Red Robin Gourmet Burgers, Inc. — Q1 2021 Form 10-Q
Reporting period: Sixteen weeks ended April 18, 2021; comparisons are to the sixteen weeks ended April 19, 2020. The prior-year period was heavily affected by COVID-19, so year-over-year improvement is not necessarily indicative of recovery to pre-pandemic levels.
Business context and operations
Red Robin operated 440 company-owned and 103 franchised restaurants. The company reported one operating segment. As of the quarter end, 12 company-owned restaurants remained closed from the pandemic; 10 were expected to close permanently and two to reopen in 2021.
Dining-room capacity increased during the quarter. Off-premises sales rose 75.5% year over year and represented 41.7% of food and beverage sales. Comparable restaurant revenue increased 10.0% versus 2020, driven by guest count growth of 4.4% and average check growth of 5.6%; however, restaurant revenue remained 20.4% below the comparable 2019 period.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $326.3 million | $306.1 million |
| Restaurant revenue | $318.7 million | $301.4 million |
| Operating loss | $4.3 million | $158.2 million |
| Net loss | $8.7 million | $174.3 million |
| Diluted loss per share | $0.56 | $13.51 |
| Operating cash flow | $18.9 million | $(13.3) million |
| Capital expenditures | $5.4 million | $8.7 million |
Restaurant operating costs were 84.3% of restaurant revenue, versus 91.2% in 2020, implying a 15.7% restaurant-level margin before depreciation and other expenses. Cost of sales fell to 21.7% of restaurant revenue (down 170 basis points), and labor fell to 35.0% (down 430 basis points). Other operating costs rose to 18.1% (up 80 basis points), primarily from delivery commissions and supply costs. SG&A declined 26.2% to $30.6 million. Adjusted diluted loss per share, a non-GAAP measure, was $0.30 versus $6.66.
Cash and cash equivalents were $22.3 million at quarter end, up $6.2 million from fiscal year-end. The company reported approximately $107 million of liquidity, including $84.4 million of available credit capacity. Total debt was $164.2 million, down $6.4 million from December 27, 2020; the weighted-average interest rate was 6.3%. Lease liabilities totaled $515.1 million. Total assets were $951.1 million, total liabilities $838.9 million, and stockholders’ equity $112.3 million. Current liabilities of $204.2 million exceeded current assets of $85.9 million.
Operating cash flow benefited in part from working-capital movements, including higher accounts payable and accrued liabilities, payroll-tax deferrals, and other timing effects. Thus, the quarter’s positive cash generation should not be viewed as wholly reflective of recurring earnings. The company spent $5.4 million on capital expenditures, primarily restaurant improvements and technology.
Material changes and financing
The February 2021 credit agreement amendment waived lease-adjusted leverage and fixed-charge coverage covenant tests for the first two quarters of 2021 and revised later-period tests. It set minimum liquidity requirements of $55 million for Q1 and Q2 and $42 million for Q3 and Q4 2021, shortened facility maturity to January 10, 2023, and reduced revolving commitments to $130 million, with a further reduction to $100 million at the end of Q3 2021. The amendment increased borrowing costs and imposed restrictions on certain investments, capital expenditures, and share repurchases. The company stated it was in compliance with applicable covenants and forecast compliance as tests resume.
Other charges were $5.5 million versus $119.4 million in 2020, when the company recorded a $95.4 million goodwill impairment. Q1 2021 charges included $2.4 million of restaurant closure and refranchising costs, $1.2 million of restaurant impairment, and $1.1 million for litigation contingencies. The company impaired assets at one restaurant it decided to close.
Outlook, risks, and contingencies
Management expected reopening and additional seating capacity to support sales recovery, while emphasizing continued focus on off-premises sales, guest experience, and operating efficiency. The company planned to roll out Donatos to approximately 120 restaurants in 2021, including about 40 in Q2 and 80 in the second half. It expected approximately $16 million in federal and state cash tax refunds during 2021. No specific revenue or earnings guidance was provided.
Management cited COVID-19 effects, consumer spending and reopening conditions, staffing shortages, food and labor inflation, commodity availability, delivery costs, and access to capital as risks. Labor cost inflation had adversely affected results, and management anticipated inflation could pressure labor and commodity costs for the remainder of 2021. The company had stopped making full lease payments beginning April 2020 while negotiating rent concessions; it reported contractual concessions with the majority of landlords. Litigation included employment-related and other claims; management considered reserves adequate but noted that outcomes could differ from estimates.
Important facts for investors to verify
- Whether comparable sales and dining-room capacity gains persist after the reopening-driven comparison period, including performance relative to 2019.
- Whether positive operating cash flow continues after the effects of working-capital timing and payroll-tax deferrals.
- Compliance with amended credit covenants, minimum liquidity requirements, and the planned reduction in revolving commitments.
- Progress on landlord concessions, restaurant closures and reopenings, and the Donatos rollout.
- Receipt and timing of the anticipated $16 million tax refunds, and any changes in litigation or impairment exposure.