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 2020 and 2019 refer to the twelve and twenty-eight weeks endedJuly 12, 2020 andJuly 14, 2019 , unless otherwise indicated. Overview Description of BusinessRed 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 552 locations inNorth America . As ofJuly 12, 2020 , the Company owned 450 restaurants located in 38 states. The Company also had 102 franchised full-service restaurants in 16 states and one Canadian province as ofJuly 12, 2020 . The Company operates its business as one operating and one reportable segment. COVID-19 Pandemic Due to the novel coronavirus ("COVID-19") pandemic, we have navigated and continue to navigate an unprecedented time for our business and industry as we collectively work to maintain the stable operation of our business. During the second quarter of 2020, we began re-opening dining rooms at Company-owned restaurants in accordance with local limits with re-opened restaurants operating at no higher than 50% occupant capacity. Re-opening our dining rooms was executed with the health, safety, and well-being ofRed Robin's Team Members, Guests, and communities in mind with strict adherence toUS Centers for Disease Control ("CDC"), state, and local guidelines as our top priority. Our continued focus during the COVID-19 pandemic on delivering best-in-class hospitality has resulted in improved average weekly net sales per restaurant and record high Guest satisfaction scores since the onset of the pandemic in early March. We have remained focused on expanding seating capacity, retaining off-premise sales levels, and consistently delivering a great Guest experience. Outdoor seating has been recently expanded beyond our patios where possible, and restaurants are piloting partitions between tables inside our dining rooms. We are also actively requiring Guests to wear face coverings at all locations while entering, exiting, and walking around our restaurants and providing face masks for Guests who arrive without one to ensure we are enabling the mutual safety of our Guests and Team Members. As our dining rooms have re-opened, sales and the Guest experience have been positively impacted by the accelerated implementation of our new Total Guest Experience ("TGX") hospitality model, coupled with strong adherence to health and safety standards. Notably, restaurants with re-opened dining rooms are retaining meaningful off-premise sales, demonstrating the enduring and growing popularity ofRed Robin for off-premise occasions. Relevant year-to-date highlights as ofAugust 9, 2020 include: •Preliminary average net sales per restaurant of$38,031 for the week endedAugust 9, 2020 ; •Preliminary average net sales per restaurant for restaurants with re-opened indoor dining rooms was$39,808 for the week endedAugust 9, 2020 ; •Expected average cash burn rate of approximately$2 million per week for the third fiscal quarter, including the impact of increased occupancy payments compared to the second fiscal quarter; and •More than$103 million in total liquidity, including cash and cash equivalents and available borrowing capacity under our revolving line of credit. Now that we have operated under COVID-19 conditions for approximately five months and with increased liquidity from our recent equity raise through an at-the-market offering program and increased administrative and restaurant-level cost efficiencies, we are resuming efforts to opportunistically implement certain elements of our strategic plan that we had previously put on hold as a result of the pandemic. We believe that the actions we have taken in response to COVID-19 will be sufficient to fund our lease obligations, capital expenditures, and working capital needs for the next 12 months and foreseeable future. Our strategic plan will enableRed Robin to turnaround and transform the business in the long-term through delivering best-in-class execution, including implementing our TGX hospitality model, rolling out Donatos® Pizza, and enhancing our technological and digital capabilities to drive increased Guest engagement and frequency with our brand. 16 -------------------------------------------------------------------------------- Table of Contents All of our re-opened dining rooms operate with our new TGX hospitality model, which elevates levels of hospitality with servers dedicating more time in the dining room attending to and engaging with Guests while supported by a server partner. The use of handheld point-of-sale devices is critical to sending food orders to our kitchens and beverage orders to our server partners, ensuring speed of service, high quality food, and more attentive beverage and bottomless refills. Additionally, we are particularly focused on our ability to execute a great off-premise experience through improving the accuracy of promise times for order pick-up and delivery. We have put in place improved organization and process flow for off-premise orders, more convenient order pick up options, and dedicated assembly workspaces that can expand during peak periods. With these measures in place, we are confident that we are delivering an elevated restaurant experience that differentiatesRed Robin from the competition. The Company has been required to re-close dining rooms since the release of our first quarter earnings at numerous Company-owned restaurants, including 53 indoor dining rooms inCalifornia due to a state mandate in early July, from the effects of increased COVID-19 cases in certain states and localities. Since these closures in early July, our average weekly net sales per restaurant has increased through the week endedAugust 9, 2020 even as these indoor dining rooms have remained closed. Each of our franchisees has re-opened their restaurants as of the end of our second fiscal quarter, and no franchise restaurants have permanently closed because of the COVID-19 pandemic. During the latter half of our second fiscal quarter, we began charging and collecting partial royalty payments and advertising contributions from our franchisees. Abated royalty payments and advertising contributions will not be collected by the Company. Since the release of our first quarter earnings, net comparable restaurant revenue and average net sales per restaurant through the week endedAugust 9, 2020 are as follows: Week ended Company-owned Restaurants(3) 14-Jun 21-Jun 28-Jun 5-Jul 12-Jul 19-Jul 26-Jul 2-Aug 9-Aug
(35.4)% (32.8)%
Revenues
Average Net Sales per Restaurant $38,259 $40,596 $38,471 $33,938 $34,731 $35,164 $36,783 $37,239 $38,031
# of Comparable Company-operated 413 413 413 413 413 413 412 412 412
Restaurants(1)
-------------------
(1) Comparable restaurants are those Company-owned restaurants that have
operated five full quarters as of the fiscal week presented. Restaurant count
shown is as of the end of the fiscal week presented.
As of August 9, 2020 , the Company has re-opened 346 indoor dining rooms with
limited capacity, representing approximately 84% of currently open Company-owned
restaurants. Notably, these restaurants have on average maintained off-premise
sales that are approximately 40% of sales mix after re-opening dining rooms. As
of August 9, 2020 , the Company has re-opened three and permanently closed five
of our 35 restaurants that were temporarily closed due to the COVID-19 pandemic.
For the 27 remaining restaurants that are still temporarily closed as of August
9, 2020 , we will continue to evaluate the potential timing of re-opening these
locations. Restaurant operating level expenses incurred for these restaurants
during the closures has been recorded in Restaurant closure and refranchising
costs in Other charges; see Note 7, Other Charges, in the Notes to the Condensed
Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on
Form 10-Q.
Net comparable restaurant revenue and average net sales per Company-owned
restaurant with re-opened indoor dining rooms through the week ended August 9,
2020 is as follows:
Week ended
Re-opened Company-owned 14-Jun 21-Jun 28-Jun 5-Jul 12-Jul 19-Jul 26-Jul 2-Aug 9-Aug
Restaurant Indoor Dining Rooms(3)
(30.4)% (27.9)%
Revenues
Average Net Sales per Restaurant $42,271 $44,134 $40,834 $35,592 $36,845 $37,380 $38,393 $39,058 $39,808
# of Comparable Company-operated 336 359 385 328 336 349 346
Restaurants(2) 350 348
-------------------
(2) Net sales performance for Company-owned restaurants with re-opened indoor
dining rooms for full fiscal week presented. Restaurant count is as of the end
of the fiscal week presented.
(3) Net comparable restaurant revenues and average net sales per restaurant for
weeks ending after July 12, 2020 are preliminary amounts.
Financial and Operational Highlights
The following summarizes the operational and financial highlights during the
twelve weeks ended July 12, 2020 :
•Restaurant revenue decreased $142.3 million , or 47.0%, to $160.1 million for
the twelve weeks ended July 12, 2020 , as compared to the twelve weeks ended
July 14, 2019 , due to a $112.8 million , or 41.4%, decrease in comparable
restaurant revenue and a $29.5 million decrease primarily from closed
restaurants.
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•Restaurant revenue decreased $241.3 million , or 34.3%, to $461.6 million for
the twenty-eight weeks ended July 12, 2020 , as compared to the twenty-eight
weeks ended July 14, 2019 , due to a $186.9 million , or 29.7%, decrease in
comparable restaurant revenue and a $54.4 million decrease primarily from closed
restaurants.
•Restaurant operating costs, as a percentage of restaurant revenue, increased
1,620 basis points to 98.0% for the twelve weeks ended July 12, 2020 , as
compared to 81.8% for the twelve weeks ended July 14, 2019 . The increase was due
to higher cost of sales, labor costs, other operating costs, and occupancy costs
as a percentage of restaurant revenue. The drivers within cost of sales included
an increase in ground beef prices, partially offset by discounts and lower
waste. The drivers within labor costs included sales deleverage and higher
hourly wage and benefit rates driven by shifting labor mix in support of our
off-premise operating model, partially offset by lower restaurant manager
incentive compensation. The drivers within other operating costs included higher
third-party delivery fees driven by higher off-premise sales volume and sales
deleverage impacts on restaurant supply, utility, and technology costs,
partially offset by a decrease in restaurant maintenance costs. The drivers
within occupancy costs included sales deleverage impacts on rent expense and
other real estate costs.
•Restaurant operating costs, as a percentage of restaurant revenue,
increased 1,190 basis points to 93.6% for the twenty-eight weeks ended July 12,
2020 , as compared to 81.7% for the twenty-eight weeks ended July 14, 2019 . The
increase was due to higher cost of sales, labor costs, other operating costs,
and occupancy costs as a percentage of restaurant revenue. The drivers within
cost of sales included an increase in ground beef prices. The drivers within
labor costs included sales deleverage and higher hourly wage and benefit rates
driven by shifting labor mix in support of our off-premise operating model,
partially offset by lower restaurant manager incentive compensation. The drivers
within other operating costs included higher third-party delivery fees driven by
higher off-premise sales volume and sales deleverage impacts on restaurant
supply, utility, and technology costs, partially offset by a decrease in
restaurant maintenance costs. The drivers within occupancy costs included sales
deleverage impacts on rent expense and general liability and other real estate
costs.
•Net loss was $56.3 million for the twelve weeks ended July 12, 2020 compared to
net income of $1.0 million for the twelve weeks ended July 14, 2019 . Diluted
loss per share was $4.09 for the twelve weeks ended July 12, 2020 , as compared
to diluted earnings per share of $0.08 for the twelve weeks ended July 14, 2019 .
Excluding costs per diluted share included in Other charges of $0.41 for
restaurant closure and refranchising costs, $0.28 for restaurant asset
impairment, $0.05 for board and stockholder matters costs, and $0.04 for
COVID-19 related costs, adjusted loss per diluted share for the second quarter
ended July 12, 2020 , was $3.31 . Excluding costs per diluted share included in
Other charges of $0.80 for restaurant asset impairment, $0.07 for board and
stockholder matters costs, $0.05 for restaurant closure and refranchising costs,
$0.02 for severance and executive transition, and $0.01 for executive retention,
adjusted earnings per diluted share for the twelve weeks ended July 14, 2019 was
$1.03 .
•Net loss was $230.6 million for the twenty-eight weeks ended July 12, 2020
compared to net income of $1.6 million for the twenty-eight weeks ended July 14,
2019 . Diluted loss per share was $17.38 for the twenty-eight weeks ended
July 12, 2020 , as compared to diluted earnings per share of $0.12 for the
twenty-eight weeks ended July 14, 2019 . Excluding costs per diluted share
included in Other charges of $5.32 for goodwill impairment, $1.16 for restaurant
asset impairment, $0.51 for restaurant closure and refranchising costs, $0.25
for litigation contingencies, $0.13 for board and stockholder matters costs,
$0.05 for severance and executive transition, and $0.05 for COVID-19 related
costs, adjusted loss per diluted share for the twenty-eight weeks ended July 12,
2020 was $9.91 . Excluding costs per diluted share included in Other charges of
$0.80 for restaurant asset impairment, $0.13 for severance and executive
transition, $0.08 for restaurant closure and refranchising costs, $0.07 for
board and stockholder matters costs, and $0.02 for executive retention, adjusted
earnings per diluted share for the twenty-eight weeks ended July 14, 2019 was
$1.22 .
•We believe the non-GAAP measure of adjusted (loss) earnings per 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.
•Marketing - Our Red Robin Royalty™ loyalty program operates in all our U.S.
Company -owned Red Robin restaurants and has been rolled out to most of our
franchised restaurants. We engage our Guests through Red Robin Royalty with
offers designed to increase frequency of visits as a key part of our overall
marketing strategy. Our media buying approach has pivoted to prioritize digital,
social, and owned channels including our website and email to effectively target
and reach our Guests.
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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 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019
Company-owned:
Beginning of period 452 483 454 484
Closed during the period(1) (2) (11) (4) (12)
End of period 450 472 450 472
Franchised:
Beginning of period 102 89 102 89
Opened during the period - 1 - 1
End of period 102 90 102 90
Total number of restaurants 552 562 552 562
________________________________________________________
(1) In addition to the permanent closures during the twelve and twenty-eight weeks endedJuly 12, 2020 , 35 Company-owned restaurants remained temporarily closed due to the COVID-19 pandemic. 19 -------------------------------------------------------------------------------- Table of Contents 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 2019 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 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019 Revenues: Restaurant revenue 99.4 % 98.2 % 98.8 % 97.9 % Franchise and other revenues 0.6 1.8 1.2 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 24.2 23.9 23.7 23.6 Labor 39.2 35.2 39.3 35.5 Other operating 21.6 14.3 18.8 14.0 Occupancy 13.0 8.4 11.8 8.6 Total restaurant operating costs 98.0 81.8 93.6 81.7 Depreciation and amortization 12.8 6.9 10.5 6.9 Selling, general and administrative 12.2 11.4 13.1 11.6 Pre-opening and acquisition costs - - - - Other charges 9.0 5.5 28.7 2.7 Loss from operations (31.4) (4.2) (44.7) (1.3) Interest expense, net and other 1.2 0.7 1.1 0.8 Loss before income taxes (32.6) (4.9) (45.8) (2.1) Income tax provision (benefit) 2.3 (5.2) 3.5 (2.3) Net (loss) income (34.9) % 0.3 % (49.4) % 0.2 %
___________________________________
Certain percentage 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.
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Revenues
Twelve Weeks Ended Twenty-Eight Weeks Ended
Percent
(Revenues in thousands) July 12, 2020 July 14, 2019 Change July 12, 2020 July 14, 2019 Percent Change
Restaurant revenue $ 160,144 $ 302,418 (47.0) % $ 461,578 $ 702,902 (34.3) %
Franchise royalties, fees and other
revenue 978 5,563 (82.4) % 5,609 14,945 (62.5) %
Total revenues $ 161,122 $ 307,981 (47.7) % $ 467,187 $ 717,847 (34.9) %
Average weekly sales volumes in
Company-owned restaurants $ 32,287 $ 52,907 (39.0) % $ 37,915 $ 52,272 (27.5) %
Total operating weeks 4,960 5,716 (13.2) % 12,174 13,447 (9.5) %
Net sales per square foot $ 62 $ 102 (39.5) % $ 171 $ 236 (27.5) %
Restaurant revenue for the twelve weeks ended July 12, 2020 , which comprises
primarily of food and beverage sales, decreased $142.3 million , or 47.0%, as
compared to second quarter 2019. The decrease was due to a $112.8 million , or
41.4%, decrease in comparable restaurant revenue and a $29.5 million decrease
primarily from closed restaurants. The comparable restaurant revenue decrease
was driven by a 38.5% decrease in Guest count and a 2.9% decrease in average
Guest check. The decrease in Guest count was primarily driven by a 36.2%
decrease caused by the COVID-19 pandemic. The decrease in average Guest check
resulted from a 5.7% decrease in menu mix, partially offset by a 2.2 % increase
in pricing and a 0.6 % increase from lower discounting. The decrease in menu mix
was primarily driven by limited dining room capacity at re-opened restaurants
and operating off-premise only at restaurants with temporarily closed dining
rooms, resulting in lower sales of beverages and Finest burgers. Off-premise
sales increased 208.7% and comprised 63.8% of total food and beverage sales
during the second quarter of 2020.
Restaurant revenue for the twenty-eight weeks ended July 12, 2020 , decreased
$241.3 million or 34.3%, as compared to the twenty-eight weeks ended July 14,
2019 . The decrease was due to a $186.9 million , or 29.7%, decrease in comparable
restaurant revenue and a $54.4 million decrease primarily from closed
restaurants. The comparable restaurant revenue decrease was driven by a 28.5%
decrease in Guest count and a 1.2% decrease in average Guest check. The decrease
in Guest count was primarily driven by a 28.2% decrease caused by the COVID-19
pandemic. The decrease in average Guest check resulted from a 3.4% decrease in
menu mix, partially offset by a 1.8 % increase in pricing and a 0.4 % increase
from lower discounting. The decrease in menu mix was primarily driven by limited
dining room capacity at re-opened restaurants and operating off-premise only at
restaurants with temporarily closed dining rooms, resulting in lower sales of
beverages and Finest burgers. Off-premise sales increased 141.3% and comprised
39.7% of total food and beverage sales during the twenty-eight weeks ended
July 12, 2020 .
Average weekly sales volumes represent the total restaurant revenue for all
Company-owned Red Robin restaurants for each time period presented, divided by
the number of operating weeks in the period. Comparable restaurant revenues
include those restaurants that are in the comparable base at the end of each
period presented. The 35 temporarily closed Company-owned restaurants were not
included in the comparable base for the twelve and twenty-eight weeks ended
July 12, 2020 . New restaurants are restaurants that are open but not included in
the comparable category because they have not operated for five full quarters.
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 new and acquired restaurants during the period and the average
square footage of our restaurants. Net sales per square foot represents the
total restaurant revenue for Company-owned restaurants included in the
comparable base divided by the total adjusted square feet of Company-owned
restaurants included in the comparable base.
Franchise and other revenue decreased $4.6 million for the twelve weeks ended
July 12, 2020 compared to the twelve weeks ended July 14, 2019 due to the
temporary abatement of all franchisee royalty and advertising contribution
payments in response to COVID-19's effect on our franchise operations. During
the latter half of our second fiscal quarter, however, we resumed charging and
collecting partial royalty payments and advertising contributions from our
franchisees. Our franchisees reported a comparable restaurant revenue decrease
of 41.0% for the twelve weeks ended July 12, 2020 compared to the same period in
2019.
Franchise and other revenue decreased $9.3 million for the twenty-eight weeks
ended July 12, 2020 compared to the twenty-eight weeks ended July 14, 2019 due
to the temporary abatement of franchisee royalty and advertising contribution
payments in response to COVID-19's effect on our franchise operations. During
the latter half of our second fiscal quarter, however, we resumed charging and
collecting partial royalty payments and advertising contributions from our
franchisees. Our franchisees reported a comparable restaurant revenue decrease
of 31.3% for the twenty-eight weeks ended July 12, 2020 compared to the same
period in 2019.
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Cost of Sales
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change
Cost of sales $ 38,780 $ 72,387 (46.4) % $ 109,206 $ 166,102 (34.3) %
As a percent of restaurant
revenue 24.2 % 23.9 % 0.3 % 23.7 % 23.6 % 0.1 %
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 30 basis points for the twelve weeks ended July 12,
2020 as compared to the same period in 2019. The increase was primarily driven
by higher ground beef prices, partially offset by discounts and lower waste.
Cost of sales as a percentage of restaurant revenue increased 10 basis points
for the twenty-eight weeks ended July 12, 2020 as compared to the same period in
2019. The increase was mainly driven by higher ground beef prices.
Labor
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change
Labor $ 62,742 $ 106,538 (41.1) % $ 181,308 $ 249,432 (27.3) %
As a percent of restaurant
revenue 39.2 % 35.2 % 4.0 % 39.3 % 35.5 % 3.8 %
Labor costs include restaurant-level hourly wages and management salaries as
well as related taxes and benefits. For the twelve weeks ended July 12, 2020 ,
labor as a percentage of restaurant revenue increased 400 basis points compared
to the same period in 2019. The increase was primarily due to sales deleverage
and higher hourly wage and benefit rates driven by shifting labor mix in support
of our off-premise operating model, partially offset by lower restaurant manager
incentive compensation. For the twenty-eight weeks ended July 12, 2020 , labor as
a percentage of restaurant revenue increased 380 basis points compared to the
same period in 2019. The increase was primarily driven by sales deleverage and
higher hourly wage and benefit rates driven by shifting labor mix in support of
our off-premise operating model, partially offset by lower restaurant manager
incentive compensation.
Other Operating
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change
Other operating $ 34,663 $ 43,000 (19.4) % $ 86,954 $ 98,565 (11.8) %
As a percent of restaurant
revenue 21.6 % 14.3 % 7.3 % 18.8 % 14.0 % 4.8 %
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 12, 2020 , other operating
costs as a percentage of restaurant revenue increased 730 basis points as
compared to the same period in 2019. The increase was primarily due to higher
third-party delivery fees driven by higher off-premise sales volumes and sales
deleverage impacts on restaurant supply, utility, and technology costs,
partially offset by a decrease in restaurant maintenance costs. For the
twenty-eight weeks ended July 12, 2020 , other operating costs as a percentage of
restaurant revenue increased 480 basis points as compared to the same period in
2019. The increase was primarily due to higher third-party delivery fees driven
by higher off-premise sales volumes and sales deleverage impacts on restaurant
supply, utility, and technology costs, partially offset by a decrease in
restaurant maintenance costs.
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Occupancy
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change
Occupancy $ 20,758 $ 25,458 (18.5) % $ 54,415 $ 60,478 (10.0) %
As a percent of restaurant
revenue 13.0 % 8.4 % 4.6 % 11.8 % 8.6 % 3.2 %
Occupancy costs include fixed rents, property taxes, common area maintenance
charges, general liability insurance, contingent rents, and other property
costs. Occupancy costs incurred prior to opening our new restaurants are
included in pre-opening costs. For the twelve weeks ended July 12, 2020 ,
occupancy costs as a percentage of restaurant revenue increased 460 basis points
compared to the same period in 2019 primarily due to sales deleverage impacts on
rent expense and other real estate costs. For the twenty-eight weeks ended
July 12, 2020 , occupancy costs as a percentage of restaurant revenue increased
320 basis points compared to the same period in 2019 primarily due to sales
deleverage impacts on rent expense and general liability and other real estate
costs.
Our fixed rents for the twelve weeks ended July 12, 2020 and July 14, 2019
were $14.7 million and $17.0 million , a decrease of $2.3 million due to
permanent restaurant closures. Our fixed rents for the twenty-eight weeks ended
July 12, 2020 and July 14, 2019 were $36.3 million and $40.2 million , a decrease
of $3.9 million due permanent restaurant closures.
Depreciation and Amortization
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change
Depreciation and
amortization $ 20,560 $ 21,369 (3.8) % $ 48,880 $ 49,807 (1.9) %
As a percent of total
revenues 12.8 % 6.9 % 5.9 % 10.5 % 6.9 % 3.6 %
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 week
periods ended July 12, 2020 , depreciation and amortization expense as a
percentage of revenue increased 590 basis points over the same period in 2019
primarily due to sales deleverage. For the twenty-eight weeks ended July 12,
2020 , depreciation and amortization expense as a percentage of revenue increased
360 basis points over the same period in 2019 primarily due to sales deleverage.
Selling, General, and Administrative
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change
Selling, general, and
administrative $ 19,697 $ 35,234 (44.1) % $ 61,199 $ 83,350 (26.6) %
As a percent of total revenues 12.2 % 11.4 % 0.8 % 13.1 % 11.6 % 1.5 %
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.
Selling, general, and administrative costs in the twelve weeks ended July 12,
2020 decreased $15.5 million , or 44.1%, as compared to the same period in 2019.
The decrease was primarily due to decreased national and local media spend,
decreased Team Member salaries and wages resulting from the reduction in force
and temporary salary reductions, and decreased Team Member benefits, travel and
entertainment, professional services, and gift card related costs. For the
twenty-eight weeks ended July 12, 2020 , selling, general, and administrative
costs decreased $22.2 million , or 26.6%, as compared to the same period in 2019.
The decrease was primarily related to a decrease in national and local media
spend, decreased Team Member salaries and wages resulting from the reduction in
force and temporary salary reductions, and decreased Team Member benefits,
travel and entertainment, professional services, gift card, and project related
general and administrative costs.
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Pre-opening Costs
Twelve Weeks Ended Twenty-Eight Weeks Ended
(In thousands, except
percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change
Pre-opening costs $ 3 $ - - % $ 156 $ 319 (51.1) %
As a percent of total
revenues - % - % - % - % - % - %
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 minimal pre-opening costs during the twelve and twenty-eight weeks
ended July 12, 2020 related to the rollout of Donatos®. Prior to the COVID-19
pandemic, we purchased Donatos® equipment for the Seattle market, including
approximately 31 restaurants. We currently plan to resume our rollout of
Donatos® in this legacy market by the end of the year. The Company will resume
its phased system-wide rollout of Donatos® beginning in 2021.
Goodwill
We performed a goodwill impairment analysis during the first quarter of 2020
resulting in full impairment of our goodwill balance totaling $95.4 million . The
goodwill impairment is included in Other charges on the condensed consolidated
statements of operations and comprehensive (loss) income for the twenty-eight
weeks ended July 12, 2020 and was measured as the amount by which the carrying
amount of the reporting unit, including goodwill, exceeded its fair value.
Restaurant Assets
During the twelve weeks ended July 12, 2020 , the Company recognized $5.3 million
of impairment related to restaurant assets included in Other charges on the
condensed consolidated statements of operations and comprehensive (loss) income
resulting from the continuing and projected future results of 6 Company-owned
restaurants. Restaurant asset impairment of $2.3 million was related to 4 closed
Company-owned restaurants and included in Restaurant closure and refranchising
costs in Note 7, Other Charges. Additional restaurant asset impairment was
recognized during the twelve weeks ended July 12, 2020 due to changes in
management's forecast. Although current fiscal year to date results continue to
align with management's forecast, the increase in reported COVID-19 cases across
the United States and factors associated with the pandemic have changed
management's expectation on the timing of the Company's recovery and projected
results in future fiscal periods at certain restaurants. If reported COVID-19
cases continue to increase or other factors associated with the pandemic
continue to develop, management's forecast could change in future periods
requiring additional restaurant asset impairment.
The Company recognized $15.5 million of impairment related to restaurant assets
during the first quarter of 2020 resulting from the continuing and projected
future results of 24 Company-owned restaurants. The restaurant asset impairment
is included in Other charges on the condensed consolidated statements of
operations and comprehensive (loss) income for the twenty-eight weeks ended July
12, 2020 .
Recoverability of restaurant assets, including restaurant sites, leasehold
improvements, information technology systems, right-of-use assets, amortizable
intangible assets, and other fixed assets, to be held and used is measured by a
comparison of the carrying amount of the assets to the future undiscounted net
cash flows expected to be generated by the assets. Identifiable cash flows are
measured at the lowest level for which they are largely independent of the cash
flows of other groups of assets and liabilities, generally at the restaurant
level. Each restaurant's past and present operating performance was reviewed in
combination with projected future results primarily through projected
undiscounted cash flows that included management's expectation of future
financial impacts from COVID-19. If the restaurant assets were determined to be
impaired through comparison of the assets carrying value to its undiscounted
cash flows, the Company compared the carrying amount of each restaurant's assets
to its fair value as estimated by management to calculate the impairment amount.
The fair value of restaurant assets is generally determined using a discounted
cash flow projection model, which is based on significant inputs not observed in
the market and represents a level 3 fair value measurement. In certain cases,
management uses other market information, when available, to estimate the fair
value of a restaurant's assets. The restaurant asset impairment charges
represent the excess of the carrying amount over the estimated fair value of the
restaurant assets calculated using a discounted cash flow projection model.
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Interest Expense, Net and Other
Interest expense, net and other was $2.0 million for the twelve weeks ended
July 12, 2020 , a decrease of $0.2 million , or 9.1%, compared to the same period
in 2019. The decrease was primarily related to a lower weighted average interest
rate, partially offset by a higher average outstanding debt balance compared to
the same period in 2019. Our weighted average interest rate was 4.2% for the
twelve weeks ended July 12, 2020 as compared to 5.2% for the same period in
2019.
Interest expense, net and other was $5.3 million for the twenty-eight weeks
ended July 12, 2020 , a decrease of $0.1 million , or 1.9%, compared to the same
period in 2019. The decrease was primarily related to a lower weighted average
interest rate, partially offset by a higher average outstanding debt balance
compared to the same period in 2019. Our weighted average interest rate was 4.2%
for the twenty-eight weeks ended July 12, 2020 as compared to 5.0% for the same
period in 2019.
Provision for Income Taxes
The effective tax rate for the twelve weeks ended July 12, 2020 was a 7.0%
expense, compared to a 106.5% benefit for the twelve weeks ended July 14, 2019 .
The effective tax rate for the twenty-eight weeks ended July 12, 2020 was a 7.7%
expense, compared to a 110.9% benefit for the same period in 2019. The increase
in tax expense for both the twelve and twenty-eight weeks ended July 12, 2020 is
primarily due to a decrease in current year tax credits and the recognition of a
valuation allowance on our tax credit deferred tax asset, partially offset by a
decrease in income and favorable rate impact of net operating loss ("NOL")
carrybacks allowed as part of the Coronavirus Aid, Relief, and Economic Security
("CARES") Act, which could generate projected cash tax refunds in the range of
$14 million to $17 million within the next 12 months.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
future reversals of existing deferred tax liabilities and projected future
taxable income, including whether future originating deductible temporary
differences are likely to be realized. The Company generates FICA tip credits
based on revenue of the Company which can be utilized to offset 75% of taxes
payable and may be carried forward for a period of 20 years to the extent they
are not utilized in the year they are generated. As a result of the anticipated
NOLs in 2019 and the projected NOLs in 2020 as permitted under the CARES Act,
approximately $58 million of the previously utilized FICA tip tax credits will
be reinstated. While the existing FICA tip credit carryforwards as of July 12,
2020 will be utilized based on projected future taxable income, they are
anticipated to be replaced by originating FICA tip credits that are not
projected to be utilized in the carry forward period. Therefore, through the
twenty-eight weeks ended July 12, 2020 , a $79 million valuation allowance has
been established for the FICA tip credit carryforwards. $27 million of the
valuation allowance was recognized during the twelve weeks ended July 12, 2020 .
To the extent future actual taxable income exceeds the current projections, the
FICA tip credit carryforwards may become realizable and will require us to
reassess our valuation allowance in the future.
Liquidity and Capital Resources
Cash and cash equivalents decreased $3.9 million to $26.1 million at July 12,
2020 , from $30.0 million at the beginning of the fiscal year. As the Company
continues to manage the impact of COVID-19, available cash will be used to
provide operating liquidity. As of August 9, 2020 , the Company had more than
$103 million in total liquidity including cash and cash equivalents and
available borrowing capacity under our revolving line of credit.
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 12, 2020 July 14, 2019
Net cash (used in) provided by operating activities $ (18,607) $ 41,746
Net cash used in investing activities (11,413) (20,990)
Net cash provided by (used in) financing activities 26,369 (13,246)
Effect of exchange rate changes on cash (256) 115
Net change in cash and cash equivalents $
(3,907)
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Operating Cash Flows
Net cash flows (used in) provided by operating activities decreased $60.4
million to $18.6 million for the twenty-eight weeks ended July 12, 2020 . The
changes in net cash (used in) provided by operating activities are primarily
attributable to a $70.2 million decrease in profit from operations, as well as
changes in working capital as presented in the condensed consolidated statements
of cash flows.
Investing Cash Flows
Net cash flows used in investing activities decreased $9.6 million to $11.4
million for the twenty-eight weeks ended July 12, 2020 , as compared to $21.0
million for the same period in 2019. The decrease is primarily due to decreased
investment in restaurant technology, restaurant maintenance, and new restaurants
and restaurant refreshes due to the COVID-19 pandemic.
The following table lists the components of our capital expenditures, net of
currency translation effect, for the twenty-eight weeks ended July 12, 2020 and
July 14, 2019 (in thousands):
Twenty-Eight Weeks Ended
July 12, 2020 July 14, 2019
Restaurant maintenance capital and other $ 7,194 $ 8,331
Investment in technology infrastructure and other 4,262 11,862
New restaurants and restaurant refreshes - 975
Total capital expenditures $ 11,456 $ 21,168
Financing Cash Flows
Cash provided by (used in) financing activities increased $39.6 million to $26.4
million for the twenty-eight weeks ended July 12, 2020 , as compared to the same
period in 2019. The increase is due to cash proceeds received from the issuance
of common stock, net of cash paid for stock issuance costs, of $29.7 million and
a $13.1 million decrease in net draws made on long-term debt. The increase was
partially offset by an increase of cash used for debt issuance costs and
repurchases of the Company's common stock before the Company temporarily
suspended the share repurchase program due to COVID-19. The net cash proceeds
from issuance of common stock of $29.7 million do not include unpaid, accrued
stock issuance costs of approximately $1.0 million .
Credit Facility
On January 10, 2020 , the Company replaced its prior credit facility with a new
five-year Amended and Restated Credit Agreement (the "Credit Facility") which
provides for a $161.5 million revolving line of credit and a $138.5 million term
loan, which requires quarterly principal payments at a rate of 7.0% per annum of
the original principal balance, for a total borrowing capacity of $300 million .
The interest rates of the revolving line of credit and term loans are based on
the London Interbank Offered Rate ("LIBOR"). LIBOR is set to terminate in
December 2021 , however, we anticipate an amended credit agreement will be
executed at the new applicable interest rate. See Note 8, Borrowings, in the
Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this
Form 10-Q for further discussion.
As of July 12, 2020 , the Company had outstanding borrowings under the Credit
Facility of $206.6 million , of which $9.7 million was classified as current, in
addition to amounts issued under letters of credit of $7.5 million . Amounts
issued under letters of credit reduce the amount available under the Credit
Facility but are not recorded as debt. As of July 12, 2020 , the Company had
$81.1 million of available borrowing capacity under its credit facility. Net
repayments during the second quarter of 2020 totaled $83.4 million , and net
draws during the twenty-eight weeks ended July 12, 2020 totaled $0.6 million .
Per the maximum cash balance limitation required in the First Amendment to the
Credit Agreement and Waiver (the "Amendment") to our Credit Facility, the
Company made a $59 million repayment on the revolving line of credit on May 29,
2020 such that the amount of the Company's consolidated cash on hand did not
exceed $30 million . See Note 8, Borrowings, in the Notes to Condensed
Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q for further discussion of the Amendment.
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Covenants
We are subject to a number of customary covenants under our Credit Facility,
including limitations on additional borrowings, acquisitions, stock repurchases,
sales of assets, and dividend payments. During the first quarter of 2020, we
were not in compliance with our debt covenants due to the negative effects on
our business from the COVID-19 pandemic. As a result, we entered into the
Amendment to our Credit Facility, which waives compliance with the lease
adjusted leverage ratio financial covenant ("LALR ratio") and fixed charge
coverage ratio financial covenant ("FCC ratio") for the remainder of fiscal 2020
and allows adjustments during the first three fiscal quarters of 2021 to the
LALR ratio, including increasing the maximum LALR ratio permitted and allowing
the use of a seasonally adjusted annualized consolidated EBITDA in the LALR
ratio calculation, and to the FCC ratio, including only being calculated for
applicable periods since the beginning of 2021, providing the Company issued new
equity (or convertible debt) generating net cash proceeds of at least $25
million on or before November 13, 2020 . The equity issuance requirement was
satisfied on June 17, 2020 as described below.
Going Concern - Substantial Doubt Resolved
As required by ASC Topic 205-40, Presentation of Financial Statements - Going
Concern, management has assessed the Company's ability to continue as a going
concern for one year from the financial statement issuance date for the fiscal
quarter ended July 12, 2020 . On May 29, 2020 , the Company obtained the Amendment
to the Credit Facility. The Amendment provided relief from our existing events
of default under the Credit Facility and provided covenant relief subject to the
successful completion of a $25 million capital raise on or before November 13,
2020 , as further disclosed in Note 8, Borrowings, in the Notes to Condensed
Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. As of the
issuance date of our first quarter 2020 financial statements, the Company
disclosed, as required under applicable accounting standards, that substantial
doubt existed surrounding the Company's ability to meet its obligations within
one year of the issuance date of the first quarter Form 10-Q because the capital
raise was outside of management's control at the time.
On June 17, 2020 , the Company issued 2.6 million shares of common stock raising
proceeds of $28.7 million , net of stock issuance costs, through its
at-the-market equity offering. The equity raise satisfied the terms of the
Amendment, and management expects to remain in compliance with the Credit
Facility covenants for at least twelve months from the issuance of the July 12,
2020 Form 10-Q. Management has concluded there is not a substantial doubt
regarding the Company's ability to continue as a going concern.
Debt Outstanding
Total debt outstanding increased $0.6 million to $207.5 million at July 12,
2020 , from $206.9 million at December 29, 2019 , due to net draws of $0.6 million
on the Credit Facility during the twenty-eight weeks ended July 12, 2020 .
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. 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.
However during fiscal year 2020, the Company has leveraged its Credit Facility
and issuance of common stock to provide operating liquidity as compared to cash
received from restaurant sales during the COVID-19 pandemic due to temporary
restaurant dining room closures, re-opened dining rooms operating at limited
capacity, and our increased reliance on off-premise sales. As the COVID-19
pandemic continues to negatively impact our business, the Company is closely
monitoring the effects on our working capital deficit and continues to assess
other sources of operating liquidity including, but not limited to, raising
additional capital, pursuing additional lease concessions and deferrals, and
further reductions of operating and capital expenditures.
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Share Repurchase
On August 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 of
August 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 through July 12,
2020 , 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 of
July 12, 2020 , we had $68.4 million of availability under the current share
repurchase program.
Effective March 14, 2020 , the Company temporarily 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 Amendment to our Credit Facility prohibiting us from repurchasing
additional shares until the later of (a) the Company's delivery of a compliance
certificate for the fiscal quarter ending on or about July 11, 2021
demonstrating compliance with the financial covenants then in effect or (b) the
Company satisfying an agreed ratio under its Leverage Ratio Covenant for the
most recently ended fiscal quarter or fiscal year, as applicable.
Inflation
The primary inflationary factors affecting our operations are food, labor costs,
energy costs, and materials used in the construction of new restaurants. A large
number of our restaurant personnel are paid at rates based on the applicable
minimum wage, and increases in the minimum wage rates have directly affected our
labor costs in recent years. 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 inflation had a negative impact on
our financial condition and results of operations during the twenty-eight weeks
ended July 12, 2020 . Uncertainties related to fluctuations in costs, including
energy costs, commodity prices, annual indexed or potential minimum 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 costs for the remainder of 2020.
Seasonality
Our business is subject to seasonal fluctuations. Historically, 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 Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 19, 2020 , except for lease
obligations as a result of contractual rent concessions negotiated by the
Company during the fiscal quarter ended July 12, 2020 . See the maturity of lease
liabilities table in Note 4, Leases, in the Notes to the Condensed Consolidated
Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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
ended December 29, 2019 .
Recently Issued and Recently Adopted Accounting Standards
See Note 1, Basis of Presentation and Recent Accounting Pronouncements, of Notes
to Condensed Consolidated Financial Statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
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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, and Section 21E of the Securities Exchange Act of 1934, as amended.
This statement is included for purposes of complying with the safe harbor
provisions of the PSLRA. 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," "estimate," "could," "expect," "future,"
"intend," "may," "plan," "project," "will," "would," and similar expressions.
Certain forward-looking statements are included in this Quarterly Report on Form
10-Q, principally in the sections captioned "Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Forward-looking statements in this report include, among other
things statements regarding: our financial performance, strategic plan and
turnaround, marketing strategy and promotions; expected uses for available cash
flow; capital investments; beliefs about the ability of our lenders to fulfill
their lending commitments under our Credit Facility and about the sufficiency of
future cash flows to satisfy any working capital deficit and planned capital
expenditures; liquidity, the ability to meet financial covenant ratios in future
periods, and the Company's ability to continue as a going concern for the next
twelve months; impairments; projected cash tax refunds; the anticipated effects
of inflation on labor and commodity costs; future performance including sales
and off premise sales; preliminary results including weekly net comparable
restaurant revenues and average net sales per restaurant; average cash burn rate
and underlying assumptions including occupancy payments; expectations regarding
dining room re-openings and closures; statements under the heading "COVID-19
Pandemic", anticipated rollout of Donato's ® and the timing thereof; and the
effect of the adoption of new accounting standards on our financial and
accounting systems.
Forward-looking statements are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those we express in
these forward-looking statements. These risks and uncertainties include, but are
not limited to, the following: the effectiveness of our business strategy and
improvement initiatives, including the effectiveness of our overall value
proposition, service improvement, technology, and off-premise initiatives to
drive traffic and sales; the effectiveness of our marketing campaigns; our
ability to effectively use and monitor social media; uncertainty regarding
general economic and industry conditions; concentration of restaurants in
certain markets; changes in consumer disposable income, consumer spending trends
and habits; the effectiveness of our information technology and new technology
systems, including cyber security with respect to those systems; regional mall
and lifestyle center traffic trends or other trends affecting traffic at our
restaurants; increased competition and discounting in the casual-dining
restaurant market; costs and availability of food and beverage inventory;
changes in commodity prices, particularly ground beef, and distribution costs;
changes in energy and labor costs, including due to changes in health care and
market wage levels; changes in federal, state, or local laws and regulations
affecting the operation of our restaurants, including but not limited to,
minimum wages, consumer health and safety, health insurance coverage,
nutritional disclosures, and employment eligibility-related documentation
requirements; our franchising strategy; our ability to attract and retain
qualified managers and Team Members; the adequacy of cash flows or available
access to capital or debit resources under our Credit Facility or otherwise to
fund operations and growth opportunities; costs and other effects of legal
claims by Team Members, franchisees, customers, vendors, stockholders, including
relating to fluctuations in our stock price, and others, including settlement of
those claims or negative publicity regarding food safety or cyber security;
weather conditions and related events in regions where our restaurants are
operated; changes in accounting standards policies and practices or related
interpretations by auditors or regulatory entities; the extent of the impact of
the COVID-19 global pandemic or any other epidemic, disease outbreak, or public
health emergency, including the duration, spread, severity, and any recurrence
of the COVID-19 pandemic, the duration and scope of related government orders
and restrictions, the impact on our Team Members, economic, public health, and
political conditions that impact consumer confidence and spending, including the
impact of COVID-19 and other health epidemics or pandemics on the global
economy; the cash tax refund received as a result of the CARES Act; the rapidly
evolving nature of the COVID-19 pandemic and related containment measures,
including the potential for a complete shutdown of Company restaurants; changes
in unemployment rate; the ability to achieve significant cost savings; the
Company's 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 economic health of the Company's landlords and other
tenants in retail centers in which its restaurants are located; the economic
health of suppliers, licensees, vendors, and other third parties providing goods
or services to the Company; the impact from political protests and curfews
imposed by state and local governments; and other risk factors described from
time to time in the Company's Form 10-K, Form 10-Q, and Form 8-K reports
(including all amendments to those reports) filed with the U.S. Securities and
Exchange Commission .
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. 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 arising
after the date on which it is made or to reflect the occurrence of anticipated
or unanticipated events or circumstances.
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