Red Robin Gourmet Burgers, Inc. — FY2023 Form 10-K
Business and period: Red Robin operates and franchises casual-dining restaurants. At December 31, 2023, it had 506 locations: 415 company-owned and 91 franchised. This 10-K covers the 53 weeks ended December 31, 2023; FY2022 covered 52 weeks, so reported growth includes an extra week.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $1,303.0 million, up 3.0% | $1,265.5 million |
| Net loss | $21.2 million; diluted loss per share $1.34 | $78.9 million; diluted loss per share $4.98 |
| Adjusted EBITDA (non-GAAP) | $68.9 million | $51.7 million |
| Operating cash flow | $(1.2) million | $35.5 million |
| Cash and restricted cash, year-end | $31.6 million | $58.2 million |
| Gross debt outstanding | $189.1 million | $214.9 million |
Restaurant revenue was $1,274.3 million, up 3.6%, including $24.5 million from the 53rd week. Comparable restaurant revenue rose 1.6%; comparable dine-in sales rose 6.9%. Average check increased 6.8%, while Guest count declined 5.2%. Menu pricing increased 7.5%.
Restaurant-level operating profit, a non-GAAP measure, was $164.0 million, or 12.9% of restaurant revenue, versus $159.5 million, or 13.0%. GAAP operating income was $4.5 million (0.3% of revenue), compared with an operating loss of $57.5 million (4.5%) in FY2022. Net loss improved, but interest expense rose to $26.6 million from $20.6 million; the weighted-average borrowing rate increased to 12.7% from 9.1%.
Cost of sales improved to 24.2% of restaurant revenue from 24.9%, while labor costs increased to 37.2% from 35.8%. Selling, general and administrative expenses declined to $124.1 million from $136.6 million.
Liquidity, debt and capital
Year-end cash and cash equivalents were $23.6 million, with $7.9 million of restricted cash. The company reported $48.6 million of liquidity, comprising cash and cash equivalents and $25.0 million of available revolver capacity. It was in compliance with debt covenants at year-end and stated that operating cash flow and borrowing capacity should cover debt service, capital expenditures and working capital for at least the next 12 months.
The $189.1 million of gross debt bears variable rates and matures in 2027; year-end term-loan rate was 11.62%. A 1 percentage-point rate change would affect annualized pretax interest expense by approximately $1.9 million. The company repaid $24.9 million of debt during FY2023. Capital expenditures were $49.4 million. It completed sale-leasebacks of 18 properties, receiving $58.8 million in net proceeds and recording a $29.4 million net gain; proceeds were used in part to repay debt. Operating lease obligations were $619.9 million undiscounted.
Changes, outlook and notable items
- Management’s North Star plan focuses on operations, Guest experience, cost and complexity reduction, Guest engagement, and comparable sales and restaurant profitability. New-unit growth remains a lower priority while the company focuses on these initiatives.
- Management plans to introduce a points-based loyalty program and continue digital and technology investments in 2024. It is also evaluating its restaurant refresh and remodel program. No quantified FY2024 financial guidance is provided in the supplied filing text.
- The company is working on a third sale-leaseback transaction; if completed, proceeds are expected to repay debt.
- FY2023 results include $9.1 million of impairment charges, $9.1 million of litigation contingency charges, and the sale-leaseback gain noted above. Impairment charges affected 19 restaurant locations; FY2022 impairment charges were $38.5 million.
- The company corrected prior-period gift-card revenue errors, which it assessed as immaterial to those periods. FY2022 revenue was reduced by $1.1 million and accumulated deficit increased by $3.6 million at year-end 2022. Comparative amounts in this 10-K are corrected.
- Key risks include declining Guest traffic and discretionary spending, labor and commodity inflation, high variable-rate debt and covenant requirements, execution of the turnaround strategy, cybersecurity and technology risks, and litigation. California minimum-wage changes and substantial long-term lease commitments are also relevant exposures.
Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified long-lived-asset impairment estimates as a critical audit matter, particularly forecast cash flows and market-rent assumptions.
Investor verification priorities
- Separate the 53rd-week contribution from underlying comparable sales and assess whether Guest-count declines reverse.
- Review cash generation, debt paydown, borrowing rates, covenant headroom and the assumptions behind management’s 12-month liquidity outlook.
- Confirm whether the third sale-leaseback closes, its proceeds and ongoing rent effects; assess the scale of lease obligations.
- Track labor-cost trends, restaurant-level margins, strategic-plan execution and the results of loyalty and technology initiatives.
- Review the corrected gift-card accounting, litigation reserves and impairment assumptions, including sensitivity to future restaurant performance.