Red Robin Gourmet Burgers Results

Red Robin Gourmet Burgers Reports Results for the Fiscal Second Quarter Ended July 14, 2019

Total revenues were $308.0 million, a decrease of 2.3%

Red Robin Gourmet Burgers

Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) reported financial results for the quarter ended July 14, 2019.

Second Quarter 2019 Financial Highlights Compared to Second Quarter 2018

  • GAAP earnings per diluted share were $0.08 compared to a $0.14 loss per diluted share;
  • Adjusted earnings per diluted share were $1.03 compared to $0.46 (see Schedule I);
  • Net Income was $1.0 million compared to a net loss of $1.9 million;
  • Adjusted EBITDA was $25.5 million compared to $28.8 million (see Schedule III);
  • Total revenues were $308.0 million, a decrease of 2.3%;
  • Off-premise sales increased 25.7% and comprised 12.5% of total food and beverage sales, including catering;
  • Comparable restaurant revenue decreased 1.5% (using constant currency rates); and
  • Comparable restaurant guest counts decreased 6.4%.

Pattye Moore, board chair and interim chief executive officer of Red Robin, said, “We are making important progress on the execution of the five pillars in our strategic plan, designed to restore Red Robin’s growth and improve profitability, and believe we have reached an inflection point in our transformation. This was underscored during the second quarter by achieving our strongest comparable restaurant revenue result in five quarters, including a sequential improvement from the first quarter. Importantly, we are encouraged to see early signs of our recent sales momentum continuing, which reflect our ongoing improvements in operating and guest satisfaction metrics, as well as the new omni-channel advertising campaign that launched July 15th.”

Ms. Moore continued, “While there is still considerable work to do, our improving metrics, growing off-premise and catering channels, and traction in implementing technology solutions highlight what we have already accomplished in stabilizing the business and laying the foundation for long-term success. Additionally, the entire Red Robin Board, including our three new independent Directors announced earlier this month, remains committed to creating value for our shareholders.”

Fiscal Period Eight Comparable Restaurant Revenue

For the four-week period ended August 11, 2019, representing the Company’s fiscal period eight, comparable restaurant revenue improved to (0.1%), reflecting the continued momentum in the business.

Second Quarter 2019 Operating Results

Total revenues, which primarily include Company-owned restaurant revenue and franchise royalties, decreased 2.3% to $308.0 million in the second quarter of 2019, from $315.4 million in the second quarter of 2018. Restaurant revenue decreased $8.0 million due to a $4.4 million, or 1.5%, decrease in comparable restaurant revenue, and a $4.2 million decrease from closed restaurants, partially offset by a $0.6 million increase in revenue from late 2018 new restaurant openings.

System-wide restaurant revenue (which includes franchised units) for the second quarter of 2019 totaled $366.4 million, compared to $374.7 million for the second quarter of 2018.

Comparable restaurant revenue(1) decreased 1.5% in the second quarter of 2019 compared to the same period a year ago, driven by a 6.4% decrease in guest counts and offset by a 4.9% increase in average guest check. The increase in average guest check comprised a 2.3% increase in menu mix and a 2.6% increase in pricing. The increase in menu mix was primarily driven by the Company’s current menu and promotional strategy, resulting in lower Tavern burger sales and higher Finest burger and entrée sales.

Net income was $1.0 million for the second quarter of 2019 compared to a net loss of $1.9 million for the same period a year ago. Adjusted net income was $13.4 million for the second quarter of 2019 compared to $6.0 million for the same period a year ago (see Schedule I).

Restaurant-level operating profit margin (a non-GAAP financial measure) was 18.2% in the second quarter of 2019 compared to 19.3% in the same period a year ago. Cost of sales as a percentage of restaurant revenue decreased 20 basis points primarily due to a reduction in waste and lower Tavern mix. Restaurant labor costs as a percentage of restaurant revenue increased 90 basis points due to higher average wage rates and sales deleverage. Other restaurant operating costs increased 50 basis points primarily due to a 60 basis point increase in third-party delivery fees, offset by a 10 basis point decrease in supplies. Occupancy costs decreased 10 basis points due to restaurant closures. Schedule II of this earnings release defines restaurant-level operating profit, discusses why it is a useful metric for investors, and reconciles this metric to income from operations and net income, in each case under GAAP.

________________________________________

(1)

 

Comparable restaurants are those Company-owned restaurants that have operated five full quarters during the period presented, and such restaurants are only included in the comparable metrics if they are comparable for the entirety of both periods presented.

Restaurant Revenue Performance

 

           

Q2 2019

 

 

Q2 2018

Average weekly sales per unit(1):

           

 

 

 

 

Company-owned – Total

           

$

52,907

 

 

$

53,266

Company-owned – Comparable

           

$

53,304

 

 

$

54,065

Franchised units – Comparable

           

$

59,818

 

 

$

61,558

Total operating weeks:

           

 

 

 

 

Company-owned units

           

5,716

 

 

5,827

Franchised units

           

1,075

 

 

1,052

________________________________________

(1)

 

Calculated using constant currency rates. Using historical currency rates, the average weekly sales per unit in the second quarter of 2018 for Company-owned – Total and Company-owned – Comparable was $53,268 and $54,067. The Company calculates non GAAP constant currency average weekly sales per unit by translating prior year local currency average weekly sales per unit to U.S. dollars based on current quarter average exchange rates. The Company considers non-GAAP constant currency average weekly sales per unit to be a useful metric to investors and management as they facilitate a more useful comparison of current performance to historical performance.

Other Results

Depreciation and amortization costs decreased to $21.4 million in the second quarter of 2019 from $22.3 million in the second quarter of 2018.

General and administrative costs were $21.8 million, or 7.1% of total revenues, in the second quarter of 2019, compared to $20.4 million, or 6.5% of total revenues, in the same period a year ago. The increase was primarily driven by professional and legal fees.

Selling expenses were $13.4 million, or 4.4% of total revenues, in the second quarter of 2019, compared to $15.2 million, or 4.8% of total revenues, during the same period a year ago. The increase was primarily driven by a decrease in media spend.

Other charges in the second quarter of 2019 included $14.1 million of asset impairments, $1.2 million of board and shareholder matter costs, $1.0 million in costs related to restaurants that were previously closed, $0.4 million in executive transition and severance, and $0.3 million in executive retention.

The Company had an effective tax benefit of 106.5% in the second quarter of 2019, compared to an effective tax benefit of 71.6% during the same period a year ago. The change in the effective tax benefit is primarily due to the decrease in income in the second quarter of 2019 compared to the same period a year ago. The Company currently anticipates full year cash tax payments of between $3.5 million and $5 million.

Earnings per diluted share for the second quarter of 2019 were $0.08 compared to losses per diluted share of $0.14 in the second quarter of 2018. Excluding charges of $0.80 for impairment expenses, $0.07 for board and shareholder matter costs, $0.05 for restaurant closure costs, $0.02 for executive transition and severance, and $0.01 for executive retention, adjusted earnings per diluted share for the second quarter ended July 14, 2019 were $1.03. Excluding charges of $0.54 for asset impairment, $0.03 for spiral menu disposal, and $0.03 for reorganization costs, adjusted earnings per diluted share for the second quarter ended July 15, 2018 were $0.46. See Schedule I for a reconciliation of adjusted net income and adjusted earnings per share (each, a non-GAAP financial measure) to net income and earnings per share.

Restaurant Portfolio

During the second quarter of 2019, one franchised Red Robin restaurant opened. One additional Red Robin franchised restaurant is expected to open later in 2019.

Separately, the Company closed 10 restaurants in connection with its previously announced real estate portfolio reassessment. Seven of these restaurants were in enclosed mall locations. As a result of these closures, the Company recognized non-cash impairment charges of $1.1 million during the second quarter of 2019. These restaurants had combined year to date sales of $6.1 million, and pre-tax operating losses of $1.7 million. Year to date depreciation expense for these locations in 2019 was immaterial.

The following table details restaurant unit data for Company-owned and franchised locations for the periods indicated:

 

 

Twelve Weeks

Ended

 

Twelve Weeks

Ended

 

Twenty-Eight

Weeks Ended

 

Twenty-Eight

Weeks Ended

 

 

July 14, 2019

 

July 15, 2018

 

July 14, 2019

 

July 15, 2018

Company-owned:

 

 

 

 

 

 

 

 

Beginning of period

 

483

 

 

484

 

 

484

 

 

480

 

Opened during the period

 

 

 

2

 

 

 

 

6

 

Closed during the period(1)

 

(11

)

 

(2

)

 

(12

)

 

(2

)

End of period

 

472

 

 

484

 

 

472

 

 

484

 

Franchised:

 

 

 

 

 

 

 

 

Beginning of period

 

89

 

 

87

 

 

89

 

 

86

 

Opened during the period

 

1

 

 

1

 

 

1

 

 

2

 

End of period

 

90

 

 

88

 

 

90

 

 

88

 

Total number of restaurants

 

562

 

 

572

 

 

562

 

 

572

 

_________________________________________________________

(1)

 

Restaurants closed during the twelve weeks ended July 14, 2019 include the permanent closure of ten restaurants and the temporary closure of one restaurant.  Restaurants closed during the twenty eight weeks ended July 14, 2019 include the permanent closure of eleven restaurants, and the temporary closure of one restaurant. Restaurants closed in the twelve and twenty eight week periods ended July 15, 2018 consisted entirely of permanently closed restaurants.

Balance Sheet and Liquidity

As of July 14, 2019, the Company had cash and cash equivalents of $26.2 million and total debt of $181.4 million. The Company funded capital expenditures with cash flow from operations and made net repayments of $2.0 million on its credit facility during the second quarter of 2019. As of July 14, 2019, the Company had outstanding borrowings under its credit facility of $180.5 million, in addition to amounts issued under letters of credit of $7.4 million, which reduce the amount available under its credit facility but are not recorded as debt.

The Company’s lease adjusted leverage ratio was 4.30x as of July 14, 2019. The lease adjusted leverage ratio is defined in Section 1.1 of the Company’s credit facility, which is filed as Exhibit 10.32 to the Annual Report on Form 10-K filed on February 21, 2017. On August 19, 2019, the Company entered into a second amendment to its credit facility to increase the lease adjusted leverage ratio to 5.0x through December 29, 2019 (see Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q to be filed on August 23, 2019).

Outlook for 2019

Red Robin’s updated 2019 annual outlook remains the same for comparable restaurant revenue, adjusted EBITDA and capital expenditures. Selling, general and administrative costs, net income and adjusted diluted earnings per share have been updated to reflect current estimates including year-to-date other charges and the Company’s current estimated annual tax benefit. Current 2019 guidance is as follows:

  • Comparable restaurant revenue of down 1.0% to up 1.0% (using constant currency rates);
  • Selling, general and administrative costs of $154 million to $157 million;
  • Net income of $(2.2) million to $4.2 million;
  • Adjusted EBITDA, a non-GAAP measure, of $107 million to $117 million;
  • Adjusted diluted earnings per share, a non-GAAP measure, of $0.95 to $1.50, which includes the impact of an estimated tax benefit of $0.45 to $0.65; and
  • Capital expenditures of $45 million to $55 million.

Guidance Policy

The Company provides guidance as it relates to selected information related to the Company’s financial and operating performance, and such measures may differ from year to year.

About Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB)

Red Robin Gourmet Burgers, Inc. (www.redrobin.com), a casual dining restaurant chain founded in 1969 that operates through its wholly-owned subsidiary, Red Robin International, Inc., and under the trade name Red Robin Gourmet Burgers and Brews, is the Gourmet Burger Authority, famous for serving more than two dozen craveable, high-quality burgers with Bottomless Steak Fries® in a fun environment welcoming to Guests of all ages. Whether a family dining with kids, adults grabbing a drink at the bar, or teens enjoying a meal, Red Robin offers an unparalleled experience for its Guests. In addition to its many burger offerings, Red Robin serves a wide variety of salads, soups, appetizers, entrees, desserts, and signature beverages. Red Robin offers a variety of options behind the bar, including its extensive selection of local and regional beers, and innovative adult beer shakes and cocktails, earning the restaurant a VIBE Vista Award for Best Beer Program in a Multi-Unit Chain Restaurant. There are more than 560 Red Robin restaurants across the United States and Canada, including locations operating under franchise agreements.\



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