J. ALEXANDER'S HOLDINGS, INC. Cautionary Statement Regarding Forward-Looking Statements
• the health and financial effects of the COVID-19 pandemic;
• our ability to reopen our restaurants for in-person dining, and thereafter
to reestablish and maintain satisfactory guest count levels and maintain or
increase sales and operating margin in our restaurants under varying
economic conditions;
• the effect of higher commodity prices, unemployment and other economic
factors on consumer demand as a result of COVID-19;
• COVID-19-related increases in food input costs or product shortages and our
response to them;
• our ability to comply with new and existing financial covenants under our
loan agreement and to borrow available amounts under our revolving line of
credit;
• our ability to defer lease or contract payments or otherwise obtain
concessions from landlords, vendors and other parties in light of the impact
of the COVID-19 pandemic;
• the impact of pandemics, such as outbreaks of viruses, foodborne illnesses
or other diseases;
• the impact of, and our ability to adjust to, general economic conditions and
changes in consumer preferences;
• our ability to open new restaurants and operate them profitably, including
our ability to locate and secure appropriate sites for restaurant locations,
obtain favorable lease terms, attract guests to our restaurants or hire and
retain personnel;
• our ability to obtain financing on favorable terms, or at all;
• the strain on our infrastructure caused by the implementation of our growth
strategy;
• our ability to successfully transition certain of our existing J.
Alexander's locations to Redlands Grill locations and any other future
concept locations;
• the significant competition we face for guests, real estate and employees;
• the impact of economic downturns, volatile retail area traffic patterns or
other disruptions in markets in which we have revenue or geographic
concentrations within our restaurant base;
• our ability to increase sales at our existing restaurants and improve our
margins at existing Stoney River restaurants;
• the impact of increases in the price of, and/or reductions in the
availability of, commodities, particularly beef;
• the impact of negative publicity or damage to our reputation, which could
arise from concerns regarding food safety and foodborne illnesses or other
matters;
• the impact of changes in new information and attitudes regarding health and
diets;
• the impact of proposed and future government regulation and changes in
healthcare, labor, including minimum wage rates, and other laws;
• our ability to utilize and manage social media;
• our expectations regarding litigation or other legal proceedings or claims;
• our inability to cancel and/or renew leases and the availability of credit
to our landlords and other retail center tenants;
• operating and financial restrictions imposed by our credit facility, our
level of indebtedness and any future indebtedness;
• the impact of the loss of key executives and management-level employees;
• our ability to enforce our intellectual property rights;
• the impact of information technology system failures or breaches of our
network security;
• the impact of any future impairment of our long-lived assets, including
tradenames;
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• the impact of any future acquisitions, joint ventures or other initiatives;
• the impact of our ongoing process to review strategic alternatives;
• the impact of shortages, interruptions and price fluctuations on our ability
to obtain ingredients from our limited number of suppliers;
• our expectations regarding the seasonality of our business;
• the impact of adverse weather conditions, including hurricanes and other
weather-related disturbances;
• the impact of store closures, decreased business levels and property damage
related to civil disturbances;
• factors that are under the control of third parties, including governmental
agencies; and
• the other matters found under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
discussed in our Annual Report on Form 10-K for the fiscal year ended
December 29, 2019 filed with the SEC on March 13, 2020 , as amended on April
17, 2020 (the "2019 Annual Report"), in subsequent filings and in Part II,
Item 1A. Risk Factors of this report.
These factors should not be construed as exhaustive and should be read with the other cautionary statements in the 2019 Annual Report and this report. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results including the economic impact of the ongoing COVID-19 pandemic. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in the 2019 Annual Report, in subsequent filings and in Part II, Item 1A. Risk Factors of this report. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties. Forward-looking information provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. We expressly disclaim any intent or obligation to update these forward-looking statements.
Dollar amounts within this Management's Discussion and Analysis of Financial Condition and Results of Operations are presented in thousands except for average weekly sales per restaurant, average weekly same store sales per restaurant and average check per guest.
Overview
The Company, as the sole managing member of its subsidiary
During the second quarter of 2020, the Company made the decision not to reopen
the
Our business plan has evolved over time to include a collection of restaurants
dedicated to providing guests with what we believe to be the highest quality
food, high levels of professional service and a comfortable ambiance. By
offering multiple restaurant concepts and utilizing unique non-standardized
architecture and specialized menus, we believe we are positioned to continue to
scale and grow our overall restaurant business in an efficient manner in urban
and affluent suburban areas. We want each of our restaurants to be perceived by
our guests as a locally managed, stand-alone dining experience. This
differentiation permits us to successfully operate multiple restaurants in the
same geographic market. If this strategy continues to prove successful, we may
expand beyond our current existing concepts in the future. While each restaurant
concept operates under a unique trade name, each of our restaurants is
identified as a "J.
We believe our restaurants deliver on our guests' desire for freshly-prepared,
high quality food and exemplary service in a restaurant with architecture and
design that varies from location to location. Through our combination with
Stoney River and opening new restaurants, we have grown from 33 restaurants
across 13 states in 2012 to 46 restaurants across 16 states as of
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financial performance has allowed us to invest significant amounts of capital to drive growth through the continuous improvement of existing locations, the development of plans to open new restaurants, and the hiring of personnel to support our growth plans.
We plan to execute the following strategies to continue to enhance the awareness of our restaurants, grow our sales and improve our profitability by:
• leveraging our new carry-out platform to drive off-premise sales both during
the COVID-19 restriction period and on a longterm incremental basis;
• increasing our same store guest counts and sales through providing high
quality food and service;
• pursuing new restaurant development in the long-term;
• potentially expanding beyond our current existing restaurant concepts; and
• improving our margins and leveraging infrastructure.
The most recent restaurant openings include a
The locations that have been recently transitioned from a
Recent Developments and Trends Impacting our Business
In
As a result of factors noted above, the Company has taken steps to modify its operations, where necessary, for a limited period of time, including pivoting to a carry-out model as a means of generating revenue and cash flow and reopening dining rooms at a limited capacity in compliance with state and local government guidelines. We have made employee and guest health and safety our number one priority as we serve our guests during these uncertain times. We have provided personal protective equipment, such as masks, gloves and hand sanitizer to our team members, and we are checking employee temperatures daily. We are also observing social distancing requirements and routinely sanitizing high-touch surface areas in our restaurants. We have sought to develop menus that are friendly to an off-premise model providing guests with appetizers, salads, entrées, sides, wine, family meal kits that can be prepared at home and "butcher shop" style beef offerings. Restaurant and corporate management have evaluated, and continue to evaluate, ways to curtail spending including an ongoing review of operations to maximize efficiency, adjusting restaurant-level labor and reducing purchases of inventory to align with new levels of demand, limiting discretionary operating expenses including business travel, suspending all non-essential capital expenditures, and negotiating the deferral of new restaurant capital expenditures with
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contractors in addition to certain rent, insurance, tax and debt payments where
possible. The Company also made the difficult decision to furlough restaurant
employees that were not able to assist with the Company's carry-out program
until their applicable restaurant can resume dine-in operations at a volume
which would warrant a resumption of normal staffing levels. Additionally, the
Company has held, and will continue to engage in, discussions with its lender to
further enhance its liquidity including the full draw down on its available
lines of credit in
Performance Indicators
We use the following key metrics in evaluating our performance:
Same Store Sales. We include a restaurant in the same store restaurant group
starting in the first full accounting period following the 18th month of
operations. Our same store restaurant base consisted of 45 restaurants at
Measuring our same store restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact same store sales including:
• consumer recognition of our restaurants and our ability to respond to
changing consumer preferences;
• overall economic trends, particularly those related to consumer spending;
• our ability to operate restaurants effectively and efficiently to meet guest
expectations;
• pricing;
• guest traffic;
• spending per guest and average check amounts;
• local competition;
• trade area dynamics; and
• introduction of new menu items.
Average Weekly Sales. Average weekly sales per restaurant is computed by
dividing total restaurant sales for the period by the total number of days all
restaurants were open for the period to obtain a daily sales average. The daily
sales average is then multiplied by seven to arrive at average weekly sales per
restaurant. Days on which restaurants are closed for business for any reason
other than scheduled closures on
Average Weekly Same Store Sales. Average weekly same store sales per restaurant
is computed by dividing total restaurant same store sales for the period by the
total number of days all same store restaurants were open for the period to
obtain a daily sales average. The daily same store sales average is then
multiplied by seven to arrive at average weekly same store sales per
restaurant. Days on which restaurants are closed for business for any reason
other than scheduled closures on
Average Check. Average check is calculated by dividing total restaurant sales by guest counts for a given time period. Total restaurant sales include food, alcohol and beverage sales. Average check is influenced by menu prices and menu mix. Management uses this indicator to analyze trends in guests' preferences, the effectiveness of menu changes and price increases on per guest expenditures.
Average Unit Volume. Average unit volume consists of the average sales of our restaurants over a certain period of time. This measure is calculated by multiplying average weekly sales by the relevant number of weeks for the period presented. This indicator assists management in measuring changes in guest traffic, pricing and development of our concepts.
Guest Counts. Guest counts are measured by the number of entrées ordered at our restaurants over a given time period.
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Key Financial Definitions
Cost of Sales. Cost of sales is comprised primarily of food and beverage expenses and is presented net of earned vendor rebates. Food and beverage expenses are generally influenced by the cost of food and beverage items, distribution costs and menu mix. The components of cost of sales are variable in nature, increase with revenues, are subject to increases or decreases based on fluctuations in commodity costs, including beef prices, and depend in part on the controls we have in place to manage cost of sales at our restaurants.
Restaurant Labor and Related Costs. Restaurant labor and related costs includes restaurant management salaries, hourly staff payroll and other payroll-related expenses, including management bonus expenses, vacation pay, payroll taxes, emergency sick leave pay, fringe benefits and health insurance expenses.
Depreciation and Amortization. Depreciation and amortization principally includes depreciation on restaurant fixed assets, including equipment and leasehold improvements, and amortization of certain intangible assets for restaurants. We depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life. As we open additional restaurants, depreciation and amortization is expected to increase as a result of our increased capital expenditures.
Other Operating Expenses. Other operating expenses includes repairs and maintenance, credit card fees, rent, property taxes, insurance, utilities, operating supplies and other restaurant-level related operating expenses.
Pre-opening Expenses. Pre-opening expenses consist of expenses incurred prior to
opening a new restaurant and include principally manager salaries and relocation
costs, payroll and related costs for training new employees, travel and lodging
expenses for employees
General and Administrative Expenses. General and administrative expenses consist of costs related to certain corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company growth. These expenses reflect management, supervisory and staff salaries and employee benefits, travel, information systems, training, corporate rent, depreciation of corporate assets, professional and consulting fees, technology and market research. These expenses have increased as a result of costs associated with being a public company, and we believe such expenses will continue to increase related to our anticipated growth. However, as we are able to leverage these investments made in our people and systems, we expect these expenses to decrease as a percentage of net sales over time.
Interest Expense. Interest expense consists primarily of interest on our outstanding indebtedness. Our debt issuance costs are recorded at cost and are amortized over the lives of the related debt.
Income Tax (Expense) Benefit. This represents tax expense or benefit related to the taxable income at the federal, state and local level.
Discontinued Operations. We remain a party to a lease for a restaurant that closed in 2013 which we determined met the criteria for classification as discontinued operations. Expenses related to continuing obligations under this lease agreement are recognized as discontinued operations, net.
Seasonality
Our business is subject to seasonal fluctuations. Historically, the percentage
of our annual revenues earned during the first and fourth quarters has been
higher due, in part, to increased gift card redemptions, guest traffic and
private dining during the year-end holiday season. In addition, we operate on a
52-week or 53-week fiscal year that ends on the Sunday closest to
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