Red Robin Gourmet Burgers, Inc. — FY2015 Form 10-K
Business context and reporting period. The filing covers the 52-week fiscal year ended December 27, 2015; fiscal Q4 was 12 weeks. Red Robin operates casual-dining and fast-casual restaurants. At year-end, it had 439 Company-owned restaurants and 99 franchised restaurants. Fiscal 2014 was also 52 weeks.
Financial and operating performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Total revenue | $1,257.6 million | $1,146.1 million | +9.7% |
| Operating income | $67.0 million | $44.7 million | +50.0% |
| Operating margin | 5.3% | 3.9% | +1.4 percentage points |
| Net income | $47.7 million | $32.6 million | +46.5% |
| Diluted EPS | $3.36 | $2.25 | +49.3% |
| Operating cash flow | $140.9 million | $123.6 million | +$17.3 million |
| Cash and equivalents at year-end | $22.7 million | $22.4 million | +$0.3 million |
| Total debt and capital leases | $210.8 million | $147.9 million | +$63.0 million |
Fiscal Q4: Revenue was $286.3 million versus $282.1 million in Q4 2014; operating income was $15.0 million versus $5.0 million; net income was $11.7 million versus $3.9 million; and diluted EPS was $0.84 versus $0.28.
- Comparable restaurant sales rose 2.1% for the year, driven by a 2.5% increase in average check, partly offset by a 0.4% decline in guest counts. Restaurant revenue growth also reflected acquired and newly opened restaurants.
- Restaurant operating costs declined to 77.7% of restaurant revenue from 78.6%. Food cost fell to 24.6% from 25.4%, and labor to 32.6% from 33.0%; occupancy rose to 8.1% from 7.7%.
- Investing cash outflow was $169.1 million, primarily reflecting restaurant remodels, new units, and technology. Capital expenditures excluding acquisitions are expected to be $150–155 million in 2016.
- Working capital was negative: current assets of $96.7 million compared with current liabilities of $177.7 million. Management says restaurant cash sales, rapid inventory turnover, and vendor credit support this operating model.
- The revolving credit facility was increased to $325 million and matures July 2, 2019. Year-end borrowings were $202.0 million, with $7.9 million in letters of credit; the Company reported compliance with its covenants.
Changes, outlook, and risks
- Management expects 2016 total revenue growth of 8.5%–9.5%, with comparable revenue growth in the low single digits and the remainder from increased operating weeks. Plans include 25 new Company-owned Red Robin restaurants, five Burger Works, and about 70 remodels.
- Management expects commodity costs to increase approximately 1% in 2016, depreciation and amortization of $82–84 million, interest expense of about $5 million, and an annual tax rate of approximately 25.5%. About 55% of estimated annual food and beverage purchases were covered by fixed-price contracts through varying dates in 2016.
- The Company repurchased $40.0 million of stock in 2015. On February 11, 2016, the board authorized a new repurchase program of up to $100 million. No cash dividends were paid in 2015 or 2014.
- Unusual items include a $0.6 million non-cash impairment charge for two restaurants. A revised gift-card breakage estimate added $2.4 million to 2015 revenue and $1.3 million to net income ($0.09 per diluted share); a useful-life estimate change reduced depreciation by $1.0 million and increased net income by $0.6 million ($0.04 per diluted share). FY2014 included an $8.8 million impairment charge, including $7.6 million for software under development.
- Key risks include intense competition and discounting, labor and commodity inflation, declining guest traffic, restaurant execution and expansion risks, heavy lease commitments, variable-rate debt exposure, food safety, cybersecurity, and litigation or regulatory changes. The filing says pending claims have not had a material effect and management believes provisions are adequate.
Most important facts for investors to verify
- Whether comparable-sales growth can continue despite lower guest counts and whether 2016 revenue guidance is achieved.
- Whether restaurant-level margin improvements persist as labor, commodity, occupancy, and other costs change.
- Whether new restaurants and remodels earn returns sufficient to justify planned capital spending and increased debt.
- Credit-facility borrowing availability, covenant headroom, debt-service costs, and the effect of interest-rate changes.
- The sustainability and comparability of earnings after the gift-card breakage and useful-life estimate changes, and the timing and execution of the expanded share-repurchase program.