Red Robin Gourmet Burgers, Inc. — Q1 2023 Form 10-Q
Business context and reporting period
The filing covers the 16 weeks ended April 16, 2023, compared with the 16 weeks ended April 17, 2022. Red Robin operated 415 company-owned restaurants and had 96 franchised restaurants across North America. It reports one operating and reportable segment.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $418.0 million | $395.6 million |
| Operating income | $4.3 million | $4.4 million |
| Net loss | $3.1 million | $3.1 million |
| Diluted loss per share | $0.19 | $0.20 |
| Operating cash flow | $17.3 million | $13.3 million |
| Capital expenditures | $16.1 million | $9.7 million |
| Adjusted EBITDA (non-GAAP) | $36.1 million | $28.0 million |
Restaurant revenue grew 6.9%; comparable restaurant revenue rose 8.6%, comprising an 8.0% increase in average guest check and 0.6% higher guest count. Menu pricing contributed 7.2% to average-check growth. Dine-in sales increased 16.4% on a comparable basis.
Restaurant-level operating profit margin, a non-GAAP measure, improved to 14.7% from 14.0%. Cost of sales rose to 24.5% of restaurant revenue from 23.9%, mainly due to commodity inflation. Labor improved to 35.7% from 36.3%, and occupancy to 7.3% from 8.0%, primarily reflecting sales leverage. GAAP operating margin was 1.0% versus 1.1%; net loss was essentially unchanged.
Cash, debt, and liquidity
Cash and cash equivalents were $49.0 million at April 16, 2023; restricted cash was $9.4 million. Together, cash and restricted cash totaled $58.4 million, up $0.2 million from fiscal year-end. Current assets were $110.2 million and current liabilities $200.2 million, resulting in a working capital deficit of approximately $90.1 million.
Total debt principal was $213.9 million, down $1.0 million from December 25, 2022. The balance sheet reported $203.2 million of long-term debt after unamortized discounts and issuance costs, plus $2.9 million current. The company had $10.0 million of available credit capacity and reported total liquidity of approximately $59.0 million. Debt is variable-rate; weighted-average interest rate was 11.6%, versus 8.2% in the prior-year period. The company was in compliance with debt covenants.
Operating cash flow increased by $4.0 million year over year. Investing cash use rose to $16.1 million, primarily due to Donatos installations and restaurant improvements. Financing cash use was $1.0 million, mainly from scheduled debt principal payments.
Material changes, outlook, and risks
- Franchise and other revenue fell 25.9%, largely reflecting lower franchise contributions for national marketing and a prior-year gift-card breakage estimate change. Franchise comparable restaurant revenue increased 7.8%.
- Other charges rose to $9.8 million from $5.3 million, including $4.3 million for litigation contingencies, $1.9 million for severance and executive transition, and $1.8 million for restaurant closure costs. Management expected total termination benefits of approximately $5.0 million; $4.4 million had been incurred through the quarter, with remaining payments expected in 2023.
- Loss-contingency reserves totaled $8.9 million. The company increased its estimate by approximately $4.3 million for ongoing litigation. Management said outcomes remain uncertain and could differ from accrued amounts.
- The company gave no specific full-year financial guidance in the supplied filing text. Management said restaurant operating cash flows and remaining credit capacity were expected to support working capital needs and planned capital expenditures. It continued investments in restaurant improvements and the Donatos rollout, completed at 272 company-owned restaurants by quarter-end.
- Key risks include food and labor inflation, variable-rate debt, consumer demand, execution of strategic initiatives, and litigation. A 1% interest-rate change would affect annualized pretax interest expense by approximately $2.1 million; a 1% increase in food and beverage costs would increase annualized cost of sales by approximately $3.2 million.
- After quarter-end, on April 17, the company acquired five restaurants from a retiring franchisee for approximately $3.3 million plus closing adjustments. The purchase price allocation was not yet determined. The filing states disclosure controls were effective and reports no material change in risk factors from the prior 10-K.
Important facts for investors to verify
- Whether comparable-sales growth and higher traffic persist as pricing, commodity costs, and consumer demand change.
- Debt servicing capacity and liquidity, particularly given the 11.6% weighted-average interest rate and limited remaining borrowing availability.
- The eventual cash cost and resolution of litigation matters relative to the $8.9 million reserve.
- Progress, costs, and returns from the Donatos rollout, restaurant improvements, and acquisition of five franchised locations.
- Definitions and reconciliations of non-GAAP adjusted EBITDA, adjusted earnings per share, and restaurant-level operating profit when comparing performance.