Red Robin Gourmet Burgers, Inc. — Q2 2022 Form 10-Q
Reporting period: Twelve weeks ended July 10, 2022; year-to-date results cover the twenty-eight weeks ended July 10, 2022. Comparisons are with the corresponding 2021 periods. Red Robin operated 426 company-owned and 102 franchised restaurants.
Financial and operating results
| Metric | Q2 2022 | Q2 2021 | 28 weeks 2022 | 28 weeks 2021 |
|---|---|---|---|---|
| Total revenue | $294.1 million | $277.0 million | $689.6 million | $603.3 million |
| Operating loss | $13.4 million | $2.6 million | $9.0 million | $6.9 million |
| Net loss | $17.9 million | $5.0 million | $21.0 million | $13.7 million |
| Diluted loss per share | $1.13 | $0.32 | $1.33 | $0.88 |
- Q2 revenue rose 6.2%; company restaurant revenue increased 6.1%, including comparable restaurant revenue growth of 6.7%. Higher average guest checks (+9.6%) were partly offset by lower guest counts (-2.9%). Year-to-date revenue rose 14.3%, with comparable restaurant revenue up 13.8%.
- Q2 restaurant operating costs increased to 86.4% of restaurant revenue from 84.3%. Food costs rose to 25.2% from 22.8%, primarily due to commodity inflation; labor improved to 35.2% from 36.4%. Year-to-date restaurant operating costs were 86.2% of restaurant revenue versus 84.3%.
- Q2 operating margin was approximately -4.5% of revenue versus -0.9% a year earlier; net margin was -6.1% versus -1.8%. Year-to-date net margin was -3.1% versus -2.3%.
- Operating cash flow was $36.4 million year to date, compared with $37.2 million. Investing cash use was $15.6 million, mainly for restaurant improvements and technology. Financing provided $15.5 million, versus $16.9 million used in the prior-year period.
- Cash and cash equivalents were $50.3 million; restricted cash was $8.7 million. Management reported total liquidity of approximately $75.3 million, including available credit capacity.
- Gross debt was $200.4 million at July 10, 2022, up from $177.0 million at fiscal year-end. The new credit facility had a 8.7% weighted-average interest rate in Q2; operating lease liabilities totaled $461.4 million.
Material changes and unusual items
- Losses widened despite sales growth, reflecting higher food and other operating costs, increased interest expense, and Q2 asset impairment charges.
- Asset impairment charges were $8.7 million in Q2 and $10.9 million year to date, related primarily to restaurant assets at six and nine company-owned locations, respectively.
- A revised gift-card redemption estimate resulted in $5.9 million of additional breakage revenue in Q1. Net of associated commissions, the estimate change reduced year-to-date net loss by $5.2 million, or $0.33 per diluted share. Management does not expect a material future-period impact.
- On March 4, 2022, Red Robin entered a five-year, $225 million credit agreement, including a $200 million term loan and $25 million revolver, maturing in March 2027. The facility is secured by substantially all assets and includes customary restrictions and a total net leverage covenant.
- A June real-estate sale-leaseback produced $3.9 million in initial proceeds, recorded as a liability; the sale and gain were not recognized because sale-recognition criteria had not been met.
Outlook, commentary, and risks
- The filing provides no formal earnings or revenue guidance. Management 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. Food, labor, energy, staffing, supply availability, consumer spending, and competition are identified risks.
- Variable-rate borrowings totaled $199.5 million; a 1 percentage-point rate change would affect annualized pretax interest expense by approximately $2.0 million. A 1% increase in food and beverage costs would raise annualized cost of sales by approximately $3.0 million.
- The company reported a $95 million working-capital deficit, but said cash from restaurant operations and remaining borrowing capacity should support working capital needs and planned capital expenditures. It also disclosed $135.4 million of non-cancellable vendor purchase commitments and $4.4 million accrued for loss contingencies.
- Management said there were no material changes to previously disclosed risk factors; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether comparable sales growth and pricing can offset inflation without further weakening guest counts or margins.
- Debt covenant compliance, borrowing costs, interest-rate exposure, and the availability of liquidity under the new credit facility.
- Whether impairment charges, restaurant closures, and the sale-leaseback affect future results or cash needs.
- The sustainability and comparability of reported results given the one-time gift-card estimate benefit.
- Progress and costs of the Donatos rollout, staffing, and other strategic initiatives.