 61,460 | |
Total assets | | $ | 1,033,271 | | | $ | 1,237,580 | |
Liabilities and stockholders' equity: | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 18,940 | | | $ | 33,040 | |
Accrued payroll and payroll-related liabilities | | 26,878 | | | 35,221 | |
Unearned revenue | | 42,564 | | | 54,223 | |
Current portion of lease obligations | | 62,032 | | | 42,699 | |
Current portion of long-term debt | | 9,692 | | | 0 | |
Accrued liabilities and other | | 42,987 | | | 29,403 | |
Total current liabilities | | 203,093 | | | 194,586 | |
Long-term debt | | 206,375 | | | 206,875 | |
Long-term portion of lease obligations | | 450,751 | | | 465,435 | |
Other non-current liabilities | | 19,858 | | | 10,164 | |
Total liabilities | | 880,077 | | | 877,060 | |
Stockholders' equity: | | | | |
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 and 17,851 shares issued; 15,548 and 12,923 shares outstanding as of October 4, 2020 and December 29, 2019 | | 20 | | | 18 | |
Preferred stock, $0.001 par value: 3,000 shares authorized; 0 shares issued and outstanding as of October 4, 2020 and December 29, 2019 | | 0 | | | 0 | |
Treasury stock 4,901 and 4,928 shares, at cost, as of October 4, 2020 and December 29, 2019 | | (199,908) | | | (202,313) | |
Paid-in capital | | 242,048 | | | 213,922 | |
Accumulated other comprehensive loss, net of tax | | (5,494) | | | (4,373) | |
Retained earnings | | 116,528 | | | 353,266 | |
Total stockholders' equity | | 153,194 | | | 360,520 | |
Total liabilities and stockholders' equity | | $ | 1,033,271 | | | $ | 1,237,580 | |
(Unaudited) | | | | | | | | | | | | | | |
(in thousands, except for per share amounts) | | October 3, 2021 | | December 27, 2020 |
Assets: | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 17,757 | | | $ | 16,116 | |
Accounts receivable, net | | 11,939 | | | 16,510 | |
Inventories | | 23,769 | | | 23,802 | |
Income tax receivable | | 16,165 | | | 16,662 | |
Prepaid expenses and other current assets | | 12,439 | | | 13,818 | |
Total current assets | | 82,069 | | | 86,908 | |
Property and equipment, net | | 388,881 | | | 427,033 | |
Right of use assets, net | | 419,788 | | | 425,573 | |
| | | | |
Intangible assets, net | | 22,419 | | | 24,714 | |
Other assets, net | | 8,567 | | | 10,511 | |
Total assets | | $ | 921,724 | | | $ | 974,739 | |
Liabilities and stockholders' equity: | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 34,638 | | | $ | 20,179 | |
Accrued payroll and payroll-related liabilities | | 32,555 | | | 27,653 | |
Unearned revenue | | 42,621 | | | 50,138 | |
Current portion of lease obligations | | 49,894 | | | 55,275 | |
Current portion of long-term debt | | 9,692 | | | 9,692 | |
Accrued liabilities and other | | 42,240 | | | 39,617 | |
Total current liabilities | | 211,640 | | | 202,554 | |
Long-term debt | | 147,471 | | | 160,952 | |
Long-term portion of lease obligations | | 450,673 | | | 465,233 | |
Other non-current liabilities | | 15,775 | | | 25,287 | |
Total liabilities | | $ | 825,559 | | | $ | 854,026 | |
Commitments and contingencies (see note 8) | | | | |
Stockholders' equity: | | | | |
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,722 and 15,548 shares outstanding as of October 3, 2021 and December 27, 2020 | | $ | 20 | | | $ | 20 | |
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 3, 2021 and December 27, 2020 | | — | | | — | |
Treasury stock 4,727 and 4,901 shares, at cost, as of October 3, 2021 and December 27, 2020 | | (192,819) | | | (199,908) | |
Paid-in capital | | 240,445 | | | 243,407 | |
Accumulated other comprehensive income (loss), net of tax | | 10 | | | (4) | |
Retained earnings | | 48,509 | | | 77,198 | |
Total stockholders' equity | | 96,165 | | | 120,713 | |
Total liabilities and stockholders' equity | | $ | 921,724 | | | $ | 974,739 | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(in thousands, except for share amounts) | | October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Revenues: | | | | | | | | |
Restaurant revenue | | $ | 197,009 | | | $ | 289,862 | | | $ | 658,587 | | | $ | 992,764 | |
Franchise and other revenues | | 3,469 | | | 4,360 | | | 9,078 | | | 19,305 | |
| | | | | | | | |
Total revenues | | 200,478 | | | 294,222 | | | 667,665 | | | 1,012,069 | |
Costs and expenses: | | | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | |
Cost of sales | | 46,037 | | | 69,017 | | | 155,243 | | | 235,119 | |
Labor | | 74,344 | | | 104,870 | | | 255,652 | | | 354,302 | |
Other operating | | 37,631 | | | 44,317 | | | 124,585 | | | 142,882 | |
Occupancy | | 22,099 | | | 24,942 | | | 76,514 | | | 85,420 | |
Depreciation and amortization | | 19,173 | | | 21,280 | | | 68,053 | | | 71,087 | |
Selling, general, and administrative expenses | | 21,284 | | | 36,776 | | | 82,483 | | | 120,126 | |
Pre-opening costs | | 89 | | | 0 | | | 245 | | | 319 | |
Other charges | | 4,416 | | | (1,757) | | | 138,296 | | | 17,488 | |
Total costs and expenses | | 225,073 | | | 299,445 | | | 901,071 | | | 1,026,743 | |
| | | | | | | | |
Loss from operations | | (24,595) | | | (5,223) | | | (233,406) | | | (14,674) | |
Other expense: | | | | | | | | |
Interest expense, net and other | | 2,280 | | | 1,812 | | | 7,629 | | | 7,203 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Loss before income taxes | | (26,875) | | | (7,035) | | | (241,035) | | | (21,877) | |
Income tax benefit | | (20,696) | | | (5,214) | | | (4,297) | | | (21,676) | |
Net loss | | $ | (6,179) | | | $ | (1,821) | | | $ | (236,738) | | | $ | (201) | |
Loss per share: | | | | | | | | |
Basic | | $ | (0.40) | | | $ | (0.14) | | | $ | (16.98) | | | $ | (0.02) | |
Diluted | | $ | (0.40) | | | $ | (0.14) | | | $ | (16.98) | | | $ | (0.02) | |
Weighted average shares outstanding: | | | | | | | | |
Basic | | 15,540 | | | 12,959 | | | 13,945 | | | 12,967 | |
Diluted | | 15,540 | | | 12,959 | | | 13,945 | | | 12,967 | |
| | | | | | | | |
Other comprehensive income (loss): | | | | | | | | |
Foreign currency translation adjustment | | $ | 9 | | | $ | (262) | | | $ | (1,121) | | | $ | (185) | |
Other comprehensive income (loss), net of tax | | 9 | | | (262) | | | (1,121) | | | (185) | |
Total comprehensive loss | | $ | (6,170) | | | $ | (2,083) | | | $ | (237,859) | | | $ | (386) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(in thousands, except for per share amounts) | | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Revenues: | | | | | | | | |
Restaurant revenue | | $ | 270,202 | | | $ | 197,009 | | | $ | 861,036 | | | $ | 658,587 | |
Franchise and other revenues | | 5,242 | | | 3,469 | | | 17,658 | | | 9,078 | |
| | | | | | | | |
Total revenues | | 275,444 | | | 200,478 | | | 878,694 | | | 667,665 | |
Costs and expenses: | | | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | |
Cost of sales | | 62,671 | | | 46,037 | | | 193,754 | | | 155,243 | |
Labor | | 99,725 | | | 74,344 | | | 310,333 | | | 255,652 | |
Other operating | | 51,462 | | | 37,631 | | | 156,102 | | | 124,585 | |
Occupancy | | 22,519 | | | 22,099 | | | 74,233 | | | 76,514 | |
Depreciation and amortization | | 18,881 | | | 19,173 | | | 63,984 | | | 68,053 | |
General and administrative expenses | | 17,691 | | | 15,190 | | | 57,664 | | | 56,054 | |
Selling expenses | | 12,652 | | | 6,094 | | | 31,635 | | | 26,429 | |
Pre-opening costs | | 418 | | | 89 | | | 792 | | | 245 | |
Other charges | | 1,561 | | | 4,416 | | | 9,228 | | | 138,296 | |
Total costs and expenses | | 287,580 | | | 225,073 | | | 897,725 | | | 901,071 | |
| | | | | | | | |
Loss from operations | | (12,136) | | | (24,595) | | | (19,031) | | | (233,406) | |
Other expense: | | | | | | | | |
Interest expense, net and other | | 2,870 | | | 2,280 | | | 9,986 | | | 7,629 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Loss before income taxes | | (15,006) | | | (26,875) | | | (29,017) | | | (241,035) | |
Income tax benefit | | (26) | | | (20,696) | | | (328) | | | (4,297) | |
Net loss | | $ | (14,980) | | | $ | (6,179) | | | $ | (28,689) | | | $ | (236,738) | |
Loss per share: | | | | | | | | |
Basic | | $ | (0.95) | | | $ | (0.40) | | | $ | (1.83) | | | $ | (16.98) | |
Diluted | | $ | (0.95) | | | $ | (0.40) | | | $ | (1.83) | | | $ | (16.98) | |
Weighted average shares outstanding: | | | | | | | | |
Basic | | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | |
Diluted | | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | |
| | | | | | | | |
Other comprehensive (loss) income: | | | | | | | | |
Foreign currency translation adjustment | | $ | (6) | | | $ | 9 | | | $ | 14 | | | $ | (1,121) | |
Other comprehensive (loss) income, net of tax | | (6) | | | 9 | | | 14 | | | (1,121) | |
Total comprehensive loss | | $ | (14,986) | | | $ | (6,170) | | | $ | (28,675) | | | $ | (237,859) | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive (Loss) Income, net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 27, 2020 | | 20,449 | | | $ | 20 | | | 4,901 | | | $ | (199,908) | | | $ | 243,407 | | | $ | (4) | | | $ | 77,198 | | | $ | 120,713 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (74) | | | 3,025 | | | (3,640) | | | — | | | — | | | (615) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 880 | | | — | | | — | | | 880 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (8,713) | | | (8,713) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 21 | | | — | | | 21 | |
| | | | | | | | | | | | | | | | |
Balance, April 18, 2021 | | 20,449 | | | $ | 20 | | | 4,827 | | | $ | (196,883) | | | $ | 240,647 | | | $ | 17 | | | $ | 68,485 | | | $ | 112,286 | |
| | | | | | | | | | | | | | | | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (95) | | | 3,844 | | | (3,547) | | | — | | | — | | | 297 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,577 | | | — | | | — | | | 1,577 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (4,996) | | | (4,996) | |
Other comprehensive (loss) | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Balance, July 11, 2021 | | 20,449 | | | $ | 20 | | | 4,732 | | | $ | (193,039) | | | $ | 238,677 | | | $ | 16 | | | $ | 63,489 | | | $ | 109,163 | |
| | | | | | | | | | | | | | | | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (5) | | | 220 | | | (280) | | | — | | | — | | | (60) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 2,048 | | | — | | | — | | | 2,048 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (14,980) | | | (14,980) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (6) | | | — | | | (6) | |
Balance, October 3, 2021 | | 20,449 | | | $ | 20 | | | 4,727 | | | $ | (192,819) | | | $ | 240,445 | | | $ | 10 | | | $ | 48,509 | | | $ | 96,165 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Loss, net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 29, 2019 | | 17,851 | | | $ | 18 | | | 4,928 | | | $ | (202,313) | | | $ | 213,922 | | | $ | (4,373) | | | $ | 353,266 | | | $ | 360,520 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (39) | | | 1,605 | | | (1,388) | | | — | | | — | | | 217 | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | 72 | | | (1,635) | | | — | | | — | | | — | | | (1,635) | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 712 | | | — | | | — | | | 712 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (174,298) | | | (174,298) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (1,147) | | | — | | | (1,147) | |
| | | | | | | | | | | | | | | | |
Balance, April 19, 2020 | | 17,851 | | | $ | 18 | | | 4,961 | | | $ | (202,343) | | | $ | 213,246 | | | $ | (5,520) | | | $ | 178,968 | | | $ | 184,369 | |
Issuance of common stock, $0.001 par value, net of stock issuance costs | | 2,598 | | | 2 | | | — | | | — | | | 28,723 | | | — | | | — | | | 28,725 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (59) | | | 2,398 | | | (2,228) | | | — | | | — | | | 170 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,071 | | | — | | | — | | | 1,071 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (56,261) | | | (56,261) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 17 | | | — | | | 17 | |
Balance, July 12, 2020 | | 20,449 | | | $ | 20 | | | 4,902 | | | $ | (199,945) | | | $ | 240,812 | | | $ | (5,503) | | | $ | 122,707 | | | $ | 158,091 | |
Issuance of common stock, $0.001 par value, net of stock issuance costs | | — | | | — | | | — | | | — | | | (7) | | | — | | | — | | | (7) | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (1) | | | 37 | | | (73) | | | — | | | — | | | (36) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,316 | | | — | | | — | | | 1,316 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (6,179) | | | (6,179) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 9 | | | — | | | 9 | |
Balance, October 4, 2020 | | 20,449 | | | $ | 20 | | | 4,901 | | | $ | (199,908) | | | $ | 242,048 | | | $ | (5,494) | | | $ | 116,528 | | | $ | 153,194 | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Loss, net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 29, 2019 | | 17,851 | | | $ | 18 | | | 4,928 | | | $ | (202,313) | | | $ | 213,922 | | | $ | (4,373) | | | $ | 353,266 | | | $ | 360,520 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (39) | | | 1,605 | | | (1,388) | | | — | | | — | | | 217 | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | 72 | | | (1,635) | | | — | | | — | | | — | | | (1,635) | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 712 | | | — | | | — | | | 712 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (174,298) | | | (174,298) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (1,147) | | | — | | | (1,147) | |
| | | | | | | | | | | | | | | | |
Balance, April 19, 2020 | | 17,851 | | | $ | 18 | | | 4,961 | | | $ | (202,343) | | | $ | 213,246 | | | $ | (5,520) | | | $ | 178,968 | | | $ | 184,369 | |
Issuance of common stock, $0.001 par value, net of stock issuance costs | | 2,598 | | | 2 | | | — | | | — | | | 28,723 | | | — | | | — | | | 28,725 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (59) | | | 2,398 | | | (2,228) | | | — | | | — | | | 170 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,071 | | | — | | | — | | | 1,071 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (56,261) | | | (56,261) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 17 | | | — | | | 17 | |
| | | | | | | | | | | | | | | | |
Balance July 12, 2020 | | 20,449 | | | $ | 20 | | | 4,902 | | | $ | (199,945) | | | $ | 240,812 | | | $ | (5,503) | | | $ | 122,707 | | | $ | 158,091 | |
Issuance of common stock, $0.001 par value, net of stock issuance costs | | | | | | | | | | (7) | | | | | | | (7) | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (1) | | | 37 | | | (73) | | | — | | | — | | | (36) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,316 | | | — | | | — | | | 1,316 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (6,179) | | | (6,179) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 9 | | | — | | | 9 | |
Balance, October 4, 2020 | | 20,449 | | | $ | 20 | | | 4,901 | | | $ | (199,908) | | | $ | 242,048 | | | $ | (5,494) | | | $ | 116,528 | | | 153,194 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Loss, net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 30, 2018 | | 17,851 | | | $ | 18 | | | 4,880 | | | $ | (201,505) | | | $ | 212,752 | | | $ | (4,801) | | | $ | 376,341 | | | $ | 382,805 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (32) | | | 1,344 | | | (1,204) | | | — | | | — | | | 140 | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | 31 | | | (974) | | | — | | | — | | | — | | | (974) | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 477 | | | — | | | — | | | 477 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 639 | | | 639 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (329) | | | — | | | (329) | |
Topic 842 transition impairment, net of tax | | — | | | — | | | — | | | — | | | — | | | — | | | (15,172) | | | (15,172) | |
Balance, April 21, 2019 | | 17,851 | | | $ | 18 | | | 4,879 | | | $ | (201,135) | | | $ | 212,025 | | | $ | (5,130) | | | $ | 361,808 | | | $ | 367,586 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (30) | | | 1,208 | | | (907) | | | — | | | — | | | 301 | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | 17 | | | (501) | | | — | | | — | | | — | | | (501) | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 941 | | | — | | | — | | | 941 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 981 | | | 981 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 406 | | | — | | | 406 | |
| | | | | | | | | | | | | | | | |
Balance July 14, 2019 | | 17,851 | | | $ | 18 | | | 4,866 | | | $ | (200,428) | | | $ | 212,059 | | | $ | (4,724) | | | $ | 362,789 | | | $ | 369,714 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (1) | | | 37 | | | (44) | | | — | | | — | | | (7) | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | 29 | | | (959) | | | — | | | — | | | — | | | (959) | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,126 | | | — | | | — | | | 1,126 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (1,821) | | | (1,821) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (262) | | | — | | | (262) | |
Balance, October 6, 2019 | | 17,851 | | | $ | 18 | | | 4,894 | | | $ | (201,350) | | | $ | 213,141 | | | $ | (4,986) | | | $ | 360,968 | | | 367,791 |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
(in thousands) | | October 4, 2020 | | October 6, 2019 | | |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (236,738) | | | $ | (201) | | | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | | |
Depreciation and amortization | | 68,053 | | | 71,087 | | | |
Gift card breakage | | (2,329) | | | (4,899) | | | |
Goodwill and restaurant asset impairment | | 116,193 | | | 14,064 | | | |
Non-cash other charges | | (2,438) | | | (11,135) | | | |
Deferred income tax provision (benefit) | | 52,439 | | | (27,477) | | | |
Stock-based compensation expense | | 3,082 | | | 2,539 | | | |
Other, net | | 639 | | | 665 | | | |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | 13,250 | | | 14,059 | | | |
Income tax receivable | | (57,756) | | | 941 | | | |
Prepaid expenses and other current assets | | 11,229 | | | 1,426 | | | |
Lease assets, net of liabilities | | 19,194 | | | (266) | | | |
Trade accounts payable and accrued liabilities | | (9,864) | | | (6,657) | | | |
Unearned revenue | | (9,331) | | | (12,564) | | | |
Other operating assets and liabilities, net | | 11,976 | | | 35 | | | |
Net cash (used in) provided by operating activities | | (22,401) | | | 41,617 | | | |
Cash flows from investing activities: | | | | | | |
Purchases of property, equipment, and intangible assets | | (14,870) | | | (33,078) | | | |
Proceeds from sales of real estate and property, plant, and equipment and other investing activities | | 739 | | | 178 | | | |
Net cash used in investing activities | | (14,131) | | | (32,900) | | | |
Cash flows from financing activities: | | | | | | |
Borrowings of long-term debt | | 168,000 | | | 211,500 | | | |
Payments of long-term debt and finance leases | | (159,004) | | | (216,918) | | | |
Purchase of treasury stock | | (1,635) | | | (2,434) | | | |
Debt issuance costs | | (2,952) | | | 0 | | | |
Proceeds from issuance of common stock, net of stock issuance costs | | 28,945 | | | 0 | | | |
Proceeds from exercise of stock options and employee stock purchase plan | | 666 | | | 696 | | | |
Net cash provided by (used in) financing activities | | 34,020 | | | (7,156) | | | |
Effect of exchange rate changes on cash | | (166) | | | 81 | | | |
Net change in cash and cash equivalents | | (2,678) | | | 1,642 | | | |
Cash and cash equivalents, beginning of period | | 30,045 | | | 18,569 | | | |
Cash and cash equivalents, end of period | | $ | 27,367 | | | $ | 20,211 | | | |
| | | | | | |
Supplemental disclosure of cash flow information | | | | | | |
Income taxes (refund received) paid | | $ | (2,391) | | | $ | 3,140 | | | |
Interest paid, net of amounts capitalized | | 7,514 | | | 7,799 | | | |
Change in construction related payables | | $ | 462 | | | $ | 3,902 | | | |
| | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
(in thousands) | | October 3, 2021 | | October 4, 2020 | | |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (28,689) | | | $ | (236,738) | | | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | |
Depreciation and amortization | | 63,984 | | | 68,053 | | | |
Gift card breakage | | (3,231) | | | (2,329) | | | |
Goodwill and asset impairment | | 1,357 | | | 116,193 | | | |
Non-cash other charges | | 319 | | | (2,438) | | | |
Deferred income tax provision | | — | | | 52,439 | | | |
Stock-based compensation expense | | 4,501 | | | 3,082 | | | |
Other, net | | 2,228 | | | 639 | | | |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | 4,544 | | | 13,250 | | | |
Income tax receivable | | 520 | | | (57,756) | | | |
| | | | | | |
Prepaid expenses and other current assets | | 1,014 | | | 11,229 | | | |
Lease assets, net of liabilities | | (12,628) | | | 19,194 | | | |
Trade accounts payable and accrued liabilities | | 16,948 | | | (9,864) | | | |
Unearned revenue | | (4,286) | | | (9,331) | | | |
Other operating assets and liabilities, net | | (8,964) | | | 11,976 | | | |
Net cash provided by (used in) operating activities | | 37,617 | | | (22,401) | | | |
Cash flows from investing activities: | | | | | | |
Purchases of property and equipment | | (19,987) | | | (14,870) | | | |
Proceeds from sales of real estate and property, plant, and equipment and other investing activities | | 20 | | | 739 | | | |
Net cash used in investing activities | | (19,967) | | | (14,131) | | | |
Cash flows from financing activities: | | | | | | |
Borrowings of long-term debt | | 109,500 | | | 168,000 | | | |
Payments of long-term debt and finance leases | | (125,216) | | | (159,004) | | | |
Purchase of treasury stock | | — | | | (1,635) | | | |
| | | | | | |
Debt issuance costs | | (870) | | | (2,952) | | | |
Proceeds from issuance of common stock, net of stock issuance costs | | — | | | 28,945 | | | |
Proceeds from exercise of stock options and employee stock purchase plan | | 549 | | | 666 | | | |
Net cash (used in) provided by financing activities | | (16,037) | | | 34,020 | | | |
Effect of exchange rate changes on cash | | 28 | | | (166) | | | |
Net change in cash and cash equivalents | | 1,641 | | | (2,678) | | | |
Cash and cash equivalents, beginning of period | | 16,116 | | | 30,045 | | | |
Cash and cash equivalents, end of period | | $ | 17,757 | | | $ | 27,367 | | | |
| | | | | | |
Supplemental disclosure of cash flow information | | | | | | |
Income tax refunds received, net | | $ | (840) | | | $ | (2,391) | | | |
Interest paid, net of amounts capitalized | | $ | 7,586 | | | $ | 7,514 | | | |
| | | | | | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Recent Accounting Pronouncements
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of October 4, 2020,3, 2021, the Company owned and operated 444430 restaurants located in 38 states. The Company also had 103101 franchised full-service restaurants in 16 states and 1 Canadian province. The Company operates its business as 1 operating and 1 reportable segment.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year.
The accompanying condensed consolidated financial statementsCondensed Consolidated Financial Statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The condensed consolidated balance sheetCondensed Consolidated Balance Sheet as of December 29, 201927, 2020 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim condensed consolidated financial statementsCondensed Consolidated Financial Statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019,27, 2020 filed with the SEC on February 25, 2020.March 3, 2021.
Our current and prior year periods, period end dates, and number of weeks included in the period are summarized in the table below:
| | | | | | | | | | | | | | |
Periods | | Period End Date | | Number of Weeks in Period |
Current and Prior Fiscal Quarters: | | | | |
ThirdFirst Quarter 2021 | | April 18, 2021 | | 16 |
First Quarter 2020 | | October 4,April 19, 2020 | | 1216 |
ThirdSecond Quarter 20192021 | | October 6, 2019July 11, 2021 | | 12 |
Second Quarter 2020 | | July 12, 2020 | | 12 |
SecondThird Quarter 20192021 | | July 14, 2019October 3, 2021 | | 12 |
FirstThird Quarter 2020 | | April 19,October 4, 2020 | | 16 |
First Quarter 2019 | | April 21, 2019 | | 1612 |
Current and Prior Fiscal Years: | | | | |
Fiscal Year 2021 | | December 26, 2021 | | 52 |
Fiscal Year 2020 | | December 27, 2020 | | 52 |
Fiscal Year 2019 | | December 29, 2019 | | 52 |
Reclassifications
Certain amounts presented in prior periods have been reclassified within the October 4, 2020 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation. As of December 29, 2019, the Company reclassified $5.3 million from Prepaid expenses and other current assets to Income tax receivable on the condensed consolidated balance sheets. For the forty weeks ended October 6, 2019, the Company reclassified the followingpresentation, including prior year reclassifications within net cash (used in) provided by operating activities on the condensed consolidated statements of cash flows: $14.1 million from Non-cash other charges to Goodwill and restaurant asset impairment, $0.9 million from Prepaid expenses and other current assets to Income tax receivable, and $0.3 million from OtherChanges in operating assets and liabilities, net to Lease assets, net of liabilities. The reclassifications had no effect on the Company’s cash flows from operations.
Certain amounts presented have been reclassified within the October 4, 2020 Condensed Consolidated Statements Of Operations And Comprehensive Loss to present General and administrative expenses and Selling expenses separately for improved comparability and alignment with industry presentation. The reclassifications had no effect on the Company’s Total costs and expenses, Loss from operations, or Net loss.
Recent Accounting Pronouncements
Income TaxesReference Rate Reform
In December 2019, the Financial Accounting Standards Board ("FASB")March 2020, FASB issued Update 2019-12, Income Taxes ("Topic 740")2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference LIBOR or another reference rate expected to be discontinued. Under this update, contract modifications resulting in a new reference rate may be accounted for as parta continuation of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.contract. This guidance is effective for annualupon issuance of the update and interim reporting periods beginning afterapplies to contract modifications made through December 15, 2020, and early adoption is permitted.31, 2022. We are currently evaluating the full impact this guidance will have on our consolidated financial statements.
We reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on the Company's condensed consolidated financial statements.Condensed Consolidated Financial Statements.
2. COVID-19 Pandemic
Overview
Due to the novel coronavirus ("COVID-19") pandemic, we continue to navigate an unprecedented time for our business and industry. During the third quarter 2020, the Company continued to expand outdoor seating capacity at reopened Company-owned restaurants in accordance with local limits. Reopening dining rooms and expanding seating capacity was executed with the health, safety, and well-being of Red Robin's Team Members, Guests, and communities in mind, and strict adherence to US Centers for Disease Control and Prevention, state, and local guidelines as our top priority. The COVID-19 pandemic has had a material adverse effect on our business, and we expect the impact from COVID-19 will continue to negatively affect our business.
Franchise Revenue
In response to COVID-19's effect on our franchise operations, we temporarily abated franchise royalty payments and advertising contributions effective March 20, 2020. During periods of abated payments, franchise revenue was not recognized or collected from our franchisees. Abated royalty payments and advertising contributions will not be collected by the Company. The Company began charging and collecting partial franchise royalty payments and advertising contributions during the latter half of the second fiscal quarter of 2020, which continued throughout the Company's third fiscal quarter. As of the end of the third quarter of 2020, the Company had resumed charging full royalty and advertising contributions to our franchisees. Franchised restaurants operate under contractual arrangements with the Company, and the payments specified in the franchise contracts are accounted for under ASC Topic 606, Revenue from Contracts with Customers.
Rent
In response to the impact of COVID-19 on our operations, beginning April 1, 2020 the Company stopped making full lease payments under its existing lease agreements. During the suspension of payments, the Company continued to recognize expenses and liabilities for lease obligations and corresponding right-of-use assets on the balance sheet in accordance with ASC Topic 842.
We are engaging in ongoing constructive discussions with landlords regarding the potential restructuring of lease payments and rent concessions. As of October 4, 2020, the Company has contractually negotiated rent concessions with many of its landlords, with negotiations complete on approximately 50% of its leases. The types of rent concessions the Company has negotiated include early termination, early renewal, rent deferral, and rent abatement.
For contractual rent concessions that do not substantially change the total cash flows of the lease, the Company has elected to account for these concessions assuming the existing lease agreements provide enforceable rights and obligations consistent with the relief issued by the Financial Accounting Standards Board titled ASCTopic 842 and ASC Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Relief"). For leases where the rent concession did not substantially change the total cash flows, the concession was accounted for as a remeasurement to the lease liability based on the original discount rate with a corresponding adjustment to the right-of-use asset. Additionally, the classification of the leases was not reassessed. The Company recorded a $2.2 million remeasurement to increase the lease liability and right-of-use asset resulting from contractual rent concessions under the FASB relief during the third fiscal quarter of 2020.
For contractual rent concessions that substantially changed the total cash flows of the lease and did not qualify for the FASB relief, we applied the modification framework in accordance with ASC Topic 842, Leases. The Company reassessed lease classification for rent concessions that did not qualify for the FASB relief. During the third fiscal quarter of 2020, it was concluded no leases changed classification between operating and finance. Based on updated discount rates, a $10.1 million remeasurement was recorded to increase the lease liability and a $9.9 million adjustment, net of broker's fees, was recorded to increase the right-of-use asset during the third fiscal quarter of 2020. Contractual rent concessions granted to the Company during the third fiscal quarter of 2020 did not grant the right to use additional assets not included in the original lease contracts, so no separate contracts were accounted for as part of the rent concession modifications.
Restaurant Assets
During the twelve weeks ended October 4, 2020, the Company recognized $3.3 million of impairment related to assets at 2 permanently closed Company-owned restaurants. These impairment charges were included in Restaurant closure and refranchising costs in Other charges (gains) on the condensed consolidated statements of operation and comprehensive loss.
Income Tax
The March 19, 2020 passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") created an opportunity for the Company to carry back 2019 and 2020 net operating losses ("NOL's"). Upon filing of its 2019 federal tax return during the third quarter of 2020 and gaining further interpretations and expert technical guidance surrounding the application of the CARES Act, the Company recorded an additional $42.8 million in federal income tax receivables to Income tax receivable on the condensed consolidated balance sheets and recorded a related income tax benefit to the condensed consolidated statements of operation and comprehensive loss. After consideration for the adjustments of carrybacks due to the CARES Act, we have a combined federal and state valuation allowance of $67.1 million, which was recorded to Other assets, net on the condensed consolidated balance sheets. Subsequent to our third quarter balance sheet date, the Company received $49.4 million in cash tax refunds, including interest, and currently expects to receive between $12 million to $15 million of additional cash tax refunds within the next 12 months. A portion of this refund was used to make a $42 million repayment on the Company's credit facility on October 30, 2020.
As of October 4, 2020, the Company had $9.7 million of net operating loss carryforwards for state income tax purposes that arose from the 2019 and 2020 tax years. The Company reclassified this amount from state tax current receivable which was recorded in Prepaid expenses and other current assets as of our second fiscal quarter of 2020, to state deferred tax asset which is recorded to Other Assets, net on the condensed consolidated balance sheets as a result of the CARES Act legislation and in conjunction with the filing of our state tax returns during our third fiscal quarter. Of these state net operating loss carryforwards, approximately $0.2 million may expire, if unused, in 2024. The remaining state net operating losses approximating $9.5 million may expire, if unused, through 2039 or in some cases will be retained for an indefinite period. The utilization of net operating loss carryforwards may be limited to 80% of taxable income in any given year. As states' CARES legislation continues to evolve these estimates may change. The total $67.1 million valuation allowance includes the $9.7 million state NOL's recorded as of October 4, 2020.
3. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by type of good or service (in thousands):
| | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 | | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Restaurant revenue | Restaurant revenue | | $ | 197,009 | | | $ | 289,862 | | | $ | 658,587 | | | $ | 992,764 | | Restaurant revenue | | $ | 270,202 | | | $ | 197,009 | | | $ | 861,036 | | | $ | 658,587 | |
Franchise revenue(1) | Franchise revenue(1) | | 2,584 | | | 3,727 | | | 5,861 | | | 13,479 | | Franchise revenue(1) | | 4,303 | | | 2,584 | | | 13,123 | | | 5,861 | |
Gift card breakage | Gift card breakage | | 523 | | | 580 | | | 2,329 | | | 4,899 | | Gift card breakage | | 438 | | | 523 | | | 3,231 | | | 2,329 | |
Other revenue | Other revenue | | 362 | | | 53 | | | 888 | | | 927 | | Other revenue | | 501 | | | 362 | | | 1,304 | | | 888 | |
Total revenues | Total revenues | | $ | 200,478 | | | $ | 294,222 | | | $ | 667,665 | | | $ | 1,012,069 | | Total revenues | | $ | 275,444 | | | $ | 200,478 | | | $ | 878,694 | | | $ | 667,665 | |
———————————————————
(1) The decrease in Franchise revenue is driven by the temporary abatement and non-collection of franchise payments. See Note 2, COVID-19 Pandemic, for further discussion.
Contract liabilities
Components of Unearned revenue in the accompanying condensed consolidated balance sheetsCondensed Consolidated Balance Sheets are as follows (in thousands):
| | | October 4, 2020 | | December 29, 2019 | | October 3, 2021 | | December 27, 2020 |
Unearned gift card revenue | Unearned gift card revenue | $ | 31,514 | | | $ | 43,544 | | Unearned gift card revenue | $ | 29,599 | | | $ | 38,309 | |
Deferred loyalty revenue | Deferred loyalty revenue | $ | 11,050 | | | $ | 10,679 | | Deferred loyalty revenue | $ | 13,022 | | | $ | 11,829 | |
Revenue recognized in the condensed consolidated statementsCondensed Consolidated Statements of operationsOperations and comprehensive lossComprehensive Loss for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands):
| | | | | | | | | | | |
| Forty Weeks Ended |
| October 4, 2020 | | October 6, 2019 |
Gift card revenue | $ | 16,191 | | | $ | 19,400 | |
| | | | | | | | | | | |
| Forty Weeks Ended |
| October 3, 2021 | | October 4, 2020 |
Gift card revenue | $ | 14,448 | | | $ | 16,191 | |
4.3. Leases
Leases are included in right-of-use assets, net, current portion of lease obligations, and long-term portion of lease liabilities on our condensed consolidated balance sheetCondensed Consolidated Balance Sheet as of October 4, 20203, 2021 and December 29, 201927, 2020 as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
October 4, 2020 | | Finance | | Operating | | Total |
Right of use assets, net | | $ | 11,463 | | | $ | 404,485 | | | $ | 415,948 | |
| | | | | | |
Current portion of lease obligations | | 1,122 | | | 60,910 | | | 62,032 | |
Long-term portion of lease obligations | | 12,666 | | | 438,085 | | | 450,751 | |
Total | | $ | 13,788 | | | $ | 498,995 | | | $ | 512,783 | |
| | | | | | |
December 29, 2019 | | Finance | | Operating | | Total |
Right of use assets, net | | $ | 7,552 | | | $ | 418,696 | | | $ | 426,248 | |
| | | | | | |
Current portion of lease obligations | | 725 | | | 41,974 | | | 42,699 | |
Long-term portion of lease obligations | | 8,822 | | | 456,613 | | | 465,435 | |
Total | | $ | 9,547 | | | $ | 498,587 | | | $ | 508,134 | |
| | | | | | | | | | | | | | | | | | | | |
October 3, 2021 | | Finance | | Operating | | Total |
Right of use assets, net | | $ | 9,774 | | | $ | 410,014 | | | $ | 419,788 | |
| | | | | | |
Current portion of lease obligations | | 1,140 | | | 48,754 | | | 49,894 | |
Long-term portion of lease obligations | | 10,813 | | | 439,860 | | | 450,673 | |
Total | | $ | 11,953 | | | $ | 488,614 | | | $ | 500,567 | |
| | | | | | |
December 27, 2020 | | Finance | | Operating | | Total |
Right of use assets, net | | $ | 9,644 | | | $ | 415,929 | | | $ | 425,573 | |
| | | | | | |
Current portion of lease obligations | | 1,078 | | | 54,197 | | | 55,275 | |
Long-term portion of lease obligations | | 10,937 | | | 454,296 | | | 465,233 | |
Total | | $ | 12,015 | | | $ | 508,493 | | | $ | 520,508 | |
The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our condensed consolidated statementCondensed Consolidated Statement of operationsOperations and Comprehensive Loss as follows (in thousands):
| | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 | | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Operating lease cost | Operating lease cost | | $ | 14,992 | | | $ | 17,298 | | | $ | 51,931 | | | $ | 58,412 | | Operating lease cost | | $ | 16,061 | | | $ | 14,992 | | | $ | 53,765 | | | $ | 51,931 | |
Finance lease cost: | Finance lease cost: | | Finance lease cost: | |
Amortization of right of use assets | Amortization of right of use assets | | 227 | | | 193 | | 615 | | | 634 | Amortization of right of use assets | | 197 | | | 227 | | 657 | | | 615 |
Interest on lease liabilities | Interest on lease liabilities | | 150 | | | 122 | | 412 | | | 416 | Interest on lease liabilities | | 131 | | | 150 | | 407 | | | 412 |
Total finance lease cost | Total finance lease cost | | $ | 377 | | | $ | 315 | | | $ | 1,027 | | | $ | 1,050 | | Total finance lease cost | | 328 | | | $ | 377 | | | $ | 1,064 | | | $ | 1,027 | |
Variable lease cost | Variable lease cost | | 5,902 | | | 6,653 | | | 19,207 | | | 22,185 | | Variable lease cost | | 4,496 | | | 5,902 | | | 15,271 | | | 19,207 | |
Total | Total | | $ | 21,271 | | | $ | 24,266 | | | $ | 72,165 | | | $ | 81,647 | | Total | | $ | 20,885 | | | $ | 21,271 | | | $ | 70,100 | | | $ | 72,165 | |
Maturities of our lease liabilities as of October 3, 2021 were as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Finance Leases | | Operating Leases | | Total |
Remainder of 2021 | $ | 550 | | | $ | 14,740 | | | $ | 15,290 | |
2022 | 1,327 | | | 79,038 | | | 80,365 | |
2023 | 1,244 | | | 76,303 | | | 77,547 | |
2024 | 1,264 | | | 74,575 | | | 75,839 | |
2025 | 1,283 | | | 69,959 | | | 71,242 | |
Thereafter | 9,441 | | | 377,685 | | | 387,126 | |
Total future lease liability | $ | 15,109 | | | $ | 692,300 | | | $ | 707,409 | |
Less imputed interest | 3,156 | | | 203,686 | | | 206,842 | |
Carrying value of lease liability | $ | 11,953 | | | $ | 488,614 | | | $ | 500,567 | |
Maturities of our lease liabilities as of October 4, 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Finance Leases | | Operating Leases | | Total |
Remainder of 2020 | $ | 548 | | | $ | 29,370 | | | $ | 29,918 | |
2021 | 1,450 | | | 76,091 | | | 77,541 | |
2022 | 1,570 | | | 73,899 | | | 75,469 | |
2023 | 1,449 | | | 71,855 | | | 73,304 | |
2024 | 1,469 | | | 69,883 | | | 71,352 | |
Thereafter | 11,686 | | | 396,286 | | | 407,972 | |
Total future lease liability | $ | 18,172 | | | $ | 717,384 | | | $ | 735,556 | |
Less imputed interest | 4,384 | | | 218,389 | | | 222,773 | |
Fair value of lease liability | $ | 13,788 | | | $ | 498,995 | | | $ | 512,783 | |
Supplemental cash flow and other information related to leases is as follows (in thousands, except other information):
| | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
| | October 4, 2020 | | October 6, 2019 | | |
Cash flows from operating activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Operating leases | | $ | 33,034 | | | $ | 58,930 | | | |
Finance leases | | 412 | | | 383 | | | |
Cash flows from financing activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Finance leases | | 196 | | | 686 | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | $ | 33,642 | | | $ | 59,999 | | | |
| | | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 31,731 | | | $ | 10,396 | | | |
Right of use assets obtained in exchange for finance lease obligations | | $ | 4,581 | | | $ | 1,669 | | | |
| | | | | | |
Other information related to operating leases as follows: | | | | | | |
Weighted average remaining lease term | | 10.33 years | | 10.84 years | | |
Weighted average discount rate | | 7.12 | % | | 7.33 | % | | |
| | | | | | |
Other information related to finance leases as follows: | | | | | | |
Weighted average remaining lease term | | 11.93 years | | 11.63 years | | |
Weighted average discount rate | | 4.93 | % | | 4.71 | % | | |
| | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
| | October 3, 2021 | | October 4, 2020 | | |
Cash flows from operating activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Operating leases | | $ | 68,036 | | | $ | 33,034 | | | |
Finance leases | | 406 | | | 412 | | | |
Cash flows from financing activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Finance leases | | 1,447 | | | 196 | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | $ | 69,889 | | | $ | 33,642 | | | |
| | | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 27,483 | | | $ | 31,731 | | | |
Right of use assets obtained in exchange for finance lease obligations | | $ | 988 | | | $ | 4,581 | | | |
| | | | | | |
Other information related to operating leases as follows: | | | | | | |
Weighted average remaining lease term | | 9.9 years | | 10.3 years | | |
Weighted average discount rate | | 7.01 | % | | 7.12 | % | | |
| | | | | | |
Other information related to finance leases as follows: | | | | | | |
Weighted average remaining lease term | | 11.0 years | | 11.9 years | | |
Weighted average discount rate | | 4.56 | % | | 4.93 | % | | |
5. Goodwill and Intangible Assets
The following table presents goodwill as of October 4, 2020 and December 29, 2019 (in thousands):
| | | | | | | | |
Balance, December 29, 2019 | | $ | 96,397 | |
Foreign currency translation adjustment | | (983) | |
Goodwill impairment(1)
| | (95,414) | |
Balance, October 4, 2020 | | $ | 0 | |
———————————————————
(1) See Note 2, COVID-19 Pandemic, for further discussion of goodwill impairment recognized during the forty weeks ended October 4, 2020.
The following table presents intangible assets as of October 4, 2020 and December 29, 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | October 4, 2020 | | December 29, 2019 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets subject to amortization: | | | | | | | | | | | | |
Franchise rights | | $ | 50,584 | | | $ | (36,813) | | | $ | 13,771 | | | $ | 53,336 | | | $ | (35,896) | | | $ | 17,440 | |
Leasehold interests | | 13,001 | | | (9,155) | | | 3,846 | | | 13,001 | | | (8,794) | | | 4,207 | |
Liquor licenses and other | | 9,961 | | | (9,598) | | | 363 | | | 10,737 | | | (9,869) | | | 868 | |
| | $ | 73,546 | | | $ | (55,566) | | | $ | 17,980 | | | $ | 77,074 | | | $ | (54,559) | | | $ | 22,515 | |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Liquor licenses and other | | $ | 7,460 | | | $ | — | | | $ | 7,460 | | | $ | 7,460 | | | $ | — | | | $ | 7,460 | |
Intangible assets, net | | $ | 81,006 | | | $ | (55,566) | | | $ | 25,440 | | | $ | 84,534 | | | $ | (54,559) | | | $ | 29,975 | |
6.4. Loss Per Share
Basic loss per share amounts are calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share amounts are calculated based upon the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted loss per share reflects the potential dilution that could occur if holders of options exercised their options into common stock. As the Company was in a net loss position for both the twelve week and forty week periods ended October 3, 2021 and October 4, 2020, all potentially dilutive common shares are considered anti-dilutive.
The Company uses the treasury stock method to calculate the effect of outstanding stock options.options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Weeks Ended | | Forty Weeks Ended |
| October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Basic weighted average shares outstanding | 15,540 | | | 12,959 | | | 13,945 | | | 12,967 | |
Dilutive effect of stock options and awards | 0 | | | 0 | | | 0 | | | 0 | |
Diluted weighted average shares outstanding | 15,540 | | | 12,959 | | | 13,945 | | | 12,967 | |
| | | | | | | |
Awards excluded due to anti-dilutive effect on diluted loss per share | 895 | | | 358 | | | 480 | | | 405 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Weeks Ended | | Forty Weeks Ended |
| October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Basic weighted average shares outstanding | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | |
Dilutive effect of stock options and awards | — | | | — | | | — | | | — | |
Diluted weighted average shares outstanding | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | |
| | | | | | | |
Awards excluded due to anti-dilutive effect on diluted loss per share | 545 | | | 895 | | | 390 | | | 480 | |
7.
5. Other Charges (Gains)
Other charges (gains) consist of the following (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Restaurant closure costs | | $ | 1,102 | | | $ | 3,982 | | | $ | 5,301 | | | $ | 12,990 | |
Asset impairment | | — | | | — | | | 1,357 | | | 20,779 | |
Litigation contingencies | | 160 | | | — | | | 1,330 | | | 4,500 | |
COVID-19 related costs | | 299 | | | 430 | | | 1,112 | | | 1,279 | |
Board and stockholder matter costs | | — | | | 4 | | | 128 | | | 2,453 | |
Goodwill impairment | | — | | | — | | | — | | | 95,414 | |
Severance and executive transition | | — | | | — | | | — | | | 881 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other charges | | $ | 1,561 | | | $ | 4,416 | | | $ | 9,228 | | | $ | 138,296 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Goodwill impairment | | $ | 0 | | | $ | 0 | | | $ | 95,414 | | | $ | 0 | |
Restaurant asset impairment | | 0 | | | 0 | | | 20,779 | | | 14,064 | |
Restaurant closure and refranchising costs (gains) | | 3,982 | | | (3,922) | | | 12,990 | | | (2,617) | |
Litigation contingencies | | 0 | | | 0 | | | 4,500 | | | 0 | |
Board and stockholder matter costs | | 4 | | | 1,311 | | | 2,453 | | | 2,463 | |
COVID-19 related costs | | 430 | | | 0 | | | 1,279 | | | 0 | |
Severance and executive transition | | 0 | | | 594 | | | 881 | | | 2,958 | |
| | | | | | | | |
| | | | | | | | |
Executive retention | | 0 | | | 260 | | | 0 | | | 620 | |
Other charges (gains) | | $ | 4,416 | | | $ | (1,757) | | | $ | 138,296 | | | $ | 17,488 | |
Restaurant closure costs represent costs incurred for permanently closed restaurants, including lease termination costs, as well as the ongoing restaurant operating costs of Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic.During the forty weeks ended October 3, 2021, Asset impairment primarily related to the impairment of long-lived assets at 1 Company-owned restaurant with a carrying value of $3.8 million (including right of use assets), recognizing an impairment expense of $1.2 million related to the net book value of long-lived restaurant assets for this restaurant. During the twelve and forty weeks ended October 4, 2020 the Company recognized non-cash impairment charges related to restaurant assets at 2 and NaN Company-owned restaurants, respectively, resulting from quantitative impairment analyses.
Litigation contingencies include legal settlement costs accrued within the period presented related to class action employment cases and other employment matters.
COVID-19 related costs include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members during the pandemic.
Board and stockholder matters costs were primarily related to the recruitment and appointment of new board members, and other board and stockholder matters.
We performed a goodwill impairment analysis during the first quarter of 2020 resulting in full impairment of our goodwill balance. The goodwill impairment was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value.
The Company recognized non-cash impairment charges related to restaurant assets at 30 and 29 Company-owned restaurants during the forty weeks ended October 4, 2020 and October 6, 2019 resulting from quantitative impairment analyses. Additionally, the Company recognized non-cash impairment charges of $3.3 million and $5.7 million resulting from 2 and 6 restaurant closures during the twelve and forty weeks ended October 4, 2020 included within Restaurant closure and refranchising costs.
Restaurant closure and refranchising costs (gains) include the restaurant operating costs of the Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic. Gains are driven by early lease terminations on previously closed restaurants.
Litigation contingencies include legal settlement costs related to two class action employment cases.
Severance and executive transition in 2020 primarily relates to severance costs associated with the reduction in force of restaurant support center Team Members.
COVID-19 related costs include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members during the pandemic.in April 2020.
8.6. Borrowings
Total borrowingsBorrowings as of October 4, 20203, 2021 and December 29, 2019 were $216.1 million and $206.9 million. As27, 2020 are summarized below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| October 3, 2021 | | December 27, 2020 |
| Borrowings | | Weighted Average Interest Rate | | Borrowings | | Weighted Average Interest Rate |
Revolving credit facility, term loan, and other long-term debt | $ | 157,163 | | | 6.80 | % | | $ | 170,644 | | | 4.50 | % |
Total debt | 157,163 | | | | | 170,644 | | | |
Less current portion | 9,692 | | | | | 9,692 | | | |
Long-term debt | $ | 147,471 | | | | | $ | 160,952 | | | |
| | | | | | | |
Amounts issued under letters of credit | $ | 8,600 | | | | | $ | 8,700 | | | |
As of October 4, 2020, the Company had outstanding borrowings under its credit facility of $215.2 million, in addition to amounts issued under letters of credit of $7.9 million. The amounts issued under letters of credit reduce the amount available under the facility but were not recorded as debt. As of December 29, 2019, the Company had outstanding borrowings under the prior credit facility of $206 million, in addition to amounts issued under letters of credit of $7.5 million.
Loan origination costs associated with the Company's credit facilityAmended and Restated Credit Agreement (the "Credit Facility") are included as deferred costs in Other assets, net in the accompanying condensed consolidated balance sheets.Condensed Consolidated Balance Sheets. Unamortized debt issuance costs were $3.5$2.0 million and $1$3.3 million as of October 4, 20203, 2021 and December 29, 2019.27, 2020.
Third Amendment to Credit Agreement
In response to the continued uncertainty around the impact of industry labor and supply chain challenges as well as the COVID-19 Delta variant, the Company amended its current credit facility on November 9, 2021 (the "Third Amendment") to obtain additional flexibility to continue to implement our business strategy. The Company anticipates refinancing its Credit Facility in 2022. The Third Amendment further amends the Company’s Amended and Restated Credit Agreement (as amended, the "Credit Facility") to, among other things:
•waive the application of the lease adjusted leverage ratio financial covenant (the "Leverage Ratio Covenant") for the third fiscal quarter of 2021
•increase the maximum leverage permitted for purposes of the Leverage Ratio Covenant for the fourth fiscal quarter of 2021 and the first, second and third fiscal quarters of 2022, with the definition of the Leverage Ratio Covenant also being amended to provide that it shall not be calculated on a basis that gives effect to a seasonally adjusted annualized consolidated EBITDA in future periods;
•decrease the minimum fixed charge coverage ratio required for purposes of the fixed charge coverage ratio financial covenant (the “FCCR Covenant”) for the first fiscal quarter of 2022, with the definition of the FCCR Covenant also being amended to account for cash tax refunds received in any future period and certain capital expenditures constituting "Expansion Capital Expenditures" being excluded from the calculation thereof;
•decrease the minimum liquidity required for purposes of the minimum liquidity covenant and provide for the testing of such minimum liquidity covenant at all times;
•make certain amendments to the Credit Facility to (i) provide that certain additional capital expenditures shall constitute "Expansion Capital Expenditures" and (ii) provide that "Expansion Capital Expenditures" shall be permitted for all periods on or prior to the last day of the fiscal quarter of the Company ending on or about October 2, 2022, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) such "Expansion Capital Expenditures" do not exceed certain agreed amounts in each fiscal quarter (with carryforward of unused amounts to the immediately succeeding fiscal quarter), and, for all periods thereafter, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) on a pro forma basis, lease adjusted leverage ratio shall not exceed 5.00x;
•increase the pricing under the Credit Facility for (a) the period from the Third Amendment Effective Date through the first interest determination date occurring after the last day of the fiscal quarter of the Company ending on or about April 17, 2022 to LIBOR (subject to a 1.00% floor) plus 6.00% and (b) periods thereafter to LIBOR (to which a 1.00% LIBOR floor shall apply) plus 6.50%;
•provide that the previously agreed utilization fee of 0.75% per annum of the daily outstanding principal amount of term loans, revolving loans, swingline loans and letter of credit obligations under the Credit Facility shall be owing solely in respect of the period commencing on February 25, 2021 and ending on the Third Amendment Effective Date, with all such amounts payable on the Third Amendment Effective Date;
•reduce the aggregate revolving commitment to $75,000,000 on the last day of the fiscal quarter of the Company ending on or about April 17, 2022;
•amend the anti-cash hoarding provision to require revolver repayments (but with no associated permanent reduction in the revolving commitment) to the extent that the Company’s consolidated cash on hand exceeds $30,000,000 at any time;
•revise the requirement that the annual audited financial statements be delivered without a "going concern qualification" to permit such a qualification solely relating to (i) any impending debt maturity (whether under the Credit Facility or otherwise) or (ii) any actual or prospective inability to satisfy a financial maintenance covenant; and
•make certain amendments to the Credit Facility to address LIBOR transition matters.
The description above is a summary of the Third Amendment and is qualified in its entirety by the complete text of the agreement, which is incorporated herein by reference. In conjunction with the Third Amendment, the Company paid certain customary amendment fees to the lenders under the Credit Facility totaling approximately $0.8 million, which will be capitalized as deferred loan fees and amortized over the remaining term of the Credit Facility.
9.7. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate fair value due to the short term nature or maturity of the instruments.
The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying condensed consolidated balance sheetsCondensed Consolidated Balance Sheets as of October 4, 20203, 2021 and December 29, 201927, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | October 4, 2020 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Investments in rabbi trust | | $ | 6,232 | | | $ | 6,232 | | | $ | 0 | | | $ | 0 | |
Total assets measured at fair value | | $ | 6,232 | | | $ | 6,232 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | |
| | December 29, 2019 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Investments in rabbi trust | | $ | 7,337 | | | $ | 7,337 | | | $ | 0 | | | $ | 0 | |
Total assets measured at fair value | | $ | 7,337 | | | $ | 7,337 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | October 3, 2021 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Investments in rabbi trust | | $ | 5,999 | | | $ | 5,999 | | | $ | — | | | $ | — | |
Total assets measured at fair value | | $ | 5,999 | | | $ | 5,999 | | | $ | — | | | $ | — | |
| | | | | | | | |
| | December 27, 2020 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Investments in rabbi trust | | $ | 6,740 | | | $ | 6,740 | | | $ | — | | | $ | — | |
Total assets measured at fair value | | $ | 6,740 | | | $ | 6,740 | | | $ | — | | | $ | — | |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the condensed consolidated financial statementsCondensed Consolidated Financial Statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired.
The Company has measured non-financial assets for impairment using continuing and projected future cash flows, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement. BasedSee footnote 5 Other Charges of this Quarterly Report on our restaurant asset impairment analyses during fiscal year 2020, we impaired long-lived assets at 36 Company-owned restaurants with carrying values of $61.4 million. We determined the fair value of these long-lived restaurant assets to be $34.9 million. During fiscal year 2019, we impaired long-lived assets at 29 Company-owned restaurants with carrying values of $17.3 million. We determined the fair value of these long-lived restaurant assets to be $2.2 million.Form 10-Q for additional detail.
Disclosures of Fair Value of Other Assets and Liabilities
The Company's liability under its credit facilityCredit Facility is carried at historical cost in the accompanying condensed consolidated balance sheets. Due to market interest rates decreasing during fiscal year 2020, the Company determinedCondensed Consolidated Balance Sheets. As of October 3, 2021, the carrying value of the liability under its credit facility did not approximatethe Company's Credit Facility approximated fair value. TheAs of December 27, 2020, the carrying value and fair value of the credit facility as of October 4, 2020Credit Facility were $215.2$169.8 million and $218.6$172.6 million. As of December 29, 2019, the carrying value of the credit facility approximated fair value as the interest rate on the instrument approximated current market rates. The interest rate on the credit facilityCredit Facility represents a level 2 fair value input.
10.8. Commitments and Contingencies
On July 14, 2017, a current hourly employee filed a class action lawsuit alleging that the Company failed to provide required meal breaks and rest periods and failed to reimburse business expenses, among other claims. The case is styled Manuel Vigueras v. Red Robin International, Inc. and is currently pending before the United States District Court in Santa Ana, California. In a related action, on September 21, 2017, a companion case, styled Genny Vasquez v. Red Robin International, Inc. was filed and is currently pending in California Superior Court in Santa Ana, California and involves claims under the California Private Attorneys' General Act that partially overlap the claims made in the Vigueras matter. In the first quarter of 2020, the Company reached a tentative settlement agreement resolving all claims and the cost of class administration in both cases for an aggregate $8.5 million. The Company is in the process of finalizing the settlement agreement, which will then be submitted to the court for approval. Court approval is required before any settlement agreement between the parties becomes final. An additional $4.5 million was accrued to reach the $8.5 million settlement amount during the first fiscal quarter of 2020. Amounts recorded in the periods presented for litigation contingencies are disclosed in Note 7, Other Charges.
In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment-relatedemployment related claims and claims from Guests or Team Members alleging illness, injury, or other food quality, health, or operational issues. Evaluating contingencies related to litigation is a complex process involving subjective judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis. We review the adequacy of accruals and disclosures pertaining to litigation matters each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements.concerns. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the condensed consolidated financial statements.statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying condensed consolidated financial statements.Condensed Consolidated Financial Statements. All comparisons under this heading between 20202021 and 20192020 refer to the twelve and forty weeks ended October 4, 20203, 2021 and October 6, 2019,4, 2020, unless otherwise indicated.
Overview
Description of Business
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 547531 locations in North America. As of October 4, 2020,3, 2021, the Company owned 444430 restaurants located in 38 states. The Company also had 103101 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
COVID-19 Impact
The COVID-19 pandemic continues to create unprecedented challenges for our industry including government mandated restrictions, changing consumer behavior, labor and supply chain challenges, and wide spread inflationary costs. Even as government restrictions were lifted, and dining rooms returned to full capacity, the surge in the Delta variant continued to highlight the critical importance of providing a safe environment for our Team Members and Guests.
In response to these COVID-19 challenges, the Company Responselimited dining hours and seating capacity in order to COVID-19 Pandemicpreserve the consistent quality experience our Guests expect from us. Our disciplined Guest focus is delivered through our Total Guest Experience hospitality model ("TGX"), off-premises enhancements, and our management labor model.
DueOur ability to attract and retain Team Members has become more challenging in the current competitive job market. Staffing is our number one priority; we have supported our staffing efforts through technology enhancements to the novel coronavirus ("COVID-19") pandemic, we continueapplication and hiring process, improving our wage policies, holding national hiring days, and deploying internal and external resources to navigate an unprecedented time foraugment recruiting, hiring, and training efforts. The challenges in hiring and retention and global supply chain disruptions have affected many of our businessvendor partners, resulting in intermittent product and industry. During the third quarter of 2020, the Company continued to expand outdoor seating capacity at reopened Company-owned restaurants in accordance with local limits. Reopening dining rooms and expanding seating capacity was executed with the health, safety, and well-being of Red Robin's Team Members, Guests, and communities in mind with strict adherence to US Centers for Disease Control and Prevention, state, and local guidelines as our top priority. Our continued focus during the COVID-19 pandemic on delivering best-in-class hospitality has resulted in improved average weekly net sales per restaurant and record high Guest satisfaction scores since the onset of the pandemic in early March.distribution shortages.
We remain focused on expanding indoor and outdoor seating capacity, retaining off-premise sales levels, and consistentlyproactively addressing these industry challenges, while delivering a great Guest experience and continuing to continue to drive our improving sales. We expect to build further sales momentum from additional seating expansion, including use of outdoor all-weather tentsprioritize the satisfaction and indoor booth partitions. We also continue to require Guests to wear face coverings at all locations while entering, exiting, and walking around our restaurants, and face masks are provided for Guests who arrive without one to ensure we are enabling the mutual safetyretention of our Guests and Team Members.
As our dining rooms have reopened, sales and the Guest experience have been positively impacted by the accelerated implementation of our new Total Guest Experience ("TGX") hospitality model, coupled with strong adherence to health and safety standards. Notably, restaurants with reopened dining rooms are retaining meaningful off-premise sales, demonstrating the enduring and growing popularity of Red Robin for off-premise occasions.
We have secured the Company's long-term viability through increased liquidity from our at-the-market equity offering, reductions in overhead costs, receipt of a $49.4 million federal cash tax refund subsequent to the third quarter balance sheet date, including interest, provided under the provisions of the CARES Act, and $12 million to $15 million of additional federal cash tax refunds expected to be received in 2021. This allows us to resume full implementation of the Company's previously disclosed strategic plan to transform the business and create long-term stockholder value through delivering best-in-class execution, including implementing our TGX hospitality model, rolling out Donatos® Pizza, optimizing the restaurant portfolio, and enhancing our technological and digital capabilities to drive increased Guest engagement and frequency with our brand.
The Company was required to re-close dining rooms during the second fiscal quarter at numerous Company-owned restaurants, including 53 indoor dining rooms in California due to a state mandate in early July, from the effects of increased COVID-19 cases in certain states and localities. These indoor dining rooms have started to reopen during the third fiscal quarter, while maintaining improved off-premise performance.
Each of our franchisees' restaurants remained open as of the end of our third fiscal quarter, and we started charging and collecting full royalty payments and advertising contributions from our franchisees as of the end of our third fiscal quarter.
As of November 1, 2020, the Company has reopened 370 total (comparable and non-comparable) indoor dining rooms with limited capacity, representing approximately 89% of currently open Company-owned restaurants. Notably, these restaurants have on average maintained off-premise sales that are approximately 35% of sales mix after reopening dining rooms. As of the filing date of this Form 10-Q, 18 restaurants remain temporarily closed due to the COVID-19 pandemic. We will continue to evaluate the potential timing of reopening these remaining temporarily closed restaurants. Restaurant operating level expenses incurred for these restaurants during the temporary closures have been recorded in Restaurant closure and refranchising costs (gains) in Other charges (gains); see Note 7, Other Charges (Gains), in the Notes to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Net comparable restaurant revenue and average weekly net sales per Company-owned restaurant with reopened indoor dining rooms for the Company's 28 day accounting periods through November 1, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended(2) |
Reopened Company-owned Restaurant Indoor Dining Rooms | | 9-Aug | | 6-Sept | | 4-Oct | | 1-Nov(3) | | | | | | |
Net comparable restaurant revenues | | (29.1)% | | (20.1)% | | (9.5)% | | (13.7)% | | | | | | |
Average weekly net sales per restaurant | | $38,779 | | $41,272 | | $43,034 | | $42,778 | | | | | | |
# of comparable Company-owned restaurants(1) | | 340 | | 347 | | 381 | | 362 | | | | | | |
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(1) Net sales performance for Company-owned restaurants with reopened indoor dining rooms for the full period presented. Restaurant count is as of the end of the period presented.
(2) The period ended August 9, September 6, and October 4, 2020 comprise the Company's third fiscal quarter. The period ended November 1, 2020 falls within our fourth fiscal quarter, and amounts presented for the period are preliminary.
(3) Sales performance at restaurants with reopened dining rooms during the period ended November 1, 2020 was negatively impacted by rising COVID-19 cases resulting in new restrictions lowering dining room capacity in certain states and localities. The negative impact was partially offset by sales benefits from expanded outdoor seating and increased use of booth partitions, improved off-premise sales performance in California, and average check growth during the period. Additionally, Halloween shifted from a Thursday to a Saturday in 2020, negatively impacting comparable restaurant revenues by approximately 1.0% to 2.0% for the period ended November 1, 2020.
Net comparable restaurant revenue and average weekly net sales per Company-owned restaurant for the Company's 28 day accounting periods through November 1, 2020 is as follows:
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| | Period Ended(2) | | | | | | |
Company-owned Restaurants | | 9-Aug | | 6-Sept | | 4-Oct | | 1-Nov(3) | | | | | | |
Net comparable restaurant revenues | | (34.2)% | | (24.9)% | | (14.9)% | | (15.4)% | | | | | | |
Average weekly net sales per restaurant | | $36,830 | | $39,728 | | $41,731 | | $42,509 | | | | | | |
# of comparable Company-owned restaurants(1) | | 412 | | 412 | | 412 | | 412 | | | | | | |
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(1) Comparable restaurants are those Company-owned restaurants that have operated five full quarters as of the period or week presented. Restaurant count shown is as of the end of the period or week presented.
(2) The period ended August 9, September 6, and October 4, 2020 comprise the Company's third fiscal quarter. The period ended November 1, 2020 falls within our fourth fiscal quarter, and amounts presented for the period are preliminary.
(3) Sales performance at restaurants with reopened dining rooms during the period ended November 1, 2020 was negatively impacted by rising COVID-19 cases resulting in new restrictions lowering dining room capacity in certain states and localities. The negative impact was partially offset by sales benefits from expanded outdoor seating and increased use of booth partitions, improved off-premise sales performance in California, and average check growth during the period. Additionally, Halloween shifted from a Thursday to a Saturday in 2020, negatively impacting comparable restaurant revenues by approximately 1.0% to 2.0% for the period ended November 1, 2020.
Financial and Operational Highlights
The following summarizes the operational and financial highlights during the twelve and forty weeks ended October 4, 2020:3, 2021:
•Restaurant revenue decreased $92.9 million, or 32.0%, to $197.0 million for the twelve weeks ended October 4, 2020, asRevenue, compared to the twelve weeks ended October 6, 2019, due to a $65.7 million, or 25.1%, decreasesame period in the prior year, is presented in the table below: | | | | | | | | | | | | |
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| | (millions) | | | | |
Restaurant Revenue for the twelve weeks ended October 4, 2020 | | $ | 197.0 | | | | | |
Increase in comparable restaurant revenue | | 67.0 | | | | | |
Increase from non-comparable restaurants | | 6.2 | | | | | |
Total increase | | 73.2 | | | | | |
Restaurant Revenue for the twelve weeks ended October 3, 2021 | | $ | 270.2 | | | | | |
The following summarizes the operational and a $27.2 million decrease primarily from closed restaurants.
•Restaurant revenue decreased $334.2 million, or 33.7%, to $658.6 million forfinancial highlights during the forty weeks ended October 4, 2020, as3, 2021:
Restaurant Revenue, compared to the forty weeks ended October 6, 2019, due to a $252.1 million, or 28.3%, decreasesame period in comparable restaurant revenue and a $82.1 million decrease primarily from closed restaurants.the prior year, is presented in the table below: | | | | | | | | | | | | |
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| | (millions) | | | | |
Restaurant Revenue for the forty weeks ended October 4, 2020 | | $ | 658.6 | | | | | |
Increase in comparable restaurant revenue | | 200.6 | | | | | |
Decrease from non-comparable restaurants | | 1.8 | | | | | |
Total increase | | 202.4 | | | | | |
Restaurant Revenue for the forty weeks ended October 3, 2021 | | $ | 861.0 | | | | | |
•Restaurant revenues and operating costs as a percentage of restaurant revenue increased 750 basis points to 91.4% for the twelve weeks ended October 4, 2020, as comparedperiod are detailed in the table below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve weeks ended | | 2021 compared to 2020 | | Twelve Weeks Ended | | 2021 compared to 2019(1) |
| | October 3, 2021 | | October 4, 2020 | | Increase/(Decrease) | | October 6, 2019(1) | | Increase/(Decrease) |
Restaurant revenue (millions) | | $ | 270.2 | | | $ | 197.0 | | | 37.2 | % | | $ | 289.9 | | | (6.8) | % |
Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | (Percentage of Restaurant Revenue) | | (Basis Points) |
Cost of sales | | 23.2 % | | 23.4 % | | (20) | | | 23.8 | % | | (60) | |
Labor | | 36.9 % | | 37.7 % | | (80) | | | 36.2 | % | | 70 | |
Other operating | | 19.0 % | | 19.1 % | | (10) | | | 15.3 | % | | 370 | |
Occupancy | | 8.3 % | | 11.2 % | | (290) | | | 8.6 | % | | (30) | |
Total | | 87.5 % | | 91.4 % | | (390) | | | 83.9 | % | | 360 | |
(1) Presented for improved comparability to 83.9%pre-COVID-19 operations.
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| | Forty weeks ended | | 2021 compared to 2020 | | Forty Weeks Ended | | 2021 compared to 2019(1) |
| | October 3, 2021 | | October 4, 2020 | | Increase/(Decrease) | | October 6, 2019(1) | | Increase/(Decrease) |
Restaurant revenue (millions) | | $ | 861.0 | | | $ | 658.6 | | | 30.7 | % | | $ | 992.8 | | | (13.3) | % |
Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | (Percentage of Restaurant Revenue) | | (Basis Points) |
Cost of sales | | 22.5 % | | 23.6 % | | (110) | | | 23.7 | % | | (120) | |
Labor | | 36.0 % | | 38.8 % | | (280) | | | 35.7 | % | | 30 | |
Other operating | | 18.1 % | | 18.9 % | | (80) | | | 14.4 | % | | 370 | |
Occupancy | | 8.6 % | | 11.6 % | | (300) | | | 8.6 | % | | — | |
Total | | 85.3 | % | | 92.9 % | | (760) | | | 82.4 | % | | 280 | |
(1) Presented for the twelve weeks ended October 6, 2019. The increase was dueimproved comparability to higher other operating costs, labor costs, and occupancy costs as a percentagepre-COVID-19 operations.
•Restaurant operating costs, as a percentage of restaurant revenue, increased 1,050 basis points to 92.9% for the forty weeks ended October 4, 2020, as compared to 82.4% for the forty weeks ended October 6, 2019. The increase was due to higher other operating costs, labor costs, and occupancy costs as a percentage of restaurant revenue, partially offset by lower cost of sales as a percentage of restaurant revenue.
•following table summarizes Net loss, was $6.2 million for the twelve weeks ended October 4, 2020 compared to net loss of $1.8 million for the twelve weeks ended October 6, 2019. Diluted loss per share was $0.40 for the twelve weeks ended October 4, 2020, as compared to diluted loss per share of $0.14 for the twelve weeks ended October 6, 2019. Excluding costs per diluted share, included in Other charges (gains) of $0.19 for restaurant closure and refranchising costs and $0.02 for COVID-19 related costs, adjusted loss per diluted share for the twelve weeks ended October 4, 2020, was $0.19. Excluding a gain per diluted share included in Other charges (gains) of $0.23 for lease terminations for previously closed restaurants, and costs per diluted share included in Other charges (gains) of $0.07 for board and stockholder matters costs, $0.04 for severance and executive transition, and $0.02 for executive retention, adjusted loss per diluted share for the twelve weeks ended October 6, 2019 was $0.24.
•Net loss was $236.7 million for the forty weeks ended October 4, 2020 compared to net loss of $0.2 million for the forty weeks ended October 6, 2019. Diluted loss per share was $16.98 for the forty weeks ended3, 2021 and October 4, 2020, as compared to diluted loss per share of $0.02 for the forty weeks ended October 6, 2019. Excluding costs per diluted share included in Other charges (gains) of $5.07 for goodwill impairment, $1.10 for restaurant asset impairment, $0.69 for restaurant closure and refranchising costs, $0.24 for litigation contingencies, $0.13 for board and stockholder matters costs, $0.07 for COVID-19 related costs, and $0.04 for severance and executive transition, adjusted loss per diluted share for the forty weeks ended October 4, 2020 was $9.64. Excluding costs per diluted share included in Other charges (gains) of $0.80 for restaurant asset impairment, $0.17 for severance and executive transition, $0.14 for board and stockholder matters costs, and $0.04 for executive retention, and a gain included in Other charges (gains) of $0.15 for lease terminations for previously closed restaurants, adjusted earnings per diluted share for the forty weeks ended October 6, 2019 was $0.98.2020; | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Net loss as reported | | $ | (14,980) | | | $ | (6,179) | | | $ | (28,689) | | | $ | (236,738) | |
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Loss per share - diluted: | | | | | | | | |
Net loss as reported | | $ | (0.95) | | | $ | (0.40) | | | $ | (1.83) | | | $ | (16.98) | |
Restaurant closure costs | | 0.07 | | | 0.26 | | | 0.34 | | | 0.93 | |
Asset impairment | | — | | | — | | | 0.09 | | | 1.49 | |
Litigation contingencies | | 0.01 | | | — | | | 0.08 | | | 0.32 | |
COVID-19 related costs | | 0.02 | | | 0.03 | | | 0.07 | | | 0.09 | |
Board and stockholder matter costs | | — | | | — | | | 0.01 | | | 0.18 | |
Severance and executive transition | | — | | | — | | | — | | | 0.06 | |
Goodwill impairment | | — | | | — | | | — | | | 6.84 | |
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Income tax effect | | (0.03) | | | (0.08) | | | (0.16) | | | (2.57) | |
Adjusted loss per share - diluted | | $ | (0.88) | | | $ | (0.19) | | | $ | (1.40) | | | $ | (9.64) | |
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Weighted average shares outstanding | | | | | | | | |
Basic | | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | |
Diluted | | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | |
•We believe the non-GAAP measure of adjusted earnings (loss)loss per diluted share gives the reader additional insight into the ongoing operational results of the Company, and it is intended to supplement the presentation of the Company's financial results in accordance with GAAP.
•Marketing - Our Red Robin Royalty™ loyalty program operates in all our U.S. Company-owned Red Robin restaurants and has been rolled out to most of our franchised restaurants. We engage our Guests through Red Robin Royalty with offers designed to increase frequency of visits as a key part of our overall marketing strategy. Our media buying approach has pivoted to prioritize digital, social, and owned channels including our website and email to effectively target and reach our Guests.
Restaurant Data
The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:
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| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Company-owned: | | | | | | | | |
Beginning of period | | 450 | | | 472 | | | 454 | | | 484 | |
Opened during the period | | — | | | 1 | | | — | | | — | |
| | | | | | | | |
Closed during the period(1) | | (6) | | | (2) | | | (10) | | | (13) | |
End of period | | 444 | | | 471 | | | 444 | | | 471 | |
Franchised: | | | | | | | | |
Beginning of period | | 102 | | | 90 | | | 102 | | | 89 | |
Opened during the period | | 1 | | | — | | | 1 | | | 1 | |
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End of period | | 103 | | | 90 | | | 103 | | | 90 | |
Total number of restaurants | | 547 | | | 561 | | | 547 | | | 561 | |
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| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Company-owned: | | | | | | | | |
Beginning of period | | 430 | | | 450 | | | 443 | | | 454 | |
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Closed during the period | | — | | | (6) | | | (13) | | | (10) | |
End of period | | 430 | | | 444 | | | 430 | | | 444 | |
Franchised: | | | | | | | | |
Beginning of period | | 101 | | | 102 | | | 103 | | | 102 | |
Opened during the period | | — | | | 1 | | | — | | | 1 | |
Closed during the period | | — | | | — | | | (2) | | | — | |
End of period | | 101 | | | 103 | | | 101 | | | 103 | |
Total number of restaurants | | 531 | | | 547 | | | 531 | | | 547 | |
(1)
The following table presents total Company-owned and forty weeks ended October 4, 2020, 24 Company-ownedfranchised restaurants remained temporarily closed due to the COVID-19 pandemicby state or province as of October 4, 2020. Of the 35 temporarily closed Company-owned restaurants at the beginning of the third fiscal quarter, six restaurants have been reopened and five restaurants have been permanently closed during the twelve weeks ended October 4, 2020. Additionally, six more temporarily closed Company-owned restaurants were reopened during the beginning of our fourth fiscal quarter.3, 2021:
| | | | | | | | | | | | | | |
| | Company-Owned Restaurants | | Franchised Restaurants |
| | | | |
State: | | | | |
Arkansas | | 2 | | 2 |
Alaska | | — | | 3 |
Alabama | | 4 | | — |
Arizona | | 18 | | 1 |
California | | 59 | | — |
Colorado | | 22 | | — |
Connecticut | | — | | 3 |
Delaware | | — | | 5 |
Florida | | 19 | | — |
Georgia | | 6 | | — |
Iowa | | 5 | | — |
Idaho | | 8 | | — |
Illinois | | 22 | | — |
Indiana | | 13 | | — |
Kansas | | — | | 4 |
Kentucky | | 4 | | — |
Louisiana | | 2 | | — |
Massachusetts | | 4 | | 2 |
Maryland | | 13 | | — |
Maine | | 2 | | — |
Michigan | | — | | 20 |
Minnesota | | 4 | | — |
Missouri | | 8 | | 3 |
Montana | | — | | 2 |
North Carolina | | 17 | | — |
Nebraska | | 4 | | — |
New Hampshire | | 3 | | — |
New Jersey | | 12 | | 1 |
New Mexico | | 3 | | — |
Nevada | | 6 | | — |
New York | | 14 | | — |
Ohio | | 18 | | 2 |
Oklahoma | | 5 | | — |
Oregon | | 15 | | 5 |
Pennsylvania | | 11 | | 21 |
Rhode Island | | 1 | | — |
South Carolina | | 4 | | — |
South Dakota | | 1 | | — |
Tennessee | | 11 | | — |
Texas | | 20 | | 9 |
Utah | | 1 | | 6 |
Virginia | | 20 | | — |
Washington | | 38 | | — |
Wisconsin | | 11 | | — |
| | | | |
Province: | | | | |
British Columbia | | — | | 12 |
Total | | 430 | | 101 |
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Results of Operations
Operating results for each fiscal period presented below are expressed as a percentage of total revenues, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.
This information has been prepared on a basis consistent with our audited 20192020 annual financial statements, and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. Our operating results may fluctuate significantly as a result of a variety of factors, and operating results for any period presented are not necessarily indicative of results for a full fiscal year.
| | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
| | | October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 | | | October 3, 2021 | | October 4, 2020 | | October 6, 2019(1) | | | October 3, 2021 | | October 4, 2020 | | October 6, 2019(1) |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | | | | | | | |
Restaurant revenue | Restaurant revenue | | 98.3 | % | | 98.5 | % | | 98.6 | % | | 98.1 | % | Restaurant revenue | | 98.1 % | | 98.3 % | | 98.5 | % | | | 98.0 % | | 98.6 % | | 98.1 | % |
Franchise and other revenues | Franchise and other revenues | | 1.7 | | | 1.5 | | | 1.4 | | | 1.9 | | Franchise and other revenues | | 1.9 % | | 1.7 % | | 1.5 | % | | | 2.0 % | | 1.4 % | | 1.9 | % |
Total revenues | Total revenues | | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | Total revenues | | 100.0 % | | 100.0 % | | 100.0 | % | | | 100.0 % | | 100.0 % | | 100.0 | % |
| Costs and expenses: | Costs and expenses: | | | | Costs and expenses: | | | | | |
Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | | | | Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | | | | | |
Cost of sales | Cost of sales | | 23.4 | | | 23.8 | | | 23.6 | | | 23.7 | | Cost of sales | | 23.2 % | | 23.4 % | | 23.8 | % | | | 22.5 % | | 23.6 % | | 23.7 | % |
Labor | Labor | | 37.7 | | | 36.2 | | | 38.8 | | | 35.7 | | Labor | | 36.9 % | | 37.7 % | | 36.2 | % | | | 36.0 % | | 38.8 % | | 35.7 | % |
Other operating | Other operating | | 19.1 | | | 15.3 | | | 18.9 | | | 14.4 | | Other operating | | 19.0 % | | 19.1 % | | 15.3 | % | | | 18.1 % | | 18.9 % | | 14.4 | % |
Occupancy | Occupancy | | 11.2 | | | 8.6 | | | 11.6 | | | 8.6 | | Occupancy | | 8.3 % | | 11.2 % | | 8.6 | % | | | 8.6 % | | 11.6 % | | 8.6 | % |
Total restaurant operating costs | Total restaurant operating costs | | 91.4 | | | 83.9 | | | 92.9 | | | 82.4 | | Total restaurant operating costs | | 87.5 % | | 91.4 % | | 83.9 | % | | | 85.3 | % | | 92.9 % | | 82.4 | % |
Depreciation and amortization | Depreciation and amortization | | 9.6 | | | 7.2 | | | 10.2 | | | 7.0 | | Depreciation and amortization | | 6.9 % | | 9.6 % | | 7.2 | % | | | 7.3 % | | 10.2 % | | 7.0 | % |
Selling, general and administrative | | 10.6 | | | 12.5 | | | 12.4 | | | 11.8 | | |
General and administrative expenses | | General and administrative expenses | | 6.4 % | | 7.6 % | | 6.5 | % | | | 6.6 % | | 8.4 % | | 7.0 | % |
Selling expenses | | Selling expenses | | 4.6 % | | 3.0 % | | 6.0 | % | | | 3.6 % | | 4.0 % | | 4.8 | % |
Pre-opening and acquisition costs | Pre-opening and acquisition costs | | — | | | — | | | — | | | — | | Pre-opening and acquisition costs | | 0.2 % | | — | % | | — | % | | | 0.1 % | | — | % | | — | % |
Other charges (gains) | | 2.2 | | | (0.6) | | | 20.7 | | | 1.7 | | |
Other charges | | Other charges | | 0.6 % | | 2.2 % | | (0.6) | % | | | 1.1 % | | 20.7 % | | 1.7 | % |
Loss from operations | Loss from operations | | (12.3) | | | (1.8) | | | (35.0) | | | (1.4) | | Loss from operations | | (4.4) | % | | (12.3) | % | | (1.8) | % | | | (2.2) | % | | (35.0) | % | | (1.4) | % |
| Interest expense, net and other | Interest expense, net and other | | 1.1 | | | 0.6 | | | 1.1 | | | 0.7 | | Interest expense, net and other | | 1.0 % | | 1.1 % | | 0.6 | % | | | 1.1 % | | 1.1 % | | 0.7 | % |
Loss before income taxes | Loss before income taxes | | (13.4) | | | (2.4) | | | (36.1) | | | (2.2) | | Loss before income taxes | | (5.4) | % | | (13.4) | % | | (2.4) | % | | | (3.3) | % | | (36.1) | % | | (2.2) | % |
Income tax benefit | Income tax benefit | | (10.3) | | | (1.8) | | | (0.6) | | | (2.1) | | Income tax benefit | | 0.0 | % | | (10.3) | % | | (1.8) | % | | | — | % | | (0.6) | % | | (2.1) | % |
Net loss | Net loss | | (3.1) | % | | (0.6) | % | | (35.5) | % | | — | % | Net loss | | (5.4) | % | | (3.1) | % | | (0.6) | % | | | (3.3) | % | | (35.5) | % | | — | % |
(1) Presented for improved comparability to pre-COVID-19 operations.
Certain percentage amounts in the table above do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.
Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(Revenues in thousands) | | October 4, 2020 | | October 6, 2019 | | Percent Change | | October 4, 2020 | | October 6, 2019 | | Percent Change |
Restaurant revenue | | $ | 197,009 | | | $ | 289,862 | | | (32.0) | % | | $ | 658,587 | | | $ | 992,764 | | | (33.7) | % |
Franchise royalties, fees and other revenue | | 3,469 | | | 4,360 | | | (20.4) | % | | 9,078 | | | 19,305 | | | (53.0) | % |
Total revenues | | $ | 200,478 | | | $ | 294,222 | | | (31.9) | % | | $ | 667,665 | | | $ | 1,012,069 | | | (34.0) | % |
Average weekly net sales volumes in Company-owned restaurants | | $ | 39,418 | | | $ | 51,221 | | | (23.0) | % | | $ | 38,352 | | | $ | 51,961 | | | (26.2) | % |
Total operating weeks | | 4,998 | | | 5,659 | | | (11.7) | % | | 17,172 | | | 19,106 | | | (10.1) | % |
Net sales per square foot | | $ | 75 | | | $ | 98 | | | (23.1) | % | | $ | 247 | | | $ | 334 | | | (26.2) | % |
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(Revenues in thousands) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Restaurant revenue | | $ | 270,202 | | | $ | 197,009 | | | 37.2 | % | | $ | 861,036 | | | $ | 658,587 | | | 30.7 | % |
Franchise royalties, fees and other revenue | | 5,242 | | | 3,469 | | | 51.1 | % | | 17,658 | | | 9,078 | | | 94.5 | % |
Total revenues | | $ | 275,444 | | | $ | 200,478 | | | 37.4 | % | | $ | 878,694 | | | $ | 667,665 | | | 31.6 | % |
Average weekly net sales volumes in Company-owned restaurants | | $ | 52,599 | | | $ | 39,418 | | | 33.4 | % | | $ | 50,324 | | | $ | 38,352 | | | 31.2 | % |
Total operating weeks | | 5,137 | | | 4,998 | | | 2.8 | % | | 17,110 | | | 17,172 | | | (0.4) | % |
Net sales per square foot | | $ | 101 | | | $ | 75 | | | 33.6 | % | | $ | 322 | | | $ | 247 | | | 30.4 | % |
Restaurant revenue for the twelve weeks ended October 4, 2020,3, 2021, which comprises primarily food and beverage sales, decreased $92.9increased $73.2 million, or 32.0%37.2%, as compared to the third quarter of 2019.twelve weeks ended October 4, 2020. The decreaseincrease was due to a $65.7$67.0 million, or 25.1%34.3%, decreaseincrease in comparable restaurant revenue, and a $27.2$6.2 million decreaseincrease primarily from reopened restaurants that were temporarily closed restaurants.during third quarter 2020. The comparable restaurant revenue decreaseincrease was driven by a 24.6% decrease22.5% increase in Guest count and a 0.5% decrease11.8% increase in average Guest check. The decreaseincrease in average Guest check resulted from a 3.6% decrease3.5% increase in pricing and a 8.4% increase in menu mix, partially offset by a 2.2% increase in pricing and a 0.9% increase0.1% decrease from lowerhigher discounting. The decreaseincrease in menu mix was primarily driven by limited dining room capacity at reopened restaurants and operating off-premise only at restaurants with temporarily closed dining rooms, resulting in lowerhigher sales of beverages and Finest burgers. Off-premiseour limited time menu offerings. Off-premises sales increased 127.2% and comprised 40.7%30.8% of total food and beverage sales during the third quarter of2021, compared to 40.7% in the same period in 2020.
Restaurant revenue for the forty weeks ended October 4, 2020, decreased $334.23, 2021, increased $202.4 million or 33.7%30.7%, as compared to the forty weeks ended October 6, 2019.4, 2020. The decreaseincrease was due to a $252.1$200.6 million, or 28.3%31.5%, decreaseincrease in comparable restaurant revenue and a $82.1$1.8 million decreaseincrease primarily from reopened restaurants that were temporarily closed restaurants.during 2020. The comparable restaurant revenue decreaseincrease was driven by a 27.4% decrease21.1% increase in Guest countcounts and a 0.9% decrease10.5% increase in average Guest check. The decreaseincrease in average Guest check resulted from a 3.5% decrease in menu mix, partially offset by a 2.0 % increase in pricing and a 0.6 %6.6% increase in menu mix, and a 0.4% increase from lower discounting. The decreaseincrease in menu mix was primarily driven by limited dining room capacity at reopened restaurants and operating off-premise only at restaurants with temporarily closed dining rooms, resulting in lowerhigher sales of beverages, appetizers, and Finest burgers. Off-premise sales increased 136.8% and comprised 40.0% of total food and beverage sales during the forty weeks ended October 4, 2020.limited time menu offerings.
Average weekly net sales volumes represent the total restaurant revenue for all Company-owned Red Robin restaurants for each time period presented, divided by the number of operating weeks in the period. Comparable restaurant revenues include thoseare comprised of Company-owned restaurants that are in the comparable base athave operated five full quarters as of the end of eachthe period presented. TheCompany-owned restaurants that were temporarily closed Company-owned restaurants due to the COVID-19 pandemic were not included in the comparable base for the twelve and forty weeks ended October 3, 2021 or October 4, 2020. Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of new and acquired restaurants during the period, and the average square footage of our restaurants.restaurants, as well as the impact of changing capacity limitations in response to COVID-19 levels in a given locality. Net sales per square foot represents the total restaurant revenue for Company-owned restaurants included in the comparable base divided by the total adjusted square feet of Company-owned restaurants included in the comparable base.
Franchise and other revenue decreased $0.9increased $1.8 million for the twelve weeks ended October 4, 20203, 2021 compared to the twelve weeks ended October 6, 20194, 2020, due to improved comparable franchise sales performance during the third fiscal quarter of 2021.
Franchise and other revenue increased $8.6 million for the forty weeks ended October 3, 2021 compared to the forty weeks ended October 4, 2020, due to improved comparable franchise sales performance, charging and collecting partial royalty payments and advertising contributions from our franchisees for the majority ofduring the third fiscal quarter of 2020. As of2021. During 2020, the end of our third fiscal quarter of 2020, we were charging and collecting fullCompany had temporarily abated franchisee royalty payments and advertising contributions from our franchisees. Our franchisees reported a comparable restaurant revenue decrease of 17.0% for the twelve weeks ended October 4, 2020 compared to the same periodcontribution payments in 2019.
Franchisemid-March, and other revenue decreased $10.2 million for the forty weeks ended October 4, 2020 compared to the forty weeks ended October 6, 2019 due to the temporary abatement of franchisee royalty payments and advertising contributions in response to COVID-19's effect on our franchise operations throughresumed collection during the latter half of the second fiscal quarter and only charging and collecting partial royalty payments and advertising contributions thereafter through the majority of the third fiscal quarter of 2020. As of the end of the third quarter of 2020, the Company had resumed charging full royalty and advertising contributions to our franchisees. Our franchisees reported a comparable restaurant revenue decrease of 27.1% for the forty weeks ended October 4, 2020 compared to the same period in 2019.increased gift card breakage.
Cost of Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 4, 2020 | | October 6, 2019 | | Percent Change | | October 4, 2020 | | October 6, 2019 | | Percent Change |
Cost of sales | | $ | 46,037 | | | $ | 69,017 | | | (33.3) | % | | $ | 155,243 | | | $ | 235,119 | | | (34.0) | % |
As a percent of restaurant revenue | | 23.4 | % | | 23.8 | % | | (0.4) | % | | 23.6 | % | | 23.7 | % | | (0.1) | % |
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Cost of sales | | $ | 62,671 | | | $ | 46,037 | | | 36.1 % | | $ | 193,754 | | | $ | 155,243 | | | 24.8 % |
As a percent of restaurant revenue | | 23.2 % | | 23.4 % | | (0.2) | % | | 22.5 % | | 23.6 % | | (1.1) | % |
Cost of sales, which comprises of food and beverage costs, is variable and generally fluctuates with sales volume. Cost of sales as a percentage of restaurant revenue decreased 4020 basis points for the twelve weeks ended October 4, 20203, 2021 as compared to the same period in 2019.2020. The decrease was primarily driven by pricing, favorable mix shifts, lower promotional discountswaste, and net favorablehigher rebates, partially offset by commodity prices. inflation.
Cost of sales as a percentage of restaurant revenue decreased 10110 basis points for the forty weeks ended October 4, 20203, 2021 as compared to the same period in 2019.2020. The decrease was mainlyprimarily driven by lower promotional discounts, partially offset by increased wastepricing, favorable mix shifts, and lower beverage mix.rebates.
Labor
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 4, 2020 | | October 6, 2019 | | Percent Change | | October 4, 2020 | | October 6, 2019 | | Percent Change |
Labor | | $ | 74,344 | | | $ | 104,870 | | | (29.1) | % | | $ | 255,652 | | | $ | 354,302 | | | (27.8) | % |
As a percent of restaurant revenue | | 37.7 | % | | 36.2 | % | | 1.5 | % | | 38.8 | % | | 35.7 | % | | 3.1 | % |
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Labor | | $ | 99,725 | | | $ | 74,344 | | | 34.1 % | | $ | 310,333 | | | $ | 255,652 | | | 21.4 % |
As a percent of restaurant revenue | | 36.9 % | | 37.7 % | | (0.8) | % | | 36.0 % | | 38.8 % | | (2.8) | % |
Labor costs include restaurant-level hourly wages and management salaries as well as related taxes and benefits. For the twelve weeks ended October 4, 2020,3, 2021, labor as a percentage of restaurant revenue increased 150decreased 80 basis points compared to the same period in 2019.2020. The increasedecrease was primarily due to sales deleverage and higher hourly wage rates driven by shifting labor mix in support of our off-premise operating model,industry staffing shortages and sales leverage, partially offset by lowerhigher wage rates, staffing costs and increased restaurant manager incentive compensation. management compensation costs in 2021.
$3.1 million of transitory labor and other operating costs were incurred due to staffing challenges, including hiring and training costs, temporarily outsourced janitorial costs, one time bonuses, and overtime pay.
For the forty weeks ended October 4, 2020,3, 2021, labor as a percentage of restaurant revenue increased 310decreased 280 basis points compared to the same period in 2019.2020. The increasedecrease was primarily driven by staffing shortages, and sales deleverage and higher hourly wage and benefit rates driven by shifting labor mix in support of our off-premise operating model,leverage, partially offset by lowerhigher wage rates, staffing costs and increased restaurant manager incentive compensation.management compensation costs in 2021.
Other Operating
| | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 4, 2020 | | October 6, 2019 | | Percent Change | | October 4, 2020 | | October 6, 2019 | | Percent Change | (In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Other operating | Other operating | | $ | 37,631 | | | $ | 44,317 | | | (15.1) | % | | $ | 124,585 | | | $ | 142,882 | | | (12.8) | % | Other operating | | $ | 51,462 | | | $ | 37,631 | | | 36.8 % | | $ | 156,102 | | | $ | 124,585 | | | 25.3 % |
As a percent of restaurant revenue | As a percent of restaurant revenue | | 19.1 | % | | 15.3 | % | | 3.8 | % | | 18.9 | % | | 14.4 | % | | 4.5 | % | As a percent of restaurant revenue | | 19.0 % | | 19.1 % | | (0.1) | % | | 18.1 % | | 18.9 % | | (0.8) | % |
Other operating costs include costs such as equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology, and other miscellaneous costs. For the twelve weeks ended October 4, 2020,3, 2021, other operating costs as a percentage of restaurant revenue increased 380decreased 10 basis points as compared to the same period in 2019.2020. The increasedecrease was primarily driven by sales leverage and lower utilities, and lower supplies due to higher third-party delivery fees and supply costs driven by higher off-premiselower off-premises sales volumes and sales deleverage impacts on restaurant utility costs,mix, partially offset by a decrease in restaurantincreased hiring advertisement costs and janitorial and maintenance costs. expenses.
For the forty weeks ended October 4, 2020,3, 2021, other operating costs as a percentage of restaurant revenue increased 450decreased 80 basis points as compared to the same period in 2019.2020. The increasedecrease was primarily driven by sales leverage and lower utilities and supplies due to higher third-party delivery fees driven by higher off-premiselower off-premises sales volumes and sales deleverage impacts on restaurant supply, utility, and technology costs,mix, partially offset by a decrease in restaurant maintenanceincreased hiring costs.
Occupancy
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 4, 2020 | | October 6, 2019 | | Percent Change | | October 4, 2020 | | October 6, 2019 | | Percent Change |
Occupancy | | $ | 22,099 | | | $ | 24,942 | | | (11.4) | % | | $ | 76,514 | | | $ | 85,420 | | | (10.4) | % |
As a percent of restaurant revenue | | 11.2 | % | | 8.6 | % | | 2.6 | % | | 11.6 | % | | 8.6 | % | | 3.0 | % |
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Occupancy | | $ | 22,519 | | | $ | 22,099 | | | 1.9 % | | $ | 74,233 | | | $ | 76,514 | | | (3.0) | % |
As a percent of restaurant revenue | | 8.3 % | | 11.2 % | | (2.9) | % | | 8.6 % | | 11.6 % | | (3.0) | % |
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Occupancy costs include fixed rents, property taxes, common area maintenance charges, general liability insurance, contingent rents, and other property costs. Occupancy costs incurred prior to opening our new restaurants are included in pre-opening costs. For the twelve weeks ended October 4, 2020,3, 2021, occupancy costs as a percentage of restaurant revenue increased 260decreased 290 basis points compared to the same period in 20192020 primarily due todriven by sales deleverage. leverage and restructured leases.
For the forty weeks ended October 4, 2020,3, 2021, occupancy costs as a percentage of restaurant revenue increaseddecreased 300 basis points compared to the same period in 20192020 primarily due todriven by sales deleverage.leverage, savings from permanently closed restaurants and restructured leases.
Our fixed rents for the twelve weeks ended October 3, 2021 and October 4, 2020 were $15.8 million and October 6, 2019 were $14.7 million, and $16.9 million, a decreasean increase of $2.2$1.1 million due to permanentrecognizing ongoing fixed rents of Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic in Closed restaurant closures. expense (a component of Other Charges) in 2020, compared to Occupancy in 2021.
Our fixed rents for the forty weeks ended October 3, 2021 and October 4, 2020 were $52.8 million and October 6, 2019 were $51.0 million, and $57.1 million, a decreasean increase of $6.1$1.8 million due to permanentrecognizing ongoing fixed rents of Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic in Closed restaurant closures.expense (a component of Other Charges) in 2020, compared to Occupancy in 2021, partially offset by a net decrease in store count resulting from 13 locations permanently closed during the period.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 4, 2020 | | October 6, 2019 | | Percent Change | | October 4, 2020 | | October 6, 2019 | | Percent Change |
Depreciation and amortization | | $ | 19,173 | | | $ | 21,280 | | | (9.9) | % | | $ | 68,053 | | | $ | 71,087 | | | (4.3) | % |
As a percent of total revenues | | 9.6 | % | | 7.2 | % | | 2.4 | % | | 10.2 | % | | 7.0 | % | | 3.2 | % |
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Depreciation and amortization | | $ | 18,881 | | | $ | 19,173 | | | (1.5) | % | | $ | 63,984 | | | $ | 68,053 | | | (6.0) | % |
As a percent of total revenues | | 6.9 % | | 9.6 % | | (2.7) | % | | 7.3 % | | 10.2 % | | (2.9) | % |
Depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquired franchise rights, leasehold interests, and certain liquor licenses. For the twelve week periodsweeks ended October 4, 2020,3, 2021, depreciation and amortization expense as a percentage of revenue increased 240decreased 270 basis points over the same period in 2019 primarily due to sales deleverage.2020. For the forty weeks ended October 4, 2020,3, 2021, depreciation and amortization expense as a percentage of revenue increased 320decreased 290 basis points over the same period in 20192020. The decreases are primarily due to net closed Company-owned restaurants, and sales deleverage.leverage.
Selling, General, and Administrative expenses
| | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 4, 2020 | | October 6, 2019 | | Percent Change | | October 4, 2020 | | October 6, 2019 | | Percent Change | (In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Selling, general, and administrative | | $ | 21,284 | | | $ | 36,776 | | | (42.1) | % | | $ | 82,483 | | | $ | 120,126 | | | (31.3) | % | |
General, and administrative expenses | | General, and administrative expenses | | $ | 17,691 | | | $ | 15,190 | | | 16.5 % | | $ | 57,664 | | | $ | 56,054 | | | 2.9 % |
As a percent of total revenues | As a percent of total revenues | | 10.6 | % | | 12.5 | % | | (1.9) | % | | 12.4 | % | | 11.8 | % | | 0.6 | % | As a percent of total revenues | | 6.4 % | | 7.6 % | | (1.2) | % | | 6.6 % | | 8.4 % | | (1.8) | % |
Selling, general,General, and administrative costs include all corporate and administrative functions.functions, excluding Selling expenses discussed below. Components of this category include marketing and advertising costs;our restaurant support center, regional, and franchise support salaries and benefits; travel; professional and consulting fees; corporate information systems; legal expenses; office rent; training; and board of directors expenses.
Selling, general,General, and administrative costsexpenses in the twelve weeks ended October 4, 2020 decreased $15.53, 2021 increased $2.5 million, or 42.1%,16.5 %, as compared to the same period in 2019.2020. The decreaseincrease in general and administrative expenses in 2021 was primarily due to decreased nationaldriven by merit increases and local media spend, decreased Team Member salaries and wages resulting from the reduction in force andlapping temporary salary reductions in 2020, increased travel costs, and decreased Team Member benefits, travel and entertainment, and gift card related costs. For the forty weeks ended October 4, 2020, selling, general, and administrative costs decreased $37.6 million, or 31.3%, as compared to the same period in 2019. The decrease was primarily related to a decrease in national and local media spend, decreased Team Member salaries and wages resulting from the reduction in force and temporary salary reductions, and decreased Team Member benefits, travel and entertainment, gift card related,higher professional services and project related general and administrative costs.spend.
General, and administrative expenses in the forty weeks ended October 3, 2021 increased $1.6 million, or 2.9 %, as compared to the same period in 2020. The increase in general and administrative expenses in 2021 was primarily driven by higher Team Member benefit costs, merit increases and lapping temporary salary reductions in 2020, partially offset by decreased travel costs and other corporate costs.
Selling expenses
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Selling expenses | | $ | 12,652 | | | $ | 6,094 | | | * | | $ | 31,635 | | | $ | 26,429 | | | 19.7 % |
As a percent of total revenues | | 4.6 % | | 3.0 % | | 1.6 % | | 3.6 % | | 4.0 % | | (0.4) | % |
Selling expenses include all marketing and advertising costs associated with the Company's marketing strategy.
Selling expenses in the twelve weeks ended October 3, 2021 increased $6.6 million, as compared to the same period in 2020. The increase in selling expenses in 2021 was primarily driven by the return of marketing spend closer to a more normalized level in 2021.
Selling expenses in the forty weeks ended October 3, 2021 increased $5.2 million, or 19.7 %, as compared to the same period in 2020. The increase in selling expenses in 2021 was primarily driven by the return of marketing spend closer to a more normalized level in 2021.
* Percentage increases and decreases over 100 percent were not considered meaningful.
Pre-opening Costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Pre-opening costs | | $ | 418 | | | $ | 89 | | | * | | $ | 792 | | | $ | 245 | | | * |
As a percent of total revenues | | 0.2 % | | — | % | | 0.2 % | | 0.1 % | | — | % | | 0.1 % |
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| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 4, 2020 | | October 6, 2019 | | Percent Change | | October 4, 2020 | | October 6, 2019 | | Percent Change |
Pre-opening costs | | $ | 89 | | | $ | — | | | — | % | | $ | 245 | | | $ | 319 | | | (23.2) | % |
As a percent of total revenues | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % |
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* Percentage increases and decreases over 100 percent were not considered meaningful.Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos® and other initiatives,, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force. Our pre-opening costs fluctuate from period to period, depending upon, but not limited to, the number of restaurants where Donatos® has been introduced, the number of restaurant openings, the size of the restaurants being opened, and the location of the restaurants. Pre-opening costs for any given quarter will typically include expenses associated with restaurants opened during the quarter as well as expenses related to restaurants opening in subsequent quarters.
We incurred pre-opening costs during the twelve and forty weeks ended October 3, 2021 and October 4, 2020 related to the rollout of Donatos®. The limitedCompany completed the rollout of 38 restaurants during the twelve weeks ended October 3, 2021, and expects to continue its roll out of Donatos® plannedto approximately 40 restaurants in the Seattle market during 2020 was completed on October 16, 2020. The Company expects to resume its phased system-wide rolloutfourth quarter of Donatos® infiscal year 2021.
Interest Expense, Net and Other
Interest expense, net and other was $2.3$2.9 million for the twelve weeks ended October 4, 2020,3, 2021, an increase of $0.5$0.6 million, or 27.8%26.1%, compared to the same period in 2019.2020. The increase was primarily related to a higher weighted average interest rate for the quarter due to increased rates associated with the Second Amendment, partially offset by a lower average outstanding debt balance compared to the same period in 2019.2020. Our weighted average interest rate was 5.0%6.8% for the twelve weeks ended October 4, 2020 as compared to 5.1% for the same period in 2019.
Interest expense, net and other was $7.6 million for the forty weeks ended October 4, 2020, an increase of $0.4 million, or 5.6%, compared to the same period in 2019. The increase was primarily related to a higher average outstanding debt balance partially offset by a lower weighted average interest rate compared to the same period in 2019. Our weighted average interest rate was 4.5% for the forty weeks ended October 4, 20203, 2021 as compared to 5.0% for the same period in 2019.2020.
Interest expense, net and other was $10.0 million for the forty weeks ended October 3, 2021, an increase of $2.4 million, or 31.6%, from the same period in 2020. The increase was primarily related to a higher weighted average interest rate for the period as well as the partial write off of approximately $1.2 million of deferred financing charges related to the modification of our revolver in conjunction with the execution of the Second Amendment on February 25, 2021, partially offset by a lower average outstanding debt balance compared to the same period in 2020. Our weighted average interest rate was 6.6% for the forty weeks ended October 3, 2021 as compared to 4.5% for the same period in 2020.
Provision for Income Taxes
The effective tax rate for the twelve weeks ended October 4, 20203, 2021 was a 77.0%0.2% benefit, compared to a 74.1% benefit for the twelve weeks ended October 6, 2019. The effective tax rate for the forty weeks ended October 4, 2020 was a 1.8% benefit, compared to a 99.1% benefit for the same period in 2019. The increase in tax77.0% benefit for the twelve weeks ended October 4, 2020 is primarily due to a decrease in income and the release of $12.7 million in a previously recognized valuation allowance.2020. The decrease ineffective tax benefit for the forty weeks ended October 3, 2021 was 1.1%, compared to a 1.8% benefit for the forty weeks ended October 4, 20202020. The decrease in tax benefit for the twelve and forty weeks ended October 3, 2021 is primarily due to a $67.1 million netthe change in full valuation allowance recognition.
The Company has filed federal and decrease in current yearstate cash tax credits, partially offset by a decrease in income and the favorable rate impact ofrefund claims totaling approximately $16 million during 2021 from net operating loss ("NOL") carrybacks allowed as partcarrybacks. While we expect to receive a portion of the CARES Act. Subsequentrefunds in 2021, due to its third quarter balance sheet date, the Company received $49.4 milliongovernment delays in cash tax refunds, including interest, and expectsprocessing these claims we do not expect to receive between $12 million to $15 million of additional cash tax refunds within the next 12 months.
majority until 2022.
Liquidity and Capital Resources
Cash and cash equivalents decreased $2.7increased $1.6 million to $27.4$17.8 million atas of October 4, 2020,3, 2021, from $30.0$16.1 million at the beginning of the fiscal year. As the Company has now stabilized its liquidity through its at-the-market equity offering, reduced overhead costs,continues to recover from the COVID-19 pandemic and federalgenerates operating cash tax refunds provided underflow, the provisions of the CARES Act, we expect to beginCompany is using available cash flow from operations to pay down debt, maintain existing restaurants and infrastructure, and execute on ourits long-term strategic initiatives. As of October 4, 2020,3, 2021, the Company had approximately $97$75.2 million in liquidity, including the impact of a $30 million capacity reduction on our revolving line of credit pursuant to the Second Amendment, including cash on hand and available borrowing capacity under its credit facility. Our liquidity as of October 4, 2020 does not include $49.4 million in cash tax refunds, including interest, which were received after the third quarter balance sheet date.capacity.
Cash Flows
The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):
| | | Forty Weeks Ended | | Forty Weeks Ended |
| | October 4, 2020 | | October 6, 2019 | | October 3, 2021 | | October 4, 2020 |
Net cash (used in) provided by operating activities | | $ | (22,401) | | | $ | 41,617 | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | | $ | 37,617 | | | $ | (22,401) | |
Net cash used in investing activities | Net cash used in investing activities | | (14,131) | | | (32,900) | | Net cash used in investing activities | | (19,967) | | | (14,131) | |
Net cash provided by (used in) financing activities | | 34,020 | | | (7,156) | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | | (16,037) | | | 34,020 | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | | (166) | | | 81 | | Effect of exchange rate changes on cash | | 28 | | | (166) | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | | $ | (2,678) | | | $ | 1,642 | | Net change in cash and cash equivalents | | $ | 1,641 | | | $ | (2,678) | |
Operating Cash Flows
Net cash flows provided by (used in) provided by operating activities decreased $64.0increased $61.0 million to $22.4$37.6 million for the forty weeks ended October 4, 2020.3, 2021. The changes in net cash provided by (used in) provided by operating activities are primarily attributable to a $110.4$103.3 million decreaseincrease in profit from operations (defined as the change in operating margins from comparable and non-comparable restaurants), lower accounts receivable and higher accounts payable balances due to the timing of operational receipts and payments, as well as other changes in working capital as presented in the condensed consolidated statementsCondensed Consolidated Statements of cash flows.Cash Flows.
Investing Cash Flows
Net cash flows used in investing activities decreased $18.8increased $5.8 million to $14.1$20.0 million for the forty weeks ended October 4, 2020,3, 2021, as compared to $32.9$14.1 million for the same period in 2019.2020. The decreaseincrease is primarily due to decreased investmentincreased spend on Donatos® associated with adding 38 restaurants in restaurant technology, restaurant maintenance, and new restaurants and restaurant refreshes due to the COVID-19 pandemic.third fiscal quarter.
The following table lists the components of our capital expenditures, net of currency translation, effect, for the forty weeks ended October 4, 20203, 2021 and October 6, 20194, 2020 (in thousands):
| | | Forty Weeks Ended | | Forty Weeks Ended |
| | October 4, 2020 | | October 6, 2019 | | October 3, 2021 | | October 4, 2020 |
Restaurant maintenance capital and other | $ | 8,433 | | | $ | 13,128 | | |
Donatos® expansion | | Donatos® expansion | $ | 7,687 | | | $ | — | |
Restaurant improvement capital and other | | Restaurant improvement capital and other | 6,467 | | | 8,433 | |
Investment in technology infrastructure and other | Investment in technology infrastructure and other | 6,437 | | | 16,832 | | Investment in technology infrastructure and other | 5,355 | | | 6,437 | |
New restaurants and restaurant refreshes | | New restaurants and restaurant refreshes | 478 | | | — | |
| Restaurant remodels | — | | | 3,118 | | |
Total capital expenditures | Total capital expenditures | $ | 14,870 | | | $ | 33,078 | | Total capital expenditures | $ | 19,987 | | | $ | 14,870 | |
Financing Cash Flows
Net cash flows provided by (used in)used in financing activities increased $41.2$51.0 million to $34.0$16.0 million for the forty weeks ended October 4, 2020,3, 2021, as compared to net cash flows provided by financing activities of $34.0 million in the same period in 2019.2020. The increasedecrease is due to casha $28.9 million decrease in proceeds received from the issuance of common stock, net of cash paid for stock issuance costs, of $28.9 million,and a $14.4$24.7 million increase in net drawsrepayments made on long-term debt, partially offset by a decrease in cash used for debt issuance costs, and a decrease in cash used to repurchase the Company's common stock due to the temporary suspension of the Company's share repurchase program. The increase was partially offset by an increase of cash used for debt issuance costs. The net cash proceeds from issuance of common stock of $28.9 million do not include unpaid stock issuance costs of approximately $0.2 million.
program beginning in 2020. Credit Facility
As of October 4, 2020,3, 2021, the Company had outstanding borrowings under the credit facilityCredit Facility of $215.2$156.3 million, of which $9.7 million was classified as current, in addition to amounts issued under letters of credit of $7.9$8.6 million. Amounts issued under letters of credit reduce the amount available under the credit facilityCredit Facility but are not recorded as debt. As of October 4, 2020,3, 2021, the Company had $69.6$57.4 million of available borrowing capacity under its Credit Facility, including the impact of a $30 million capacity reduction on our revolving line of credit facility.pursuant to the Second Amendment. Net drawspayments during the third quarter of 2020forty weeks ended October 3, 2021 totaled $8.6$14.3 million, and net draws during the forty weeks ended October 4,same period in 2020 totaled $9.2 million. We have made net repayments on our Credit Facility of $50.5 million since December 29, 2019.
As discussed in Footnote6, Borrowings, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, In response to the continued uncertainty around the impact of industry labor and supply chain challenges, as well as the COVID-19 Delta variant, the Company amended its current Credit Facility on November 9, 2021 to obtain additional flexibility to continue to implement our business strategy. The Company anticipates refinancing its Credit Facility in 2022.
Covenants
We are subject to a number of customary covenants under our credit facility,Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments. DuringAs discussed in Footnote6, Borrowings, in the first quarter of 2020, we were not in compliance with our debt covenants dueNotes to the negative effectsCondensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on our business from the COVID-19 pandemic. As a result,Form 10-Q, we entered into the Third Amendment to our credit facility,on November 9, 2021, which waives compliance with the lease adjusted leverage ratio financial covenant ("LALR ratio") and fixed charge coverage ratio financial covenant ("FCC ratio")Leverage Ratio Covenant for the remainderthird fiscal quarter of fiscal 20202021, and allowsprovides for adjustments during fourth fiscal quarter of 2021, and the first, threesecond, and third fiscal quarters of 20212022. Additionally, the Third Amendment provides for adjustments to the LALR ratio, including increasingcalculation of the maximum LALR ratio permitted and allowing the use of a seasonally adjusted annualized consolidated EBITDAFCCR Covenant when it becomes applicable in the LALR ratio calculation,first fiscal quarter of 2022. See Footnote 6, Borrowings for additional details.
As of October 3, 2021, the Company is in compliance with all applicable covenants applicable to our Credit Facility, as amended. Due to an anticipated delay in the timing of receipt of cash tax refunds, during the third fiscal quarter and in addition to the FCC ratio, including only being calculatedThird Amendment, the Company obtained a waiver from our lenders, waiving the application of our FCCR Covenant for applicable periods since the beginningthird and fourth fiscal quarters of 2021.
Debt Outstanding
Total debt outstanding increased $9.2decreased $13.4 million to $216.1$157.2 million at October 4, 20203, 2021, from $206.9$170.6 million at December 29, 2019,27, 2020, primarily due to net drawspayments of $9.2$14.3 million on the credit facilityCredit Facility, offset by accruing utilization fees on the Credit Facility during the forty weeks ended October 4, 20203, 2021. In conjunction with the receipt
Working Capital
We typically maintain current liabilities in excess of our current assets which results in a working capital deficit. We are able to operate with a working capital deficit because restaurant sales are primarily conducted on a cash or credit card basis. Rapid turnover of inventory results in limited investment in inventories, and cash from sales is usually received before related payables for food, supplies, and payroll become due. In addition, receipts from the sale of gift cards are received well in advance of related redemptions. Rather than maintain higher cash balances that would result from this pattern of operating cash flows, we typically utilize operating cash flows in excess of those required for currently-maturing liabilities to pay for capital expenditures, debt repayment, or to repurchase stock as allowed. When necessary, we utilize our credit facilityCredit Facility to satisfy short-term liquidity requirements. We believe our future cash flows generated from restaurant operations combined with our remaining borrowing capacity under the credit facilityCredit Facility will be sufficient to satisfy any working capital deficits and our planned capital expenditures.
Share Repurchase
On August 9, 2018, the Company's board of directors authorized the Company's current share repurchase program of up to a total of $75 million of the Company's common stock. The share repurchase authorization was effective as of August 9, 2018, and will terminate upon completing repurchases of $75 million of common stock unless otherwise terminated by the board. Pursuant to the repurchase program, purchases may be made from time to time at the Company's discretion and the Company is not obligated to acquire any particular amount of common stock. From the date of the current program approval through October 4, 2020,3, 2021, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million. Accordingly, as of October 4, 2020,3, 2021, we had $68.4 million of availability under the current share repurchase program.
Effective March 14, 2020, the Company temporarily suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic. Our ability to repurchase shares is limited to conditions set forth by our lenders in the amendmentSecond Amendment to our credit facilityCredit Facility prohibiting us from repurchasing additional shares until the laterfirst fiscal quarter of (a)2022 at the Company's delivery ofearliest and not until we deliver a covenant compliance certificate for the fiscal quarter ending ondemonstrating a lease adjusted leverage ratio less than or about July 11, 2021 demonstrating compliance with the financial covenants then in effect or (b) the Company satisfying an agreed ratio under its Leverage Ratio Covenant for the most recently ended fiscal quarter or fiscal year, as applicable.
Inflation
The primary inflationary factors affecting our operations are food, labor costs, energy costs, and materials used in the construction of new restaurants. A large number of our restaurant personnel are paid at rates based on the applicable minimum wage, and increases in the minimum wage rates have directly affected our labor costs in recent years. Many of our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary increases. Labor cost inflation had a negative impact on our financial condition and results of operations during the forty weeks ended October 4, 2020. Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed or potential minimum wage increases, and construction materials make it difficult to predict what impact, if any, inflation may continue to have on our business, but it is anticipated inflation will have a negative impact on labor and commodity costs for the remainder of 2020.2021.
Seasonality
Our business is subject to seasonal fluctuations. Historically,Prior to the COVID-19 pandemic, sales in most of our restaurants have been higher during the summer months and winter holiday season and lower during the fall season. As a result, our quarterly operating results and comparable restaurant revenue may fluctuate significantly as a result of seasonality. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, and comparable restaurant sales for any particular future period may decrease.
Contractual Obligations
There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 19, 2020,18, 2021, except for lease obligations as a result of contractual rent concessions negotiated by the Company during the fiscal quartersquarter ended July 12, 2020 and October 4, 2020.3, 2021. See the maturity of lease liabilities table in Note 4, 3, Leases,, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors we believe to be appropriate under the circumstances. Actual results may differ from these estimates, including our estimates of future restaurant level cash flows, which are subject to the current economic environment and future impact from the COVID-19 pandemic, and we might obtain different results if we use different assumptions or conditions. We had no significant changes in our critical accounting policies and estimates which were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019.27, 2020.
Recently Issued and Recently Adopted Accounting Standards
See Note 1, Basis of Presentation and Recent Accounting Pronouncements, of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Forward-Looking Statements
Certain information and statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA") codified at Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. This statement is included for purposes of complying with the safe harbor provisions of the PSLRA.Act. Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts. These statements may be identified, without limitation, by the use of forward-looking terminology such as "anticipate," "assume," "believe," "estimate,"could," "could,"estimate," "expect," "future," "intend," "may," "plan," "project," "will," "would,"continue," and similar expressions. Certain forward-looking statements are included in this Quarterly Report on Form 10-Q, principally in the sections captioned "Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements in this report include,may relate to, among other things statements regarding:things: (i) our financial performance, improved sales trajectory, Guest satisfaction scores, seating expansion and increased dining capacity and its effect on sales, strategic plan and turnaround, marketing strategy, expected uses for available cash flow; beliefs about the ability to re-finance our Credit Facility in 2022, (ii) anticipated impacts of our lenders to fulfill their lending commitments under our credit facility and about the sufficiency of future cash flows to satisfy any working capital deficit and planned capital expenditures, liquidity, projected taxes and cash tax refunds; the anticipated effects of inflation on labor and commodity costs; future performancelitigation, including sales and off premise sales; preliminary results including net comparable restaurant revenues and average weekly net sales per restaurant; expectations regarding dining room re-openings and closures; anticipated additional rollout of Donato's® and the timing thereof; statements under the heading "Company Response to COVID-19 Pandemic;" and the effect of the adoption of new accounting standardsemployment-related claims, on our financial position and accounting systems.
Forward-looking statements are subject to a numberresults of risks and uncertainties that could cause actual results to differ materially from those we express in these forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the rapidly evolving nature of the COVID-19 pandemic and related containment measures, including the potential for a complete shutdown of Company restaurants; the extent of the impact of the COVID-19 pandemic or any other epidemic, disease outbreak, or public health emergency, including the duration, spread, severity, and any recurrence of the COVID-19 pandemic; the duration and scope of COVID-19 related government orders and restrictions, including in California where a substantial number of our restaurants are located; economic, public health, and political conditions that impact consumer confidence and spending, including the impact of COVID-19; the effect of the COVID-19 pandemic on labor, staffing, and changes in unemployment rate; the ability to achieve significant cost savings; the Company's ability to defer lease or contract payments or otherwise obtain concessions from landlords, vendors, and other parties in light of the impact of the COVID-19 pandemic; the economic health of the Company's landlords and other tenants in retail centers in which its restaurants are located, suppliers, licensees, vendors, and other third parties providing goods or services to the Company; the Company's ability to continue to implement our seating expansion plans and the timing thereof, including factors that are under control of government agencies, landlords, and other third parties; adverse weather conditions in regions in which the Company’s restaurants are located and the timing thereof; the impact of political protests and curfews imposed by state and local governments; the effectoperations, (iii) anticipated impacts of COVID-19 on our supply chainbusiness, our financial position and the cost, availability, and timingresults of obtaining key products, distribution, labor, and energy; the effectiveness of the Company's marketing and menu strategies and promotions; the effectiveness of the Company's strategic initiatives including service model, technology solutions, and sales building initiatives; the amount and timing of cash tax refunds received as a result of the CARES Act; the cost and availability of capital or credit facility borrowings; the adequacy of cash flows or available debt resources to fund operations, and growth opportunities; uncertainty(iv) expectations regarding general economic and industry conditions; concentration of restaurants in certain markets; changes in consumer disposable income, consumer spending trends and habits; the effectiveness of our information technology and new technology systems, including cyber security with respect to those systems; regional mall and lifestyle center traffic trends or other trends affecting traffic at our restaurants; increased competition and discounting in the casual-dining restaurant market; costs and availability of food and beverage inventory; changes in commodity prices, particularly ground beef, and distribution costs; changes in energy and labor costs, including due to changes in health care and market wage levels; changes in federal, state, or local laws and regulations affecting the operation of our restaurants, including but not limited to, minimum wages, consumer health and safety, health insurance coverage, nutritional disclosures, and employment eligibility-related documentation requirements; our franchising strategy; our ability to attract and retain qualified managers and Team Members; costs and other effects of legal claims by Team Members, franchisees, customers, vendors, stockholders, including relating(v) our business focus and strategy, (vi) expectations regarding claims for tax refunds, (vii) our ability to fluctuations inmaintain our stock price,working capital position, (viii) our ability to use our Credit Facility to satisfy our working capital deficit, short-term liquidity requirements and others, including settlementcapital expenditures, (ix) anticipated impacts of those claims or negative publicity regardinginflation, and (x) availability of food safety or cyber security; changes in accounting standards policies and practices or related interpretations by auditors or regulatory entities; and other risk factors describedsupplies meeting our specifications from time to time in the Company's Form 10-K, Form 10-Q, and Form 8-K reports (including all amendments to those reports) filed with the U.S. Securities and Exchange Commission.alternate sources.g.
Although we believe the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties.
In some cases, information regarding certain important factors that could cause actual results to differ materially from a forward-looking statement appears together with such statement. In addition, the factors described under Risk Factors, as well as other possible factors not listed, could cause actual results to differ materially from those expressed in forward-looking statements, including, without limitation, the following:
•the impact of COVID-19 on our results of operations, supply chain, and liquidity;
•the effectiveness of the Company's strategic initiatives, including alternative labor models, service, and operational improvement initiatives;
•our ability to recruit staff, train, and retain our workforce for service execution;
•the effectiveness of the Company's marketing strategies and promotions;
•menu changes, including the anticipated sales growth, costs, and timing of the Donatos® expansion;
•the implementation, rollout, and timing of technology solutions in our restaurants and at our restaurant support center, in addition to digital platforms that are accessed by our Guests;
•our ability to achieve and sustain revenue and cost savings from off-premise sales and other initiatives;
•competition in the casual dining market and discounting by competitors;
•changes in consumer spending trends and habits;
•changes in the cost and availability of key food products and distribution, restaurant equipment, construction materials, labor, and energy, including the existence of alternate suppliers and the availability of supplies meeting our specification;
•general economic conditions, including changes in consumer disposable income, weather conditions, and related events in regions where our restaurants are operated;
•the adequacy of cash flows and the cost and availability of capital or Credit Facility borrowings, including our ability to refinance our Credit Facility, on terms we expect or at all
•government delays in processing tax refund claims
•the level and impacts of inflation;
•the impact of federal, state, and local regulation of the Company's business;
•changes in federal, state, or local laws and regulations affecting the operation of our restaurants, including minimum wages, consumer health and safety, health insurance coverage, nutritional disclosures, and employment eligibility-related documentation requirements; and
•costs and other effects of legal claims by Team Members, franchisees, customers, vendors, stockholders, and others, including negative publicity regarding food safety or cyber security.
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in thecommodity price risk or interest rate risk foreign currency exchange risk, or commodity price risk since the filing ofdisclosures included in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019.27, 2020, filed with the SEC on March 3, 2021.
We continue to monitor our interest rate risk on an ongoing basis and may use interest rate swaps or similar instruments in the future to manage our exposure to interest rate changes related to our borrowings as the Company deems appropriate. As ofDuring the quarter ended October 4, 2020,3, 2021, we had $215.2an average of $154.7 million of borrowings subject to variable interest rates. A 1.0% change in the effective interest rate applied to these loans would have resulted in a pre-tax interest expense fluctuation of $2.2$1.5 million on an annualized basis.
The Company's restaurant menus are highly dependent upon a few select commodities, including ground beef, poultry, and potatoes. We purchase food, supplies and other commodities for use in our operations based on prices established with our suppliers. Many of the commodities purchased by us are subject to volatility due to market supply and demand factors outside of our control, including the price of other commodities, weather, seasonality, production, trade policy, and other factors. As a result of the COVID-19 pandemic, we have experienced and expect to continue to experience distribution disruptions, commodity cost inflation, and certain food and supply shortages. To manage this risk in part, we enter into fixed-price purchase commitments for certain commodities; however, it may not be possible for us to enter into fixed-price purchase commitments for certain commodities, or we may choose not to enter into fixed-price contracts for certain commodities. We believe that substantially all of our food and supplies meeting our specifications are available from alternate sources, which we have identified to diversify our supply chain to mitigate our overall commodity risk. We may or may not have the ability to increase menu prices, or vary menu items, in response to commodity price increases. A 1.0% increase in food and beverage costs would negatively impact cost of sales by approximately $3.0$2.0 million on an annualized basis.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the management of the Company ("Management"), including the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. The Company's CEO and CFO have concluded that, based upon the evaluation of disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act), the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings
Evaluating contingencies related to litigation is a complex process involving subjective judgment on the potential outcome of future events and the ultimate resolution of litigated claims may differ from our current analysis. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements.
On July 14, 2017, a current hourly employee filed a class action lawsuit alleging that the Company failedFor further information related to provide required meal breaksour litigation contingencies, see Note 8, Commitments and rest periods and failed to reimburse business expenses, among other claims. The case is styled Manuel Vigueras v. Red Robin International, Inc. and is currently pending before the United States District Court in Santa Ana, California. In a related action, on September 21, 2017, a companion case, styled Genny Vasquez v. Red Robin International, Inc. was filed and is currently pending in California Superior Court in Santa Ana, California and involves claims under the California Private Attorneys' General Act that partially overlap the claims madeContingencies, in the Vigueras matter. In the first quarter of 2020, the Company reached a tentative settlement agreement resolving all claims and the cost of class administration in both cases for an aggregate $8.5 million. The Company is in the process of finalizing the settlement agreement, which will then be submittedNotes to the court for approval. Court approval is required before any settlement agreement between the parties becomes final. An additional $4.5 million was accrued to reach the $8.5 million settlement amount during the Company's first fiscal quarterCondensed Consolidated Financial Statements in Part 1, Item 1 of 2020.
In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment related claims and claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns. To date, no claims of these types of litigation, certain of which are covered by insurance policies, have had a material effectthis Quarterly Report on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations.Form 10-Q.
ITEM 1A. Risk Factors
The risk factor below arose due to the COVID-19 pandemic. Additional riskRisk factors associated with our business are contained in Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended December 29, 201927, 2020 (“Annual Report”) filed with the SEC on February 25, 2020. ThereMarch 3, 2021. Except as set forth below, there have been no other material changes fromto the Company’s risk factors since the Annual Report.
We are supplementing the risk factors disclosed in our Annual Report as follows:
We are susceptible to the fiscal year 2019 10-K.impacts of labor shortages, which have and may continue to negatively impact our financial condition and results of operations.
The novel coronavirus (COVID-19) pandemic has
Our ability to provide the experience our Guests expect and desire depends on our ability to continue attracting and retaining a sufficient number of qualified management and operating Team Members. Labor shortages in our industry and in the broader economy have disrupted, and may further disrupt, our business,ability to maintain adequate staffing levels at our restaurants. Increasing competition in the market for Team Members may increase our labor costs, including by requiring us to take additional measures to ensure that our compensation and benefits for Team Members remain competitive within the restaurant industry and and with other industries that compete with us for workers, which hascould materially increase our expenses. During the third quarter of 2021 we took, and could further materially adversely affect our operations and business and financial results. In addition, any other epidemic, disease outbreak, or public health emergency may result in similar adverse effects.
The novel coronavirus (COVID-19) pandemic has had a material adverse effect on our business. The COVID-19 pandemic has impacted andwe may continue to take, certain measures to limit the impact of staffing shortages on the Guest experience. These measures included limiting operating hours and dine-in services at some of our restaurants. If labor shortages continue or worsen, we may be required to take similar or additional measures at a larger number of our restaurants. If we are not successful in implementing these measures, or if these measures are insufficient to mitigate the impacts of any labor shortages, our Guest experience may be negatively impacted, leading to a decline in traffic and sales, and traffic at our restaurants,which may make it more difficult to staff restaurants, cause an inability to obtain supplies, increase commodity costs, continue to cause partial or total closures of impacted restaurants, and could damage our reputation. The extent to which the COVID-19 pandemic and other epidemics, disease outbreaks, or public health emergencies will impact our business, liquidity, financial condition, and results of operations, depends on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic, epidemic, disease outbreak, or public health emergency; the negative impact on the economy; the short and longer-term impacts on the demand for restaurant services and levels of consumer confidence; our ability to successfully navigate the impacts; government action, including restrictions on restaurant operations; and increased unemployment and reductions in consumer discretionary spending. Even if a virus or other disease does not spread significantly, the perceived risk of infection or health risk may damage our reputation and adversely affect our business, liquidity, financial condition and results of operations.
2021, many of our vendor partners have experienced challenges in hiring and retention, which together with global supply chain disruptions have contributed to intermittent product and distribution shortages. We may be unable to mitigate the impacts of such disruptions by locating vendors who can provide us with supplies that meet our timing, quality, and cost requirements and expectations, or at all, particularly in the event of widespread supply chain disruptions. Sustained supply shortages have been and could continue to be adversely affected by government restrictions on public gatherings, shelter-in-place orders, and limitations on operations of restaurants, including dine-in restrictions, and mandatory or voluntary closures or restrictions on hours of operations. Restaurants in the U.S. are currently under government mandates or guidelines to temporarily suspend operation or limit restaurant dine-in business in light of COVID-19. We are unable to predict when these measures may be further reduced, how quickly or if our operations will return to previous levels after the measures are scaled back, or if there will be additional future suspensions of operation for potential future waves of COVID-19 or another epidemic or public health emergency. While some of our restaurants have recently been able to reopen dining rooms, others have had to close again and most of our restaurants are still heavily relying on an off-premise operating model, as dining rooms at reopened restaurants have limited occupancy. In addition, adverse weather conditions in regions in which the Company's restaurants are located could limit our ability to utilize our expanded outdoor seating. We have also implemented temporary restaurant closures, modified hours, reduced staff, and furloughed employees. These changes and any additional changes may materially adversely affect our business, liquidity, financial condition,revenue and results of operations, particularly if these changes are in place for a prolonged amount of time. The COVID-19 pandemic as well as other epidemics, disease outbreaks, or public health emergencies may also materially adversely affect our ability to implement our strategic growth plans, including delays in the rollout of Donatos® pizza to additional restaurant locations, the implementation of technology platforms and technology solutions, restaurant remodels, and development of new restaurants in future years.
In an effort to preserve liquidity, we have and may continue to take certain actions with respect to some or all of our leases, including negotiating with landlords to obtain rent abatement, deferrals, or lease restructuring as well as continuing to make partial rent payments. We can provide no assurances that forbearance of any further lease obligations will be provided to us, or that, following the COVID-19 pandemic, we will be able to continue restaurant operations on the current terms of our existing leases, any of which could have an adverse effect on our business and results. In addition, we have received notices of default for some of our leases, and, in a small number of cases, notices of eviction or have had eviction proceedings commenced against us. We are actively responding to these notices or proceedings; however, we cannot be certain that our efforts will be successful, which could have an adverse impact on our operations.
As we previously announced, the Company was granted a debt covenant waiver through the end of fiscal year 2020 and relief through certain covenant ratio adjustments thereafter through the third fiscal quarter of 2021. However, the COVID-19 pandemic could continue to have an adverse effect on our business into fiscal year 2021 that could cause non-compliance with the prescribed covenants under relief. Under that circumstance, we could not provide assurance that the Company would be able to obtain a further covenant waiver or credit facility amendment. The Company could then experience an event of default under the credit facility and be unable to make additional borrowings on any undrawn amounts and be required to repay its then outstanding borrowings which could have a material adverse effect on the Company's liquidity, financial condition, results of operations, and ability to continue as a going concern.profits.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the twelve and forty weeks ended October 4, 2020,3, 2021, the Company did not have any sales of securities in transactions that were not registered under the Securities Act of 1933, as amended, that have not been reported in a Current Report on Form 8-K. No share repurchases were made by the Company during the third fiscal quarter of 2020.2021. Our ability to repurchase shares is limited to conditions set forth by our lenders in the FirstSecond Amendment to Credit Agreement and Waiver prohibiting us from repurchasing additional shares until the laterfirst fiscal quarter of (a)2022 at the Company's delivery ofearliest and not until we deliver a covenant compliance certificate for the fiscal quarter ending ondemonstrating a lease adjusted leverage ratio less than or about July 11, 2021 demonstrating compliance with the financial covenants then in effect or (b) the Company satisfying an agreed ratio under its Leverage Ratio Covenant for the most recently ended fiscal quarter or fiscal year, as applicable.equal to 5.00:1.00.
ITEM 6. Exhibits
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| | Third Amendment to Credit Agreement, dated as of November 9, 2021, by and among Red Robin International, Inc., Red Robin Gourmet Burgers, Inc., the Guarantors, the Lenders party thereto and Wells Fargo Bank, National Association, as administration agent. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 10, 2021. |
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101 | | The following financial information from the Quarterly Report on Form 10-Q of Red Robin Gourmet Burgers, Inc. for the quarter ended October 4, 20203, 2021 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at October 4, 20203, 2021 and December 29, 2019;27, 2020; (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the twelve and forty weeks ended October 4, 20203, 2021 and October 6, 2019;4, 2020; (iii) Condensed Consolidated Statements of Stockholders' Equity at October 4, 20203, 2021 and October 6, 2019;4, 2020; (iv) Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 4, 20203, 2021 and October 6, 2019;4, 2020; and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
( ) Exhibits previously filed in the Company's periodic filings as specifically noted.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | RED ROBIN GOURMET BURGERS, INC. (Registrant) |
November 5, 202010, 2021 | | By: | | /s/ Lynn S. Schweinfurth |
(Date) | | | | Lynn S. Schweinfurth (Chief Financial Officer) |