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 2021 and 2020 refer to the sixteen weeks endedApril 18, 2021 andApril 19, 2020 , 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 543 locations inNorth America . As ofApril 18, 2021 , the Company owned 440 restaurants located in 38 states. The Company also had 103 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment. Company Response to COVID-19 Pandemic Due to the novel coronavirus ("COVID-19") pandemic, we continue to navigate an unprecedented time for our business and industry. During first quarter 2021, the Company continued to expand dine-in seating capacity at Company-owned restaurants in accordance with local limits. Reopening dining rooms and expanding seating capacity 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 and Prevention , state, and local guidelines as our top priority. The Company continues to maintain a disciplined focus on execution to provide our Guests a consistent quality experience each and every time they visit. We are pleased to be able to demonstrate that we can sustain high Guest satisfaction scores as we continue to expand our operating capacity with the recovery and opening of dining rooms at higher capacities. This is achieved through a combination of our Total Guest Experience hospitality model ("TGX"), off-premises enhancements, and our new management labor model. As our dining rooms have continued to reopen, sales and the Guest experience have been positively impacted by our new TGX hospitality model. We expect to build further sales momentum from additional seating expansion from increasing capacities at our restaurants, including use of outdoor seating to cater to our Guests that prefer a more distanced full service dining option, or prefer to dine outside. As the implications of the COVID-19 pandemic have begun to ease with approved vaccines being distributed and administered, certain states in which we operate have lifted mandatory mask mandates. In States with mask mandates still in place, we continue to require Guests to wear face coverings at all locations while entering, exiting, and walking around our restaurants, and face masks are provided for Guests who arrive without one to ensure we are enabling the mutual safety of our Guests and Team Members. We remain focused on consistently delivering a great Guest experience, sustaining off-premises sales levels, and expanding seating capacity to continue to drive our improving sales. Notably, restaurants with reopened dining rooms are sustaining off-premises sales mix of over two times pre-pandemic levels, demonstrating the enduring and growing popularity ofRed Robin for off-premises occasions. As of the end of our fiscal fifth period, all Company-owned restaurants have re-opened indoor dining rooms with varying levels of capacity. Notably, these restaurants have sustained off-premises sales that are more than double pre-pandemic levels, even in comparable Company-owned restaurants that are able to operate at full indoor capacity. As ofApril 18, 2021 , total Company-owned restaurants included 12 restaurants that have remained closed since the onset of the COVID-19 pandemic; of these restaurants, 10 will permanently close and two will re-open in 2021. Restaurant operating level expenses incurred for these restaurants during the temporary closures have been recorded in Restaurant closure and refranchising costs in Other charges; see Note 6, Other Charges, in the Notes to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q. 13 -------------------------------------------------------------------------------- Table of Contents Selected operating metrics are presented below for the Company's 28 day accounting periods through the fourth period of fiscal year 2021, and the four weeks that comprise our fiscal fifth period of 2021 are as follows: Period Ended(2) Company-owned Restaurants 24-Jan 21-Feb(3) 21-Mar 18-Apr 16-May(6) Net comparable(1) restaurant (26.7)% (22.9)% 21.9% 165.9% 102.6% revenues Net comparable(1) restaurant revenues compared to Fiscal Year N/A(4) N/A(4) (8.5)% 0.0% (3.3)% 2019 Average weekly net sales per$39,701 $41,384 $53,240 $55,600 $52,731 restaurant Number of comparable Company-owned 413 411 410 410 410
restaurants(1)
Company-owned restaurants with 114 57 9 6 0 closed dining rooms(1) Average weekly off-premises net$20,896 $18,696 $20,056 $19,894 $19,078 sales per restaurant Open system capacity(5) 40.0% 41.0% 48.0% 61.0% 65.0% (1) Comparable restaurants are those Company-owned restaurants that have operated five full fiscal quarters as of the period presented. Restaurant count shown is as of the end of the period presented. (2) The periods endedJanuary 24 ,February 21 ,March 21 , andApril 18, 2021 comprise the Company's first fiscal quarter. The period endedMay 16, 2021 falls within our second fiscal quarter of 2021, and amounts presented for the period are preliminary and subject to closing adjustments. (3) Period includes the impact of reduced traffic due to winter weather in February of approximately 2% to 3%. (4) This metric is presented to compare current year operating results to periods that are not impacted by the COVID-19 pandemic. There was no meaningful COVID-19 impact in P1 or P2 of 2020. (5) Represents the percentage of indoor seating of Company-owned restaurants with open dining rooms, as of the end of the period presented. (6) Period includes the impact of limited operating hours, in part due to staffing shortages. Financial and Operational Highlights The following summarizes the operational and financial highlights during the sixteen weeks endedApril 18, 2021 : Restaurant Revenue, compared to the same period in the prior year, is presented in the table below:
(millions)
Restaurant Revenue for the sixteen weeks ended
28.3
Increase/(decrease) from closed restaurants
(11.0)
Total increase/(decrease)
17.3
Restaurant Revenue for the sixteen weeks ended
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Restaurant revenues and operating costs as a percentage of restaurant revenue
for the period are detailed in the table below:
Sixteen Weeks Sixteen Weeks
Ended 2021 compared to 2020 Ended 2021 compared to 2019(1)
April 18, 2021 April 19, 2020 Increase/(Decrease) 4/21/2019(1) Increase/(Decrease)
Restaurant revenue
(millions) $ 318.7 $ 301.4 5.7 % $ 400.5 (20.4) %
(Percentage of
Restaurant
Restaurant operating costs: (Percentage of Restaurant Revenue) (Basis Points) Revenue) (Basis Points)
Cost of sales 21.7 % 23.4 % (170) 23.4 % (170)
Labor 35.0 % 39.3 % (430) 35.7 % (70)
Other operating 18.1 % 17.3 % 80 13.9 % 420
Occupancy 9.4 % 11.2 % (180) 8.7 % 70
Total 84.3 % 91.2 % (690) 81.7 % 250
(1) Presented for improved comparability to pre COVID-19 operations. 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 sixteen weeks endedApril 18, 2021 andApril 19, 2020 ; Sixteen Weeks Ended April 18, 2021 April 19, 2020 Net loss as reported$ (8,713) $ (174,298) Loss per share - diluted: Net loss as reported $ (0.56)$ (13.51) Restaurant closure and refranchising costs 0.16 0.11 Restaurant asset impairment 0.08 1.20 Litigation contingencies 0.07 0.35 COVID-19 related costs 0.03 0.02 Board and stockholder matter costs 0.01
0.11
Severance and executive transition - 0.07 Goodwill impairment - 7.40 Income tax effect (0.09) (2.41) Adjusted loss per share - diluted $ (0.30) $
(6.66)
Weighted average shares outstanding
Basic 15,579 12,903
Diluted 15,579 12,903
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.
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Restaurant Data
The following table details restaurant unit data for our Company-owned and
franchised locations for the periods indicated:
Sixteen Weeks Ended
April 18, 2021 April 19, 2020
Company-owned:
Beginning of period 443 454
Closed during the period(1) (3) (2)
End of period 440 452
Franchised:
Beginning of period 103 102
End of period 103 102
Total number of restaurants 543 554
________________________________________________________
(1) In addition to the permanent closures during the sixteen weeks ended
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The following table presents total Company-owned and franchised restaurants by
state or province as of April 18, 2021 :
Company-Owned Restaurants(1) Franchised Restaurants
State:
Arkansas 2 2
Alaska - 3
Alabama 4 -
Arizona 18 1
California 64 -
Colorado 22 -
Connecticut - 3
Delaware - 5
Florida 21 -
Georgia 6 -
Iowa 5 -
Idaho 8 -
Illinois 22 -
Indiana 13 -
Kansas - 5
Kentucky 4 -
Louisiana 2 -
Massachusetts 4 3
Maryland 13 -
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 16 -
Ohio 18 2
Oklahoma 5 -
Oregon 15 5
Pennsylvania 11 21
Rhode Island 1 -
South Carolina 4 -
South Dakota 1 -
Tennessee 11 -
Texas 21 9
Utah 1 6
Virginia 20 -
Washington 38 -
Wisconsin 11 -
Province:
British Columbia - 12
Total 440 103
-------------------
(1) Includes 12 Company-owned restaurants that remained closed due to the
COVID-19 pandemic as of
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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 2020
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.
Sixteen Weeks Ended
April 18 ,
2021
97.7 % 98.5 % 97.7 %
Franchise and other revenues 2.3 % 1.5 % 2.3 %
Total revenues 100.0 % 100.0 % 100.0 %
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and
amortization shown separately below):
Cost of sales 21.7 % 23.4 % 23.4 %
Labor 35.0 % 39.3 % 35.7 %
Other operating 18.1 % 17.3 % 13.9 %
Occupancy 9.4 % 11.2 % 8.7 %
Total restaurant operating costs 84.3 % 91.2 % 81.7 %
Depreciation and amortization 7.9 % 9.3 % 6.9 %
Selling, general and administrative 9.4 % 13.6 % 11.7 %
Pre-opening and acquisition costs - % - % 0.1 %
Other charges 1.7 % 39.0 % 0.6 %
Loss from operations (1.3) % (51.7) % 0.8 %
Interest expense, net and other 1.3 % 1.1 % 0.8 %
Loss before income taxes (2.7) % (52.8) % - %
Income tax benefit 0.0 % 4.1 % (0.1) %
Net loss (2.7) % (56.9) % 0.2 %
___________________________________
(1) Presented for improved comparability to pre COVID-19 operations.
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
Sixteen Weeks Ended
Percent
(Revenues in thousands) April 18, 2021 April 19, 2020 Change
Restaurant revenue $ 318,677 $ 301,434 5.7 %
Franchise royalties, fees and other revenue 7,598 4,631 64.1 %
Total revenues $ 326,275 $ 306,065 6.6 %
Average weekly net sales volumes in Company-owned
restaurants $ 46,515 $ 41,785 11.3 %
Total operating weeks 6,851 7,214 (5.0) %
Net sales per square foot $ 119 $ 109 9.5 %
Restaurant revenue for the sixteen weeks ended April 18, 2021 , which comprises
primarily food and beverage sales, increased $17.3 million , or 5.7 %, as
compared to the first quarter of 2020. The increase was due to a $28.3 million ,
or 10.0%, increase in comparable restaurant revenue, partially offset by a $11.0
million decrease primarily from closed restaurants. The comparable restaurant
revenue increase was driven by a 4.4% increase in Guest count and a 5.6%
increase in average Guest check. The increase in average Guest check resulted
from a 3.7% increase in pricing, a 1.3% increase in menu mix and a 0.6% increase
from lower discounting. The increase in menu mix was primarily driven by higher
sales of appetizers and Gourmet burgers, partially offset by lower beverage mix.
Off-premises sales increased 75.5% and comprised 41.7% of total food and
beverage sales during first quarter 2021.
Average weekly net 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 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 sixteen weeks ended April 18, 2021 or April 19, 2020 .
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, 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 $3.0 million for the sixteen weeks ended
April 18, 2021 compared to the sixteen weeks ended April 19, 2020 due to
charging and collecting royalty payments and advertising contributions from our
franchisees for first fiscal quarter of 2021; during the same period in 2020,
the Company temporary abated all franchisee royalty and advertising contribution
payments in response to COVID-19's effect on our franchisee's operations. Our
franchisees reported a comparable restaurant revenue increase of 15.1% for the
sixteen weeks ended April 18, 2021 compared to the same period in 2020.
Cost of Sales
Sixteen Weeks Ended
April 19,
(In thousands, except percentages) April 18, 2021 2020 Percent Change
Cost of sales $ 69,166 $ 70,426 (1.8) %
As a percent of restaurant revenue 21.7 % 23.4 % (1.7) %
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 decreased 170 basis points for the sixteen weeks ended
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Labor
Sixteen Weeks Ended
(In thousands, except percentages) April 18, 2021 April 19, 2020 Percent Change
Labor $ 111,659 $ 118,566 (5.8) %
As a percent of restaurant revenue 35.0 % 39.3 % (4.3) %
Labor costs include restaurant-level hourly wages and management salaries as
well as related taxes and benefits. For the sixteen weeks ended April 18, 2021 ,
labor as a percentage of restaurant revenue decreased 430 basis points compared
to the same period in 2020. The decrease was primarily driven by a more
efficient management labor structure, staffing shortages, and simplifying our
menu resulting in reduced kitchen labor hours, partially offset by higher wage
rates.
Other Operating
Sixteen Weeks Ended
April 19,
(In thousands, except percentages) April 18, 2021 2020 Percent Change
Other operating $ 57,712 $ 52,291 10.4 %
As a percent of restaurant revenue 18.1 % 17.3 % 0.8 %
Other operating costs include costs such as equipment repairs and maintenance
costs, restaurant supplies, utilities, restaurant technology, and other
miscellaneous costs. For the sixteen weeks ended April 18, 2021 , other operating
costs as a percentage of restaurant revenue increased 80 basis points as
compared to the same period in 2020. The increase was primarily due to higher
third party delivery commissions and supply costs driven by higher off-premises
sales.
Occupancy
Sixteen Weeks Ended
April 19,
(In thousands, except percentages) April 18, 2021 2020 Percent Change
Occupancy $ 30,100 $ 33,657 (10.6) %
As a percent of restaurant revenue 9.4 % 11.2 % (1.8) %
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 sixteen weeks ended April 18, 2021 ,
occupancy costs as a percentage of restaurant revenue decreased 180 basis points
compared to the same period in 2020 primarily due to savings from permanently
closed restaurants and restructuring of lease payments and rent concessions.
Our fixed rents for the sixteen weeks ended April 18, 2021 and April 19, 2020
were $21.1 million and $21.6 million , a decrease of $0.5 million due to savings
from permanently closed restaurants and restructuring of lease payments and rent
concessions.
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Depreciation and Amortization
Sixteen Weeks Ended
April 19,
(In thousands, except percentages) April 18, 2021 2020 Percent Change
Depreciation and amortization $ 25,888 $ 28,320 (8.6) %
As a percent of total revenues 7.9 % 9.3 % (1.4) %
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 sixteen weeks
ended April 18, 2021 , depreciation and amortization expense as a percentage of
revenue decreased 140 basis points over the same period in 2020 primarily due to
net closed Company-owned restaurants, and sales leverage.
Selling, General, and Administrative
Sixteen Weeks Ended
April 19,
(In thousands, except percentages) April 18, 2021 2020 Percent Change
Selling, general, and administrative $ 30,610 $ 41,502 (26.2) %
As a percent of total revenues 9.4 % 13.6 % (4.2) %
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 sixteen weeks ended April 18,
2021 decreased $10.9 million , or 26.2%, as compared to the same period in 2020.
The decrease was primarily driven by reduced marketing due to capacity
limitations and a shift to an all-digital marketing strategy, which has enabled
us to communicate with our guests in a more compelling and cost effective way,
as well as a decrease in travel and entertainment costs and a permanent
reduction in force in 2020, partially offset by higher Team Member benefit
costs.
Pre-opening Costs
Sixteen Weeks Ended
(In thousands, except percentages) April 18,
2021
$ - $ 153 (100.0) %
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 pre-opening costs during the sixteen weeks ended April 19, 2020
related to the rollout of Donatos®. The Company expects to continue its roll out
of Donatos® in 2021 to approximately 120 restaurants, including approximately 40
restaurants in our second fiscal quarter, and approximately 80 restaurants in
the second half of the fiscal year.
Interest Expense, Net and Other
Interest expense, net and other was $4.3 million for the sixteen weeks ended
April 18, 2021 , an increase of $0.9 million , or 26.5%, compared to the same
period in 2020. The increase was primarily related to a higher weighted average
interest rate for the quarter as well as the partial write off of approximately
$1.2 million of deferred financing charges related to the modification of our
revolver in conjunction with the execution of the Second Amendment on
February 25, 2021 , partially offset by a lower average outstanding debt balance
compared to the same period in 2020. Our weighted average interest rate was 6.3%
for the sixteen weeks ended April 18, 2021 as compared to 4.3% for the same
period in 2020.
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Provision for Income Taxes
The effective tax rate for the sixteen weeks ended April 18, 2021 was a 0.6%
expense, compared to a 7.9% expense for the sixteen weeks ended April 19, 2020 .
The decrease in tax expense for the sixteen weeks ended April 18, 2021 is
primarily due to the recognition of a smaller valuation allowance during the
first quarter of 2021. The Company will be able to carry back federal and state
net operating losses that are expected to generate approximately $16 million of
cash tax refunds during 2021.
Liquidity and Capital Resources
Cash and cash equivalents increased $6.2 million to $22.3 million as of
April 18, 2021 , from $16.1 million at the beginning of the fiscal year. As the
Company continues to recover from the COVID-19 pandemic and generates operating
cash flow, we expect to begin using available cash flow from operations to pay
down debt, maintain existing restaurants and infrastructure, and execute on our
long-term strategic initiatives. As of April 18, 2021 , the Company had
approximately $107 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):
Sixteen Weeks Ended
April 18, 2021 April 19, 2020
Net cash provided by (used in) provided by operating activities $
18,932 $ (13,320)
Net cash used in investing activities (5,400) (8,703)
Net cash (used in) provided by financing activities (7,393) 81,738
Effect of exchange rate changes on cash 29 (840)
Net change in cash and cash equivalents $
6,168
Operating Cash Flows Net cash flows provided by (used in) operating activities increased$32.3 million to$18.9 million for the sixteen weeks endedApril 18, 2021 . The changes in net cash provided by (used in) operating activities are primarily attributable to a$29.3 million increase in profit from operations, defined as the change in operating margins from comparable and non-comparable restaurants, lower accounts receivable and higher accounts payable balances due to the timing of operational receipts and payments, deferral of payroll tax payments under the CARES Act, as well as other 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$3.3 million to$5.4 million for the sixteen weeks endedApril 18, 2021 , as compared to$8.7 million for the same period in 2020. The decrease is primarily due to targeted investment in restaurant technology and restaurant improvement capital in line with the Company's emphasis on strategic capital and cost management. The following table lists the components of our capital expenditures, net of currency translation, for the sixteen weeks endedApril 18, 2021 andApril 19, 2020 (in thousands):
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