Red Robin Gourmet Burgers, Inc. — FY2021 Form 10-K
Business context and reporting period. The filing covers the 52 weeks ended December 26, 2021; the comparable 2020 period also comprised 52 weeks. Red Robin operates and franchises casual-dining restaurants. At year-end it had 531 locations: 430 company-owned and 101 franchised. Results reflect recovery from the pandemic-depressed prior year and continued labor and supply-chain disruption.
Financial and operating metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $1,162.1 million | $868.7 million |
| Restaurant revenue | $1,137.7 million | $854.1 million |
| Operating loss | $36.7 million | $275.1 million |
| Net loss | $50.0 million; diluted loss per share $3.19 | $276.1 million; diluted loss per share $19.29 |
| Adjusted diluted loss per share, non-GAAP | $2.43 | $11.33 |
| Cash from operating activities | $47.3 million | $20.2 million |
| Capital expenditures | $42.3 million | $22.1 million |
| Cash and cash equivalents at year-end | $22.8 million | $16.1 million |
| Total debt at year-end | $177.0 million | $170.6 million |
- Revenue increased 33.8%; company-owned comparable restaurant revenue rose 33.5%, driven by a 22.3% increase in guest count and an 11.2% increase in average check. Management cautions that the comparison follows pandemic-related restrictions in 2020.
- Restaurant operating costs were 85.7% of restaurant revenue, versus 93.2% in 2020. Cost of sales was 22.9% (down 0.3 percentage points), labor 36.0% (down 3.0 points), other operating costs 18.3% (down 1.0 point), and occupancy 8.5% (down 3.2 points). Inflation and wage increases partly offset sales leverage and other savings.
- Year-end liquidity was approximately $57.7 million, including cash and available borrowing capacity; stated available capacity was $35 million. Working capital was negative: current assets were $102.2 million and current liabilities $223.3 million.
- Operating lease obligations totaled $681.3 million undiscounted, with a present-value operating lease liability of $484.0 million. Long-term debt and leases are material fixed obligations.
Material changes and notable items
- Compared with 2020, the net loss narrowed substantially, principally as revenue recovered and 2020 included a $95.4 million goodwill impairment. FY2021 still recorded $16.1 million of other charges, including restaurant closure costs, asset impairments, litigation contingencies, and COVID-related costs.
- The company closed 14 company-owned restaurants and two franchised locations in 2021, ending the year with 15 fewer total restaurants than in 2020. One company-owned restaurant opened in the fourth quarter.
- Cash increased by $6.6 million during the year. Debt rose by $6.3 million, and interest expense increased to $14.2 million from $10.2 million; the reported weighted-average borrowing rate rose to 7.1% from 4.5%.
- At year-end the company had $15.8 million of federal and state tax refund claims outstanding. It received $2.4 million in January 2022 and expected the remaining $13.4 million over the following 12–18 months, subject to IRS processing.
- Management disclosed immaterial presentation corrections to the prior-year balance sheet and cash-flow disclosure; it stated these did not affect retained earnings and were not material.
Outlook, risks, and contingencies
- No specific revenue or earnings guidance is provided. Management said it expected cash from operations and available credit capacity to cover debt service, capital expenditures, and working capital for at least the next 12 months, based on anticipated operations and growth.
- Management planned approximately 50 additional Donatos pizza rollouts in 2022, with rollout to approximately 400 company-owned restaurants targeted during 2023. It expected modest new-restaurant growth beginning in 2023, contingent on successful openings meeting financial criteria. Remodels were expected to resume in 2022.
- Off-premises sales remained more than double pre-pandemic levels; they represented 31.4% of fourth-quarter 2021 sales versus approximately 14% in fourth-quarter 2019. The company also launched mobile apps, an improved website, and an integrated loyalty platform.
- Key risks include COVID-19 developments, staffing shortages and labor-cost inflation, supply-chain disruptions and commodity inflation, competition and consumer spending, execution of strategic initiatives, and cyber/privacy and food-safety events. Approximately 65% of estimated annual food and beverage purchases were covered by fixed-price contracts at year-end, most expiring during 2022; a 1% increase in food and beverage costs was estimated to affect annual cost of sales by about $2.6 million.
- The company’s prior secured credit facility had $176.1 million drawn at year-end and was amended in November 2021 to provide covenant relief and increase pricing. On March 4, 2022, after fiscal year-end, it refinanced into a five-year $225 million facility: a $200 million term loan and $25 million revolver, maturing in 2027. The new debt is secured and subject to financial and other covenants.
- Litigation matters included employment, guest, and other claims; the company reported $2.5 million of loss contingencies accrued at year-end and said it could not assure outcomes. It also had $155.9 million of vendor purchase commitments, expected to be fulfilled in the ordinary course.
- The financial statements received an unqualified audit opinion, and the auditor and management reported effective internal control over financial reporting. The auditor identified long-lived asset impairment as a critical audit matter. FY2021 impairment charges included $6.4 million for long-lived assets and $0.5 million for indefinite-lived liquor licenses.
Important facts for investors to verify
- Whether comparable-sales growth and staffing improvements persist after the unusually weak 2020 comparison, and how much growth is driven by guest traffic versus pricing and check mix.
- Whether labor availability, wage inflation, food costs, and distribution constraints pressure restaurant margins despite the FY2021 improvement.
- The new credit facility’s borrowing costs, covenant headroom, repayment requirements, and actual available liquidity; also monitor debt and lease obligations relative to cash generation.
- Receipt and timing of the remaining tax refunds, and whether planned Donatos expansion and new restaurants generate returns sufficient to justify capital spending.
- Potential additional restaurant closures, impairment charges, or litigation losses, and the effect of continued pandemic or other operating disruptions.