J. ALEXANDER'S HOLDINGS, INC. Cautionary Statement Regarding Forward-Looking Statements
• the health and financial effects of the COVID-19 pandemic (including variant
strains of COVID-19);
• our ability to keep our restaurants open for in-person dining, and to
reestablish and maintain satisfactory guest count levels and maintain or
increase sales and operating margins in our restaurants under varying
economic conditions;
• the impact of surges in positive COVID-19 cases and new variant strains of
COVID-19 on our operations, including potential future governmental mandates
that could result in restaurant closures or suspension of or capacity
restrictions on dine-in services and our ability to staff our restaurants
while adhering to health guidelines;
• the effect of higher commodity prices, unemployment and other economic
factors on consumer demand as a result of COVID-19 or otherwise;
• increases in food input costs or product/supply shortages and our response
to them, including those related to COVID-19;
• the impact of shortages, interruptions and price fluctuations on our ability
to obtain ingredients from our limited number of suppliers;
• our ability to comply with financial covenants under our loan agreement and
to borrow available amounts under our lines of credit;
• the timing and likelihood of, and any conditions or requirements imposed in
connection with, obtaining required shareholder or regulatory approval of
the Merger;
• delay in closing the Merger or the possibility of non-consummation of the
Merger, including due to litigation related to the Merger, or the occurrence
of any event that could give rise to termination of the Merger Agreement;
• the risk that the Company will be unable to retain or hire key personnel due
to the pendency of the Merger;
• the risk that disruption from the Merger may adversely affect the Company's
business and its relationships with customers, suppliers or employees;
• 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 significant competition we face for guests, real estate and employees;
• our ability to increase sales and improve operating margins at our existing
restaurants;
• 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 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 expectations regarding the seasonality of our business;
• the impact of adverse weather conditions, including hurricanes, winter
weather storms and other weather-related disturbances;
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• our inability to cancel and/or renew leases and the availability of credit
to our landlords and other retail center tenants;
• 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 increases in the price of, and/or reductions in the
availability of, commodities, particularly beef and other supply chain items
such as carry-out packaging;
• the impact of the loss of key executives and management-level employees;
• our ability to utilize and manage social media;
• the impact of proposed and future government regulation and changes in
healthcare, labor, including minimum wage rates, leave benefits and other
laws;
• our expectations regarding litigation or other legal proceedings or claims;
• our ability to enforce our intellectual property rights;
• the impact of information technology system failures or breaches of our
network security;
• operating and financial restrictions and borrowing available under our loan
agreement, our level of indebtedness and any future indebtedness;
• the impact of any future impairment of our long-lived assets, including
tradenames;
• 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
January 3, 2021 filed with the SEC on March 18, 2021 , as amended on April
29, 2021 (the "2020 Annual Report") and in subsequent filings.
These factors should not be construed as exhaustive and should be read with the other cautionary statements in the 2020 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 2020 Annual Report and in subsequent filings. 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
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Our business plan has evolved over time to include a collection of restaurants
dedicated to providing guests with what we believe to be high quality food and
beverages, 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 currently existing concepts in the future. Additionally, by
further developing our carry-out program in each of our restaurant locations
with the same attention to detail taken in our dining rooms, we believe we can
both increase frequency of usage by our existing loyal guests and reach a wider
array of guests
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. Our 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:
• pursuing new restaurant development;
• increasing our average weekly same store sales through providing
high-quality food and service;
• leveraging our new carry-out platform to drive off-premise sales on a
long-term incremental basis;
• potentially expanding beyond our current existing restaurant concepts; and
• improving our margins and leveraging infrastructure.
Our restaurants often have a slower ramp up than many other restaurant groups due to our reliance on repeat business from a relatively small group of guests within each market. Having opened seven restaurants since the beginning of 2016, all of which are at different stages of maturity, our near-term focus will be on building guest traffic and sales at certain of the newer locations while we continue to evaluate promising opportunities for new restaurant development as well as react to the impact of the COVID-19 pandemic on our liquidity and restaurant performance in the nearterm.
The locations operating as 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, including implementing a carry-out program and online ordering platform and reopening dining rooms at a limited capacity in compliance with
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state and local government guidelines. We have made employee and guest health and safety our first priority as we serve our guests during these uncertain times. The Company intends to continue to actively monitor the evolving situation and may take further actions that alter its business operations that may be required by federal, state or local authorities or that it determines are in the best interests of its employees, guests and shareholders. While we do not know the full future impact COVID-19 will have on our business, we expect to see a continued impact on our results of operations, cash flows and liquidity during at least a portion of the rest of 2021. The remainder of Management's Discussion and Analysis of Financial Condition and Results of Operations discusses a number of ways our business has been impacted by COVID-19.
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 46 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:
• COVID-19-related capacity restrictions and other effects of the COVID-19
pandemic;
• 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;
• off-premise sales volume;
• 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, guest spending patterns, pricing and development of our concepts.
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Guest Counts. Guest counts are measured by the number of entrees sold either for in-restaurant dining or for off-premise dining over a given time period. For purposes of guest count calculations, family pack meals sales are counted as an average of three guests.
Key Financial Definitions
Food and beverage costs. Food and beverage costs are presented net of earned vendor rebates. Food and beverage costs are generally influenced by the input cost of food and beverage items, distribution costs and menu mix. The components of food and beverage costs are variable in nature, increase with sales, 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 costs 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 china and supplies, laundry and linens, repairs and maintenance, credit card fees, rent, property taxes, insurance, utilities, operating supplies and other restaurant-level related operating expenses.
Pre-opening Expense. Pre-opening expense consists of expenses incurred prior to
opening a new restaurant and includes 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, non-cash share-based compensation, travel, information systems, training, corporate rent, depreciation of corporate assets, professional and consulting fees, technology and market research. These expenses include costs associated with being a public company, and we believe such expenses will increase over time in response to our anticipated growth. 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. During periods of restaurant construction, interest expense is capitalized at a rate commensurate with the cost incurred to construct the restaurant. 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 (loss) at the federal, state and local level.
Discontinued Operations. During a portion of fiscal 2021, we remained 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. In
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Seasonality
Our business is subject to seasonal fluctuations. Historically, the percentage
of our annual revenues earned during the first and fourth quarters has typically
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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