Red Robin Gourmet Burgers, Inc. — Q2 2013 Form 10-Q
Business context and reporting period. The quarter ended July 14, 2013 comprised 12 weeks; year-to-date results cover 28 weeks. Red Robin operated 344 company-owned restaurants and had 133 franchised locations, for 477 total restaurants.
Financial performance
| Metric | 12 weeks ended July 14, 2013 | Prior-year quarter | 28 weeks ended July 14, 2013 | Prior-year period |
|---|---|---|---|---|
| Total revenue | $238.3 million | $223.7 million | $544.6 million | $523.1 million |
| Operating income / margin | $15.4 million / 6.5% | $11.4 million / 5.1% | $28.9 million / 5.3% | $27.2 million / 5.2% |
| Net income / margin | $11.1 million / 4.7% | $7.7 million / 3.5% | $20.6 million / 3.8% | $18.3 million / 3.5% |
| Diluted EPS | $0.77 | $0.52 | $1.43 | $1.23 |
| Operating cash flow | — | $71.0 million | $50.1 million |
Q2 comparable sales rose 4.3%, driven by a 5.0% increase in average guest check, partly offset by a 0.7% decline in guest count. Year-to-date comparable sales rose 3.1% on a 3.7% higher average check and 0.6% lower guest count. Q2 cost of sales, labor and other operating costs improved as shares of restaurant revenue by 0.7, 0.5 and 1.0 percentage points, respectively. SG&A rose to 11.9% of revenue from 11.4%.
Balance sheet, cash flow and debt
- At July 14, cash was $16.5 million, down from $22.4 million at fiscal year-end. Current assets were $62.3 million and current liabilities $112.3 million; the company says its cash-based restaurant model supports its working-capital deficit.
- Operating cash flow was $71.0 million; investing cash outflow was $31.7 million, mainly for new restaurants, facility improvements and technology; financing cash outflow was $45.2 million. Cash declined $5.9 million over the 28-week period.
- Capital expenditures were $31.7 million. Debt outstanding, including capital leases, was $82.1 million, down from $135.0 million at December 30, 2012. Credit-facility borrowings were $72.5 million; the $225 million revolver matures in December 2017. The company was in compliance with its debt covenants.
Changes, outlook and risks
- Revenue increased 6.5% in Q2 and 4.1% year to date. Net income and diluted EPS improved in both comparisons. Interest expense declined, primarily reflecting lower average debt balances.
- Operating cash flow increased $20.9 million year to date, partly because of timing: approximately $18.4 million related to accelerated vendor payments at the end of 2012 and higher construction-related accruals and payroll liabilities. Management also cited improved restaurant operating profit, partly offset by higher compensation costs.
- Management planned 20 company-owned restaurant openings in 2013, plus potentially several Burger Works locations, funded from operating cash flow. It planned transformation projects at 20 additional restaurants during the rest of 2013. Expected full-year effective tax rate was approximately 24%; no earnings or revenue guidance was provided.
- Management expected inflation to remain a headwind in 2013, particularly from wages, supplies and food commodities. About 50% of estimated food and beverage purchases for the rest of the year were covered by fixed-price contracts. Risks cited include commodity, labor and energy costs, competition and discounting, consumer spending, execution of initiatives, and legal claims.
- Routine employment, guest and food-quality-related claims were disclosed; management said adequate provision was recorded and did not expect a material adverse effect. No material changes to previously disclosed risk factors were reported. An insurance-related refund benefited Q2 labor costs.
Important facts for investors to verify
- Whether comparable-sales growth can persist given higher average checks and declining guest counts.
- How much of the operating cash-flow increase reflects sustainable earnings versus working-capital timing and accrual changes.
- Progress and funding for planned restaurant openings and remodeling, and the effect of rising SG&A and pre-opening costs.
- Debt repayment plans, revolver availability, covenant headroom and exposure to interest-rate and food-cost changes.
- Potential outcomes and recorded reserves for litigation and other claims; the filing does not quantify individual exposures.