Business Context and Reporting Period
Company: Red Robin Gourmet Burgers, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: July 13, 2003 (Twelve Weeks) and Twenty-Eight Weeks
Operations: As of July 13, 2003, the Company operated 104 company-owned restaurants in 13 states and 99 franchise-operated restaurants in 18 states and two Canadian provinces. The Company opened two new company-owned restaurants during the second quarter of 2003.
Key Financial Metrics
| Financial Metric (in thousands) | 12 Weeks Ended July 13, 2003 |
28 Weeks Ended July 13, 2003 |
|---|---|---|
| Total Revenues | $75,592 | $168,484 |
| Net Income | $4,035 | $7,566 |
| Diluted EPS | $0.26 | $0.50 |
| Operating Cash Flow | N/A | $21,869 |
| Cash and Equivalents (End of Period) | $1,233 | $1,233 |
| Total Debt (Current + Long-Term) | $43,109 | $43,109 |
| Restaurant Operating Costs % of Sales | 80.5% | 80.9% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 16.2% ($10.5 million) for the twelve weeks and 16.8% ($24.2 million) for the twenty-eight weeks compared to the prior year periods. Growth was driven by new restaurant openings, full-quarter operations of 2002 openings, and a 3.6% increase in comparable restaurant sales for the quarter.
- Profitability: Net income increased 47.7% ($1.3 million) for the quarter and 45.3% ($2.4 million) for the twenty-eight weeks. Operating margins improved slightly due to better labor cost control and lower interest expenses.
- Interest Expense: Interest expense decreased significantly by 63.8% ($1.1 million) for the quarter, attributed to lower average borrowings and reduced interest rates following debt refinancing.
- Comparable Sales: Company-owned comparable restaurant sales increased 3.6% in the quarter, driven by a 3.8% increase in guest counts, partially offset by a 0.2% decrease in average guest check.
Guidance, Outlook, and Risks
- Expansion Plans: The Company intends to open seven additional company-owned restaurants for the remainder of fiscal 2003 (totaling 18 for the year). Franchise partners are expected to open 10 to 12 new restaurants for the full fiscal year.
- Capital Expenditures: Expected spending for the remainder of fiscal 2003 is $22.0 million to $24.0 million for new construction and $3.5 million to $4.5 million for remodels and maintenance.
- Liquidity: On May 20, 2003, the Company amended its revolving credit facility, increasing capacity from $40.0 million to $85.0 million and extending the term to May 2006. As of July 13, 2003, $21.8 million was outstanding. Management expects available borrowings and operating cash flow to fund expansion through at least the first quarter of fiscal 2006.
- Risks: Key risks include seasonality (higher sales in summer and winter holidays), food cost volatility (specifically produce and gourmet items), and the ability to manage rapid expansion. The Company also faces risks related to franchisee performance and compliance with credit agreement covenants.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the maximum leverage ratio and minimum fixed charge coverage ratio under the amended $85.0 million credit facility.
- Capital Lease Obligations: Confirm the execution and funding of the remaining $7.0 million purchase options for capital leases in Issaquah and Grapevine, expected in Q3 2003.
- Food Cost Trends: Monitor the impact of rising produce and gourmet food prices on the cost of sales percentage, which increased to 23.6% of restaurant sales in Q2 2003.
- Comparable Sales Sustainability: Assess whether the 3.6% comparable sales growth can be sustained given the slight decline in average guest check.
- Related Party Transactions: Review the $6.4 million in receivables from stockholders/officers and the associated interest income recorded as an increase in the carrying value of notes.