Red Robin Gourmet Burgers, Inc. — Q1 2022 Form 10-Q
Reporting period: Sixteen weeks ended April 17, 2022; comparisons are with the sixteen weeks ended April 18, 2021. Red Robin operated 426 company-owned and 101 franchised restaurants at quarter-end, versus 440 and 103, respectively, a year earlier.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $395.6 million | $326.3 million |
| Restaurant revenue | $380.6 million | $318.7 million |
| Operating income (loss) | $4.4 million | $(4.3) million |
| Net loss | $(3.1) million | $(8.7) million |
| Diluted loss per share | $(0.20) | $(0.56) |
| Operating cash flow | $13.3 million | $18.9 million |
| Capital expenditures | $9.7 million | $5.4 million |
Revenue increased 21.2%. Comparable company-owned restaurant revenue rose 19.7%, reflecting a 12.8% increase in average guest check and a 6.9% increase in guest count. Average check gains included menu mix and pricing increases; off-premises sales fell 12.9% and were 30.5% of food and beverage sales.
Restaurant operating costs increased to 86.0% of restaurant revenue from 84.3%. Cost of sales rose 220 basis points to 23.9%, mainly due to commodity inflation; labor rose 130 basis points to 36.3%, primarily due to wage and staffing costs. Occupancy improved 140 basis points to 8.0%, largely from sales leverage. Net loss per diluted share was $(0.12) on an adjusted basis, compared with $(0.30) a year earlier; this company-defined non-GAAP measure excludes specified items and is not a substitute for GAAP results.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $33.8 million; restricted cash was $8.2 million. Together, cash and restricted cash were $41.9 million, up from $22.8 million at fiscal year-end.
- Management reported approximately $55.8 million of liquidity, including cash and available credit-facility capacity. Available borrowing capacity was $22.0 million.
- Total borrowings were $203.9 million, versus $177.0 million at December 26, 2021. The balance sheet reported $194.4 million of debt net of unamortized financing costs and discounts, including $2.0 million current. The company also had $7.8 million of letters of credit backed by cash collateral.
- Current assets of $108.0 million were below current liabilities of $202.1 million. The company said its operating model typically produces a working capital deficit and expects operating cash flows and remaining credit capacity to support working capital needs and planned capital expenditures.
- Operating lease obligations totaled $468.9 million. Operating cash flow decreased $5.6 million year over year; the company attributed the decline primarily to working-capital timing.
Material changes, outlook and risks
- On March 4, 2022, Red Robin refinanced its prior facility with a five-year, $225 million credit agreement: a $200 million term loan and a $25 million revolver, maturing March 4, 2027. The facility is secured by substantially all assets of the borrower and guarantors, uses SOFR or an alternate base rate, and includes customary covenants, including a total net leverage covenant. The company reported an 8.2% weighted-average interest rate for the period.
- Management changed its estimate of gift-card redemption patterns, recognizing $5.9 million of additional gift-card breakage revenue, partly offset by $0.6 million of commissions. The change reduced reported net loss by $5.2 million, or $0.33 per share; management said it does not expect a material future impact.
- No formal revenue or earnings guidance is provided in the filing. Red Robin expected to continue the Donatos rollout to approximately 50 restaurants in 2022.
- Management anticipated inflation would continue to pressure labor and commodity costs for the remainder of 2022. A 1% increase in food and beverage costs would increase annualized cost of sales by approximately $2.6 million; a 1% interest-rate change on variable-rate borrowings would change annualized pretax interest expense by approximately $2.0 million.
- The company received $12.7 million of tax refunds on May 24, 2022, after quarter-end, and expected the remaining $0.6 million of outstanding refunds during 2022.
- Unusual charges included $2.1 million of restaurant asset impairment at three locations, $1.7 million of litigation contingencies, restaurant closure costs, and financing costs associated with refinancing. Four company-owned restaurants closed during the quarter.
- Loss contingencies were $3.9 million; management said it had made adequate provision but noted actual outcomes could differ. Non-cancellable vendor purchase commitments were $135.1 million. Risks discussed include inflation, staffing and retention, supply availability and costs, COVID-19 effects, competition, consumer spending, and litigation. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much of reported revenue and earnings improvement reflects underlying restaurant performance versus the gift-card breakage estimate change?
- Whether price increases and sales gains can offset continued food, labor, energy, and other cost inflation.
- Debt-service capacity, interest-rate exposure, covenant compliance, and liquidity under the new secured credit agreement.
- Execution and economics of the Donatos rollout and other strategic initiatives, alongside restaurant closures and impairment risk.
- Final receipt of the remaining tax refund and the eventual outcomes of employment-related and other claims.