Red Robin Gourmet Burgers Reports Earnings for the Fiscal Second Quarter 2010

Red Robin Gourmet Burgers, Inc., (NASDAQ: RRGB), a casual dining restaurant chain focused on serving an innovative selection of high-quality gourmet burgers in a family-friendly atmosphere, reported financial results for the 12 weeks ended July 11, 2010.

“We are encouraged by the strengthening of our same store sales and the positive impact that our limited time offer promotions and TV media support are having on our brand awareness and Guest traffic”

Results for the 12 weeks ended July 11, 2010, compared to the 12 weeks ended July 12, 2009, are as follows:

As of the end of the fiscal second quarter 2010, there were 309 company-owned and 134 franchised Red Robin® restaurants.

“We are encouraged by the strengthening of our same store sales and the positive impact that our limited time offer promotions and TV media support are having on our brand awareness and Guest traffic,” said Dennis Mullen, Red Robin Gourmet Burgers, Inc.’s chief executive officer. “Our business trends are benefiting from our Team Members’ hard work and commitment to making connections with our guests and our focus on Red Robin quality, variety and value.”

Fiscal Second Quarter 2010 Results

Comparable restaurant sales decreased 1.2% for company-owned restaurants in the fiscal second quarter of 2010 compared to an 11.5% decrease in the fiscal second quarter of 2009. Results in the quarter were driven by a 0.9% increase in guest counts and a 2.1% decrease in the average guest check, which included the impact of limited time offer (LTO) price promotions in the quarter. Fiscal second quarter 2010 comparable restaurant sales also reflected a sequential improvement from the Company’s comparable restaurant sales decrease of 2.3% reported in the fiscal first quarter of 2010, the decrease of 10.5% reported in the fiscal fourth quarter of 2009 and the decrease of 14.9% reported in the fiscal third quarter of 2009.

Average weekly comparable sales from the 290 company-owned comparable restaurants were $54,549 in the fiscal second quarter of 2010, compared to $56,335 for the 245 company-owned comparable restaurants in the fiscal second quarter of 2009. Average weekly sales for the 19 non-comparable company-owned restaurants were $58,449 in the fiscal second quarter of 2010, compared to $56,053 for the 44 non-comparable restaurants in the fiscal second quarter a year ago. For all company-owned restaurants, average weekly sales were $54,786 from the 3,705 operating weeks in the fiscal second quarter of 2010 compared to $55,973 from the 3,619 operating weeks in the fiscal second quarter of 2009.

In the fiscal second quarter of 2010, the Company’s results were negatively impacted by continued lower restaurant sales in California and Arizona, which have been more heavily impacted by macroeconomic factors. Excluding the impact from the Company’s 72 comparable restaurants in these markets, comparable restaurant sales would have been about 1.5% higher or up approximately 0.3% compared to the fiscal second quarter of 2009. The Company’s comparable guest counts excluding the negative 1.6% impact from its restaurants in California and Arizona would have been a positive 2.5% compared to the fiscal second quarter of 2009. The 72 comparable restaurants in California and Arizona represented 25% of the Company’s total company-owned comparable restaurants in the fiscal second quarter of 2010.

Total company revenues, which include company-owned restaurant sales, franchise royalties and fees and other revenue, increased slightly to $201.3 million in the fiscal second quarter of 2010, from $201.1 million in the fiscal second quarter of 2009. Franchise royalties and fees increased to $3.1 million or 1.4% in the fiscal second quarter of 2010 compared to the same period a year ago.

For the fiscal second quarter of 2010, the Company’s total U.S. franchise restaurant sales of $70.0 million increased slightly from $69.2 million in the prior year period. Comparable sales in the fiscal second quarter of 2010 for franchise restaurants in the U.S. decreased 2.0% and for franchise restaurants in Canada increased 0.8% from the fiscal second quarter of 2009. Average weekly comparable sales for the U.S. franchised restaurants were $50,622 from the 109 comparable restaurants in the fiscal second quarter of 2010, compared to $51,970 from the 100 comparable restaurants in the fiscal second quarter of 2009. Average weekly sales in the fiscal second quarter of 2010 for the Company’s 18 comparable franchise restaurants in Canada were C$54,380 versus C$52,977 in the same period last year. Canadian results are in Canadian dollars.

Selling, general and administrative expenses were $20.0 million in the fiscal second quarter of 2010 and $18.5 million in the fiscal second quarter of 2009, which were 9.9% and 9.2% of total revenue, respectively. Included in the fiscal second quarter of 2010 was a $3.3 million investment in the Company’s television media campaign compared to $1.2 million in the fiscal second quarter of 2009, as well as board of directors and governance-related expenses, offset by lower performance-based bonus expense. Beginning in the fiscal second quarter of 2010, franchisees contributed an additional 1.25% of their revenue to the national cable television advertising fund.

Net interest expense was $1.3 million in the fiscal second quarter of 2010 and $1.6 million in the fiscal second quarter of 2009.

Net income for the fiscal second quarter of 2010 was $4.3 million or $0.28 per diluted share, compared to net income of $6.4 million, or $0.41 per diluted share, in the fiscal second quarter of 2009.

For the fiscal second quarter of 2010, the Company’s effective tax rate was 9.1% compared to an effective tax rate of 23.2% in the fiscal second quarter of 2009. The decrease is primarily due to more favorable general business and tax credits, primarily the FICA Tip Tax Credit, which as a percent of current year income before tax did not change at the same rate as the change in taxable income. The Company anticipates that the effective tax rate for the full fiscal year 2010 will be approximately 13.6%.

Schedule I of this earnings release defines restaurant-level operating profit and reconciles this metric to income from operations and net income for all periods presented. The Company’s restaurant-level operating profit metric is designed to afford management and investors with a basis for considering and comparing restaurant performance. It is not calculated in conformity with generally accepted accounting principles (“GAAP”). It is intended to supplement, rather than replace GAAP results. Restaurant-level operating profit is useful to management and to the Company’s investors because it is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance.

Balance Sheet and Liquidity

On July 11, 2010, the Company held $11.9 million in cash and cash equivalents and had a total outstanding debt balance of $163.9 million, including $108.7 million of borrowings under its $150 million term loan, $46.9 million of borrowings under its $150 million revolving credit facility and $8.3 million outstanding for capital leases. The Company has also issued $6.2 million of outstanding letters of credit under its revolving credit facility. In the fiscal second quarter of 2010, the Company paid down $8.3 million in debt, and since the end of the fiscal second quarter 2010, the Company has made additional debt repayments of $3.9 million on its revolving credit facility.

The Company is subject to a number of customary covenants under its credit agreement, including limitations on additional borrowings, acquisitions, dividend payments, and requirements to maintain certain financial ratios. As of July 11, 2010, the Company was in compliance with all of its debt covenants, and the Company expects to remain in full compliance.

Outlook

The Company’s fiscal third quarter of 2010 is a 12-week quarter. One new company-owned restaurant opened early in the fiscal third quarter and seven new company-owned restaurants are currently under construction. Three new franchised restaurants are currently under construction. During fiscal year 2010, the Company expects to open 11 new company-owned restaurants and franchisees are expected to open four to five new restaurants.

For the fiscal year 2010, which is a 52-week year, the Company expects revenues of $866 million to $873 million and net income of $0.90 to $1.10 per diluted share. These projected results are based upon certain assumptions, including expected full fiscal year 2010 comparable restaurant sales of down 0.5% to up 0.5% compared to the fiscal year 2009. Through August 8, 2010, the first four weeks of the Company’s 12-week fiscal third quarter of 2010, company-owned comparable restaurant sales increased 1.4% and guest counts increased 4.1% from the prior year period, compared to a year-over-year company-owned comparable restaurant sales decrease of 15.3% and guest count decrease of 14.6% in the first four weeks of the fiscal third quarter of 2009. The first four weeks of the fiscal third quarter of 2010 included one week of TV advertising compared to no TV advertising during the first four weeks of the fiscal third quarter of 2009.

The annual financial guidance includes approximately $15.6 million that the Company expects to spend for television advertising to support LTO promotions during fiscal year 2010, compared to $2.5 million that the Company spent on television advertising during fiscal year 2009. The Company’s total marketing expense in fiscal year 2010 is expected to be about $29.3 million compared to $17.2 million spent in fiscal year 2009 and is included in selling, general and administrative expense.

For the remaining two quarters of fiscal year 2010, the Company’s run rate SG&A expense is expected to be between $16.5 and $17.5 million per quarter. Adding to that will be the Company’s portion of TV marketing expense, which is expected to be $3.3 million in the fiscal third quarter of 2010 and $2.3 million in the fiscal fourth quarter of 2010. The SG&A estimates do not include costs for the transition of the CEO position, which are estimated to be between $3.5 and $4.0 million over the balance of the year, with the majority of the expense being incurred in the third quarter.

Based on the Company’s development plans and other infrastructure and maintenance costs, the Company expects fiscal year 2010 capital expenditures to be approximately $35 million to $38 million, which the Company expects to fund entirely out of operating cash flow. The Company also intends to make scheduled payments of $18.7 million required by the term loan portion of its existing credit facility from free cash flow after capital expenditures in fiscal year 2010 and expects to use its remaining free cash flow to make payments on the Company’s revolving credit facility and maintain flexibility to opportunistically repurchase shares of the Company’s common stock.

Other Events

The Company’s board of directors extended its previous authorization for the repurchase of up to $50 million of the Company’s common stock. Stock repurchases may be made from time to time in open market transactions and through privately negotiated transactions through December 31, 2011.

The Company’s board of directors also voted in favor of adopting a shareholder rights plan to protect stockholders from coercive or otherwise unfair takeover tactics. The board determined, with the assistance of its legal and financial advisors, that a shareholder rights plan will afford stockholders appropriate protections and allow the board time to fully execute its fiduciary obligations in a thoughtful and measured manner.

Logos, product and company names mentioned are the property of their respective owners.

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