Red Robin Gourmet Burgers, Inc. — Q3 2021 Form 10-Q
Reporting period: The 12 weeks ended October 3, 2021; year-to-date figures cover 40 weeks. Comparisons are with the corresponding 2020 periods unless noted. Red Robin operated 430 company-owned and 101 franchised restaurants.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | 40 weeks 2021 | 40 weeks 2020 |
|---|---|---|---|---|
| Total revenue | $275.4 million | $200.5 million | $878.7 million | $667.7 million |
| Operating loss | $12.1 million | $24.6 million | $19.0 million | $233.4 million |
| Net loss | $15.0 million | $6.2 million | $28.7 million | $236.7 million |
| Diluted loss per share | $0.95 | $0.40 | $1.83 | $16.98 |
| Operating cash flow | Not provided separately | Not provided separately | $37.6 million | $(22.4) million |
Restaurant revenue rose 37.2% in Q3 and 30.7% year to date. Q3 comparable restaurant revenue increased 34.3% year over year, reflecting 22.5% higher guest counts and an 11.8% increase in average check. Pricing contributed 3.5% to the Q3 check increase. However, restaurant revenue remained 6.8% below Q3 2019; year-to-date revenue was 13.3% below the comparable 2019 period. Off-premises sales were 30.8% of food and beverage sales, down from 40.7% a year earlier.
Restaurant operating costs were 87.5% of restaurant revenue in Q3, versus 91.4% in 2020 and 83.9% in 2019. Labor was 36.9% of restaurant revenue, compared with 37.7% in 2020 and 36.2% in 2019. Cost-of-sales and occupancy ratios improved year over year, but other operating costs were 19.0% of restaurant revenue, 370 basis points above 2019. The Q3 operating loss narrowed year over year, while net loss increased, in part because the prior-year quarter included a $20.7 million income tax benefit; the 2021 Q3 tax benefit was just $26,000. The large year-to-date improvement also reflects substantial 2020 impairment and other charges, including a $95.4 million goodwill impairment.
Balance sheet, liquidity, and debt
At October 3, 2021, cash was $17.8 million, total current assets were $82.1 million, and current liabilities were $211.6 million. Total debt was $157.2 million, including $9.7 million current; lease obligations totaled $500.6 million. Stockholders’ equity was $96.2 million. Cash increased $1.6 million from fiscal year-end.
Management reported approximately $75.2 million of liquidity, including cash and available borrowing capacity. The company reported $57.4 million of available capacity under its Credit Facility, after a prior $30 million revolver-capacity reduction. Year-to-date net cash from operations of $37.6 million was partly offset by $20.0 million of capital expenditures and $14.3 million of net Credit Facility repayments. Total debt declined from $170.6 million at fiscal year-end. The reported weighted-average borrowing rate was 6.8% for Q3.
Outlook, financing changes, and risks
On November 9, 2021, after quarter-end, Red Robin amended its Credit Facility. The amendment waived the lease-adjusted leverage covenant for Q3 2021, adjusted covenant terms for subsequent quarters, reduced the minimum liquidity requirement, increased borrowing costs, and provided for a future revolver commitment reduction. The company said it anticipates refinancing the facility in 2022. It reported compliance with applicable covenants as of October 3, and disclosed a separate lender waiver of the fixed-charge coverage covenant for Q3 and Q4 2021.
Management identified labor shortages, hiring and retention challenges, supply-chain disruptions, product shortages, and inflation as significant pressures. During Q3, staffing constraints led some restaurants to limit operating hours or dine-in services; the company also incurred $3.1 million of transitory labor and other operating costs related to staffing challenges. Management expected inflation to negatively affect labor and commodity costs for the remainder of 2021. The company planned to continue the Donatos rollout, with approximately 40 additional restaurants expected in Q4 2021. It had filed approximately $16 million of cash tax refund claims and expected most refunds in 2022 because of government processing delays.
Other items include $9.2 million of year-to-date other charges, mainly restaurant closures, asset impairment, litigation contingencies, and COVID-related costs. Red Robin disclosed employment-related litigation and other claims, with management stating it had made adequate provision and did not expect their resolution to materially harm financial position or results. A 1% change in the effective interest rate on variable-rate borrowings would change annualized pretax interest expense by approximately $1.5 million; a 1% increase in food and beverage costs would add approximately $2.0 million to annualized cost of sales.
Important facts for investors to verify
- Progress in refinancing the Credit Facility in 2022, covenant compliance, borrowing availability, and the effect of the November 2021 amendment on financing costs.
- Whether staffing and supply-chain constraints continue to limit restaurant hours, service, sales, or margins, and whether inflation outpaces pricing and cost savings.
- How restaurant revenue and comparable sales recover relative to 2019, including guest traffic, average check, and off-premises sales mix.
- Timing and receipt of the approximately $16 million in tax refunds, and any resulting effect on liquidity and covenant calculations.
- Future restaurant closure, impairment, and litigation charges, as well as execution and costs of the Donatos rollout.