Red Robin Gourmet Burgers, Inc. — FY 2012 Form 10-K
Business context and reporting period. Red Robin operates and franchises casual-dining restaurants. Fiscal 2012 ended December 30, 2012 and contained 53 weeks; fiscal 2011 contained 52 weeks. At year-end, the system had 472 restaurants: 339 company-owned and 133 franchised. The filing is an annual report, not a standalone fourth-quarter filing.
Financial and operating performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $977.1 million | $914.9 million |
| Operating income | $45.2 million; 4.6% margin | $28.0 million; 3.1% margin |
| Net income | $28.3 million; 2.9% margin | $20.6 million; 2.2% margin |
| Diluted EPS | $1.93 | $1.34 |
| Cash from operations | $94.4 million | $95.7 million |
| Cash and equivalents at year-end | $22.4 million | $35.0 million |
| Total debt, including capital leases | $135.0 million | $156.9 million |
- Revenue grew 6.8%; the additional fiscal week contributed approximately $21 million of restaurant sales, $3.1 million of net income and $0.21 of diluted EPS. Comparable restaurant sales increased 1.1% on the company’s stated 53-week comparison basis, reflecting a 1.7% increase in average check and a 0.6% decline in guest counts.
- Restaurant operating costs improved to 79.3% of restaurant revenue from 80.2%. Cost of sales was 25.2% versus 25.3%; labor was 33.6% versus 33.8%; other operating costs were 13.1% versus 13.8%. Occupancy rose to 7.4% from 7.3%.
- FY 2012 fourth-quarter revenue was $240.7 million, operating income $12.2 million, net income $6.5 million and diluted EPS $0.45. The quarter had 13 weeks, compared with 12 weeks in FY 2011 Q4; the reported quarterly figures are therefore not directly comparable by duration.
- Investing cash outflow was $63.3 million, including $60.0 million of property and equipment purchases and $3.2 million for a franchise restaurant acquisition. Financing cash outflow was $43.7 million, including $24.3 million of share repurchases.
Liquidity, debt and capital structure
- Current assets were $74.5 million and current liabilities $102.3 million, a working-capital deficit of $27.8 million. Management said the cash-based restaurant model supports this deficit and expected operating cash flows to meet working-capital, debt-service and capital needs for at least 12 months.
- In December 2012, the company replaced its prior credit facility with a secured $225 million revolving facility maturing December 2017. Year-end borrowings were $125 million; the company reported compliance with its covenants. The refinancing generated a $2.9 million non-cash pre-tax charge.
- Contractual obligations totaled $550.9 million, including $386.1 million of operating lease commitments and $13.6 million of capital lease obligations. No cash dividends were paid; a new authorization allowed up to $50 million of repurchases beginning January 2013, subject to facility restrictions.
Changes, outlook and risks
- Profitability improved from 2011, while operating cash flow was slightly lower and year-end cash declined. The 2012 comparison includes an extra week; the filing attributes much of the revenue increase to that week and new restaurants, alongside modest comparable-sales growth.
- Management planned 20 company-owned openings in 2013, including up to five Burger Works locations, and estimated capital expenditures of $50–$55 million. It expected cash from operations and available credit to fund planned needs.
- Cost pressures are a central near-term concern: management expected 2013 ground-beef prices to be 8%–10% above 2012 levels and anticipated higher labor costs from minimum-wage increases. Approximately 40% of estimated annual food and beverage purchases were under fixed-price contracts, most expiring during 2013.
- Other risks include uncertain consumer spending and restaurant traffic, intense competition and discounting, geographic concentration in the western U.S., food safety and supply disruptions, execution of the brand and IT transformation initiatives, and exposure to interest rates and extensive lease commitments. Legal claims were described as routine; management believed provisions were adequate and did not expect a material adverse resolution.
- The financial-statement auditor issued an unqualified opinion; management and the auditor reported effective internal control over financial reporting as of year-end.
Most important facts for investors to verify
- Separate underlying sales and earnings trends from the 53rd-week contribution; assess comparable guest traffic, which declined 0.6%.
- Track whether projected beef inflation, wage increases and expiring supplier contracts pressure restaurant margins in 2013.
- Confirm new-store openings, capital spending and IT/brand initiatives deliver expected returns while preserving liquidity and covenant compliance.
- Review the $125 million revolver balance, substantial lease commitments, repurchase activity and the company’s working-capital deficit together.