RED ROBIN GOURMET BURGERS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying Condensed Consolidated Financial Statements. All comparisons under this heading between 2022 and 2021 refer to the twelve and twenty-eight weeks endedJuly 10, 2022 andJuly 11, 2021 , unless otherwise indicated.
Overview
Description of Business
Red Robin Gourmet Burgers, Inc. , aDelaware corporation, together with its subsidiaries ("Red Robin ," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 528 locations inNorth America . As ofJuly 10, 2022 , the Company owned 426 restaurants located in 38 states. The Company also had 102 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
Financial and Operational Highlights
The following summarizes the operational and financial highlights during the
twelve weeks ended
Restaurant Revenue, compared to the same period in the prior year, is presented in the table below:
(millions)
Restaurant Revenue for the twelve weeks ended
18.1
Increase/(decrease) from non-comparable restaurants
(1.6)
Total increase/(decrease)
16.5
Restaurant Revenue for the twelve weeks ended
The following summarizes the operational and financial highlights during the
twenty-eight weeks ended
(millions)
Restaurant Revenue for the twenty-eight weeks ended
590.8
Increase/(decrease) in comparable restaurant revenue(1)
79.5
Increase/(decrease) from non-comparable restaurants
(1.0)
Total increase/(decrease)
78.5
Restaurant Revenue for the twenty-eight weeks ended
669.3
(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period
presented.
Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below:
Twelve Weeks Ended
July 10, 2022 July 11, 2021 Increase/(Decrease)
Restaurant revenue (millions) $ 288.7 $ 272.2 6.1 %
Restaurant operating costs: (Percentage of Restaurant Revenue) (Basis Points)
Cost of sales 25.2 % 22.8 % 240
Labor 35.2 36.4 (120)
Other operating 18.0 17.2 80
Occupancy 8.0 7.9 10
Total 86.4 % 84.3 % 210
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Twenty-eight Weeks Ended
July 10, 2022 July 11, 2021 Increase/(Decrease)Restaurant revenue (millions)$ 669.3 $ 590.8 13.3 % Restaurant operating costs: (Percentage of Restaurant Revenue) (Basis Points) Cost of sales 24.5 % 22.2 % 230 Labor 35.8 35.6 20 Other operating 17.9 17.7 20 Occupancy 8.0 8.8 (80) Total 86.2 % 84.3 % 190
Certain percentage and basis point amounts in the table above do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.
The following table summarizes Net Loss, loss per diluted share, and adjusted loss per diluted share for the twelve and twenty-eight weeks ended andJuly 10, 2022 andJuly 11, 2021 ; Twelve Weeks Ended Twenty-eight Weeks Ended July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021 Net loss as reported$ (17,932) $ (4,996) $ (21,037) $ (13,709) Loss per share - diluted: Net loss as reported$ (1.13) $ (0.32) $ (1.33) $ (0.88) Asset impairment 0.55 0.01 0.69 0.09 Change in accounting estimate, gift card breakage revenue, net of commissions(1) - - (0.33) - Restaurant closure costs 0.06 0.11 0.12 0.27 Other financing costs(3) - - 0.02 - COVID-19 related charges 0.01 0.02 0.02 0.05 Write-off of unamortized debt issuance costs(2) - - 0.11 - Executive transition 0.01 - 0.01 - Litigation contingencies (0.11) - (0.01) 0.07 Board and stockholder matter costs - - - 0.01 Income tax expense (0.14) (0.04) (0.17) (0.13) Adjusted loss per share - diluted$ (0.75) $ (0.22) $ (0.87) $ (0.52) Weighted average shares outstanding Basic 15,830 15,665 15,783 15,617 Diluted 15,830 15,665 15,783 15,617 (1) During the twenty-eight weeks endedJuly 10, 2022 , the Company re-evaluated the estimated redemption pattern related to gift cards. See Footnote 1, Basis of Presentation and Recent Accounting Pronouncements included in Part I. Financial Information in this quarterly report on form 10-Q.
(2) Write-off of unamortized debt issuance costs related to the remaining unamortized debt issuance costs related to our Prior Credit Agreement (as defined below) with the completion of the refinancing of our Prior Credit Agreement in the first quarter of fiscal year 2022.
(3) Other financing costs includes legal and other charges related to the refinancing of our Prior Credit Agreement in the first quarter of 2022.
We believe the non-GAAP measure of adjusted loss per diluted share gives the reader additional insight into the ongoing operational results of the Company, and it is intended to supplement the presentation of the Company's financial results in accordance with GAAP. Adjusted loss per diluted share excludes the effects of changes in accounting estimates, asset impairment, litigation contingencies, the write-off of unamortized debt issuance costs, restaurant closure costs, other financing costs, COVID-19 related costs, executive transition costs, and related income tax effects. Other companies may define adjusted net loss per diluted share differently, and as a result our measure of adjusted loss per diluted share may not be directly comparable to those of other companies. Adjusted loss per diluted share should be considered in addition to, and not as a substitute for, net loss as reported in accordance withU.S. GAAP as a measure of performance. 14
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Restaurant Data
The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:
Twelve Weeks Ended Twenty-Eight Weeks Ended
July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021
Company-owned:
Beginning of period 426 440 430 443
Closed during the period - (10) (4) (13)
End of period 426 430 426 430
Franchised:
Beginning of period 101 103 101 103
Opened during the period 1 - 1 -
Sold or closed during the period - (2) - (2)
End of period 102 101 102 101
Total number of restaurants 528 531 528 531
15-------------------------------------------------------------------------------- Table of Contents The following table presents total Company-owned and franchised restaurants by state or province as ofJuly 10, 2022 : Company-Owned Restaurants Franchised Restaurants State: Arkansas 2 2 Alaska - 3 Alabama 4 - Arizona 17 1 California 58 - Colorado 22 - Connecticut - 3 Delaware - 5 Florida 19 - Georgia 6 - Iowa 5 - Idaho 8 - Illinois 21 - Indiana 13 - Kansas - 5 Kentucky 4 - Louisiana 2 - Massachusetts 4 2 Maryland 12 - Maine 2 - Michigan - 20 Minnesota 4 - Missouri 8 3 Montana - 2 North Carolina 17 - Nebraska 4 - New Hampshire 3 - New Jersey 12 1 New Mexico 3 - Nevada 6 - New York 14 - Ohio 18 2 Oklahoma 5 - Oregon 15 5 Pennsylvania 11 21 Rhode Island 1 - South Carolina 4 - South Dakota 1 - Tennessee 11 - Texas 20 9 Utah 1 6 Virginia 20 - Washington 38 - Wisconsin 11 - Province: British Columbia - 12 Total 426 102 16
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Results of Operations
Operating results for each fiscal period presented below are expressed as a percentage of total revenues, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.
This information has been prepared on a basis consistent with our audited 2021
annual financial statements, and, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. Our operating
results may fluctuate significantly as a result of a variety of factors, and
operating results for any period presented are not necessarily indicative of
results for a full fiscal year.
Twelve Weeks Ended Twenty-Eight Weeks Ended
July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021
Revenues:
Restaurant revenue 98.2 % 98.3 % 97.0 % 97.9 %
Franchise and other revenues 1.8 1.7 3.0 2.1
Total revenues 100.0 100.0 100.0 100.0
Costs and expenses:
Restaurant operating costs (exclusive of
depreciation and amortization shown
separately below):
Cost of sales 25.2 22.8 24.5 22.2
Labor 35.2 36.4 35.8 35.6
Other operating 18.0 17.2 17.9 17.7
Occupancy 8.0 7.9 8.0 8.8
Total restaurant operating costs 86.4 84.3 86.2 84.3
Depreciation and amortization 6.0 6.9 6.0 7.5
Selling, general and administrative 10.9 10.2 9.7 9.8
Pre-opening and acquisition costs 0.1 0.1 - 0.1
Other charges, net 2.8 0.8 2.0 1.3
Loss from operations (4.5) (0.9) (1.3) (1.1)
Interest expense, net and other 1.4 1.0 1.7 1.2
Loss before income taxes (5.9) (1.9) (3.0) (2.3)
Income tax benefit 0.1 (0.1) 0.1 (0.1)
Net loss (6.1) % (1.8) % (3.1) % (2.3) %
Revenues
Twelve Weeks Ended Twenty-Eight Weeks Ended
Percent Percent
(Revenues in thousands) July 10, 2022 July 11, 2021 Change July 10, 2022 July 11, 2021 Change
Restaurant revenue $ 288,657 $ 272,157 6.1 % $ 669,269 $ 590,834 13.3 %
Franchise royalties, fees and
other revenue 5,433 4,818 12.8 % 20,371 12,416 64.1 %
Total revenues $ 294,090 $ 276,975 6.2 % $ 689,640 $ 603,250 14.3 %
Average weekly net sales volumes
in Company-owned restaurants $ 56,633 $ 53,135 6.6 % $ 56,123 $ 49,347 13.7 %
Total operating weeks 5,097 5,122 (0.5) % 11,925 11,973 (0.4) %
Net sales per square foot $ 109 $ 102 6.7 % $ 251 $ 221 13.7 %
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Restaurant revenue for the twelve weeks endedJuly 10, 2022 , which comprises primarily food and beverage sales, increased$16.5 million , or 6.1%, as compared to the second quarter of 2021. The increase was due to a$18.1 million , or 6.7%, increase in comparable restaurant revenue, and a$1.6 million decrease at non-comparable restaurants, including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 9.6% increase in average Guest check, and a 2.9% decrease in Guest count. The increase in average Guest check resulted from a 3.7% increase in menu mix, a 6.0% increase in pricing, and was partially offset by a 0.1% decrease from higher discounts. The increase in menu mix was primarily driven by our limited time menu offerings and higher dine-in sales volumes. Off-premises sales decreased 6.3% and comprised 28.6% of total food and beverage sales during the second quarter of 2022, as compared to the same period in 2021. Restaurant revenue for the twenty-eight weeks endedJuly 10, 2022 , increased$78.4 million , or 13.3%, as compared to the twenty-eight weeks endedJuly 11, 2021 . The increase was due to a$79.5 million , or 13.8%, increase in comparable restaurant revenue, and a$1.0 million decrease at non-comparable restaurants, including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 11.3% increase in average Guest check, and a 2.5% increase in Guest count. The increase in average Guest check resulted from a 5.0% increase in menu mix, a 5.6% increase in pricing, and a 0.7% decrease in discounts. The increase in menu mix was primarily driven by our limited time menu offerings and higher dine-in sales volumes. Off-premises sales decreased 10.3% and comprised 29.7% of total food and beverage sales during the twenty-eight weeks endedJuly 10, 2022 , as compared to the same period in 2021. Average weekly net sales volumes represent the total restaurant revenue for all Company-ownedRed Robin restaurants for each time period presented, divided by the number of operating weeks in the period. Comparable restaurant revenues are comprised of Company-owned restaurants that have operated five full quarters as of the end of the period presented. The Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the twenty-eight weeks endedJuly 10, 2022 orJuly 11, 2021 . Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of reopened, new and acquired restaurants during the period, the average square footage of our restaurants, as well as the impact of changing capacity limitations in response to COVID-19 levels in a given locality. Net sales per square foot represents the total restaurant revenue for Company-owned restaurants included in the comparable base divided by the total square feet of Company-owned restaurants included in the comparable base. Franchise and other revenue increased$0.6 million for the twelve weeks endedJuly 10, 2022 compared to the twelve weeks endedJuly 11, 2021 . Our franchisees reported a comparable restaurant revenue increase of 3.8% for the twelve weeks endedJuly 10, 2022 compared to the same period in 2021. Franchise and other revenue increased$8.0 million for the twenty-eight weeks endedJuly 10, 2022 compared to the twenty-eight weeks endedJuly 11, 2021 , primarily due to the re-evaluation of the estimated redemption pattern related to gift cards resulting in a$5.8 million adjustment to gift card breakage from aligning our estimate to the updated estimated redemption pattern. Our franchisees reported a comparable restaurant revenue increase of 11.7% for the twenty-eight weeks endedJuly 10, 2022 compared to the same period in 2021. Cost of Sales Twelve Weeks Ended Twenty-Eight Weeks Ended (In thousands, except percentages) July 10, 2022 July 11, 2021 Percent Change July 10, 2022 July 11, 2021 Percent Change Cost of sales$ 72,702 $ 61,917 17.4 %$ 163,643 $ 131,083 24.8 % As a percent of restaurant revenue 25.2 % 22.8 % 2.4 % 24.5 % 22.2 % 2.3 %
Cost of sales, which comprises of food and beverage costs, is variable and
generally fluctuates with sales volume. Cost of sales as a percentage of
restaurant revenue increased 240 basis points for the twelve weeks ended
Cost of sales as a percentage of restaurant revenue increased 230 basis points for the twenty-eight weeks endedJuly 10, 2022 as compared to the same period in 2021. The increase was primarily driven by commodity inflation, partially offset by favorable mix shifts, pricing, and rebates. 18
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Labor
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 10, 2022 July 11, 2021 Percent Change July 10, 2022 July 11, 2021 Percent Change
Labor $ 101,643 $ 98,949 2.7 % $ 239,751 $ 210,608 13.8 %
As a percent of restaurant
revenue 35.2 % 36.4 % (1.2) % 35.8 % 35.6 % 0.2 %
Labor costs include restaurant-level hourly wages and management salaries as
well as related taxes and benefits. For the twelve weeks ended July 10, 2022 ,
labor as a percentage of restaurant revenue decreased 120 basis points compared
to the same period in 2021. The decrease was primarily driven by sales leverage
and lower group insurance and management incentive compensation costs, partially
offset by wage rate inflation.
For the twenty-eight weeks ended
Other Operating
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 10, 2022 July 11, 2021 Percent Change July 10, 2022 July 11, 2021 Percent Change
Other operating $ 52,003 $ 46,928 10.8 % $ 119,867 $ 104,640 14.6 %
As a percent of restaurant
revenue 18.0 % 17.2 % 0.8 % 17.9 % 17.7 % 0.2 %
Other operating costs include costs such as equipment repairs and maintenance
costs, restaurant supplies, utilities, restaurant technology, and other
miscellaneous costs. For the twelve weeks ended July 10, 2022 , other operating
costs as a percentage of restaurant revenue increased 80 basis points as
compared to the same period in 2021. The increase was primarily driven by
increases in maintenance costs, utilities and third party commissions, partially
offset by lower hiring costs and sales leverage.
For the twenty-eight weeks ended July 10, 2022 , other operating costs as a
percentage of restaurant revenue increased 20 basis points as compared to the
same period in 2021. The increase was primarily driven by increases in
maintenance costs, utilities, and third party commissions, partially offset by
lower supply costs driven by lower off-premises sales, lower hiring costs, and
sales leverage.
Occupancy
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 10, 2022 July 11, 2021 Percent Change July 10, 2022 July 11, 2021 Percent Change
Occupancy $ 22,980 $ 21,614 6.3 % $ 53,579 $ 51,714 3.6 %
As a percent of restaurant
revenue 8.0 % 7.9 % 0.1 % 8.0 % 8.8 % (0.8) %
Occupancy costs include fixed rents, property taxes, common area maintenance
charges, general liability insurance, contingent rents, and other property
costs. For the twelve weeks ended July 10, 2022 , occupancy costs as a percentage
of restaurant revenue increased 10 basis points compared to the same period in
2021 primarily driven by higher insurance costs, partially offset by sales
leverage.
For the twenty-eight weeks ended July 10, 2022 , occupancy costs as a percentage
of restaurant revenue decreased 80 basis points compared to the same period in
2021 primarily driven by sales leverage, partially offset by higher insurance
costs.
Our fixed rents for the twelve weeks ended
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Depreciation and Amortization
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 10, 2022 July 11, 2021 Percent Change July 10, 2022 July 11, 2021 Percent Change
Depreciation and
amortization $ 17,637 $ 19,215 (8.2) % $ 41,556 $ 45,103 (7.9) %
As a percent of total
revenues 6.0 % 6.9 % (0.9) % 6.0 % 7.5 % (1.5) %
Depreciation and amortization includes depreciation on capital expenditures for
restaurants and corporate assets as well as amortization of acquired franchise
rights, leasehold interests, and certain liquor licenses. For the twelve weeks
ended July 10, 2022 , depreciation and amortization expense as a percentage of
revenue decreased 90 basis points over the same period in 2021 primarily due to
net closed Company-owned restaurants, and sales leverage.
For the twenty-eight weeks ended July 10, 2022 , depreciation and amortization
expense as a percentage of revenue decreased 150 basis points over the same
period in 2021 primarily due to net closed Company-owned restaurants, and sales
leverage.
Selling, General, and Administrative
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 10, 2022 July 11, 2021 Percent Change July 10, 2022 July 11, 2021 Percent Change
Selling, general, and
administrative $ 32,095 $ 28,346 13.2 % $ 66,475 $ 58,956 12.8 %
As a percent of total
revenues 10.9 % 10.2 % 0.7 % 9.7 % 9.8 % (0.1) %
Selling, general, and administrative costs include all corporate and administrative functions. Components of this category include marketing and advertising costs; restaurant support center, regional, and franchise support salaries and benefits; travel; professional and consulting fees; corporate information systems; legal expenses; office rent; training; and board of directors expenses.
General, and administrative costs in the twelve weeks endedJuly 10, 2022 increased$1.0 million , or 5.7%, as compared to the same period in 2021. The increase was primarily driven by increased stock based compensation expense, merit increases, and increased manager-in-training costs, partially offset by a decrease in incentive compensation costs. General, and administrative costs in the twenty-eight weeks endedJuly 10, 2022 increased$3.2 million , or 8.0%, as compared to the same period in 2021. The increase was primarily driven by increased stock based compensation expense, merit increases, and increased manager-in-training costs. Selling costs in the twelve weeks endedJuly 10, 2022 increased$2.7 million , or 25.8%, as compared to the same period in 2021. The increase was primarily driven by increased marketing spend.
Selling costs in the twenty-eight weeks ended
Pre-opening Costs
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 10, 2022 July 11, 2021 Percent Change July 10, 2022 July 11, 2021 Percent Change
Pre-opening costs $ 235 $ 374 (37.2) % $ 297 $ 374 (20.6) %
As a percent of total
revenues 0.1 % 0.1 % - % - % 0.1 % (0.1) %
* Percentage increases and decreases over 100 percent were not considered meaningful
Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos® and other initiatives, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force. Our pre-opening costs fluctuate from period to period, depending upon, but not limited to, the number of restaurants where Donatos® has been introduced, the number of restaurant openings, the size of the restaurants being opened, and the location of the restaurants. Pre-opening costs for any given quarter will typically include expenses associated with restaurants opened during the quarter as well as expenses related to restaurants opening in subsequent quarters.
We incurred pre-opening costs during the twelve and twenty-eight weeks ended
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Interest Expense, Net and Other
Interest expense, net and other was$4.1 million for the twelve weeks endedJuly 10, 2022 , an increase of$1.4 million , or 48.9%, compared to the same period in 2021. The increase was primarily related to higher outstanding debt and a higher weighted average interest rate for the quarter. Our weighted average interest rate on our credit facility debt was 8.7% for the twelve weeks endedJuly 10, 2022 as compared to 7.4% for the same period in 2021. Interest expense, net and other was$11.6 million for the twenty-eight weeks endedJuly 10, 2022 , an increase of$4.4 million , or 62.5%, compared to the same period in 2021. The increase was primarily related to higher outstanding debt and a higher weighted average interest rate as well as the write off of approximately$1.7 million of deferred financing charges related to the Company's Prior Credit Facility upon the execution of the Credit Agreement onMarch 4, 2022 . Our weighted average interest rate on our credit facility debt was 8.4% for the twenty-eight weeks endedJuly 10, 2022 as compared to 6.7% for the same period in 2021. Income Tax Provision
The effective tax rate for the twelve weeks ended
The effective tax rate for the twenty-eight weeks endedJuly 10, 2022 was a 2.4% expense, compared to a 2.2% benefit for the twenty-eight weeks endedJuly 11, 2021 .
During the twelve and twenty-eight weeks ended
Liquidity and Capital Resources
Cash and cash equivalents, and restricted cash increased$36.3 million to$59.0 million as ofJuly 10, 2022 , from$22.8 million at the beginning of the fiscal year. As the Company continues to recover from the COVID-19 pandemic and generates operating cash flow, the Company is using available cash flow from operations to maintain existing restaurants and infrastructure, execute on its long-term strategic initiatives, and pay down debt. As ofJuly 10, 2022 , the Company had approximately$75.3 million in liquidity, including cash on hand and available borrowing capacity under its credit facility.
Cash Flows
The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):
Twenty-Eight Weeks Ended
July 10, 2022 July 11, 2021
Net cash provided by operating activities $ 36,439 $ 37,184
Net cash used in investing activities (15,624) (10,834)
Net cash provided by (used in) financing activities 15,455 (16,931)
Effect of exchange rate changes on cash (6) 34
Net change in cash and cash equivalents, and restricted cash $ 36,264 $ 9,453
Operating Cash Flows
Net cash flows provided by operating activities decreased $0.7 million to $36.4
million for the twenty-eight weeks ended July 10, 2022 . The change in net cash
provided by operating activities is primarily attributable to increased loss
from operations, partially offset by increased non-cash items as well as other
changes in working capital, including the tax refunds received in 2022, as
presented in the Condensed Consolidated Statements of Cash Flows.
Investing Cash Flows
Net cash flows used in investing activities increased$4.8 million to$15.6 million for the twenty-eight weeks endedJuly 10, 2022 , as compared to$10.8 million for the same period in 2021. The increase is primarily due to increased spending on restaurant improvements, and investments in technology. 21
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The following table lists the components of our capital expenditures, net of
currency translation, for the twenty-eight weeks ended
Twenty-Eight Weeks Ended
July 10, 2022 July 11, 2021
Restaurant improvement capital and other $ 7,379 $ 6,184
Investment in technology, infrastructure, and other 4,877 2,878
Donatos® expansion 2,872 1,792
New restaurants and restaurant refreshes 765 -
Total capital expenditures $ 15,893 $ 10,854
Financing Cash Flows
Net cash flows provided by financing activities increased $32.4 million to $15.5
million for the twenty-eight weeks ended July 10, 2022 , as compared to net cash
flows used in financing activities of $16.9 million in the same period in 2021.
The increase is primarily due to $16.4 million in net draws made on long-term
debt as a result of the Company's refinancing of debt on March 4, 2022 and $3.9
million in proceeds received related to a real estate sale, partially offset by
an increase in cash used for debt issuance costs, compared to a net paydown of
debt of $16.9 million in 2021.
New Credit Agreement
OnMarch 4, 2022 the Company entered into a new Credit Agreement (the "Credit Agreement"), which replaced its prior amended and restated credit agreement (the "Prior Credit Agreement"). The new Credit Agreement references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed byU.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% per annum, or (c) one-month term SOFR plus 1.00% per annum. As ofJuly 10, 2022 , the Company had outstanding borrowings under the Credit Agreement of$190.5 million net of unamortized deferred financing charges and discounts, of which$2.0 million was classified as current. As ofJuly 10, 2022 , the Company had$25.0 million of available borrowing capacity under its Credit Agreement. As ofJuly 10, 2022 , the Company had$8.4 million of letters of credit issued against cash collateral, compared to$8.6 million for the same period in 2021. The Company's cash collateral is recorded in Restricted cash on our Condensed Consolidated Balance Sheets for the quarter endedJuly 10, 2022 .
Covenants
We are subject to a number of customary covenants under our new Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments, as well as a Total Net Leverage ratio covenant. Debt Outstanding Total debt outstanding increased$23.4 million to$200.4 million atJuly 10, 2022 , from$177.0 million atDecember 26, 2021 , primarily driven by net proceeds from the issuance of the New Credit Facility during the twenty-eight weeks endedJuly 10, 2022 . Working Capital We typically maintain current liabilities in excess of our current assets which results in a working capital deficit. We are able to operate with a working capital deficit because restaurant sales are primarily conducted on a cash or credit card basis. Rapid turnover of inventory results in limited investment in inventories, and cash from sales is usually received before related payables for food, supplies, and payroll become due. In addition, receipts from the sale of gift cards are received well in advance of related redemptions. Rather than maintain higher cash balances that would result from this pattern of operating cash flows, we typically utilize operating cash flows in excess of those required for currently-maturing liabilities to pay for capital expenditures, debt repayment, or to repurchase stock as allowed. When necessary, we utilize our credit facility to satisfy short-term liquidity requirements. We believe our future cash flows generated from restaurant operations combined with our remaining borrowing capacity under the credit facility will be sufficient to satisfy any working capital deficits and our planned capital expenditures. 22
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Share Repurchase
OnAugust 9, 2018 , the Company's board of directors authorized the Company's current share repurchase program of up to a total of$75 million of the Company's common stock. The share repurchase authorization was effective as ofAugust 9, 2018 , and will terminate upon completing repurchases of$75 million of common stock unless otherwise terminated by the board. Pursuant to the repurchase program, purchases may be made from time to time at the Company's discretion and the Company is not obligated to acquire any particular amount of common stock. From the date of the current program approval throughJuly 10, 2022 , we have repurchased a total of 226,500 shares at an average price of$29.14 per share for an aggregate amount of$6.6 million . Accordingly, as ofJuly 10, 2022 , we had$68.4 million of availability under the current share repurchase program. EffectiveMarch 14, 2020 , the Company suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic. Our ability to repurchase shares is limited to conditions set forth by our lenders in the Credit Agreement; repurchases shall not exceed (in any fiscal year) the greater of$2,500,000 and 4% of Consolidated EBITDA calculated on a Pro Forma Basis for the then most recently ended period.
Inflation
The primary inflationary factors affecting our operations are food, labor costs, energy costs, and materials used in the construction of new restaurants. Increases in wage rates have directly affected our labor costs in recent years. Additionally, many of our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary increases. Labor cost and commodity cost inflation had a negative impact on our financial condition and results of operations during the twelve and twenty-eight weeks endedJuly 10, 2022 . Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed and other wage increases, and construction materials make it difficult to predict what impact, if any, inflation may continue to have on our business, but it is anticipated inflation will have a negative impact on labor and commodity costs for the remainder of 2022.
Seasonality
Our business is subject to seasonal fluctuations. Prior to the COVID-19 pandemic, sales in most of our restaurants have been higher during the summer months and winter holiday season and lower during the fall season. As a result, our quarterly operating results and comparable restaurant revenue may fluctuate significantly as a result of seasonality. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, and comparable restaurant sales for any particular future period may decrease. Contractual Obligations There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 26, 2021 , except for long-term debt obligations resulting from the refinancing of our Credit Agreement inMarch 2022 as previously discussed above and in Note 6, Borrowings, of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, Contractual long-term debt payments as ofJuly 10, 2022 are as follows (in thousands): Payments Due by Period 2027 and Total 2022 2023-2024 2025-2026 Thereafter Long-term debt obligations(1)$ 269,350 $ 7,999 $ 33,950 $ 33,341 $ 194,060 Purchase obligations(2)$ 182,566 $ 30,888 $ 66,326 $ 38,848 $ 46,504 (1) Long-term debt obligations primarily represent minimum required principal payments under our Credit Facility including estimated interest of$69.0 million based on a 7.50% average borrowing interest rate. (2) Purchase obligations includes the Company's share of expected system-wide fixed price commitments for food, beverage, equipment, and restaurant supply items. These amounts are estimates based on both purchase commitments for contracts, as well as anticipated inventory needed for the Company's restaurants, and could vary due to the timing of anticipated volumes.
See the maturity of lease liabilities table in Note 3, Leases, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors we believe to be appropriate under the circumstances. Actual results may differ from these estimates, including our estimates of future restaurant level cash flows, which are subject to the current economic environment and future impact from the COVID-19 pandemic, and we might obtain different results if we use different assumptions or conditions. We had no significant changes in our critical accounting policies and estimates which were disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 26, 2021 .
Recently Issued and Recently Adopted Accounting Standards
None noted.
Forward-Looking Statements
Certain information and statements contained in this report are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "PSLRA") codified at Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Exchange Act.
Forward-looking statements include statements regarding our expectations,
beliefs, intentions, plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements which are other
than statements of historical facts. These statements may be identified, without
limitation, by the use of forward-looking terminology such as "anticipate,"
"assume," "believe," "could," "estimate," "expect," "future," "intend," "may,"
"plan," "project," "will," "continue," and similar expressions. Forward-looking
statements may relate to, among other things: (i) anticipated impacts of
litigation, including employment-related claims, on our financial position and
results of operations, (ii) anticipated impacts of COVID-19 on our business, our
financial position and results of operations, (iii) expectations regarding our
ability to attract and retain Team Members, (iv) our business focus and
strategy, (v) our ability to maintain our working capital position, (vi) our
ability to use our credit facility to satisfy our working capital deficit,
short-term liquidity requirements and capital expenditures, (vii) anticipated
impacts of inflation, and (viii) availability of food and supplies meeting our
specifications from alternate sources.
Although we believe the expectations reflected in our forward-looking statements
are based on reasonable assumptions, such expectations may prove to be
materially incorrect due to known and unknown risks and uncertainties.
In some cases, information regarding certain important factors that could cause
actual results to differ materially from a forward-looking statement appears
together with such statement. In addition, the factors described under Risk
Factors, as well as other possible factors not listed, could cause actual
results to differ materially from those expressed in forward-looking statements,
including, without limitation, the following:
•the impact of COVID-19 on our results of operations, supply chain, and
liquidity; the effectiveness of the Company's strategic initiatives, including
alternative labor models, service, and operational improvement initiatives;
•our ability to recruit staff, train, and retain our workforce for service
execution;
•the effectiveness of the Company's marketing strategies and promotions;
•menu changes, including the anticipated sales growth, costs, and timing of the
Donatos® expansion;
•the implementation, rollout, and timing of technology solutions in our
restaurants and at our restaurant support center, in addition to digital
platforms that are accessed by our Guests;
•our ability to achieve and sustain revenue and cost savings from off-premise
sales and other initiatives;
•competition in the casual dining market and discounting by competitors;
•changes in consumer spending trends and habits;
•changes in the cost and availability of key food products and distribution,
restaurant equipment, construction materials, labor, and energy, including the
existence of alternate suppliers and the availability of supplies meeting our
specification;
•general economic conditions, including changes in consumer disposable income,
weather conditions, and related events in regions where our restaurants are
operated;
•the adequacy of cash flows and the cost and availability of capital or credit
facility borrowings, including our ability to refinance our credit facility, on
terms we expect or at all
•the level and impacts of inflation;
• the impact of federal, state, and local regulation of the Company's business;
•changes in federal, state, or local laws and regulations affecting the
operation of our restaurants, including minimum wages, consumer health and
safety, health insurance coverage, nutritional disclosures, and employment
eligibility-related documentation requirements; and
•costs and other effects of legal claims by Team Members, franchisees,
customers, vendors, stockholders, and others, including negative publicity
regarding food safety or cyber security.
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All forward-looking statements speak only as of the date made. All subsequent
written and oral forward-looking statements attributable to us, or persons
acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. Except as required by law, we undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which it is made or to reflect the occurrence of anticipated or
unanticipated events or circumstances.
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