Red Robin Gourmet Burgers, Inc. — Q1 2020 Form 10-Q
Reporting period: Sixteen weeks ended April 19, 2020; comparable period was the sixteen weeks ended April 21, 2019. Red Robin operated 452 company-owned and 102 franchised restaurants at period-end. The filing reflects the severe early impact of COVID-19 restrictions on dine-in operations.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $306.1 million | $409.9 million |
| Restaurant revenue | $301.4 million | $400.5 million |
| Operating loss | $158.2 million | Operating income of $3.4 million |
| Net loss | $174.3 million | Net income of $0.6 million |
| Diluted EPS | $(13.51) | $0.05 |
| Operating cash flow | $(13.3) million | $25.3 million |
| Capital expenditures | $8.7 million | $10.2 million |
Revenue fell 25.3%; restaurant revenue declined 24.7%. Comparable restaurant revenue decreased 20.8%, including a 20.9% reduction in guest count, partly offset by a 0.1% increase in average check. Off-premise sales rose 86.1% and represented 26.3% of food and beverage sales. Restaurant operating costs rose to 91.2% of restaurant revenue from 81.7%; labor was 39.3% versus 35.7%, other operating costs 17.3% versus 13.9%, and occupancy 11.2% versus 8.7%. Cost of sales remained 23.4%.
Other charges totaled $119.4 million, including $95.4 million of goodwill impairment, $15.5 million of restaurant asset impairment at 24 locations, $4.5 million of additional litigation accrual, and other closure, restructuring, and COVID-related costs. The company reported an adjusted diluted loss per share of $6.66, excluding specified other charges; this is a non-GAAP measure.
Cash, debt, and liquidity
Cash was $88.9 million at April 19, 2020, compared with $30.0 million at December 29, 2019. The increase reflected financing: net cash from financing activities was $81.7 million, including substantial credit-facility borrowings. Total borrowings were $290.9 million, including $290.0 million outstanding under the facility; the facility was fully drawn, with no borrowing capacity remaining at quarter-end. Current liabilities were $192.8 million and current assets $154.8 million.
On May 29, 2020, the company amended its credit agreement, waived covenant defaults as of April 19, and modified/suspended certain financial covenants subject to conditions. The company repaid $59 million of revolver borrowings so cash would not exceed the new $30 million limit. The amendment requires at least $25 million of net proceeds from new equity or convertible debt by November 13, 2020 for specified covenant relief and leverage terms. It also adds minimum-liquidity requirements and restricts certain spending and payments. Management concluded substantial doubt exists about the company’s ability to continue as a going concern because raising the required capital is outside its control and no further waiver is assured.
Material changes, outlook, and risks
- COVID-19 drove closure of dine-in service at substantially all company-owned restaurants, temporary closure of 35 locations, franchise royalty and advertising-payment abatements, and lower sales. The company also stopped making full lease payments beginning April 1 while continuing to accrue lease costs; landlord concessions remained under discussion.
- Weekly comparable sales fell sharply during March and April. For the week ended April 19, comparable revenue was down 50.2%. Management reported preliminary comparable revenue down 39.7% for the week ended June 7, with about 270 dining rooms reopened at limited capacity by that date.
- Management estimated second-quarter average cash burn of $1 million to $2 million per week and reported approximately $84 million of total liquidity as of June 7, including revolving capacity. These are preliminary management estimates, not guaranteed outcomes.
- The company withdrew its 2020 and long-term financial outlook. It cited continued pandemic uncertainty and expected COVID-19 effects to negatively affect business through the remainder of fiscal 2020.
- A tentative $8.5 million settlement of two employment class-action matters was reached, subject to final documentation and court approval. The filing also reports lease default notices and, in a small number of cases, eviction notices or proceedings.
- A $52 million valuation allowance was recorded against FICA tip tax credit carryforwards. The CARES Act could provide up to $12 million of projected cash tax refunds within 12 months; the filing does not establish that the full amount will be received.
Important facts for investors to verify
- Whether Red Robin raised at least $25 million in qualifying equity or convertible-debt proceeds by the amendment deadline, or obtained further lender relief.
- Subsequent cash burn, liquidity, covenant compliance, and the terms and availability of credit after the $59 million repayment.
- Restaurant sales recovery, reopened-dining-room trends, and whether off-premise sales remain elevated.
- Progress on rent concessions and any consequences of lease defaults or eviction proceedings.
- Final approval and payment timing of the $8.5 million employment-case settlement, and any further impairment or tax-credit valuation changes.