UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | | | | | | | | |
☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended October 2, 2022April 16, 2023
or | | | | | | | | |
☐ | | 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.) |
10000 E. Geddes Avenue, Suite 500
Englewood, Colorado 80112
(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)
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 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, a 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.
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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 October 31, 2022,May 22, 2023, there were 15,928,04516,121,000 shares of the registrant's common stock, par value of $0.001 per share outstanding.
RED ROBIN GOURMET BURGERS, INC.
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) | (in thousands, except for per share amounts) | (in thousands, except for per share amounts) | | October 2, 2022 | | December 26, 2021 | (in thousands, except for per share amounts) | | April 16, 2023 | | December 25, 2022 |
Assets: | Assets: | | | | | Assets: | | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 50,040 | | | $ | 22,750 | | Cash and cash equivalents | | $ | 49,024 | | | $ | 48,826 | |
Accounts receivable, net | Accounts receivable, net | | 11,915 | | | 21,400 | | Accounts receivable, net | | 12,520 | | | 21,427 | |
Inventories | Inventories | | 25,212 | | | 25,219 | | Inventories | | 25,380 | | | 26,447 | |
Income tax receivable | Income tax receivable | | 754 | | | 15,824 | | Income tax receivable | | 473 | | | 562 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 13,044 | | | 16,963 | | Prepaid expenses and other current assets | | 13,337 | | | 12,938 | |
Restricted cash | Restricted cash | | 8,090 | | | — | | Restricted cash | | 9,422 | | | 9,380 | |
Total current assets | Total current assets | | 109,055 | | | 102,156 | | Total current assets | | 110,156 | | | 119,580 | |
Property and equipment, net | Property and equipment, net | | 342,386 | | | 386,336 | | Property and equipment, net | | 307,954 | | | 318,517 | |
Operating lease assets, net | Operating lease assets, net | | 375,747 | | | 400,825 | | Operating lease assets, net | | 355,917 | | | 361,432 | |
| Intangible assets, net | Intangible assets, net | | 19,320 | | | 21,292 | | Intangible assets, net | | 17,082 | | | 17,727 | |
Other assets, net | Other assets, net | | 14,434 | | | 18,389 | | Other assets, net | | 12,785 | | | 14,889 | |
Total assets | Total assets | | $ | 860,942 | | | $ | 928,998 | | Total assets | | $ | 803,894 | | | $ | 832,145 | |
Liabilities and stockholders' equity: | Liabilities and stockholders' equity: | | | | | Liabilities and stockholders' equity: | | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | | $ | 33,814 | | | $ | 32,510 | | Accounts payable | | $ | 32,290 | | | $ | 39,336 | |
Accrued payroll and payroll-related liabilities | Accrued payroll and payroll-related liabilities | | 34,040 | | | 32,584 | | Accrued payroll and payroll-related liabilities | | 37,975 | | | 33,666 | |
Unearned revenue | Unearned revenue | | 37,539 | | | 54,214 | | Unearned revenue | | 30,444 | | | 43,358 | |
Current portion of operating lease obligations | Current portion of operating lease obligations | | 47,726 | | | 48,842 | | Current portion of operating lease obligations | | 48,121 | | | 47,394 | |
Current portion of long-term debt | Current portion of long-term debt | | 2,000 | | | 9,692 | | Current portion of long-term debt | | 2,875 | | | 3,375 | |
Accrued liabilities and other | Accrued liabilities and other | | 50,482 | | | 45,458 | | Accrued liabilities and other | | 48,537 | | | 49,498 | |
Total current liabilities | Total current liabilities | | 205,601 | | | 223,300 | | Total current liabilities | | 200,242 | | | 216,627 | |
Long-term debt | Long-term debt | | 189,320 | | | 167,263 | | Long-term debt | | 203,188 | | | 203,155 | |
Long-term portion of operating lease obligations | Long-term portion of operating lease obligations | | 401,274 | | | 435,136 | | Long-term portion of operating lease obligations | | 383,621 | | | 393,157 | |
Other non-current liabilities | Other non-current liabilities | | 13,120 | | | 26,325 | | Other non-current liabilities | | 12,157 | | | 13,831 | |
Total liabilities | Total liabilities | | 809,315 | | | 852,024 | | Total liabilities | | 799,208 | | | 826,770 | |
Commitments and contingencies (see Note 8. Commitments and Contingencies) | Commitments and contingencies (see Note 8. Commitments and Contingencies) | | | | | Commitments and contingencies (see Note 8. Commitments and Contingencies) | | | | |
Stockholders' equity: | Stockholders' equity: | | Stockholders' equity: | |
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,900 and 15,722 shares outstanding as of October 2, 2022 and December 26, 2021 | | 20 | | | 20 | | |
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 2, 2022 and December 26, 2021 | | — | | | — | | |
Treasury stock 4,549 and 4,727 shares, at cost, as of October 2, 2022 and December 26, 2021 | | (184,169) | | | (192,803) | | |
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 16,063 and 15,934 shares outstanding as of April 16, 2023 and December 25, 2022 | | Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 16,063 and 15,934 shares outstanding as of April 16, 2023 and December 25, 2022 | | 20 | | | 20 | |
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of April 16, 2023 and December 25, 2022 | | Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of April 16, 2023 and December 25, 2022 | | — | | | — | |
Treasury stock 4,386 and 4,515 shares, at cost, as of April 16, 2023 and December 25, 2022 | | Treasury stock 4,386 and 4,515 shares, at cost, as of April 16, 2023 and December 25, 2022 | | (177,480) | | | (182,810) | |
Paid-in capital | Paid-in capital | | 242,235 | | | 242,560 | | Paid-in capital | | 235,876 | | | 238,803 | |
Accumulated other comprehensive income (loss), net of tax | | (51) | | | 1 | | |
Retained earnings (deficit) | | (6,408) | | | 27,196 | | |
Accumulated other comprehensive loss, net of tax | | Accumulated other comprehensive loss, net of tax | | (26) | | | (34) | |
Retained deficit | | Retained deficit | | (53,704) | | | (50,604) | |
Total stockholders' equity | Total stockholders' equity | | 51,627 | | | 76,974 | | Total stockholders' equity | | 4,686 | | | 5,375 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | | $ | 860,942 | | | $ | 928,998 | | Total liabilities and stockholders' equity | | $ | 803,894 | | | $ | 832,145 | |
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 | | | Sixteen Weeks Ended |
(in thousands, except for per share amounts) | (in thousands, except for per share amounts) | | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | (in thousands, except for per share amounts) | | | April 16, 2023 | | April 17, 2022 |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | |
Restaurant revenue | Restaurant revenue | | $ | 282,449 | | | $ | 270,202 | | | $ | 951,718 | | | $ | 861,036 | | Restaurant revenue | | | $ | 406,893 | | | $ | 380,612 | |
Franchise and other revenues | Franchise and other revenues | | 4,439 | | | 5,242 | | | 24,810 | | | 17,658 | | Franchise and other revenues | | | 11,075 | | | 14,938 | |
| Total revenues | Total revenues | | 286,888 | | | 275,444 | | | 976,528 | | | 878,694 | | Total revenues | | | 417,968 | | | 395,550 | |
Costs and expenses: | Costs and expenses: | | | | | | | | | Costs and expenses: | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | |
Cost of sales | Cost of sales | | 70,640 | | | 62,671 | | | 234,283 | | | 193,754 | | Cost of sales | | | 99,670 | | | 90,941 | |
Labor | Labor | | 100,522 | | | 99,725 | | | 340,273 | | | 310,333 | | Labor | | | 145,421 | | | 138,108 | |
Other operating | Other operating | | 52,858 | | | 51,462 | | | 172,725 | | | 156,102 | | Other operating | | | 72,050 | | | 67,864 | |
Occupancy | Occupancy | | 22,828 | | | 22,519 | | | 76,406 | | | 74,233 | | Occupancy | | | 29,801 | | | 30,599 | |
Depreciation and amortization | Depreciation and amortization | | 17,368 | | | 18,881 | | | 58,924 | | | 63,984 | | Depreciation and amortization | | | 21,825 | | | 23,919 | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | | 35,692 | | | 30,343 | | | 102,168 | | | 89,299 | | Selling, general, and administrative expenses | | | 34,523 | | | 34,380 | |
Pre-opening costs | Pre-opening costs | | 217 | | | 418 | | | 514 | | | 792 | | Pre-opening costs | | | 582 | | | 62 | |
Other charges (gains), net | Other charges (gains), net | | (5,217) | | | 1,561 | | | 8,236 | | | 9,228 | | Other charges (gains), net | | | 9,759 | | | 5,307 | |
Total costs and expenses | Total costs and expenses | | 294,908 | | | 287,580 | | | 993,529 | | | 897,725 | | Total costs and expenses | | | 413,631 | | | 391,180 | |
| Loss from operations | | (8,020) | | | (12,136) | | | (17,001) | | | (19,031) | | |
Income from operations | | Income from operations | | | 4,337 | | | 4,370 | |
Other expense: | Other expense: | | | Other expense: | | | |
Interest expense, net and other | Interest expense, net and other | | 4,590 | | | 2,870 | | | 16,151 | | | 9,986 | | Interest expense, net and other | | | 7,417 | | | 7,413 | |
Loss on debt refinancing | | | | | | | | | |
Interest income and other, net | | | |
Total other expenses | | 4,590 | | | 2,870 | | | 16,151 | | | | |
| Loss before income taxes | Loss before income taxes | | (12,610) | | | (15,006) | | | (33,152) | | | (29,017) | | Loss before income taxes | | | (3,080) | | | (3,043) | |
Income tax provision (benefit) | Income tax provision (benefit) | | (43) | | | (26) | | | 453 | | | (328) | | Income tax provision (benefit) | | | 20 | | | 62 | |
Net loss | Net loss | | $ | (12,567) | | | $ | (14,980) | | | $ | (33,605) | | | $ | (28,689) | | Net loss | | | $ | (3,100) | | | $ | (3,105) | |
Loss per share: | Loss per share: | | | | | | | | | Loss per share: | | | | | |
Basic | Basic | | $ | (0.79) | | | $ | (0.95) | | | $ | (2.12) | | | $ | (1.83) | | Basic | | | $ | (0.19) | | | $ | (0.20) | |
Diluted | Diluted | | $ | (0.79) | | | $ | (0.95) | | | $ | (2.12) | | | $ | (1.83) | | Diluted | | | $ | (0.19) | | | $ | (0.20) | |
Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | | | Weighted average shares outstanding: | | | | | |
Basic | Basic | | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | | Basic | | | 15,996 | | | 15,748 | |
Diluted | Diluted | | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | | Diluted | | | 15,996 | | | 15,748 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | Other comprehensive income (loss): | | | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | $ | (45) | | | $ | (6) | | | $ | (51) | | | $ | 14 | | Foreign currency translation adjustment | | | $ | 8 | | | $ | 11 | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | (45) | | | (6) | | | (51) | | | 14 | | Other comprehensive income (loss), net of tax | | | 8 | | | 11 | |
Total comprehensive loss | Total comprehensive loss | | $ | (12,612) | | | $ | (14,986) | | | $ | (33,656) | | | $ | (28,675) | | Total comprehensive loss | | | $ | (3,092) | | | $ | (3,094) | |
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 Income/(Loss), net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings (Deficit) | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 26, 2021 | | 20,449 | | | $ | 20 | | | 4,727 | | | $ | (192,803) | | | $ | 242,560 | | | $ | 1 | | | $ | 27,196 | | | $ | 76,974 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (64) | | | 2,781 | | | (2,846) | | | — | | | — | | | (65) | |
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Non-cash stock compensation | | — | | | — | | | — | | | — | | | 3,042 | | | — | | | — | | | 3,042 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (3,105) | | | (3,105) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | 11 | | | — | | | 11 | |
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Balance, April 17, 2022 | | 20,449 | | | $ | 20 | | | 4,663 | | | $ | (190,022) | | | $ | 242,756 | | | $ | 12 | | | $ | 24,091 | | | $ | 76,857 | |
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Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (113) | | | 5,817 | | | (5,691) | | | — | | | — | | | 126 | |
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Non-cash stock compensation | | — | | | — | | | — | | | — | | | 2,542 | | | — | | | — | | | 2,542 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (17,932) | | | (17,932) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | (18) | | | — | | | (18) | |
Balance, July 10, 2022 | | 20,449 | | | $ | 20 | | | 4,550 | | | $ | (184,205) | | | $ | 239,607 | | | $ | (6) | | | $ | 6,159 | | | $ | 61,575 | |
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Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (1) | | | 36 | | | (40) | | | — | | | — | | | (4) | |
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Non-cash stock compensation | | — | | | — | | | — | | | — | | | 2,668 | | | — | | | — | | | 2,668 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (12,567) | | | (12,567) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | (45) | | | — | | | (45) | |
Balance, October 2, 2022 | | 20,449 | | | $ | 20 | | | 4,549 | | | $ | (184,169) | | | $ | 242,235 | | | $ | (51) | | | $ | (6,408) | | | $ | 51,627 | |
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| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Income/(Loss), net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 26, 2021 | | 20,449 | | | $ | 20 | | | 4,727 | | | $ | (192,803) | | | $ | 242,560 | | | $ | 1 | | | $ | 27,196 | | | $ | 76,974 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (64) | | | 2,781 | | | (2,846) | | | — | | | — | | | (65) | |
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Non-cash stock compensation | | — | | | — | | | — | | | — | | | 3,042 | | | — | | | — | | | 3,042 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (3,105) | | | (3,105) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | 11 | | | — | | | 11 | |
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Balance, April 17, 2022 | | 20,449 | | | $ | 20 | | | 4,663 | | | $ | (190,022) | | | $ | 242,756 | | | $ | 12 | | | $ | 24,091 | | | $ | 76,857 | |
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| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Income/(Loss), net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings (Deficit) | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 25, 2022 | | 20,449 | | | $ | 20 | | | 4,515 | | | $ | (182,810) | | | $ | 238,803 | | | $ | (34) | | | $ | (50,604) | | | $ | 5,375 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (129) | | | 5,330 | | | (5,106) | | | — | | | — | | | 224 | |
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Non-cash stock compensation | | — | | | — | | | — | | | — | | | 2,179 | | | — | | | — | | | 2,179 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (3,100) | | | (3,100) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | 8 | | | — | | | 8 | |
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Balance, April 16, 2023 | | 20,449 | | | $ | 20 | | | 4,386 | | | $ | (177,480) | | | $ | 235,876 | | | $ | (26) | | | $ | (53,704) | | | $ | 4,686 | |
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| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Income/(Loss), 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) | |
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| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 880 | | | — | | | — | | | 880 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (8,713) | | | (8,713) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | 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 income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | (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 income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | (6) | | | — | | | (6) | |
Balance, October 3, 2021 | | 20,449 | | | $ | 20 | | | 4,727 | | | $ | (192,819) | | | $ | 240,445 | | | $ | 10 | | | $ | 48,509 | | | $ | 96,165 | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) | | | Forty Weeks Ended | | Sixteen Weeks Ended |
(in thousands) | (in thousands) | | October 2, 2022 | | October 3, 2021 | (in thousands) | | April 16, 2023 | | April 17, 2022 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net loss | Net loss | | $ | (33,605) | | | $ | (28,689) | | Net loss | | $ | (3,100) | | | $ | (3,105) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | Adjustments to reconcile net loss to net cash provided by operating activities: | | Adjustments to reconcile net loss to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 58,924 | | | 63,984 | | Depreciation and amortization | | 21,825 | | | 23,919 | |
Gift card breakage | Gift card breakage | | (8,289) | | | (3,231) | | Gift card breakage | | (4,965) | | | (7,819) | |
Restaurant asset impairment | | 13,048 | | | 1,357 | | |
Asset impairment | | Asset impairment | | 694 | | | 2,122 | |
Non-cash other charges, net | Non-cash other charges, net | | (2,287) | | | 319 | | Non-cash other charges, net | | 770 | | | (191) | |
| Stock-based compensation expense | Stock-based compensation expense | | 8,229 | | | 4,501 | | Stock-based compensation expense | | 2,172 | | | 3,042 | |
(Gain) loss on sale of property, plant, and equipment | | (9,204) | | | — | | |
| Other, net | Other, net | | 3,240 | | | 2,228 | | Other, net | | 606 | | | 2,266 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | | 9,487 | | | 4,544 | | Accounts receivable | | 8,907 | | | 8,852 | |
Income tax receivable | Income tax receivable | | 15,163 | | | 520 | | Income tax receivable | | 89 | | | 2,581 | |
Inventories | Inventories | | (217) | | | — | | Inventories | | 1,068 | | | (162) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 2,183 | | | 1,014 | | Prepaid expenses and other current assets | | (399) | | | 1,883 | |
Operating lease assets, net of liabilities | Operating lease assets, net of liabilities | | (10,562) | | | (12,711) | | Operating lease assets, net of liabilities | | (3,654) | | | (4,623) | |
Trade accounts payable and accrued liabilities | Trade accounts payable and accrued liabilities | | 9,621 | | | 16,948 | | Trade accounts payable and accrued liabilities | | 1,086 | | | 3,288 | |
Unearned revenue | Unearned revenue | | (8,386) | | | (4,286) | | Unearned revenue | | (7,949) | | | (8,408) | |
Other operating assets and liabilities, net | Other operating assets and liabilities, net | | (8,545) | | | (8,881) | | Other operating assets and liabilities, net | | 192 | | | (10,349) | |
Net cash provided by operating activities | Net cash provided by operating activities | | 38,800 | | | 37,617 | | Net cash provided by operating activities | | 17,342 | | | 13,296 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Purchases of property, equipment, and intangible assets | Purchases of property, equipment, and intangible assets | | (27,036) | | | (19,987) | | Purchases of property, equipment, and intangible assets | | (16,084) | | | (9,716) | |
Proceeds from sales of property and equipment and other investing activities | Proceeds from sales of property and equipment and other investing activities | | 8,739 | | | 20 | | Proceeds from sales of property and equipment and other investing activities | | — | | | 168 | |
Net cash used in investing activities | Net cash used in investing activities | | (18,297) | | | (19,967) | | Net cash used in investing activities | | (16,084) | | | (9,548) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
Borrowings of long-term debt | Borrowings of long-term debt | | 282,151 | | | 109,500 | | Borrowings of long-term debt | | — | | | 282,151 | |
Payments of long-term debt and finance leases | Payments of long-term debt and finance leases | | (266,275) | | | (125,216) | | Payments of long-term debt and finance leases | | (1,241) | | | (261,800) | |
| Debt issuance costs | Debt issuance costs | | (4,869) | | | (870) | | Debt issuance costs | | — | | | (4,869) | |
Proceeds related to real estate sale | | 3,856 | | | — | | |
| Proceeds from other financing activities, net | Proceeds from other financing activities, net | | 58 | | | 549 | | Proceeds from other financing activities, net | | 224 | | | (65) | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | | 14,921 | | | (16,037) | | Net cash provided by (used in) financing activities | | (1,017) | | | 15,417 | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | | (44) | | | 28 | | Effect of exchange rate changes on cash | | (1) | | | 8 | |
Net change in cash and cash equivalents, and restricted cash | Net change in cash and cash equivalents, and restricted cash | | 35,380 | | | 1,641 | | Net change in cash and cash equivalents, and restricted cash | | 240 | | | 19,173 | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | | 22,750 | | | 16,116 | | Cash and cash equivalents, beginning of period | | 58,206 | | | 22,750 | |
Cash and cash equivalents, and restricted cash, end of period | Cash and cash equivalents, and restricted cash, end of period | | $ | 58,130 | | | $ | 17,757 | | Cash and cash equivalents, and restricted cash, end of period | | $ | 58,446 | | | $ | 41,923 | |
| Supplemental disclosure of cash flow information | Supplemental disclosure of cash flow information | | Supplemental disclosure of cash flow information | |
Income tax refunds received, net | | $ | (14,729) | | | $ | (840) | | |
Income tax paid (refund received), net | | Income tax paid (refund received), net | | $ | 88 | | | $ | (2,519) | |
Interest paid, net of amounts capitalized | Interest paid, net of amounts capitalized | | $ | 11,387 | | | $ | 7,586 | | Interest paid, net of amounts capitalized | | $ | 5,475 | | | $ | 3,374 | |
Right of use assets obtained in exchange for operating lease obligations | | Right of use assets obtained in exchange for operating lease obligations | | $ | 7,465 | | | $ | 3,382 | |
Right of use assets obtained in exchange for finance lease obligations | | Right of use assets obtained in exchange for finance lease obligations | | $ | — | | | $ | 746 | |
|
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 2, 2022,April 16, 2023, the Company owned and operated 424415 restaurants located in 38 states. The Company also had 10196 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
Basis of Presentation
The accompanying unaudited Condensed 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 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 Sheet as of December 26, 202125, 2022 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 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 26, 202125, 2022 filed with the SEC on March 10, 2022.February 28, 2023.
Our current, prior, and upcoming 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: | | | | |
First Quarter 2023 | | April 16, 2023 | | 16 |
First Quarter 2022 | | April 17, 2022 | | 16 |
First Quarter 2021 | | April 18, 2021 | | 16 |
Second Quarter 2022 | | July 10, 2022 | | 12 |
Second Quarter 2021 | | July 11, 2021 | | 12 |
Third Quarter 2022 | | October 2, 2022 | | 12 |
Third Quarter 2021 | | October 3, 2021 | | 12 |
Current and Prior Fiscal Years: | | | | |
Fiscal Year 2022 | | December 25, 2022 | | 52 |
Fiscal Year 2021 | | December 26, 2021 | | 52 |
Upcoming fiscal year: | | | | |
Fiscal Year 2023 | | December 31, 2023 | | 53 |
Fiscal Year 2022 | | December 25, 2022 | | 52 |
Upcoming fiscal year: | | | | |
Fiscal Year 2024 | | December 29, 2024 | | 52 |
Reclassifications
Certain amounts presented have been reclassified within the October 3, 2021 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications from Lease assets, net of liabilities to Other operating assets and liabilities. The reclassifications had no effect on the Company’s cash flows from operations.
Change in Accounting Estimate - Gift Card Breakage
As part of its annual assessment of gift card breakage and during the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage to the updated estimated redemption pattern. As a result, the Company recognized $5.9 million of additional gift card breakage in Franchise and other revenues, partially offset by $0.6 million of associated commissions costs recognized in Selling, general and administrative expenses, in the first quarter of 2022. This change in accounting estimate decreased net loss by $5.2 million, or $0.33 per basic and diluted share for the forty weeks ended October 2, 2022. The Company does not expect the impact of this change in estimate to be material to its future financial statements.
Recent Tax Legislation
The CHIPS and Science Act of 2022 (CHIPS) and the Inflation Reduction Act (IRA) of 2022 were signed into law by President Biden on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The Company is currently evaluating the impact of CHIPS and IRA, but at present does not expect that any of the provisions included in these acts would result in a material impact to our deferred tax assets, liabilities, or income taxes payable.
2. 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 |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Restaurant revenue | | $ | 282,449 | | | $ | 270,202 | | | $ | 951,718 | | | $ | 861,036 | |
Franchise revenue | | 4,249 | | | 4,303 | | | 14,891 | | | 13,123 | |
Gift card breakage(1) | | 190 | | | 438 | | | 8,290 | | | 3,231 | |
Other revenue | | — | | | 501 | | | 1,629 | | | 1,304 | |
Total revenues | | $ | 286,888 | | | $ | 275,444 | | | $ | 976,528 | | | $ | 878,694 | |
(1) During the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage revenue to the updated estimated redemption pattern. See Note 1. Basis of Presentation and Recent Accounting Pronouncements. | | | | | | | | | | | | | | | | | | |
| | | | Sixteen Weeks Ended |
| | | | | | April 16, 2023 | | April 17, 2022 |
Restaurant revenue | | | | | | $ | 406,893 | | | $ | 380,612 | |
Franchise revenue | | | | | | 5,283 | | | 6,280 | |
Gift card breakage | | | | | | 4,965 | | | 7,819 | |
Other revenue | | | | | | 827 | | | 839 | |
Total revenues | | | | | | $ | 417,968 | | | $ | 395,550 | |
Contract liabilitiesLiabilities
Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands): | | | October 2, 2022 | | December 26, 2021 | | April 16, 2023 | | December 25, 2022 |
Unearned gift card revenue | Unearned gift card revenue | $ | 23,971 | | | $ | 41,128 | | Unearned gift card revenue | $ | 19,088 | | | $ | 32,251 | |
Deferred loyalty revenue | Deferred loyalty revenue | $ | 13,568 | | | $ | 13,086 | | Deferred loyalty revenue | $ | 11,356 | | | $ | 11,107 | |
Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive 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 2, 2022 | | October 3, 2021 |
Gift card revenue | $ | 19,788 | | | $ | 14,448 | |
| | | | | | | | | | | |
| Sixteen Weeks Ended |
| April 16, 2023 | | April 17, 2022 |
Gift card revenue | $ | 14,574 | | | $ | 16,859 | |
3. Leases
The Company's finance and operating lease assets and liabilities as of October 2, 2022 and December 26, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | |
October 2, 2022 | | Finance(1) | | Operating(2) | | |
Lease assets, net(3) | | $ | 7,233 | | | $ | 375,747 | | | |
| | | | | | |
Current portion of lease obligations | | 1,015 | | | 47,726 | | | |
Long-term portion of lease obligations | | 8,630 | | | 401,274 | | | |
Total | | $ | 9,645 | | | $ | 449,000 | | | |
| | | | | | |
December 26, 2021 | | Finance(1) | | Operating(2) | | |
Lease assets, net(3) | | $ | 9,664 | | | $ | 400,825 | | | |
| | | | | | |
Current portion of lease obligations | | 1,194 | | | 48,842 | | | |
Long-term portion of lease obligations | | 10,765 | | | 435,136 | | | |
Total | | $ | 11,959 | | | $ | 483,978 | | | |
(1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our October 2, 2022 and December 26, 2021 Condensed Consolidated Balance Sheets.
(2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our October 2, 2022 and December 26, 2021 Condensed Consolidated Balance Sheets.
(3) The Lease assets, net caption includes the right of use assets associated with the Company's Finance and Operating leases, net of the associated amortization of these right of use assets.
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 Statement of Operations and Comprehensive Loss as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Operating lease cost | | $ | 15,793 | | | $ | 16,061 | | | $ | 53,904 | | | $ | 53,765 | |
Finance lease cost: | | | | | | | | |
Amortization of right of use assets | | 261 | | | 197 | | | 841 | | | 657 | |
Interest on lease liabilities | | 111 | | | 131 | | | 408 | | | 407 | |
Total finance lease cost | | $ | 372 | | | $ | 328 | | | $ | 1,249 | | | $ | 1,064 | |
Variable lease cost | | 4,130 | | | 4,496 | | | 15,136 | | | 15,271 | |
Total | | $ | 20,295 | | | $ | 20,885 | | | $ | 70,289 | | | $ | 70,100 | |
Maturities of our lease liabilities as of October 2, 2022 were as follows (in thousands): | | | | | | | | | | | | | |
| Finance Leases | | Operating Leases | | |
Remainder of 2022 | $ | 260 | | | $ | 13,829 | | | |
2023 | 1,386 | | | 76,978 | | | |
2024 | 1,479 | | | 76,047 | | | |
2025 | 1,189 | | | 71,921 | | | |
2026 | 1,245 | | | 66,078 | | | |
Thereafter | 6,454 | | | 323,647 | | | |
Total future lease payments | $ | 12,013 | | | $ | 628,500 | | | |
Less imputed interest | 2,368 | | | 179,500 | | | |
Total lease liability | $ | 9,645 | | | $ | 449,000 | | | |
Supplemental cash flow and other information related to leases is as follows (in thousands, except other information): | | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
| | October 2, 2022 | | October 3, 2021 | | |
Cash flows from operating activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Operating leases | | $ | 65,943 | | | $ | 68,036 | | | |
Finance leases | | 408 | | | 406 | | | |
Cash flows from financing activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Finance leases | | 1,048 | | | 1,447 | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | $ | 67,399 | | | $ | 69,889 | | | |
| | | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 11,604 | | | $ | 27,483 | | | |
Right of use assets obtained in exchange for finance lease obligations | | $ | 541 | | | $ | 988 | | | |
| | | | | | |
Other information related to operating leases as follows: | | | | | | |
Weighted average remaining lease term (years) | | 9.21 | | 9.86 | | |
Weighted average discount rate | | 7.24 | % | | 7.01 | % | | |
| | | | | | |
Other information related to finance leases as follows: | | | | | | |
Weighted average remaining lease term (years) | | 10.49 | | 11.04 | | |
Weighted average discount rate | | 4.89 | % | | 4.56 | % | | |
| | | | | | | | | | | | | | | | | | |
| | | | Sixteen Weeks Ended |
| | | | | | April 16, 2023 | | April 17, 2022 |
Operating lease cost | | | | | | $ | 20,895 | | | $ | 21,689 | |
Finance lease cost: | | | | | | | | |
Amortization of right of use assets | | | | | | 327 | | | 342 | |
Interest on lease liabilities | | | | | | 173 | | | 145 | |
Total finance lease cost | | | | | | 500 | | | 487 | |
Variable lease cost | | | | | | 5,792 | | | 6,325 | |
Total | | | | | | $ | 27,187 | | | $ | 28,501 | |
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 each ofboth the twelve and fortysixteen weeks ended October 2,April 16, 2023 and April 17, 2022, and October 3, 2021, all potentially dilutive common shares are considered anti-dilutive.
The Company uses the treasury stock method to calculate the effect of outstanding stock 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 | | | | Sixteen Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | | | April 16, 2023 | | April 17, 2022 |
Basic weighted average shares outstanding | Basic weighted average shares outstanding | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | | Basic weighted average shares outstanding | | | 15,996 | | | 15,748 | |
Dilutive effect of stock options and awards | Dilutive effect of stock options and awards | — | | | — | | | — | | | — | | Dilutive effect of stock options and awards | | | — | | | — | |
Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | | Diluted weighted average shares outstanding | | | 15,996 | | | 15,748 | |
| Awards excluded due to anti-dilutive effect on diluted loss per share | Awards excluded due to anti-dilutive effect on diluted loss per share | 869 | | | 545 | | | 1,010 | | | 390 | | Awards excluded due to anti-dilutive effect on diluted loss per share | | | 1,368 | | | 885 | |
5. Other Charges (Gains), net
Other charges (gains), net consisted of the following (in thousands): | | | Twelve Weeks Ended | | Forty Weeks Ended | | Sixteen Weeks Ended | | |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | April 16, 2023 | | April 17, 2022 | | |
Litigation contingencies | | Litigation contingencies | | $ | 4,300 | | | $ | 1,720 | | | |
Severance and executive transition | | Severance and executive transition | | 1,891 | | | — | | | |
Restaurant closure costs, net | | Restaurant closure costs, net | | 1,750 | | | 949 | | | |
Other | | Other | | 1,062 | | | — | | | |
Asset impairment | Asset impairment | | $ | 2,187 | | | $ | — | | | $ | 13,048 | | | $ | 1,357 | | Asset impairment | | 694 | | | 2,122 | | | |
Gain on sale of restaurant property | | (9,204) | | | — | | | (9,204) | | | — | | |
Executive transition | | 1,825 | | | — | | | 1,954 | | | — | | |
Closed corporate office costs, net of sublease income | | Closed corporate office costs, net of sublease income | | 62 | | | — | | | |
Other financing costs | Other financing costs | | 1,022 | | | — | | | 1,392 | | | — | | Other financing costs | | — | | | 309 | | | |
COVID-19 related charges | COVID-19 related charges | | 123 | | | 299 | | | 423 | | | 1,112 | | COVID-19 related charges | | — | | | 207 | | | |
Restaurant closure costs (gains) | | (1,570) | | | 1,102 | | | 309 | | | 5,301 | | |
Closed corporate office, net of sublease income | | 267 | | | — | | | 267 | | | — | | |
Litigation contingencies | | 133 | | | 160 | | | 47 | | | 1,330 | | |
| Board and stockholder matter costs | | — | | | — | | | — | | | 128 | | |
| Other charges (gains), net | Other charges (gains), net | | $ | (5,217) | | | $ | 1,561 | | | $ | 8,236 | | | $ | 9,228 | | Other charges (gains), net | | $ | 9,759 | | | $ | 5,307 | | | |
Litigation contingencies during the sixteen weeks ended April 16, 2023 and April 17, 2022 represent reserves for various in progress legal matters.
Severance and executive transition costs include one-time termination benefits related to a reduction in force of Team Members and costs associated with changes in leadership positions as a result of our strategic pivot and are accounted for in accordance with ASC Topic 420, Exit or Disposal Cost Obligations. The Company expects to make the remaining payments related to these benefits in 2023.
The Company expects to incur a total of approximately $5.0 million in termination benefits, of which it has incurred a cumulative total of $4.4 million through April 16, 2023. Approximately $1.5 million in one-time termination benefits was incurred and recorded in Other charges in the Consolidated Statements of Operations and Comprehensive Loss during the sixteen weeks ended April 16, 2023. A reconciliation of our termination benefits liability, which is included in Accrued liabilities and other current liabilities in our Condensed Consolidated Balance Sheets is as follows:
| | | | | |
| Termination Benefits |
Balance as of December 25, 2022 | $ | 2,505 | |
Charges | 1,476 | |
Cash Payments | (2,788) | |
Balance as of April 16, 2023 | $ | 1,193 | |
Restaurant closure costs (gains) include the ongoing restaurant operating costs of the Company-owned restaurants incurred for closed restaurants and closed restaurant lease termination gains or losses.
Other includes non-cash charges primarily related to terminated capital projects, disposals, and lease terminations.
The Company recognized non-cash impairment charges primarilyrelated to subleasing additional space at the Company's closed corporate office during the sixteen weeks ended April 16, 2023. The Company recognized non-cash impairment charges related to restaurant assets at one and tenthree Company-owned restaurants duringfor the twelve and fortysixteen weeks ended October 2, 2022, respectively,April 17, 2022.
Closed corporate office, net of sublease income includes expense and one Company-owned restaurant for the forty weeks ended October 3, 2021.
During the second quarter of 2022 the Company closed on an agreement to sell a restaurant property that the Company owned and leased back on a short-term basis. The Company collected initial net proceeds from the purchaser-lessor of $3.9 million, which represented a portion of the total consideration received from the sale. The Company did not recognize a sale in the second quarter of 2022 as certain criteria to recognize a sale in accordance with ASC Topic 842, Leases, and ASC Topic 606, Revenue from Contracts with Customers, were not met. During third quarter of 2022, the Company received the remaining proceeds, upon which the lease terminated and the sale transaction was completed, and recognized a $9.2 million gain on the sale of the restaurant property . The initial net proceeds of $3.9 million are included within cash flows from financing activities and the final proceeds received of $8.5 million are included within cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 2, 2022.
Executive transition costs include costs associated with transitioningsublease income related to a new Chief Executive Officer.corporate office facility that was vacated and subleased.
Other financing costs include fees related to the entry by the Company into the new Credit Agreement (as defined below) on March 4, 2022 that were not capitalized with the closing of the Credit Facility. See Note 6. Borrowings.
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 related to the COVID-19 pandemic.
Restaurant closure costs (gains) include the ongoing restaurant operating costs of the Company-owned restaurants incurred for permanently closed restaurants and closed restaurant lease termination gains or losses.
Closed corporate office, net of sublease income includes expense and sublease income related to a corporate office facility that was vacated and subleased.
Litigation contingencies during the twelve and forty weeks ended October 2, 2022 include the impact of cash proceeds received by the Company related to certain legal claims. Litigation contingencies during the twelve and forty weeks ended October 2, 2022 and October 3, 2021 include legal settlement costs accrued related to pending or threatened litigation.
Board and stockholder matters costs were primarily related to the recruitment and appointment of a new board member in the first quarter of 2021.
6. Borrowings
Borrowings as of October 2, 2022April 16, 2023 and December 26, 202125, 2022 are summarized below (in thousands): | | | October 2, 2022 | | Weighted Average Interest Rate | | December 26, 2021 | | Weighted Average Interest Rate | | April 16, 2023 | | Variable Interest Rate | | December 25, 2022 | | Variable Interest Rate |
Revolving line of credit | Revolving line of credit | | $ | — | | | | | $ | 57,000 | | | | Revolving line of credit | | $ | 15,000 | | | 11.37 | % | | $ | 15,000 | | | 10.44 | % |
Term loan | Term loan | | 199,000 | | | 8.70 | % | | 119,080 | | | 7.10 | % | Term loan | | 198,000 | | | 12.12 | % | | 199,000 | | | 9.81 | % |
Notes payable, non-current | | 875 | | | 875 | | | |
Notes payable | | Notes payable | | 875 | | | 875 | | |
Total borrowings | Total borrowings | | 199,875 | | | | | 176,955 | | | | Total borrowings | | 213,875 | | | | | 214,875 | | | |
Less: unamortized debt issuance costs and discounts(1) | Less: unamortized debt issuance costs and discounts(1) | | 8,555 | | | | | — | | | | Less: unamortized debt issuance costs and discounts(1) | | 7,812 | | | | | 8,345 | | | |
Less: current portion of long-term debt | Less: current portion of long-term debt | | 2,000 | | | 9,692 | | | Less: current portion of long-term debt | | 2,875 | | | 3,375 | | |
Long-term debt | Long-term debt | | $ | 189,320 | | | | | $ | 167,263 | | | | Long-term debt | | $ | 203,188 | | | | | $ | 203,155 | | | |
| Revolving line of credit unamortized deferred financing charges(1): | Revolving line of credit unamortized deferred financing charges(1): | | $ | 1,042 | | | $ | 2,015 | | | Revolving line of credit unamortized deferred financing charges(1): | | $ | 915 | | | $ | 988 | | |
(1) Loan origination costs associated with the Company's credit facility are included as deferred costs in Other assets, net for financing charges allocated to the Revolving line of credit, and Long-term debt for financing charges associated with the term loan in the accompanying Condensed Consolidated Balance Sheets.
Credit Agreement
On March 4, 2022, the Company replaced its prior amended and restated credit agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of credit and a $200.0 million term loan (collectively, the "Credit Facility"). The borrower maintains the option to increase the amount of borrowings available under the Credit Agreement in the future, subject to lenders’ participation, by up to an additional $40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement.
The Credit Facility will mature on March 4, 2027. No amortization is required with respect to the revolving Credit Facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0% of the original principal amount of the term loan. The Credit Agreement'sFacility's interest rate references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum. The variable interest rate on the term loan was 10.31% as of October 2, 2022.
Red Robin International, Inc. is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of borrower’s obligations under the Credit Agreement. Borrowings under the Credit Agreement are secured by substantially all of the assets of the borrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments.
On March 4, 2022, Red Robin International, Inc., the Company, and the guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the Administrative Agent a first priority security interest in substantially all of the assets of the borrower and the guarantors to secure the obligations under the Credit Agreement. This new Security Agreement replaced the existing security agreement, dated January 10, 2020, which was entered into in connection with the Prior Credit Agreement.
Red Robin International, Inc. as the borrower is obligated to pay customary fees to the agents, lenders and issuing banks under the Credit Agreement with respect to providing, maintaining, or administering, as applicable, the credit facilities.
In connection with entry into the new Credit Agreement, the Company’s Prior Credit Agreement was terminated. In connection with such termination and new borrowings under the new Credit Agreement, the Company paid off all outstanding borrowings, accrued interest, and fees under the Prior Credit Agreement.
The summary descriptions of the Credit Agreement and the Security Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Credit Agreement and the Security Agreement, respectively, which were filed as exhibits to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2022.
During the first quarter of 2022, the Company expensed approximately $1.7 million of deferred financing charges related to the extinguishment of the Prior Credit Agreement on March 4, 2022. These charges were recorded to interest expense, net and other on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the fortysixteen weeks ended October 2,April 17, 2022. In association with the execution of the new Credit Agreement, the Company recognized $4.8 million of deferred financing charges, and $6.1 million of original issuance discount.
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 termshort-term nature or maturity of the instruments.
The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying consolidated balance sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets).
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 Sheets as of October 2, 2022April 16, 2023 and December 26, 202125, 2022 (in thousands): | | | October 2, 2022 | | Level 1 | | Level 2 | | Level 3 | | April 16, 2023 | | Level 1 | | Level 2 | | Level 3 |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Investments in rabbi trust | Investments in rabbi trust | | $ | 4,020 | | | $ | 4,020 | | | $ | — | | | $ | — | | Investments in rabbi trust | | $ | 3,165 | | | $ | 3,165 | | | $ | — | | | $ | — | |
Total assets measured at fair value | Total assets measured at fair value | | $ | 4,020 | | | $ | 4,020 | | | $ | — | | | $ | — | | Total assets measured at fair value | | $ | 3,165 | | | $ | 3,165 | | | $ | — | | | $ | — | |
| | | December 26, 2021 | | Level 1 | | Level 2 | | Level 3 | | December 25, 2022 | | Level 1 | | Level 2 | | Level 3 |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Investments in rabbi trust | Investments in rabbi trust | | $ | 6,276 | | | $ | 6,276 | | | $ | — | | | $ | — | | Investments in rabbi trust | | $ | 4,250 | | | $ | 4,250 | | | $ | — | | | $ | — | |
Total assets measured at fair value | Total assets measured at fair value | | $ | 6,276 | | | $ | 6,276 | | | $ | — | | | $ | — | | Total assets measured at fair value | | $ | 4,250 | | | $ | 4,250 | | | $ | — | | | $ | — | |
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 Statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, 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. See Note 5. Other Charges (Gains), net.
We impaired long-lived restaurant assets with a carrying value (including right of use lease assets) of $5.8 million and $27.3$1.0 million, recognizing an impairment expense of $2.2 million and $13.0$0.7 million during the twelve and fortysixteen weeks ended October 2, 2022, respectively,April 16, 2023, related to the net book value of these long-lived restaurant assets. We determined the fair value of these long-lived assets to be $3.6 million and $14.3$0.3 million in the twelve and fortysixteen weeks ended October 2, 2022, respectively.April 16, 2023. The impairment was recorded as a result of quantitative impairment analyses.
Disclosures of Fair Value of Other Assets and Liabilities
The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. As of October 2, 2022,April 16, 2023, the fair value of the credit facility was approximately $194.8$214.4 million and the principal amount carrying value was $199.0$213.0 million. The credit facility term loan is reported net of $8.6$7.8 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of October 2, 2022.April 16, 2023. The carrying value approximatedof the credit facility was $214.0 million and the fair value of the credit facility was $205.1 million as of December 26, 2021, as the interest rate on the instrument approximated current market rates.25, 2022. The interest rate on the credit facility represents a level 2 fair value input.
8. Commitments and Contingencies
Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. 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 condensed consolidated financial statements. However, the ultimate resolution of litigated claims may differ from our current estimates.
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, none of these claims,contingencies, certain of which are covered by insurance policies, have had a material effect on the Company.policies. 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 any one of these matters will not have a material adverse effect on our financial position and results of operations. However, aA significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows.
As of October 2, 2022,April 16, 2023, we had a balance of $4.5$8.9 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet. In the normal course of business, there are various claims in process, matters in litigation, administrative proceedings, and other contingencies. These include employment related claims and class action lawsuits, claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns, and lease and other commercial disputes. We increased our estimate of loss contingency liabilities by approximately $4.3 million in the first quarter of 2023 related to changes during the first quarter in the status of ongoing litigation matters. We ultimately may be subject to greater or less than the accrued amount.amount for this and other matters.
As of October 2, 2022,April 16, 2023, we had non-cancellable purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $128.4$133.2 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.
9. Subsequent Events
On April 17, 2023 and subsequent to first quarter 2023, the Company acquired five Red Robin restaurants in the northeastern United States from a long-term franchisee who retired for approximately $3.3 million plus standard closing adjustments. The Company expects the transaction to result in a business combination; however, determination of the purchase price allocation is not considered practical as of the filing date of the first quarter 2023 Form 10-Q.
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. All comparisons under this heading between 20222023 and 20212022 refer to the twelve and fortysixteen weeks ended October 2,April 16, 2023 and April 17, 2022, and October 3, 2021, 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 525511 locations in North America. As of October 2, 2022,April 16, 2023, the Company owned 424415 restaurants located in 38 states. The Company also had 10196 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
Financial and Operational Highlights
The following summarizesTotal revenues are $418.0 million, an increase of $22.4 million compared to 2022.
•Comparable restaurant revenue(1) increased 8.6%.
•Ninth consecutive quarter of positive comparable restaurant revenue(1) growth.
•Comparable restaurant traffic increased 0.6%.
•Comparable restaurant revenue(1) and comparable restaurant traffic both exceeded the operationalindustry averages as measured by the Black Box Casual Dining index.
•Comparable restaurant dine-in sales increased 16.4%.
•Comparable restaurant sales for the first thirteen weeks of the quarter increased 10.0%(3).
Net loss of $3.1 million was unchanged compared to 2022.
•GAAP loss per diluted share was $0.19 compared to GAAP loss per diluted share of $0.20 in 2022.
•Adjusted income per diluted share(2) was $0.25 compared to adjusted loss per diluted share of $0.12 in 2022.
Income from operations was $4.3 million, or 1.0% of total revenues, compared to $4.4 million, or 1.1% of total revenues, in 2022.
Restaurant Level Operating Profit Margin(2) (a non-GAAP metric) was 14.7% versus 14.0% in 2022.
Adjusted EBITDA(2) (a non-GAAP metric) was $36.1 million, an $8.1 million increase compared to 2022.
(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period presented.
(2) See below for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to Net loss; Restaurant Level Operating Profit Margin, a non-GAAP measure, to Income from operations as a percentage of total revenues; and financial highlights duringAdjusted income per diluted share, a non-GAAP measure, to Net loss and loss per diluted share.
(3) Comparable restaurant sales for the twelvefirst thirteen weeks ended October 2, 2022:of fiscal 2023 are calculated based on the Company’s point-of-sale sales data, which does not include adjustments for loyalty breakage.
Restaurant Revenue, compared to the same period in the prior year, is presented in the table below: | | | | | | | | | | | | |
| | | | |
| | | | | | |
| | (millions) | | | | |
Restaurant Revenue for the twelvesixteen weeks ended October 3, 2021April 17, 2022 | | $ | 270.2380.6 | | | | | |
Increase/(decrease) in comparable restaurant revenue(1) | | 14.132.0 | | | | | |
Increase/(decrease) fromin non-comparable restaurantsrestaurant revenue | | (1.9)(5.7) | | | | | |
Total increase/(decrease) | | 12.226.3 | | | | | |
Restaurant Revenue for the twelvesixteen weeks ended October 2, 2022April 16, 2023 | | $ | 282.4406.9 | | | | | |
The following summarizes the operational
Restaurant revenues, operating costs, and financial highlights during the forty weeks ended October 2, 2022:
| | | | | | | | | | | | |
| | | | |
| | | | | | |
| | (millions) | | | | |
Restaurant Revenuerestaurant level operating profit for the forty weeks ended October 3, 2021 | | $ | 861.0 | | | | | |
Increase/(decrease) in comparable restaurant revenue(1)
| | 93.6 | | | | | |
Increase/(decrease) from non-comparable restaurants | | (2.9) | | | | | |
Total increase/(decrease) | | 90.7 | | | | | |
Restaurant Revenue for the forty weeks ended October 2, 2022 | | $ | 951.7 | | | | | |
(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period presented.are detailed in the table below: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sixteen Weeks Ended | | | | |
| | April 16, 2023 | | April 17, 2022 | | Increase/(Decrease) | | | | |
Restaurant revenue (millions) | | $ | 406.9 | | | $ | 380.6 | | | 6.9 | % | | | | |
Restaurant operating costs: | | | | | | | | |
Cost of sales | | 99.7 | | | 90.9 | | | 9.6 | % | | | | |
Labor | | 145.4 | | | 138.1 | | | 5.3 | % | | | | |
Other operating | | 72.1 | | | 67.9 | | | 6.2 | % | | | | |
Occupancy | | 29.8 | | | 30.6 | | | (2.6) | % | | | | |
Total Restaurant Operating Costs | | $ | 346.9 | | | $ | 327.5 | | | 18.5 | % | | | | |
| | | | | | | | | | |
Restaurant Level Operating Profit(1) | | $ | 60.0 | | | $ | 53.1 | | | 12.9 | % | | | | |
Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | | | |
| | October 2, 2022 | | October 3, 2021 | | Increase/(Decrease) | | | | |
Restaurant revenue (millions) | | $ | 282.4 | | | $ | 270.2 | | | 4.5 | % | | | | |
Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | | | |
Cost of sales | | 25.0 | % | | 23.2 | % | | 180 | | | | | |
Labor | | 35.6 | | | 36.9 | | | (130) | | | | | |
Other operating | | 18.7 | | | 19.0 | | | (30) | | | | | |
Occupancy | | 8.1 | | | 8.3 | | | (20) | | | | | |
Total | | 87.4 | % | | 87.5 | % | | (10) | | | | | |
| | | Forty Weeks Ended | | | | Sixteen Weeks Ended | | |
| | October 2, 2022 | | October 3, 2021 | | Increase/(Decrease) | | | | April 16, 2023 | | April 17, 2022 | | Increase/(Decrease) | | |
Restaurant revenue (millions) | Restaurant revenue (millions) | | $ | 951.7 | | | $ | 861.0 | | | 10.5 | % | | | Restaurant revenue (millions) | | $ | 406.9 | | | $ | 380.6 | | | 6.9 | % | | |
Restaurant operating costs: | Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | | Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | |
Cost of sales | Cost of sales | | 24.6 | % | | 22.5 | % | | 210 | | | | Cost of sales | | 24.5 | % | | 23.9 | % | | 60 | | | |
Labor | Labor | | 35.8 | | | 36.0 | | | (20) | | | | Labor | | 35.7 | | | 36.3 | | | (60) | | | |
Other operating | Other operating | | 18.1 | | | 18.1 | | | — | | | | Other operating | | 17.7 | | | 17.8 | | | (10) | | | |
Occupancy | Occupancy | | 8.0 | | | 8.6 | | | (60) | | | | Occupancy | | 7.3 | | | 8.0 | | | (70) | | | |
Total | | 86.5 | % | | 85.3 | % | | 120 | | | | |
Total Restaurant Operating Costs | | Total Restaurant Operating Costs | | 85.2 | % | | 86.0 | % | | (80) | | | |
| Restaurant Level Operating Profit(1) | | Restaurant Level Operating Profit(1) | | 14.7 | % | | 14.0 | % | | 70 | | | |
Certain percentage and basis point 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.
(1) Restaurant Level Operating Profit is a non-GAAP measure. See below for a reconciliation of Restaurant Level Operating Profit to Income from Operations and Income from Operations as a percentage of total revenues.
The following table summarizes Net Loss,loss, loss per diluted share (GAAP measures), and adjusted loss per diluted share (a non-GAAP measure) for the twelve and fortysixteen weeks ended April 16, 2023 and October 2, 2022 and October 3, 2021:April 17, 2022:
| | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | | April 16, 2023 | | April 17, 2022 |
Net loss as reported | Net loss as reported | | $ | (12,567) | | | $ | (14,980) | | | $ | (33,605) | | | $ | (28,689) | | Net loss as reported | | | $ | (3,100) | | | $ | (3,105) | |
| | Loss per share - diluted: | Loss per share - diluted: | | Loss per share - diluted: | | | |
Net loss as reported | Net loss as reported | | $ | (0.79) | | | $ | (0.95) | | | $ | (2.12) | | | $ | (1.83) | | Net loss as reported | | | $ | (0.19) | | | $ | (0.20) | |
Litigation contingencies | | Litigation contingencies | | | 0.26 | | | 0.11 | |
Severance and executive transition | | Severance and executive transition | | | 0.12 | | | — | |
Restaurant closure costs, net | | Restaurant closure costs, net | | | 0.11 | | | 0.06 | |
Other (1) | | Other (1) | | | 0.06 | | | — | |
Asset impairment | Asset impairment | | 0.14 | | | — | | | 0.82 | | | 0.09 | | Asset impairment | | | 0.04 | | | 0.13 | |
Gain on sale of restaurant property | | (0.58) | | | — | | | (0.58) | | | — | | |
Change in accounting estimate, gift card breakage revenue, net of commissions(1) | | — | | | — | | | (0.33) | | | — | | |
Executive transition | | 0.11 | | | — | | | 0.12 | | | — | | |
Write-off of unamortized debt issuance costs(2) | | — | | | — | | | 0.11 | | | — | | |
Other financing costs(3) | | 0.06 | | | — | | | 0.09 | | | — | | |
| Other financing costs(2) | | Other financing costs(2) | | | — | | | 0.02 | |
COVID-19 related charges | | COVID-19 related charges | | | — | | | 0.01 | |
Change in estimate, gift card breakage(3) | | Change in estimate, gift card breakage(3) | | | — | | | (0.33) | |
Write-off of unamortized debt issuance costs(4) | | Write-off of unamortized debt issuance costs(4) | | | — | | | 0.11 | |
Income tax expense | Income tax expense | | 0.09 | | | (0.03) | | | (0.08) | | | (0.16) | | Income tax expense | | | (0.16) | | | (0.03) | |
COVID-19 related charges | | 0.01 | | | 0.02 | | | 0.03 | | | 0.07 | | |
Restaurant closure costs (gains) | | (0.10) | | | 0.07 | | | 0.02 | | | 0.34 | | |
Closed corporate office, net of sublease income | | 0.02 | | | — | | | 0.02 | | | — | | |
Litigation contingencies | | 0.01 | | | 0.01 | | | — | | | 0.08 | | |
Board and stockholder matter costs | | — | | | — | | | — | | | 0.01 | | |
| Adjusted loss per share - diluted | | $ | (1.03) | | | $ | (0.88) | | | $ | (1.90) | | | $ | (1.40) | | |
| Adjusted income (loss) per share - diluted | | Adjusted income (loss) per share - diluted | | | $ | 0.25 | | | $ | (0.12) | |
| Weighted average shares outstanding: | Weighted average shares outstanding: | | Weighted average shares outstanding: | | | |
Basic | Basic | | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | | Basic | | | 15,996 | | | 15,748 | |
Diluted(5) | Diluted(5) | | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | | Diluted(5) | | | 16,360 | | | 15,748 | |
(1) Other includes non-cash charges primarily related to terminated capital projects, disposals, and lease terminations.
(2) Other financing costs includes legal and other charges related to the refinancing of our Prior Credit Agreement in the first quarter of 2022.
(3) During the fortysixteen weeks ended October 2,April 17, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards. See Note 1. Basis of Presentation and Recent Accounting PronouncementsThe impact comprises $5.9 million included in Part I. Financial InformationFranchise royalties, fees, and other revenue partially offset by $0.6 million in this Quarterly Reportgift card commission costs included in Selling on form 10-Q.the Condensed Consolidated Statements of Operations.
(2)(4) Write-off of unamortized debt issuance costs related to the remaining unamortized debt issuance costs related to our Prior Credit Agreement (as defined below) with the completion of the refinancing of our Prior Credit Agreement in the first quarter of fiscal year 2022.
(3)(5) Other financing costs includes legal and other charges relatedFor the sixteen weeks ended April 16, 2023, the impact of dilutive shares is included in the calculations as the adjustments for the quarter resulted in adjusted net income. For diluted shares reported on the Condensed Consolidated Statement of Operations, the impact of dilutive shares is excluded due to the refinancing of our Prior Credit Agreement inreported net loss for the first quarter of 2022.quarter.
We believe the non-GAAP measure of adjusted 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. Adjusted loss per diluted share excludes the effects of changeschange in accounting estimates,estimate, gift card breakage, asset impairment, litigation contingencies, the write-off of unamortized debt issuance costs, restaurant and office closure costs, other financing costs, COVID-19 related costs,charges, severance and executive transition costs, and related income tax effects.effects and other. We have revised our definition of adjusted loss per diluted share to exclude severance and executive transition and other. We did not revise the prior year’s adjusted loss per diluted share because there were no other charges similar in nature to these costs. Other companies may define adjusted net loss per diluted share differently, and as a result our measure of adjusted loss per diluted share may not be directly comparable to those of other companies. Adjusted loss per diluted share should be considered in addition to, and not as a substitute for, net loss as reported in accordance with U.S. GAAP as a measure of performance.
The following table summarizes Net loss (a GAAP measure), and EBITDA and Adjusted EBITDA (non-GAAP measures) for the sixteen weeks ended April 16, 2023 and April 17, 2022:
| | | | | | | | | | | |
| Sixteen Weeks Ended |
| April 16, 2023 | | April 17, 2022 |
Net loss as reported | $ | (3,100) | | | $ | (3,105) | |
Interest expense, net | 7,576 | | | 7,088 | |
Income tax provision (benefit) | 20 | | | 62 | |
Depreciation and amortization | 21,825 | | | 23,919 | |
EBITDA | 26,321 | | | 27,964 | |
| | | |
Change in accounting estimate, gift card breakage | — | | | (5,246) | |
Other charges, net: | | | |
Litigation contingencies | 4,300 | | | 1,720 | |
Severance and executive transition | 1,891 | | | — | |
Restaurant closure costs, net | 1,750 | | | 949 | |
Other | 1,062 | | | — | |
Asset impairment | 694 | | | 2,122 | |
Closed corporate office costs, net of sublease income | 62 | | | — | |
Other financing costs | — | | | 309 | |
COVID-19 related charges | — | | | 207 | |
Adjusted EBITDA | $ | 36,080 | | | $ | 28,025 | |
We believe the non-GAAP measures of EBITDA and adjusted EBITDA give 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. We define EBITDA as net loss before interest expense, income taxes, and depreciation and amortization. Adjusted EBITDA further excludes the effects of change in estimate - gift card breakage, asset impairment, litigation contingencies, restaurant closure costs, net, other financing costs, COVID-19 related charges, severance and executive transition costs, and closed corporate office, net of sublease income, and other. We have revised our definition of adjusted EBITDA to exclude other, severance and executive transition costs, and closed corporate office, net of sublease income. We did not revise prior years’ adjusted EBITDA because there were no other charges similar in nature to these costs. Other companies may define EBITDA and adjusted EBITDA differently, and as a result our measure of EBITDA and adjusted EBITDA may not be directly comparable to those of other companies. EBITDA and adjusted EBITDA should be considered in addition to, and not as a substitute for, net loss as reported in accordance with U.S. GAAP as a measure of performance.
The following table summarizes Income from Operations (a GAAP measure), and Restaurant Level Operating Profit (a non-GAAP measure) for the sixteen weeks ended April 16, 2023 and April 17, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sixteen Weeks Ended | |
| | April 16, 2023 | | April 17, 2022 | | | | |
Income from operations | | $ | 4,337 | | | | | $ | 4,370 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Less: | | | | | | | | | | | | | | | | |
Franchise royalties, fees and other revenue | | 11,075 | | | | | 14,938 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Add: | | | | | | | | | | | | | | | | |
Other charges, net | | 9,759 | | | | | 5,307 | | | | | | | | | | | |
Pre-opening costs | | 582 | | | | | 62 | | | | | | | | | | | |
Selling | | 7,725 | | | | | 9,942 | | | | | | | | | | | |
General and administrative expenses | | 26,799 | | | | | 24,438 | | | | | | | | | | | |
Depreciation and amortization | | 21,825 | | | | | 23,919 | | | | | | | | | | | |
Restaurant-level operating profit | | $ | 59,951 | | | | | $ | 53,100 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Income from operations as a percentage of total revenues | | 1.0% | | | | 1.1% | | | | | | | | | | |
Restaurant-level operating profit margin (as a percentage of restaurant revenue) | | 14.7% | | | | 14.0% | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The Company believes restaurant-level operating profit is an important measure for management and investors because it is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance. The Company defines restaurant-level operating profit to be income from operations less franchise royalties, fees and other revenue, plus other charges, net, pre-opening costs, selling costs, general and administrative expenses, and depreciation and amortization. The measure includes restaurant-level occupancy costs that include fixed rents, percentage rents, common area maintenance charges, real estate and personal property taxes, general liability insurance, and other property costs, but excludes depreciation and amortization expense, substantially all of which is related to restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash outlay for the restaurants. The measure also excludes selling costs and general and administrative expenses, and therefore excludes costs associated with selling, general, and administrative functions, and pre-opening costs. The Company excludes Other charges, net because these costs are not related to the ongoing operations of its restaurants. Restaurant-level operating profit is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to income from operations or net loss as indicators of financial performance. Restaurant-level operating profit as presented may not be comparable to other similarly titled measures of other companies in the Company's industry.
Restaurant Data
The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated: | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | | April 16, 2023 | | April 17, 2022 |
Company-owned: | Company-owned: | | | | | | | | | Company-owned: | | | | | |
Beginning of period | Beginning of period | | 426 | | | 430 | | | 430 | | | 443 | | Beginning of period | | | 414 | | | 430 | |
| Opened during the period | | Opened during the period | | | 1 | | | — | |
| Closed during the period | Closed during the period | | (2) | | | — | | | (6) | | | (13) | | Closed during the period | | | — | | | (4) | |
End of period | End of period | | 424 | | | 430 | | | 424 | | | 430 | | End of period | | | 415 | | | 426 | |
Franchised: | Franchised: | | | | | | | | | Franchised: | | | | | |
Beginning of period | Beginning of period | | 102 | | | 101 | | | 101 | | | 103 | | Beginning of period | | | 97 | | | 101 | |
Opened during the period | | — | | | — | | | 1 | | | — | | |
| Closed during the period | Closed during the period | | (1) | | | — | | | (1) | | | (2) | | Closed during the period | | | (1) | | | — | |
End of period | End of period | | 101 | | | 101 | | | 101 | | | 101 | | End of period | | | 96 | | | 101 | |
Total number of restaurants | Total number of restaurants | | 525 | | | 531 | | | 525 | | | 531 | | Total number of restaurants | | | 511 | | | 527 | |
The following table presents total Company-owned and franchised restaurants by state or province as of October 2, 2022:April 16, 2023:
| | | Company-Owned Restaurants | | Franchised Restaurants | | Company-Owned Restaurants | | Franchised Restaurants |
| State: | State: | | | | | State: | | | | |
Arkansas | Arkansas | | 2 | | 2 | Arkansas | | 2 | | 1 |
Alaska | Alaska | | 3 | Alaska | | 3 |
Alabama | Alabama | | 4 | | Alabama | | 4 | |
Arizona | Arizona | | 17 | | 1 | Arizona | | 18 | | 1 |
California | California | | 57 | | California | | 57 | |
Colorado | Colorado | | 22 | | Colorado | | 22 | |
Connecticut | Connecticut | | 3 | Connecticut | | 3 |
Delaware | Delaware | | 5 | Delaware | | 5 |
Florida | Florida | | 18 | | Florida | | 18 | |
Georgia | Georgia | | 6 | | Georgia | | 6 | |
Iowa | Iowa | | 5 | | Iowa | | 5 | |
Idaho | Idaho | | 8 | | Idaho | | 8 | |
Illinois | Illinois | | 22 | | Illinois | | 20 | |
Indiana | Indiana | | 13 | | Indiana | | 11 | |
Kansas | Kansas | | 5 | Kansas | | 5 |
Kentucky | Kentucky | | 4 | | Kentucky | | 4 | |
Louisiana | Louisiana | | 2 | | Louisiana | | 1 | |
Massachusetts | Massachusetts | | 4 | | 2 | Massachusetts | | 3 | | 2 |
Maryland | Maryland | | 12 | | Maryland | | 12 | |
Maine | Maine | | 2 | | Maine | | 2 | |
Michigan | Michigan | | 20 | Michigan | | 19 |
Minnesota | Minnesota | | 4 | | Minnesota | | 4 | |
Missouri | Missouri | | 8 | | 3 | Missouri | | 8 | | 3 |
Montana | Montana | | 2 | Montana | | 1 |
North Carolina | North Carolina | | 17 | | North Carolina | | 17 | |
Nebraska | Nebraska | | 4 | | Nebraska | | 4 | |
New Hampshire | New Hampshire | | 3 | | New Hampshire | | 3 | |
New Jersey | New Jersey | | 12 | | 1 | New Jersey | | 11 | | 1 |
New Mexico | New Mexico | | 3 | | New Mexico | | 3 | |
Nevada | Nevada | | 6 | | Nevada | | 6 | |
New York | New York | | 14 | | New York | | 14 | |
Ohio | Ohio | | 18 | | 2 | Ohio | | 17 | | 2 |
Oklahoma | Oklahoma | | 5 | | Oklahoma | | 5 | |
Oregon | Oregon | | 15 | | 5 | Oregon | | 15 | | 5 |
Pennsylvania | Pennsylvania | | 11 | | 21 | Pennsylvania | | 11 | | 20 |
Rhode Island | Rhode Island | | 1 | | Rhode Island | | 1 | |
South Carolina | South Carolina | | 4 | | South Carolina | | 4 | |
South Dakota | South Dakota | | 1 | | South Dakota | | 1 | |
Tennessee | Tennessee | | 11 | | Tennessee | | 9 | |
Texas | Texas | | 20 | | 9 | Texas | | 20 | | 9 |
Utah | Utah | | 1 | | 5 | Utah | | 1 | | 5 |
Virginia | Virginia | | 20 | | Virginia | | 20 | |
Washington | Washington | | 37 | | Washington | | 37 | |
Wisconsin | Wisconsin | | 11 | | Wisconsin | | 11 | |
| Province: | Province: | | Province: | |
British Columbia | British Columbia | | 12 | British Columbia | | 11 |
Total | Total | | 424 | | 101 | Total | | 415 | | 96 |
Results of Operations
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 20212022 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 | | | Sixteen Weeks Ended |
| | | October 2, 2022 | | October 3, 2021 | | | October 2, 2022 | | October 3, 2021 | | | | April 16, 2023 | | April 17, 2022 |
Revenues: | Revenues: | | | | | | | | | | Revenues: | | | | | |
Restaurant revenue | Restaurant revenue | | 98.5 | % | | 98.1 | % | | | 97.5 | % | | 98.0 | % | Restaurant revenue | | | 97.4 | % | | 96.2 | % |
Franchise and other revenues | Franchise and other revenues | | 1.5 | | | 1.9 | | | | 2.5 | | | 2.0 | | Franchise and other revenues | | | 2.6 | | | 3.8 | |
Total revenues | Total revenues | | 100.0 | | | 100.0 | | | | 100.0 | | | 100.0 | | Total revenues | | | 100.0 | | | 100.0 | |
| Costs and expenses: | Costs and expenses: | | | | | | Costs and expenses: | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | |
Cost of sales | Cost of sales | | 25.0 | | | 23.2 | | | | 24.6 | | | 22.5 | | Cost of sales | | | 24.5 | | | 23.9 | |
Labor | Labor | | 35.6 | | | 36.9 | | | | 35.8 | | | 36.0 | | Labor | | | 35.7 | | | 36.3 | |
Other operating | Other operating | | 18.7 | | | 19.0 | | | | 18.1 | | | 18.1 | | Other operating | | | 17.7 | | | 17.8 | |
Occupancy | Occupancy | | 8.1 | | | 8.3 | | | | 8.0 | | | 8.6 | | Occupancy | | | 7.3 | | | 8.0 | |
Total restaurant operating costs | Total restaurant operating costs | | 87.4 | | | 87.5 | | | | 86.5 | | | 85.3 | | Total restaurant operating costs | | | 85.2 | | | 86.0 | |
Depreciation and amortization | Depreciation and amortization | | 6.1 | | | 6.9 | | | | 6.0 | | | 7.3 | | Depreciation and amortization | | | 5.2 | | | 6.0 | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | | 12.4 | | | 11.0 | | | | 10.5 | | | 10.2 | | Selling, general, and administrative expenses | | | 8.3 | | | 8.7 | |
Pre-opening costs | Pre-opening costs | | 0.1 | | | 0.2 | | | | 0.1 | | | 0.1 | | Pre-opening costs | | | 0.1 | | | — | |
Other charges (gains), net | Other charges (gains), net | | (1.8) | | | 0.6 | | | | 0.8 | | | 1.1 | | Other charges (gains), net | | | 2.3 | | | 1.3 | |
Loss from operations | | (2.8) | | | (4.4) | | | | (1.7) | | | (2.2) | | |
Income from operations | | Income from operations | | | 1.0 | | | 1.1 | |
| Interest expense, net and other | Interest expense, net and other | | 1.6 | | | 1.0 | | | | 1.7 | | | 1.1 | | Interest expense, net and other | | | 1.8 | | | 1.9 | |
Loss before income taxes | Loss before income taxes | | (4.4) | | | (5.4) | | | | (3.4) | | | (3.3) | | Loss before income taxes | | | (0.7) | | | (0.8) | |
Income tax provision (benefit) | Income tax provision (benefit) | | — | | | — | | | | — | | | — | | Income tax provision (benefit) | | | — | | | — | |
Net loss | Net loss | | (4.4) | % | | (5.4) | % | | | (3.4) | % | | (3.3) | % | Net loss | | | (0.7) | % | | (0.8) | % |
Revenues | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
(Revenues in thousands) | (Revenues in thousands) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change | (Revenues in thousands) | | | April 16, 2023 | | April 17, 2022 | | Percent Change |
Restaurant revenue | Restaurant revenue | | $ | 282,449 | | | $ | 270,202 | | | 4.5 | % | | $ | 951,718 | | | $ | 861,036 | | | 10.5 | % | Restaurant revenue | | | $ | 406,893 | | | $ | 380,612 | | | 6.9 | % |
Franchise and other revenues | Franchise and other revenues | | 4,439 | | | 5,242 | | | (15.3) | % | | 24,810 | | | 17,658 | | | 40.5 | % | Franchise and other revenues | | | 11,075 | | | 14,938 | | | (25.9) | % |
Total revenues | Total revenues | | $ | 286,888 | | | $ | 275,444 | | | 4.2 | % | | $ | 976,528 | | | $ | 878,694 | | | 11.1 | % | Total revenues | | | $ | 417,968 | | | $ | 395,550 | | | 5.7 | % |
Average weekly net sales volumes in Company-owned restaurants | Average weekly net sales volumes in Company-owned restaurants | | $ | 55,469 | | | $ | 52,599 | | | 5.5 | % | | $ | 55,927 | | | $ | 50,324 | | | 11.1 | % | Average weekly net sales volumes in Company-owned restaurants | | | $ | 61,372 | | | $ | 55,743 | | | 10.1 | % |
Total operating weeks | Total operating weeks | | 5,092 | | | 5,137 | | | (0.9) | % | | 17,017 | | | 17,110 | | | (0.5) | % | Total operating weeks | | | 6,630 | | | 6,828 | | | (2.9) | % |
Net sales per square foot | | 106 | | | 101 | | | 5.3 | % | | 358 | | | 322 | | | 11.1 | % | |
|
Restaurant revenue for the sixteen weeks ended April 16, 2023, which comprises primarily food and beverage sales, increased $26.3 million, or 6.9%, as compared to the first quarter of 2022. Restaurant revenue increased primarily due to an 8.6% increase in Comparable Restaurant Revenue. This increase outweighed the impact of reduced revenue from non-comparable restaurants primarily due to the net impact of restaurant closures and openings.
Restaurant revenue for the twelve weeks ended October 2, 2022, which comprises primarily food and beverage sales, increased $12.2 million, or 4.5%, as compared to the third quarter of 2021. The increase was due to a $14.1 million, or 5.3%, increase in comparable restaurant revenue, and a $1.9 million decrease at non-comparable restaurants, including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 9.0% increase in average Guest check, and a 3.7% decrease in Guest count. The increase in average Guest check resulted from a 2.5% increase in menu mix, a 7.7% increase in pricing, and was partially offset by a 1.2% decrease from higher discounts. The increase in menu mix was primarily driven by our limited time menu offerings and higher dine-in sales volumes. Dine-in sales comprised 72.3% of total food and beverage sales during the third quarter of 2022, as compared to 69.2% in the same period in 2021.
Restaurant revenue for the forty weeks ended October 2, 2022, increased $90.7 million, or 10.5%, as compared to the forty weeks ended October 3, 2021. The increase was due to a $93.6 million, or 11.2%, increase in comparable restaurant revenue, and a $2.9 million decrease at non-comparable restaurants, including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 10.6%an 8.0% increase in average Guest check, and a 0.6% increase in Guest count. The increase in average Guest check resulted from a 4.2%7.2% increase in menu mix, a 6.3% increase in pricing,prices and a 0.1% decrease in discounts.0.8% from menu mix. The increase in menu mix was primarily driven by our limited time menu offerings and higherconsumer preference to return to dine-in sales volumes.visits that result in a greater check average. Dine-in sales comprised 70.9%74.3% of total food and beverage sales during the forty weeks ended October 2, 2022,first quarter of 2023, as compared to 64.5%69.5% in the same period in 2021.2022.
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 are comprised of Company-ownedinclude those restaurants that have operated five full quarters as of the end of the period presented. The Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the forty weeks ended October 2, 2022 or October 3, 2021. 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 reopened and new restaurants during the period, the average square footage of our 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 square feet of Company-owned restaurants included in the comparable base.period.
Franchise and other revenue decreased $0.8$3.9 million, or 15.3%25.9%, for the twelvesixteen weeks ended October 2, 2022April 16, 2023 compared to the twelvesixteen weeks ended October 3, 2021. Our franchiseesApril 17, 2022. Franchise revenue declined primarily due to a reduction in the percentage of sales each franchisee is required to contribute to support Selling activities. This reduction results from an increased focus on local restaurant marketing and reduced national and/or mass media channels pursuant to our North Star strategy. The percentage of sales each franchisee is required to contribute could change in the future, as we expect to align contributions with spending levels, subject to compliance with the respective franchise agreement. Franchise restaurants reported flatan increase of 7.8% comparable restaurant revenue for the twelvesixteen weeks ended October 2, 2022April 16, 2023 compared to the same period in 2021.2022. This increase was partially offset by the closure of five franchised locations from April 17, 2022 to April 16, 2023.
Franchise and otherOther revenue increased $7.2 million for the forty weeks ended October 2, 2022 compared to the forty weeks ended October 3, 2021,declined primarily due to a change in accounting estimate in the re-evaluationfirst quarter of the estimated redemption pattern related to gift cards resulting2022, that resulted in a $5.9 million adjustment toof additional gift card breakage from aligning our estimate to the updated estimated redemption pattern. Our franchisees reported a comparable restaurant revenue increase of 8.0% for the forty weeks ended October 2, 2022 compared to the same period in 2021.breakage.
Cost of Sales | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change | (In thousands, except percentages) | | | April 16, 2023 | | April 17, 2022 | | Percent Change |
Cost of sales | Cost of sales | | $ | 70,640 | | | $ | 62,671 | | | 12.7 | % | | $ | 234,283 | | | $ | 193,754 | | | 20.9 | % | Cost of sales | | | $ | 99,670 | | | $ | 90,941 | | | 9.6 | % |
As a percent of restaurant revenue | As a percent of restaurant revenue | | 25.0 | % | | 23.2 | % | | 1.8 | % | | 24.6 | % | | 22.5 | % | | 2.1 | % | As a percent of restaurant revenue | | | 24.5 | % | | 23.9 | % | | 0.6 | % |
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 increased 18060 basis points for the twelvesixteen weeks ended October 2, 2022April 16, 2023 as compared to the same period in 2021.2022. The increase was primarily driven by commodity inflation, partially offset by pricing and favorable mix shifts.
Cost of sales as a percentage of restaurant revenue increased 210 basis points for the forty weeks ended October 2, 2022 as compared to the same period in 2021. The increase was primarily driven by commodity inflation, partially offset by favorable mix shifts andmenu pricing.
Labor | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change | (In thousands, except percentages) | | | April 16, 2023 | | April 17, 2022 | | Percent Change |
Labor | Labor | | $ | 100,522 | | | $ | 99,725 | | | 0.8 | % | | $ | 340,273 | | | $ | 310,333 | | | 9.6 | % | Labor | | | $ | 145,421 | | | $ | 138,108 | | | 5.3 | % |
As a percent of restaurant revenue | As a percent of restaurant revenue | | 35.6 | % | | 36.9 | % | | (1.3) | % | | 35.8 | % | | 36.0 | % | | (0.2) | % | As a percent of restaurant revenue | | | 35.7 | % | | 36.3 | % | | (0.6) | % |
Labor costs include restaurant-level hourly wages and management salaries as well as related taxes and benefits. For the twelvesixteen weeks ended October 2, 2022,April 16, 2023, labor as a percentage of restaurant revenue decreased 13060 basis points compared to the same period in 2021. The decrease was primarily driven by sales leverage, lower hiring costs, and lower management incentive compensation costs, partially offset by wage rate inflation.
For the forty weeks ended October 2, 2022, labor as a percentage of restaurant revenue decreased 20 basis points compared to the same period in 2021.2022. The decrease was primarily driven by sales leverage, lower group insurance and lower management incentiveworkers' compensation costs, partially offset by higher wage rate inflation.incentive compensation, payroll taxes, and training. Throughout the quarter, we made investments in management and hourly labor to support an enhanced Guest experience.
Other Operating | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change | (In thousands, except percentages) | | | April 16, 2023 | | April 17, 2022 | | Percent Change |
Other operating | Other operating | | $ | 52,858 | | | $ | 51,462 | | | 2.7 | % | | $ | 172,725 | | | $ | 156,102 | | | 10.6 | % | Other operating | | | $ | 72,050 | | | $ | 67,864 | | | 6.2 | % |
As a percent of restaurant revenue | As a percent of restaurant revenue | | 18.7 | % | | 19.0 | % | | (0.3) | % | | 18.1 | % | | 18.1 | % | | — | % | As a percent of restaurant revenue | | | 17.7 | % | | 17.8 | % | | (0.1) | % |
Other operating costs include costs such as equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology, and other miscellaneous costs. For the twelvesixteen weeks ended October 2, 2022,April 16, 2023, other operating costs as a percentage of restaurant revenue decreased 3010 basis points as compared to the same period in 2021.2022. The decrease was primarily driven by lower hiring advertisementcontract janitorial costs and reduced third party commissions expenses associated with lower off-premises supplies, and sales leverage,off premise mix partially offset by an increase in utilitieshigher repairs and maintenance costs and credit card fees.
For the forty weeks ended October 2, 2022, other operating costs as a percentage of restaurant revenue was flat compared to the same period in 2021.discounts.
Occupancy | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change | (In thousands, except percentages) | | | April 16, 2023 | | April 17, 2022 | | Percent Change |
Occupancy | Occupancy | | $ | 22,828 | | | $ | 22,519 | | | 1.4 | % | | $ | 76,406 | | | $ | 74,233 | | | 2.9 | % | Occupancy | | | $ | 29,801 | | | $ | 30,599 | | | (2.6) | % |
As a percent of restaurant revenue | As a percent of restaurant revenue | | 8.1 | % | | 8.3 | % | | (0.2) | % | | 8.0 | % | | 8.6 | % | | (0.6) | % | As a percent of restaurant revenue | | | 7.3 | % | | 8.0 | % | | (0.7) | % |
|
Occupancy costs include fixed rents, property taxes, common area maintenance charges, general liability insurance, contingent rents, and other property costs. For the twelvesixteen weeks ended October 2, 2022,April 16, 2023, occupancy costs as a percentage of restaurant revenue decreased 2070 basis points compared to the same period in 20212022 primarily driven by sales leverage.
For the forty weeks ended October 2, 2022, occupancy costs as a percentage of restaurant revenue decreased 60 basis points compared to the same period in 2021 primarily driven by sales leverage, partially offset by higher insurance costs.
Our fixed rents for the twelvesixteen weeks ended October 2,April 16, 2023 and April 17, 2022 and October 3, 2021 were $16.1$20.7 million and $15.8$21.3 million, an increasea decrease of $0.3 million. Our fixed rents for the forty weeks ended October 2, 2022 and October 3, 2021 were $53.5$0.5 million, and $52.8 million, an increase of $0.6 million.
due to net Company-owned restaurant closures. Depreciation and Amortization | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change | (In thousands, except percentages) | | | April 16, 2023 | | April 17, 2022 | | Percent Change |
Depreciation and amortization | Depreciation and amortization | | $ | 17,368 | | | $ | 18,881 | | | (8.0) | % | | $ | 58,924 | | | $ | 63,984 | | | (7.9) | % | Depreciation and amortization | | | $ | 21,825 | | | $ | 23,919 | | | (8.8) | % |
As a percent of total revenues | As a percent of total revenues | | 6.1 | % | | 6.9 | % | | (0.8) | % | | 6.0 | % | | 7.3 | % | | (1.3) | % | As a percent of total revenues | | | 5.2 | % | | 6.0 | % | | (0.8) | % |
Depreciation and amortization includesinclude depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquiredreacquired franchise rights, leasehold interests, and certain liquor licenses. For the twelvesixteen weeks ended October 2, 2022,April 16, 2023, depreciation and amortization expense as a percentage of revenue decreased 80 basis points overcompared to the same period in 20212022 primarily due to net closed Company-owned restaurants, and sales leverage.
For the forty weeks ended October 2, 2022, depreciation and amortization expense as a percentage of revenue decreased 130 basis points over the same period in 2021 primarily due to net closed Company-owned restaurantsrestaurant closures, impaired assets, and sales leverage.
Selling, General, and Administrative | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change | (In thousands, except percentages) | | | April 16, 2023 | | April 17, 2022 | | Percent Change |
Selling, general, and administrative | Selling, general, and administrative | | $ | 35,692 | | | $ | 30,343 | | | 17.6 | % | | $ | 102,168 | | | $ | 89,299 | | | 14.4 | % | Selling, general, and administrative | | | $ | 34,523 | | | $ | 34,380 | | | 0.4 | % |
As a percent of total revenues | As a percent of total revenues | | 12.4 | % | | 11.0 | % | | 1.4 | % | | 10.5 | % | | 10.2 | % | | 0.3 | % | As a percent of total revenues | | | 8.3 | % | | 8.7 | % | | (0.4) | % |
Selling, general, and administrative costs include all corporate and administrative functions. Components of this category include marketing and advertising costs; 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.
General, and administrative costs in the twelvesixteen weeks ended October 2, 2022April 16, 2023 increased $3.8$2.4 million, or 21.5%9.7%, as compared to the same period in 2021.2022. The increase was primarily driven by a timing shift of our annual leadership conference, increased stock basedincentive compensation expense,due to performance, lower capitalized costs due to fewer capital projects, higher travel expenses, increased legal costs, and merit increases,deferred compensation plan asset market activity, partially offset by lower corporate office costs.a decrease in wages and stock compensation due to the reduction in force and executive transition.
General, and administrativeSelling costs in the fortysixteen weeks ended October 2, 2022 increased $7.0April 16, 2023 decreased $2.2 million, or 12.1%22.3%, as compared to the same period in 2021.2022. The increasedecrease was primarily driven by the 2022 leadership conference, increased stock based compensation expense, merit increases,lower print agency spend, Donatos® marketing costs, and increased manager-in-training costs, partially offset by lower corporate office costs.franchise advertising obligations.
Selling costs in the twelve weeks ended October 2, 2022 increased $1.5 million, or 12.2%, as compared to the same period in 2021. The increase was primarily driven by increased marketing spend.
Selling costs in the forty weeks ended October 2, 2022 increased $5.9 million, or 18.5%, as compared to the same period in 2021. The increase was primarily driven by increased marketing spend.Pre-opening Costs | | | Twelve Weeks Ended | | Forty Weeks Ended | | | Sixteen Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change | (In thousands, except percentages) | | | April 16, 2023 | | April 17, 2022 | | Percent Change |
Pre-opening costs | Pre-opening costs | | $ | 217 | | | $ | 418 | | | (48.1) | % | | $ | 514 | | | $ | 792 | | | (35.1) | % | Pre-opening costs | | | $ | 582 | | | $ | 62 | | | 838.7 | % |
As a percent of total revenues | As a percent of total revenues | | 0.1 | % | | 0.2 | % | | (0.1) | % | | 0.1 | % | | 0.1 | % | | — | % | As a percent of total revenues | | | 0.1 | % | | — | % | | 0.1 | % |
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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®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®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 fortysixteen weeks ended October 2, 2022April 16, 2023 related to one new restaurant opening in Glendale, AZ and the rollout of Donatos®.25 Donatos® locations. As of October 2, 2022,April 16, 2023, we completed the Company had completed its rollout of Donatos®Donatos® at approximately 50 restaurants for 2022.272 company owned restaurants.
Interest Expense, Net and Other
Interest expense, net and other was $4.6$7.4 million for the twelvesixteen weeks ended October 2,April 16, 2023 and April 17, 2022. Interest expense for the sixteen weeks ended April 16, 2023 and April 17, 2022 an increase of $1.7was $7.8 million or 59.9%, compared to the same period in 2021.and $7.1 million, respectively. The $0.7 million increase was primarily relateddue to higher average outstanding debt, which increased $50.5 million compared to the same period in 2021, and a higher weighted average interest rate for the quarter. Our weighted average interest rate on our credit facility debt was 9.7% for the twelve weeks ended October 2, 2022 as compared to 6.8% for the same period in 2021.
Interest expense, net and other was $16.2 million for the forty weeks ended October 2, 2022, an increase of $6.2 million, or 61.7%, compared to the same period in 2021. The increase was primarily related to higher average outstanding debt, which increased $37.2 million compared to the same period in 2021, and a higher weighted average interest rate as well asrates, partially offset by the write off of approximately $1.7 million of deferred financing charges related to the Company's Prior Credit Facilityprior credit facility upon the execution of the Credit Agreement on March 4, 2022. Our weighted average interest rate on our credit facility debt was 8.7% for the fortysixteen weeks ended October 2,April 16, 2023 and April 17, 2022 aswas 11.6% and 8.2%, respectively.
Interest income and other increased by $0.7 million to income of $0.4 million for the sixteen weeks ended April 16, 2023 from expense of $0.3 million in the sixteen weeks ended April 17, 2022 due to interest income on bank account balances and investment gains related to a deferred compensation plan for which assets are held in a rabbi trust in the sixteen weeks ended April 16, 2023 compared to 6.6% forinvestment losses related to the same perioddeferred compensation plan in 2021.the sixteen weeks ended April 17, 2022.
Income Tax Provision
The effective tax rate for the twelvesixteen weeks ended October 2, 2022April 16, 2023 was a 0.3% benefit,0.6% expense, compared to a 0.2% benefit2.0% expense for the twelvesixteen weeks ended October 3, 2021.
April 17, 2022. The effective tax rate for both periods includes changes in the forty weeks ended October 2, 2022 wasvaluation allowance as a 1.4% expense, compared toresult of originating temporary differences during the year and varies from statutory rates primarily as a 1.1% benefitresult of the valuation allowance as discussed in the Company's Annual Report on Form 10-K for the forty weeksfiscal year ended October 3, 2021.
During the forty weeks ended October 2, 2022, the Company received $14.8 million of federal and state refund claims, respectively, and expects to receive an additional $0.7 million over the next 12-15 months due to processing delays at the IRS and state authorities.December 25, 2022.
Liquidity and Capital Resources
Cash and cash equivalents, and restricted cash increased $35.4$0.2 million to $58.1$58.4 million as of October 2, 2022,April 16, 2023, from $22.8$58.2 million at the beginning of the fiscal year. As the Company continues to recover from the COVID-19 pandemic and generates operating cash flow, theThe Company is using available cash flow from operations to maintain existing restaurants and infrastructure, and execute on its long-term strategic initiatives, and pay down debt.initiatives. As of October 2, 2022,April 16, 2023, the Company had approximately $75.0$59.0 million in liquidity, including cash on handand cash equivalents and available borrowing capacity under its credit facility.our Credit Facility.
Cash Flows
The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):
| | | Forty Weeks Ended | | Sixteen Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | April 16, 2023 | | April 17, 2022 |
Net cash provided by operating activities | Net cash provided by operating activities | | $ | 38,800 | | | $ | 37,617 | | Net cash provided by operating activities | | $ | 17,342 | | | $ | 13,296 | |
Net cash used in investing activities | Net cash used in investing activities | | (18,297) | | | (19,967) | | Net cash used in investing activities | | (16,084) | | | (9,548) | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | | 14,921 | | | (16,037) | | Net cash provided by (used in) financing activities | | (1,017) | | | 15,417 | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | | (44) | | | 28 | | Effect of exchange rate changes on cash | | (1) | | | 8 | |
Net change in cash and cash equivalents, and restricted cash | Net change in cash and cash equivalents, and restricted cash | | $ | 35,380 | | | $ | 1,641 | | Net change in cash and cash equivalents, and restricted cash | | $ | 240 | | | $ | 19,173 | |
Operating Cash Flows
Net cash flows provided by operating activities increased $1.2$4.0 million to $38.8$17.3 million for the fortysixteen weeks ended October 2, 2022.April 16, 2023. The changeincrease in net cash provided by operating activities is primarily attributable to the increase in restaurant level profitability and changes in working capital, including the tax refunds received in 2022, partially offset by higher non-restaurant costs and decreased cash from earnings after non-cash items, as presented in the Condensed Consolidated Statements of Cash Flows.
Investing Cash Flows
Net cash flows used in investing activities decreased $1.7increased $6.5 million to $18.3$16.1 million for the fortysixteen weeks ended October 2, 2022,April 16, 2023, as compared to $20.0$9.5 million for the same period in 2021.2022. The decreaseincrease is primarily due to proceeds receiveda faster pace of Donatos® installations and increased investment in connection with the sale of a restaurant property, partially offset by increased spending on restaurant improvements, and investments in technology.
The following table lists the components of our capital expenditures, net of currency translation, for the fortysixteen weeks ended October 2,April 16, 2023 and April 17, 2022 and October 3, 2021 (in thousands):
| | | Forty Weeks Ended | | Sixteen Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | April 16, 2023 | | April 17, 2022 |
Restaurant improvement capital and other | Restaurant improvement capital and other | $ | 12,376 | | | $ | 6,467 | | Restaurant improvement capital and other | $ | 7,433 | | | $ | 4,856 | |
Investment in technology, infrastructure, and other | 8,274 | | | 5,355 | | |
Donatos® expansion | 4,396 | | | 7,687 | | |
Donatos® expansion | | Donatos® expansion | 5,878 | | | 1,176 | |
Technology, infrastructure, and other | | Technology, infrastructure, and other | 1,731 | | | 3,116 | |
New restaurants and restaurant refreshes | New restaurants and restaurant refreshes | 1,989 | | | 478 | | New restaurants and restaurant refreshes | 1,042 | | | 568 | |
Total capital expenditures | Total capital expenditures | $ | 27,036 | | | $ | 19,987 | | Total capital expenditures | $ | 16,084 | | | $ | 9,716 | |
Financing Cash Flows
Net cash flows provided byused in financing activities increased $31.0 million to $14.9were $1.0 million for the fortysixteen weeks ended October 2, 2022,April 16, 2023, as compared to net cash flows used inprovided by financing activities of $16.0$15.4 million in the same period in 2021. The increase is primarily2022.
In 2022, financing activities were a source of cash, due to $15.9 million in net borrowings in 2022 compared to a net paydown ofdraws made on long-term debt of $15.7 million in 2021 as a result of the Company's refinancing of debt on March 4, 2022 and $3.9 million in initial deposit proceeds received related to2022. In 2023, the saleuse of a restaurant property incash results primarily from standard principal payments due under the second quarterterms of 2022, partially offset by an increase in cash used for debt issuance costs.the Company’s Credit Agreement.
New Credit AgreementFacility
On March 4, 2022 the Company entered intoreplaced its prior amended and restated Credit Agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement"), which replaced its prior amended and restated credit agreement (the "Prior Credit Agreement"). The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of creditnew Senior Secured Term Loan and a $200.0 million term loan (collectively, the “Credit Facility”Revolving Credit Facility (the "Credit Facility"). The new Credit AgreementAgreement's interest rate references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum.
As of October 2, 2022,April 16, 2023, the Company had outstanding borrowings under the Credit AgreementFacility of $190.4$205.2 million net of $8.6$7.8 million of unamortized deferred financing charges and discounts, of which $2.0$2.9 million was classified as current. As of October 2, 2022,April 16, 2023, the Company had $25.0$10.0 million of available borrowing capacity under its Credit Agreement.Facility.
As of October 2, 2022,April 16, 2023, the Company had $7.8$9.0 million of letters of credit issued against cash collateral, compared to $8.6$9.1 million as of the prior comparable period. The Company's cash collateral is recorded in Restricted cash on our Condensed Consolidated Balance Sheets as of the quarter ended October 2, 2022.April 16, 2023.
Covenants
We are subject to a number of customary covenants under our new Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments, as well as a Total Net Leverage ratio covenant. As of October 2, 2022,April 16, 2023, we were in compliance with all debt covenants.
Debt Outstanding
Total debt outstanding increased $22.9decreased $1.0 million to $199.9$213.9 million at October 2, 2022,April 16, 2023, from $177.0$214.9 million at December 26, 2021,25, 2022, primarily driven by net proceeds from the executionpayments of the new Credit Facilitylong-term debt during the fortysixteen weeks ended October 2, 2022.April 16, 2023.
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-maturingcurrently maturing liabilities to pay for capital expenditures, debt repayment, or to repurchase stock as allowed. When necessary, we utilize our credit 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 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 2, 2022,April 16, 2023, 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 2, 2022,April 16, 2023, 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. OurThe Company reserves the right to re-instate this program at any time. The new Credit Agreement limits our ability to repurchase shares is limited to certain conditions set forth by ourthe lenders in the new Credit Agreement; repurchases shall not exceed (in any fiscal year) the greater of $2,500,000 and 4% of Consolidated EBITDA calculated on a Pro Forma Basis for the then most recently ended period.
Inflation
The primary inflationary factors affecting our operations are food, labor costs, energy costs, and materials used in the construction of new restaurants. Increases in wage rates have directly affected our labor costs in recent years. Additionally, 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 and commodity cost inflation had a negative impact on our financial condition and results of operations during the twelve and forty weeks ended October 2, 2022. Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed and other 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 2022.Facility.
Seasonality
Our business is subject to seasonal fluctuations. Prior to the COVID-19 pandemic,Historically, sales in most of our restaurants have been higherwere greater during the summer months and winter holiday season and lowerlesser during the fall season. As a result, our quarterly operating results and comparable restaurant revenue may fluctuate significantly as a result of seasonality.significantly. 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.quarter.
Contractual Obligations
There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of the Company's Annual Report on2022 Form 10-K for the fiscal year ended December 26, 2021, except25, 2022. Our current purchase obligations for long-term debt obligations resulting from the refinancing of our Credit Agreement in March 2022 as previously discussed above and in Note 6. Borrowings, of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, Contractual long-term debt payments as of October 2, 2022 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Total | | 2022 | | 2023-2024 | | 2025-2026 | | 2027 and Thereafter |
Long-term debt obligations(1) | | $ | 291,775 | | | $ | 5,707 | | | $ | 45,187 | | | $ | 44,351 | | | $ | 196,530 | |
Purchase obligations(2) | | $ | 171,974 | | | $ | 18,335 | | | $ | 68,287 | | | $ | 38,848 | | | $ | 46,504 | |
| | | | | | | | | | |
(1) Long-term debt obligations primarily represent minimum required principal payments under our Credit Facility including estimated interest of $91.9 million based on a 10.31% average borrowing interest rate.
(2)Purchase obligations includes the Company's share of expected system-wide fixed price commitments for food, beverage, equipment, and restaurant supply items. These amountsitems are estimates based on both purchase commitments for contracts,$137.6 million as well as anticipated inventory needed for the Company's restaurants, and could varyof April 16, 2023 of which $27.9 million are due to the timing of anticipated volumes.
See the maturity of lease liabilities table in Note 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 potentially unknown future impact from the COVID-19 pandemic,events, 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 26, 2021.25, 2022.
Recently Issued and Recently Adopted Accounting Standards
None noted.
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 (the "Exchange 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," "could," "estimate," "expect," "future," "intend," "may," "plan," "project," "will," "continue,"would," and similar expressions. Forward-looking statements mayin this report relate to, among other things: (i) anticipated impacts of litigation, including employment-related claims, on our financial position and results of operations, (ii) anticipated impacts of COVID-19 on our business objectives and strategic plans; (ii) working capital, and the ability of our financial positionfuture cash flows from restaurant operations and resultsour borrowing capacity to satisfy future working capital deficits and capital expenditures; (iii) our share repurchase program; (iv) our expectations about restaurant operating costs, including commodity and food prices and labor and energy costs, and our ability to mitigate potential increases in such costs; (v) anticipated continued investments in our partnership with Donatos® and other restaurant improvements, including the timing thereof; (vi) our expectations about anticipated uses of, operations, (iii)and risks associated with, future cash flows, liquidity, capital expenditures, other capital deployment opportunities and taxes; (vii) the seasonality of our business; (viii) our ability to successfully implement, and our expectations regarding, our abilityNorth Star five-point plan to attractenhance the Company’s competitive positioning, including the timing of our expected payments in connection with severance and retain Team Members, (iv)executive transition costs; (ix) litigation contingencies and the adequacy of our business focusreserves for legal matters; (x) our expectations regarding, and strategy, (v) our ability to maintain our working capital position, (vi) our ability to use our credit facility to satisfy our working capital deficit, short-term liquidity requirementsmitigate changes in, interest rates, commodity prices and capital expenditures, (vii) anticipated impactsother factors; and (xi) recently announced transactions including sale-leaseback transactions and acquisitions of inflation, and (viii) availability of food and supplies meeting our specificationscertain restaurants from alternate sources.a franchisee.
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,ability to implement, and liquidity; the effectiveness of, the Company's strategic initiatives, including alternativeour North Star plan, 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;
•menu changes, including the anticipated sales growth, costs, and timing of restaurant improvements including the Donatos® expansion;
•the implementation of and realization of benefits from our restaurant management transition program;
•changes in consumer spending trends and habits;
•changes in the cost and availability of key food products, distribution, labor, and energy;
•the adequacy of cash flows and the cost and availability of capital or credit facilityCredit Facility borrowings includingand our ability to refinance our credit facility, on terms we expect or at allpotential sale-leaseback transactions;
•the level and impactsexpectations relating to our recently announced acquisition of inflation;
•the impacts of interest rate increases;certain restaurants from a franchisee;
•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
25•changes in interest rates and commodity prices, and our ability to mitigate the impacts of such changes;
risks associated with our stock repurchase program; •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.security; and
•the other Risk Factors identified in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 25, 2022.
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 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 the interest rate risk, foreign currency exchange risk or commodity price risk since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2021.25, 2022.
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 of October 2, 2022,April 16, 2023, we had $199.0$213.0 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 pre-tax interest expense fluctuation of $2.0$2.1 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 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$3.2 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 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.
For further information related to our litigation contingencies, see Note 8. Commitments and Contingencies, in the Notes to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. Risk Factors
Risk 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 26, 202125, 2022 filed with the SEC on March 10, 2022.February 28, 2023. There have been no material changes from the risk factors disclosed in the fiscal year 20212022 Annual Report on Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the twelvesixteen weeks ended October 2, 2022,April 16, 2023, 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, nor were any share repurchases made by the Company. Our ability to repurchase shares is limited to conditions set forth by our lenders in the Credit Agreement; repurchases shall not exceed (in any fiscal year) the greater of $2,500,000 and 4% of Consolidated EBITDA calculated on a Pro Forma Basis for the then most recently ended period (as each term is defined in the Credit Agreement).
ITEM 6. Exhibits | | | | | | | | |
Exhibit Number | | Description |
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| | Amendment No. 1 to Rights Agreement, dated as of April 10, 2020, by and between Red Robin Gourmet Burgers, Inc. and G.J. Hart, dated July 13, 2022.American Stock Transfer & Trust Company, LLC, as rights agent. Incorporated by reference to Exhibit 10.14.1 to our Current Report on Form 8-K filed with the SEC on July 14, 2022.April 13, 2020. |
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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 2, 2022April 16, 2023 formatted in XBRL (eXtensible(extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at October 2, 2022April 16, 2023 and December 26, 2021;25, 2022; (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the twelve and fortysixteen weeks ended October 2, 2022April 16, 2023 and October 3, 2021;April 17, 2022; (iii) Condensed Consolidated Statements of Stockholders' Equity at October 2, 2022April 16, 2023 and October 3, 2021;April 17, 2022; (iv) Condensed Consolidated Statements of Cash Flows for the fortysixteen weeks ended October 2, 2022April 16, 2023 and October 3, 2021;April 17, 2022; and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
( ) 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. | | | | | | | | | | | | | | |
| | RED ROBIN GOURMET BURGERS, INC. (Registrant) |
November 2, 2022May 24, 2023 | | By: | | /s/ Lynn S. SchweinfurthTodd Wilson |
(Date) | | | | Lynn S. SchweinfurthTodd Wilson
(Chief Financial Officer) |