UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | | | | | | | | |
☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended October 3, 20212, 2022
or | | | | | | | | |
☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34851
RED ROBIN GOURMET BURGERS, INC.
(Exact name of registrant as specified in its charter) | | | | | | | | |
Delaware | | 84-1573084 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
6312 S. Fiddlers Green Circle,10000 E. Geddes Avenue, Suite 200N500
Greenwood Village,Englewood, Colorado 8011180112
(Address of principal executive offices) (Zip Code)
(303) 846-6000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large Accelerated Filer | ☐ | | Accelerated Filer | ☒ |
Non-accelerated Filer | ☐ | | Smaller Reporting Company | ☐ |
| | | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Exchange Act: | | | | | | | | | | | | | | | | | | |
Title of each class | | Trading symbol(s) | | Name of each exchange on which registered | |
Common Stock, $0.001 par value | | RRGB | | NASDAQNasdaq | (Global Select Market) | |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of November 8, 2021,October 31, 2022, there were 15,716,18115,928,045 shares of the registrant's common stock, par value of $0.001 per share outstanding.
RED ROBIN GOURMET BURGERS, INC.
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) | (in thousands, except for per share amounts) | (in thousands, except for per share amounts) | | October 3, 2021 | | December 27, 2020 | (in thousands, except for per share amounts) | | October 2, 2022 | | December 26, 2021 |
Assets: | Assets: | | | | | Assets: | | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 17,757 | | | $ | 16,116 | | Cash and cash equivalents | | $ | 50,040 | | | $ | 22,750 | |
Accounts receivable, net | Accounts receivable, net | | 11,939 | | | 16,510 | | Accounts receivable, net | | 11,915 | | | 21,400 | |
Inventories | Inventories | | 23,769 | | | 23,802 | | Inventories | | 25,212 | | | 25,219 | |
Income tax receivable | Income tax receivable | | 16,165 | | | 16,662 | | Income tax receivable | | 754 | | | 15,824 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 12,439 | | | 13,818 | | Prepaid expenses and other current assets | | 13,044 | | | 16,963 | |
Restricted cash | | Restricted cash | | 8,090 | | | — | |
Total current assets | Total current assets | | 82,069 | | | 86,908 | | Total current assets | | 109,055 | | | 102,156 | |
Property and equipment, net | Property and equipment, net | | 388,881 | | | 427,033 | | Property and equipment, net | | 342,386 | | | 386,336 | |
Right of use assets, net | | 419,788 | | | 425,573 | | |
Operating lease assets, net | | Operating lease assets, net | | 375,747 | | | 400,825 | |
| Intangible assets, net | Intangible assets, net | | 22,419 | | | 24,714 | | Intangible assets, net | | 19,320 | | | 21,292 | |
Other assets, net | Other assets, net | | 8,567 | | | 10,511 | | Other assets, net | | 14,434 | | | 18,389 | |
Total assets | Total assets | | $ | 921,724 | | | $ | 974,739 | | Total assets | | $ | 860,942 | | | $ | 928,998 | |
Liabilities and stockholders' equity: | Liabilities and stockholders' equity: | | | | | Liabilities and stockholders' equity: | | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | | $ | 34,638 | | | $ | 20,179 | | Accounts payable | | $ | 33,814 | | | $ | 32,510 | |
Accrued payroll and payroll-related liabilities | Accrued payroll and payroll-related liabilities | | 32,555 | | | 27,653 | | Accrued payroll and payroll-related liabilities | | 34,040 | | | 32,584 | |
Unearned revenue | Unearned revenue | | 42,621 | | | 50,138 | | Unearned revenue | | 37,539 | | | 54,214 | |
Current portion of lease obligations | | 49,894 | | | 55,275 | | |
Current portion of operating lease obligations | | Current portion of operating lease obligations | | 47,726 | | | 48,842 | |
Current portion of long-term debt | Current portion of long-term debt | | 9,692 | | | 9,692 | | Current portion of long-term debt | | 2,000 | | | 9,692 | |
Accrued liabilities and other | Accrued liabilities and other | | 42,240 | | | 39,617 | | Accrued liabilities and other | | 50,482 | | | 45,458 | |
Total current liabilities | Total current liabilities | | 211,640 | | | 202,554 | | Total current liabilities | | 205,601 | | | 223,300 | |
Long-term debt | Long-term debt | | 147,471 | | | 160,952 | | Long-term debt | | 189,320 | | | 167,263 | |
Long-term portion of lease obligations | | 450,673 | | | 465,233 | | |
Long-term portion of operating lease obligations | | Long-term portion of operating lease obligations | | 401,274 | | | 435,136 | |
Other non-current liabilities | Other non-current liabilities | | 15,775 | | | 25,287 | | Other non-current liabilities | | 13,120 | | | 26,325 | |
Total liabilities | Total liabilities | | $ | 825,559 | | | $ | 854,026 | | Total liabilities | | 809,315 | | | 852,024 | |
Commitments and contingencies (see note 8) | | | | | |
Commitments and contingencies (see Note 8. Commitments and Contingencies) | | Commitments and contingencies (see Note 8. Commitments and Contingencies) | | | | |
Stockholders' equity: | Stockholders' equity: | | Stockholders' equity: | |
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,722 and 15,548 shares outstanding as of October 3, 2021 and December 27, 2020 | | $ | 20 | | | $ | 20 | | |
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 3, 2021 and December 27, 2020 | | — | | | — | | |
Treasury stock 4,727 and 4,901 shares, at cost, as of October 3, 2021 and December 27, 2020 | | (192,819) | | | (199,908) | | |
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,900 and 15,722 shares outstanding as of October 2, 2022 and December 26, 2021 | | Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,900 and 15,722 shares outstanding as of October 2, 2022 and December 26, 2021 | | 20 | | | 20 | |
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 2, 2022 and December 26, 2021 | | Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 2, 2022 and December 26, 2021 | | — | | | — | |
Treasury stock 4,549 and 4,727 shares, at cost, as of October 2, 2022 and December 26, 2021 | | Treasury stock 4,549 and 4,727 shares, at cost, as of October 2, 2022 and December 26, 2021 | | (184,169) | | | (192,803) | |
Paid-in capital | Paid-in capital | | 240,445 | | | 243,407 | | Paid-in capital | | 242,235 | | | 242,560 | |
Accumulated other comprehensive income (loss), net of tax | Accumulated other comprehensive income (loss), net of tax | | 10 | | | (4) | | Accumulated other comprehensive income (loss), net of tax | | (51) | | | 1 | |
Retained earnings | | 48,509 | | | 77,198 | | |
Retained earnings (deficit) | | Retained earnings (deficit) | | (6,408) | | | 27,196 | |
Total stockholders' equity | Total stockholders' equity | | 96,165 | | | 120,713 | | Total stockholders' equity | | 51,627 | | | 76,974 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | | $ | 921,724 | | | $ | 974,739 | | Total liabilities and stockholders' equity | | $ | 860,942 | | | $ | 928,998 | |
See Notes to Condensed Consolidated Financial Statements.Statements
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited) | | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
(in thousands, except for per share amounts) | (in thousands, except for per share amounts) | | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 | (in thousands, except for per share amounts) | | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | | |
Restaurant revenue | Restaurant revenue | | $ | 270,202 | | | $ | 197,009 | | | $ | 861,036 | | | $ | 658,587 | | Restaurant revenue | | $ | 282,449 | | | $ | 270,202 | | | $ | 951,718 | | | $ | 861,036 | |
Franchise and other revenues | Franchise and other revenues | | 5,242 | | | 3,469 | | | 17,658 | | | 9,078 | | Franchise and other revenues | | 4,439 | | | 5,242 | | | 24,810 | | | 17,658 | |
| Total revenues | Total revenues | | 275,444 | | | 200,478 | | | 878,694 | | | 667,665 | | Total revenues | | 286,888 | | | 275,444 | | | 976,528 | | | 878,694 | |
Costs and expenses: | Costs and expenses: | | | | | | | | | Costs and expenses: | | | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | |
Cost of sales | Cost of sales | | 62,671 | | | 46,037 | | | 193,754 | | | 155,243 | | Cost of sales | | 70,640 | | | 62,671 | | | 234,283 | | | 193,754 | |
Labor | Labor | | 99,725 | | | 74,344 | | | 310,333 | | | 255,652 | | Labor | | 100,522 | | | 99,725 | | | 340,273 | | | 310,333 | |
Other operating | Other operating | | 51,462 | | | 37,631 | | | 156,102 | | | 124,585 | | Other operating | | 52,858 | | | 51,462 | | | 172,725 | | | 156,102 | |
Occupancy | Occupancy | | 22,519 | | | 22,099 | | | 74,233 | | | 76,514 | | Occupancy | | 22,828 | | | 22,519 | | | 76,406 | | | 74,233 | |
Depreciation and amortization | Depreciation and amortization | | 18,881 | | | 19,173 | | | 63,984 | | | 68,053 | | Depreciation and amortization | | 17,368 | | | 18,881 | | | 58,924 | | | 63,984 | |
General and administrative expenses | | 17,691 | | | 15,190 | | | 57,664 | | | 56,054 | | |
Selling expenses | | 12,652 | | | 6,094 | | | 31,635 | | | 26,429 | | |
Selling, general, and administrative expenses | | Selling, general, and administrative expenses | | 35,692 | | | 30,343 | | | 102,168 | | | 89,299 | |
Pre-opening costs | Pre-opening costs | | 418 | | | 89 | | | 792 | | | 245 | | Pre-opening costs | | 217 | | | 418 | | | 514 | | | 792 | |
Other charges | | 1,561 | | | 4,416 | | | 9,228 | | | 138,296 | | |
Other charges (gains), net | | Other charges (gains), net | | (5,217) | | | 1,561 | | | 8,236 | | | 9,228 | |
Total costs and expenses | Total costs and expenses | | 287,580 | | | 225,073 | | | 897,725 | | | 901,071 | | Total costs and expenses | | 294,908 | | | 287,580 | | | 993,529 | | | 897,725 | |
| Loss from operations | Loss from operations | | (12,136) | | | (24,595) | | | (19,031) | | | (233,406) | | Loss from operations | | (8,020) | | | (12,136) | | | (17,001) | | | (19,031) | |
Other expense: | Other expense: | | Other expense: | | |
Interest expense, net and other | Interest expense, net and other | | 2,870 | | | 2,280 | | | 9,986 | | | 7,629 | | Interest expense, net and other | | 4,590 | | | 2,870 | | | 16,151 | | | 9,986 | |
| Loss on debt refinancing | | Loss on debt refinancing | | | | | | | | |
Interest income and other, net | | Interest income and other, net | | |
Total other expenses | | Total other expenses | | 4,590 | | | 2,870 | | | 16,151 | | | |
Loss before income taxes | Loss before income taxes | | (15,006) | | | (26,875) | | | (29,017) | | | (241,035) | | Loss before income taxes | | (12,610) | | | (15,006) | | | (33,152) | | | (29,017) | |
Income tax benefit | | (26) | | | (20,696) | | | (328) | | | (4,297) | | |
Income tax provision (benefit) | | Income tax provision (benefit) | | (43) | | | (26) | | | 453 | | | (328) | |
Net loss | Net loss | | $ | (14,980) | | | $ | (6,179) | | | $ | (28,689) | | | $ | (236,738) | | Net loss | | $ | (12,567) | | | $ | (14,980) | | | $ | (33,605) | | | $ | (28,689) | |
Loss per share: | Loss per share: | | | | | | | | | Loss per share: | | | | | | | | |
Basic | Basic | | $ | (0.95) | | | $ | (0.40) | | | $ | (1.83) | | | $ | (16.98) | | Basic | | $ | (0.79) | | | $ | (0.95) | | | $ | (2.12) | | | $ | (1.83) | |
Diluted | Diluted | | $ | (0.95) | | | $ | (0.40) | | | $ | (1.83) | | | $ | (16.98) | | Diluted | | $ | (0.79) | | | $ | (0.95) | | | $ | (2.12) | | | $ | (1.83) | |
Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | | | Weighted average shares outstanding: | | | | | | | | |
Basic | Basic | | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | | Basic | | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | |
Diluted | Diluted | | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | | Diluted | | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | |
| Other comprehensive (loss) income: | | |
Other comprehensive income (loss): | | Other comprehensive income (loss): | | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | $ | (6) | | | $ | 9 | | | $ | 14 | | | $ | (1,121) | | Foreign currency translation adjustment | | $ | (45) | | | $ | (6) | | | $ | (51) | | | $ | 14 | |
Other comprehensive (loss) income, net of tax | | (6) | | | 9 | | | 14 | | | (1,121) | | |
Other comprehensive income (loss), net of tax | | Other comprehensive income (loss), net of tax | | (45) | | | (6) | | | (51) | | | 14 | |
Total comprehensive loss | Total comprehensive loss | | $ | (14,986) | | | $ | (6,170) | | | $ | (28,675) | | | $ | (237,859) | | Total comprehensive loss | | $ | (12,612) | | | $ | (14,986) | | | $ | (33,656) | | | $ | (28,675) | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive (Loss) Income, net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 27, 2020 | | 20,449 | | | $ | 20 | | | 4,901 | | | $ | (199,908) | | | $ | 243,407 | | | $ | (4) | | | $ | 77,198 | | | $ | 120,713 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (74) | | | 3,025 | | | (3,640) | | | — | | | — | | | (615) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 880 | | | — | | | — | | | 880 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (8,713) | | | (8,713) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 21 | | | — | | | 21 | |
| | | | | | | | | | | | | | | | |
Balance, April 18, 2021 | | 20,449 | | | $ | 20 | | | 4,827 | | | $ | (196,883) | | | $ | 240,647 | | | $ | 17 | | | $ | 68,485 | | | $ | 112,286 | |
| | | | | | | | | | | | | | | | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (95) | | | 3,844 | | | (3,547) | | | — | | | — | | | 297 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,577 | | | — | | | — | | | 1,577 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (4,996) | | | (4,996) | |
Other comprehensive (loss) | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Balance, July 11, 2021 | | 20,449 | | | $ | 20 | | | 4,732 | | | $ | (193,039) | | | $ | 238,677 | | | $ | 16 | | | $ | 63,489 | | | $ | 109,163 | |
| | | | | | | | | | | | | | | | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (5) | | | 220 | | | (280) | | | — | | | — | | | (60) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 2,048 | | | — | | | — | | | 2,048 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (14,980) | | | (14,980) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (6) | | | — | | | (6) | |
Balance, October 3, 2021 | | 20,449 | | | $ | 20 | | | 4,727 | | | $ | (192,819) | | | $ | 240,445 | | | $ | 10 | | | $ | 48,509 | | | $ | 96,165 | |
See Notes to Condensed Consolidated Financial Statements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Income/(Loss), net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings (Deficit) | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 26, 2021 | | 20,449 | | | $ | 20 | | | 4,727 | | | $ | (192,803) | | | $ | 242,560 | | | $ | 1 | | | $ | 27,196 | | | $ | 76,974 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (64) | | | 2,781 | | | (2,846) | | | — | | | — | | | (65) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 3,042 | | | — | | | — | | | 3,042 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (3,105) | | | (3,105) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | 11 | | | — | | | 11 | |
| | | | | | | | | | | | | | | | |
Balance, April 17, 2022 | | 20,449 | | | $ | 20 | | | 4,663 | | | $ | (190,022) | | | $ | 242,756 | | | $ | 12 | | | $ | 24,091 | | | $ | 76,857 | |
| | | | | | | | | | | | | | | | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (113) | | | 5,817 | | | (5,691) | | | — | | | — | | | 126 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 2,542 | | | — | | | — | | | 2,542 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (17,932) | | | (17,932) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | (18) | | | — | | | (18) | |
Balance, July 10, 2022 | | 20,449 | | | $ | 20 | | | 4,550 | | | $ | (184,205) | | | $ | 239,607 | | | $ | (6) | | | $ | 6,159 | | | $ | 61,575 | |
| | | | | | | | | | | | | | | | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (1) | | | 36 | | | (40) | | | — | | | — | | | (4) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 2,668 | | | — | | | — | | | 2,668 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (12,567) | | | (12,567) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | (45) | | | — | | | (45) | |
Balance, October 2, 2022 | | 20,449 | | | $ | 20 | | | 4,549 | | | $ | (184,169) | | | $ | 242,235 | | | $ | (51) | | | $ | (6,408) | | | $ | 51,627 | |
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Loss, net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 29, 2019 | | 17,851 | | | $ | 18 | | | 4,928 | | | $ | (202,313) | | | $ | 213,922 | | | $ | (4,373) | | | $ | 353,266 | | | $ | 360,520 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (39) | | | 1,605 | | | (1,388) | | | — | | | — | | | 217 | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | 72 | | | (1,635) | | | — | | | — | | | — | | | (1,635) | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 712 | | | — | | | — | | | 712 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (174,298) | | | (174,298) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (1,147) | | | — | | | (1,147) | |
| | | | | | | | | | | | | | | | |
Balance, April 19, 2020 | | 17,851 | | | $ | 18 | | | 4,961 | | | $ | (202,343) | | | $ | 213,246 | | | $ | (5,520) | | | $ | 178,968 | | | $ | 184,369 | |
Issuance of common stock, $0.001 par value, net of stock issuance costs | | 2,598 | | | 2 | | | — | | | — | | | 28,723 | | | — | | | — | | | 28,725 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (59) | | | 2,398 | | | (2,228) | | | — | | | — | | | 170 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,071 | | | — | | | — | | | 1,071 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (56,261) | | | (56,261) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 17 | | | — | | | 17 | |
| | | | | | | | | | | | | | | | |
Balance July 12, 2020 | | 20,449 | | | $ | 20 | | | 4,902 | | | $ | (199,945) | | | $ | 240,812 | | | $ | (5,503) | | | $ | 122,707 | | | $ | 158,091 | |
Issuance of common stock, $0.001 par value, net of stock issuance costs | | | | | | | | | | (7) | | | | | | | (7) | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (1) | | | 37 | | | (73) | | | — | | | — | | | (36) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,316 | | | — | | | — | | | 1,316 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (6,179) | | | (6,179) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 9 | | | — | | | 9 | |
Balance, October 4, 2020 | | 20,449 | | | $ | 20 | | | 4,901 | | | $ | (199,908) | | | $ | 242,048 | | | $ | (5,494) | | | $ | 116,528 | | | 153,194 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Income/(Loss), net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 27, 2020 | | 20,449 | | | $ | 20 | | | 4,901 | | | $ | (199,908) | | | $ | 243,407 | | | $ | (4) | | | $ | 77,198 | | | $ | 120,713 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (74) | | | 3,025 | | | (3,640) | | | — | | | — | | | (615) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 880 | | | — | | | — | | | 880 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (8,713) | | | (8,713) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | 21 | | | — | | | 21 | |
| | | | | | | | | | | | | | | | |
Balance, April 18, 2021 | | 20,449 | | | $ | 20 | | | 4,827 | | | $ | (196,883) | | | $ | 240,647 | | | $ | 17 | | | $ | 68,485 | | | $ | 112,286 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (95) | | | 3,844 | | | (3,547) | | | — | | | — | | | 297 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,577 | | | — | | | — | | | 1,577 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (4,996) | | | (4,996) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| | | | | | | | | | | | | | | | |
Balance, July 11, 2021 | | 20,449 | | | $ | 20 | | | 4,732 | | | $ | (193,039) | | | $ | 238,677 | | | $ | 16 | | | $ | 63,489 | | | $ | 109,163 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (5) | | | 220 | | | (280) | | | — | | | — | | | (60) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 2,048 | | | — | | | — | | | 2,048 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (14,980) | | | (14,980) | |
Other comprehensive income (loss), net of tax | | — | | | — | | | — | | | — | | | — | | | (6) | | | — | | | (6) | |
Balance, October 3, 2021 | | 20,449 | | | $ | 20 | | | 4,727 | | | $ | (192,819) | | | $ | 240,445 | | | $ | 10 | | | $ | 48,509 | | | $ | 96,165 | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) | | | Forty Weeks Ended | | | Forty Weeks Ended |
(in thousands) | (in thousands) | | October 3, 2021 | | October 4, 2020 | | (in thousands) | | October 2, 2022 | | October 3, 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | | Cash flows from operating activities: | | | | |
Net loss | Net loss | | $ | (28,689) | | | $ | (236,738) | | | Net loss | | $ | (33,605) | | | $ | (28,689) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | Adjustments to reconcile net loss to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 63,984 | | | 68,053 | | | Depreciation and amortization | | 58,924 | | | 63,984 | |
Gift card breakage | Gift card breakage | | (3,231) | | | (2,329) | | | Gift card breakage | | (8,289) | | | (3,231) | |
Goodwill and asset impairment | | 1,357 | | | 116,193 | | | |
Non-cash other charges | | 319 | | | (2,438) | | | |
Deferred income tax provision | | — | | | 52,439 | | | |
Restaurant asset impairment | | Restaurant asset impairment | | 13,048 | | | 1,357 | |
Non-cash other charges, net | | Non-cash other charges, net | | (2,287) | | | 319 | |
| Stock-based compensation expense | Stock-based compensation expense | | 4,501 | | | 3,082 | | | Stock-based compensation expense | | 8,229 | | | 4,501 | |
(Gain) loss on sale of property, plant, and equipment | | (Gain) loss on sale of property, plant, and equipment | | (9,204) | | | — | |
Other, net | Other, net | | 2,228 | | | 639 | | | Other, net | | 3,240 | | | 2,228 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | | 4,544 | | | 13,250 | | | Accounts receivable | | 9,487 | | | 4,544 | |
Income tax receivable | Income tax receivable | | 520 | | | (57,756) | | | Income tax receivable | | 15,163 | | | 520 | |
| Inventories | | Inventories | | (217) | | | — | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 1,014 | | | 11,229 | | | Prepaid expenses and other current assets | | 2,183 | | | 1,014 | |
Lease assets, net of liabilities | | (12,628) | | | 19,194 | | | |
Operating lease assets, net of liabilities | | Operating lease assets, net of liabilities | | (10,562) | | | (12,711) | |
Trade accounts payable and accrued liabilities | Trade accounts payable and accrued liabilities | | 16,948 | | | (9,864) | | | Trade accounts payable and accrued liabilities | | 9,621 | | | 16,948 | |
Unearned revenue | Unearned revenue | | (4,286) | | | (9,331) | | | Unearned revenue | | (8,386) | | | (4,286) | |
Other operating assets and liabilities, net | Other operating assets and liabilities, net | | (8,964) | | | 11,976 | | | Other operating assets and liabilities, net | | (8,545) | | | (8,881) | |
Net cash provided by (used in) operating activities | | 37,617 | | | (22,401) | | | |
Net cash provided by operating activities | | Net cash provided by operating activities | | 38,800 | | | 37,617 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | | Cash flows from investing activities: | | | | |
Purchases of property and equipment | | (19,987) | | | (14,870) | | | |
Proceeds from sales of real estate and property, plant, and equipment and other investing activities | | 20 | | | 739 | | | |
Purchases of property, equipment, and intangible assets | | Purchases of property, equipment, and intangible assets | | (27,036) | | | (19,987) | |
Proceeds from sales of property and equipment and other investing activities | | Proceeds from sales of property and equipment and other investing activities | | 8,739 | | | 20 | |
Net cash used in investing activities | Net cash used in investing activities | | (19,967) | | | (14,131) | | | Net cash used in investing activities | | (18,297) | | | (19,967) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | | Cash flows from financing activities: | | | | |
Borrowings of long-term debt | Borrowings of long-term debt | | 109,500 | | | 168,000 | | | Borrowings of long-term debt | | 282,151 | | | 109,500 | |
Payments of long-term debt and finance leases | Payments of long-term debt and finance leases | | (125,216) | | | (159,004) | | | Payments of long-term debt and finance leases | | (266,275) | | | (125,216) | |
Purchase of treasury stock | | — | | | (1,635) | | | |
| Debt issuance costs | Debt issuance costs | | (870) | | | (2,952) | | | Debt issuance costs | | (4,869) | | | (870) | |
Proceeds from issuance of common stock, net of stock issuance costs | | — | | | 28,945 | | | |
Proceeds from exercise of stock options and employee stock purchase plan | | 549 | | | 666 | | | |
Net cash (used in) provided by financing activities | | (16,037) | | | 34,020 | | | |
Proceeds related to real estate sale | | Proceeds related to real estate sale | | 3,856 | | | — | |
Proceeds from other financing activities, net | | Proceeds from other financing activities, net | | 58 | | | 549 | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | | 14,921 | | | (16,037) | |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | | 28 | | | (166) | | | Effect of exchange rate changes on cash | | (44) | | | 28 | |
Net change in cash and cash equivalents | | 1,641 | | | (2,678) | | | |
Net change in cash and cash equivalents, and restricted cash | | Net change in cash and cash equivalents, and restricted cash | | 35,380 | | | 1,641 | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | | 16,116 | | | 30,045 | | | Cash and cash equivalents, beginning of period | | 22,750 | | | 16,116 | |
Cash and cash equivalents, end of period | | $ | 17,757 | | | $ | 27,367 | | | |
Cash and cash equivalents, and restricted cash, end of period | | Cash and cash equivalents, and restricted cash, end of period | | $ | 58,130 | | | $ | 17,757 | |
| Supplemental disclosure of cash flow information | Supplemental disclosure of cash flow information | | | Supplemental disclosure of cash flow information | |
Income tax refunds received, net | Income tax refunds received, net | | $ | (840) | | | $ | (2,391) | | | Income tax refunds received, net | | $ | (14,729) | | | $ | (840) | |
Interest paid, net of amounts capitalized | Interest paid, net of amounts capitalized | | $ | 7,586 | | | $ | 7,514 | | | Interest paid, net of amounts capitalized | | $ | 11,387 | | | $ | 7,586 | |
|
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Recent Accounting Pronouncements
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of October 3, 2021,2, 2022, the Company owned and operated 430424 restaurants located in 38 states. The Company also had 101 franchised full-service restaurants in 16 states and 1one Canadian province. The Company operates its business as 1one operating and 1one reportable segment.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year.
The accompanying Condensed Consolidated Financial Statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The Condensed Consolidated Balance Sheet as of December 27, 202026, 2021 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim Condensed Consolidated Financial Statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 202026, 2021 filed with the SEC on March 3, 2021.10, 2022.
Our current, prior, and priorupcoming year periods, period end dates, and number of weeks included in the period are summarized in the table below:
| | | | | | | | | | | | | | |
Periods | | Period End Date | | Number of Weeks in Period |
Current and Prior Fiscal Quarters: | | | | |
First Quarter 2022 | | April 17, 2022 | | 16 |
First Quarter 2021 | | April 18, 2021 | | 16 |
FirstSecond Quarter 20202022 | | July 10, 2022 | | April 19, 2020 | | 1612 |
Second Quarter 2021 | | July 11, 2021 | | 12 |
SecondThird Quarter 20202022 | | July 12, 2020October 2, 2022 | | 12 |
Third Quarter 2021 | | October 3, 2021 | | 12 |
Third Quarter 2020 | | October 4, 2020 | | 12 |
Current and Prior Fiscal Years: | | | | |
Fiscal Year 2022 | | December 25, 2022 | | 52 |
Fiscal Year 2021 | | December 26, 2021 | | 52 |
Upcoming fiscal year: | | | | |
Fiscal Year 20202023 | | December 27, 202031, 2023 | | 5253 |
Reclassifications
Certain amounts presented have been reclassified within the October 4, 20203, 2021 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications within Changes infrom Lease assets, net of liabilities to Other operating assets and liabilities. The reclassifications had no effect on the Company’s cash flows from operations.
Certain amounts presented have been reclassified withinChange in Accounting Estimate - Gift Card Breakage
As part of its annual assessment of gift card breakage and during the forty weeks ended October 4, 2020 Condensed Consolidated Statements Of Operations And Comprehensive Loss2, 2022, the Company re-evaluated the estimated redemption pattern related to present Generalgift cards and aligned the recognition of gift card breakage to the updated estimated redemption pattern. As a result, the Company recognized $5.9 million of additional gift card breakage in Franchise and other revenues, partially offset by $0.6 million of associated commissions costs recognized in Selling, general and administrative expenses, in the first quarter of 2022. This change in accounting estimate decreased net loss by $5.2 million, or $0.33 per basic and Selling expenses separatelydiluted share for improved comparability and alignment with industry presentation.the forty weeks ended October 2, 2022. The reclassifications had no effect onCompany does not expect the Company’s Total costs and expenses, Loss from operations, or Net loss.impact of this change in estimate to be material to its future financial statements.
Recent Accounting PronouncementsTax Legislation
Reference Rate Reform
In March 2020, FASB issued Update 2020-04, Reference Rate Reform (Topic 848): FacilitationThe CHIPS and Science Act of 2022 (CHIPS) and the EffectsInflation Reduction Act (IRA) of Reference Rate Reform2022 were signed into law by President Biden on Financial Reporting. This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference LIBOR or another reference rate expected to be discontinued. Under this update, contract modifications resulting inAugust 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a new reference rate may be accounted for ascorporate alternative minimum tax, and a continuation of the existing contract. This guidancestock repurchase excise tax. The Company is effective upon issuance of the update and applies to contract modifications made through December 31, 2022. We are currently evaluating the full impact this guidance will have onof CHIPS and IRA, but at present does not expect that any of the provisions included in these acts would result in a material impact to our consolidated financial statements.
We reviewed all other recently issued accounting pronouncements and concluded they were either not applicabledeferred tax assets, liabilities, or not expected to have a significant impact on the Company's Condensed Consolidated Financial Statements.income taxes payable.
2. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by type of good or service (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Restaurant revenue | | $ | 270,202 | | | $ | 197,009 | | | $ | 861,036 | | | $ | 658,587 | |
Franchise revenue | | 4,303 | | | 2,584 | | | 13,123 | | | 5,861 | |
Gift card breakage | | 438 | | | 523 | | | 3,231 | | | 2,329 | |
Other revenue | | 501 | | | 362 | | | 1,304 | | | 888 | |
Total revenues | | $ | 275,444 | | | $ | 200,478 | | | $ | 878,694 | | | $ | 667,665 | |
——————————————————— | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Restaurant revenue | | $ | 282,449 | | | $ | 270,202 | | | $ | 951,718 | | | $ | 861,036 | |
Franchise revenue | | 4,249 | | | 4,303 | | | 14,891 | | | 13,123 | |
Gift card breakage(1) | | 190 | | | 438 | | | 8,290 | | | 3,231 | |
Other revenue | | — | | | 501 | | | 1,629 | | | 1,304 | |
Total revenues | | $ | 286,888 | | | $ | 275,444 | | | $ | 976,528 | | | $ | 878,694 | |
(1) During the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage revenue to the updated estimated redemption pattern. See Note 1. Basis of Presentation and Recent Accounting Pronouncements.
Contract liabilities
Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands):
| | | | | | | | | | | |
| October 3, 2021 | | December 27, 2020 |
Unearned gift card revenue | $ | 29,599 | | | $ | 38,309 | |
Deferred loyalty revenue | $ | 13,022 | | | $ | 11,829 | |
| | | | | | | | | | | |
| October 2, 2022 | | December 26, 2021 |
Unearned gift card revenue | $ | 23,971 | | | $ | 41,128 | |
Deferred loyalty revenue | $ | 13,568 | | | $ | 13,086 | |
Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands):
| | | | | | | | | | | |
| Forty Weeks Ended |
| October 3, 2021 | | October 4, 2020 |
Gift card revenue | $ | 14,448 | | | $ | 16,191 | |
| | | | | | | | | | | |
| Forty Weeks Ended |
| October 2, 2022 | | October 3, 2021 |
Gift card revenue | $ | 19,788 | | | $ | 14,448 | |
3. Leases
Leases are included in right-of-use assets, net, current portion of lease obligations, and long-term portion of lease liabilities on our Condensed Consolidated Balance Sheet as of October 3, 2021 and December 27, 2020 as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
October 3, 2021 | | Finance | | Operating | | Total |
Right of use assets, net | | $ | 9,774 | | | $ | 410,014 | | | $ | 419,788 | |
| | | | | | |
Current portion of lease obligations | | 1,140 | | | 48,754 | | | 49,894 | |
Long-term portion of lease obligations | | 10,813 | | | 439,860 | | | 450,673 | |
Total | | $ | 11,953 | | | $ | 488,614 | | | $ | 500,567 | |
| | | | | | |
December 27, 2020 | | Finance | | Operating | | Total |
Right of use assets, net | | $ | 9,644 | | | $ | 415,929 | | | $ | 425,573 | |
| | | | | | |
Current portion of lease obligations | | 1,078 | | | 54,197 | | | 55,275 | |
Long-term portion of lease obligations | | 10,937 | | | 454,296 | | | 465,233 | |
Total | | $ | 12,015 | | | $ | 508,493 | | | $ | 520,508 | |
3. LeasesThe Company's finance and operating lease assets and liabilities as of October 2, 2022 and December 26, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | |
October 2, 2022 | | Finance(1) | | Operating(2) | | |
Lease assets, net(3) | | $ | 7,233 | | | $ | 375,747 | | | |
| | | | | | |
Current portion of lease obligations | | 1,015 | | | 47,726 | | | |
Long-term portion of lease obligations | | 8,630 | | | 401,274 | | | |
Total | | $ | 9,645 | | | $ | 449,000 | | | |
| | | | | | |
December 26, 2021 | | Finance(1) | | Operating(2) | | |
Lease assets, net(3) | | $ | 9,664 | | | $ | 400,825 | | | |
| | | | | | |
Current portion of lease obligations | | 1,194 | | | 48,842 | | | |
Long-term portion of lease obligations | | 10,765 | | | 435,136 | | | |
Total | | $ | 11,959 | | | $ | 483,978 | | | |
(1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our October 2, 2022 and December 26, 2021 Condensed Consolidated Balance Sheets.
(2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our October 2, 2022 and December 26, 2021 Condensed Consolidated Balance Sheets.
(3) The Lease assets, net caption includes the right of use assets associated with the Company's Finance and Operating leases, net of the associated amortization of these right of use assets.
The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our Condensed Consolidated Statement of Operations and Comprehensive Loss as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Operating lease cost | | $ | 16,061 | | | $ | 14,992 | | | $ | 53,765 | | | $ | 51,931 | |
Finance lease cost: | | | | | | | | |
Amortization of right of use assets | | 197 | | | 227 | | 657 | | | 615 |
Interest on lease liabilities | | 131 | | | 150 | | 407 | | | 412 |
Total finance lease cost | | 328 | | | $ | 377 | | | $ | 1,064 | | | $ | 1,027 | |
Variable lease cost | | 4,496 | | | 5,902 | | | 15,271 | | | 19,207 | |
Total | | $ | 20,885 | | | $ | 21,271 | | | $ | 70,100 | | | $ | 72,165 | |
Maturities of our lease liabilities as of October 3, 2021 were as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Finance Leases | | Operating Leases | | Total |
Remainder of 2021 | $ | 550 | | | $ | 14,740 | | | $ | 15,290 | |
2022 | 1,327 | | | 79,038 | | | 80,365 | |
2023 | 1,244 | | | 76,303 | | | 77,547 | |
2024 | 1,264 | | | 74,575 | | | 75,839 | |
2025 | 1,283 | | | 69,959 | | | 71,242 | |
Thereafter | 9,441 | | | 377,685 | | | 387,126 | |
Total future lease liability | $ | 15,109 | | | $ | 692,300 | | | $ | 707,409 | |
Less imputed interest | 3,156 | | | 203,686 | | | 206,842 | |
Carrying value of lease liability | $ | 11,953 | | | $ | 488,614 | | | $ | 500,567 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Operating lease cost | | $ | 15,793 | | | $ | 16,061 | | | $ | 53,904 | | | $ | 53,765 | |
Finance lease cost: | | | | | | | | |
Amortization of right of use assets | | 261 | | | 197 | | | 841 | | | 657 | |
Interest on lease liabilities | | 111 | | | 131 | | | 408 | | | 407 | |
Total finance lease cost | | $ | 372 | | | $ | 328 | | | $ | 1,249 | | | $ | 1,064 | |
Variable lease cost | | 4,130 | | | 4,496 | | | 15,136 | | | 15,271 | |
Total | | $ | 20,295 | | | $ | 20,885 | | | $ | 70,289 | | | $ | 70,100 | |
Maturities of our lease liabilities as of October 2, 2022 were as follows (in thousands): | | | | | | | | | | | | | |
| Finance Leases | | Operating Leases | | |
Remainder of 2022 | $ | 260 | | | $ | 13,829 | | | |
2023 | 1,386 | | | 76,978 | | | |
2024 | 1,479 | | | 76,047 | | | |
2025 | 1,189 | | | 71,921 | | | |
2026 | 1,245 | | | 66,078 | | | |
Thereafter | 6,454 | | | 323,647 | | | |
Total future lease payments | $ | 12,013 | | | $ | 628,500 | | | |
Less imputed interest | 2,368 | | | 179,500 | | | |
Total lease liability | $ | 9,645 | | | $ | 449,000 | | | |
Supplemental cash flow and other information related to leases is as follows (in thousands, except other information): | | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
| | October 3, 2021 | | October 4, 2020 | | |
Cash flows from operating activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Operating leases | | $ | 68,036 | | | $ | 33,034 | | | |
Finance leases | | 406 | | | 412 | | | |
Cash flows from financing activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Finance leases | | 1,447 | | | 196 | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | $ | 69,889 | | | $ | 33,642 | | | |
| | | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 27,483 | | | $ | 31,731 | | | |
Right of use assets obtained in exchange for finance lease obligations | | $ | 988 | | | $ | 4,581 | | | |
| | | | | | |
Other information related to operating leases as follows: | | | | | | |
Weighted average remaining lease term | | 9.9 years | | 10.3 years | | |
Weighted average discount rate | | 7.01 | % | | 7.12 | % | | |
| | | | | | |
Other information related to finance leases as follows: | | | | | | |
Weighted average remaining lease term | | 11.0 years | | 11.9 years | | |
Weighted average discount rate | | 4.56 | % | | 4.93 | % | | |
| | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
| | October 2, 2022 | | October 3, 2021 | | |
Cash flows from operating activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Operating leases | | $ | 65,943 | | | $ | 68,036 | | | |
Finance leases | | 408 | | | 406 | | | |
Cash flows from financing activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Finance leases | | 1,048 | | | 1,447 | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | $ | 67,399 | | | $ | 69,889 | | | |
| | | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 11,604 | | | $ | 27,483 | | | |
Right of use assets obtained in exchange for finance lease obligations | | $ | 541 | | | $ | 988 | | | |
| | | | | | |
Other information related to operating leases as follows: | | | | | | |
Weighted average remaining lease term (years) | | 9.21 | | 9.86 | | |
Weighted average discount rate | | 7.24 | % | | 7.01 | % | | |
| | | | | | |
Other information related to finance leases as follows: | | | | | | |
Weighted average remaining lease term (years) | | 10.49 | | 11.04 | | |
Weighted average discount rate | | 4.89 | % | | 4.56 | % | | |
4. Loss Per Share
Basic loss per share amounts are calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share amounts are calculated based upon the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted loss per share reflects the potential dilution that could occur if holders of options exercised their options into common stock. As the Company was in a net loss position for botheach of the twelve week and forty week periodsweeks ended October 2, 2022 and October 3, 2021, and October 4, 2020, all potentially dilutive common shares are considered anti-dilutive.
The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands): | | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 | | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Basic weighted average shares outstanding | Basic weighted average shares outstanding | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | | Basic weighted average shares outstanding | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | |
Dilutive effect of stock options and awards | Dilutive effect of stock options and awards | — | | | — | | | — | | | — | | Dilutive effect of stock options and awards | — | | | — | | | — | | | — | |
Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | | Diluted weighted average shares outstanding | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | |
| Awards excluded due to anti-dilutive effect on diluted loss per share | Awards excluded due to anti-dilutive effect on diluted loss per share | 545 | | | 895 | | | 390 | | | 480 | | Awards excluded due to anti-dilutive effect on diluted loss per share | 869 | | | 545 | | | 1,010 | | | 390 | |
5. Other Charges (Gains), net
Other charges consist(gains), net consisted of the following (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Restaurant closure costs | | $ | 1,102 | | | $ | 3,982 | | | $ | 5,301 | | | $ | 12,990 | |
Asset impairment | | — | | | — | | | 1,357 | | | 20,779 | |
Litigation contingencies | | 160 | | | — | | | 1,330 | | | 4,500 | |
COVID-19 related costs | | 299 | | | 430 | | | 1,112 | | | 1,279 | |
Board and stockholder matter costs | | — | | | 4 | | | 128 | | | 2,453 | |
Goodwill impairment | | — | | | — | | | — | | | 95,414 | |
Severance and executive transition | | — | | | — | | | — | | | 881 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other charges | | $ | 1,561 | | | $ | 4,416 | | | $ | 9,228 | | | $ | 138,296 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Asset impairment | | $ | 2,187 | | | $ | — | | | $ | 13,048 | | | $ | 1,357 | |
Gain on sale of restaurant property | | (9,204) | | | — | | | (9,204) | | | — | |
Executive transition | | 1,825 | | | — | | | 1,954 | | | — | |
Other financing costs | | 1,022 | | | — | | | 1,392 | | | — | |
COVID-19 related charges | | 123 | | | 299 | | | 423 | | | 1,112 | |
Restaurant closure costs (gains) | | (1,570) | | | 1,102 | | | 309 | | | 5,301 | |
Closed corporate office, net of sublease income | | 267 | | | — | | | 267 | | | — | |
Litigation contingencies | | 133 | | | 160 | | | 47 | | | 1,330 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Board and stockholder matter costs | | — | | | — | | | — | | | 128 | |
Other charges (gains), net | | $ | (5,217) | | | $ | 1,561 | | | $ | 8,236 | | | $ | 9,228 | |
Restaurant closure costs represent costs incurred for permanently closed restaurants, including lease termination costs, as well as the ongoing restaurant operating costs of Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic.
During the forty weeks ended October 3, 2021, AssetThe Company recognized non-cash impairment charges primarily related to the impairment of long-livedrestaurant assets at 1one and ten Company-owned restaurant with a carrying value of $3.8 million (including right of use assets), recognizing an impairment expense of $1.2 million related to the net book value of long-lived restaurant assets for this restaurant. Duringrestaurants during the twelve and forty weeks ended October 4, 20202, 2022, respectively, and one Company-owned restaurant for the forty weeks ended October 3, 2021.
During the second quarter of 2022 the Company closed on an agreement to sell a restaurant property that the Company owned and leased back on a short-term basis. The Company collected initial net proceeds from the purchaser-lessor of $3.9 million, which represented a portion of the total consideration received from the sale. The Company did not recognize a sale in the second quarter of 2022 as certain criteria to recognize a sale in accordance with ASC Topic 842, Leases, and ASC Topic 606, Revenue from Contracts with Customers, were not met. During third quarter of 2022, the Company received the remaining proceeds, upon which the lease terminated and the sale transaction was completed, and recognized non-cash impairment chargesa $9.2 million gain on the sale of the restaurant property . The initial net proceeds of $3.9 million are included within cash flows from financing activities and the final proceeds received of $8.5 million are included within cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 2, 2022.
Executive transition costs include costs associated with transitioning to a new Chief Executive Officer.
Other financing costs include fees related to restaurant assets at 2 and NaN Company-owned restaurants, respectively, resulting from quantitative impairment analyses.
Litigation contingencies include legal settlement costs accrued within the period presented related to class action employment cases and other employment matters.entry by the Company into the new Credit Agreement (as defined below) on March 4, 2022 that were not capitalized with the closing of the Credit Facility. See Note 6. Borrowings.
COVID-19 related costs include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members related to the COVID-19 pandemic.
Restaurant closure costs (gains) include the ongoing restaurant operating costs of the Company-owned restaurants incurred for permanently closed restaurants and closed restaurant lease termination gains or losses.
Closed corporate office, net of sublease income includes expense and sublease income related to a corporate office facility that was vacated and subleased.
Litigation contingencies during the pandemic.twelve and forty weeks ended October 2, 2022 include the impact of cash proceeds received by the Company related to certain legal claims. Litigation contingencies during the twelve and forty weeks ended October 2, 2022 and October 3, 2021 include legal settlement costs accrued related to pending or threatened litigation.
Board and stockholder matters costs were primarily related to the recruitment and appointment of a new board members, and other board and stockholder matters.
We performed a goodwill impairment analysis duringmember in the first quarter of 2020 resulting in full impairment of our goodwill balance. The goodwill impairment was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value.
Severance and executive transition in 2020 primarily relates to severance costs associated with the reduction in force of restaurant support center Team Members in April 2020.2021.
6. Borrowings
Borrowings as of October 3, 20212, 2022 and December 27, 202026, 2021 are summarized below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| October 3, 2021 | | December 27, 2020 |
| Borrowings | | Weighted Average Interest Rate | | Borrowings | | Weighted Average Interest Rate |
Revolving credit facility, term loan, and other long-term debt | $ | 157,163 | | | 6.80 | % | | $ | 170,644 | | | 4.50 | % |
Total debt | 157,163 | | | | | 170,644 | | | |
Less current portion | 9,692 | | | | | 9,692 | | | |
Long-term debt | $ | 147,471 | | | | | $ | 160,952 | | | |
| | | | | | | |
Amounts issued under letters of credit | $ | 8,600 | | | | | $ | 8,700 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | October 2, 2022 | | Weighted Average Interest Rate | | December 26, 2021 | | Weighted Average Interest Rate |
Revolving line of credit | | $ | — | | | | | $ | 57,000 | | | |
Term loan | | 199,000 | | | 8.70 | % | | 119,080 | | | 7.10 | % |
Notes payable, non-current | | 875 | | | | | 875 | | | |
Total borrowings | | 199,875 | | | | | 176,955 | | | |
Less: unamortized debt issuance costs and discounts(1) | | 8,555 | | | | | — | | | |
Less: current portion of long-term debt | | 2,000 | | | | | 9,692 | | | |
Long-term debt | | $ | 189,320 | | | | | $ | 167,263 | | | |
| | | | | | | | |
Revolving line of credit unamortized deferred financing charges(1): | | $ | 1,042 | | | | | $ | 2,015 | | | |
(1)
Loan origination costs associated with the Company's Amended and Restated Credit Agreement (the "Credit Facility")credit facility are included as deferred costs in Other assets, net for financing charges allocated to the Revolving line of credit, and Long-term debt for financing charges associated with the term loan in the accompanying Condensed Consolidated Balance Sheets. Unamortized debt issuance costs were $2.0
Credit Agreement
On March 4, 2022, the Company replaced its prior amended and restated credit agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of credit and $3.3a $200.0 million term loan (collectively, the "Credit Facility"). The borrower maintains the option to increase the Credit Agreement in the future, subject to lenders’ participation, by up to an additional $40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement.
The Credit Facility will mature on March 4, 2027. No amortization is required with respect to the revolving Credit Facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0% of the original principal amount of the term loan. The Credit Agreement's interest rate references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum. The variable interest rate on the term loan was 10.31% as of October 3, 2021 and December 27, 2020.2, 2022.
Third Amendment to Credit Agreement
In response toRed Robin International, Inc. is the continued uncertainty around the impact of industry labor and supply chain challenges as well as the COVID-19 Delta variant, the Company amended its current credit facility on November 9, 2021 (the "Third Amendment") to obtain additional flexibility to continue to implement our business strategy. The Company anticipates refinancing its Credit Facility in 2022. The Third Amendment further amends the Company’s Amended and Restated Credit Agreement (as amended, the "Credit Facility") to, among other things:
•waive the application of the lease adjusted leverage ratio financial covenant (the "Leverage Ratio Covenant") for the third fiscal quarter of 2021
•increase the maximum leverage permitted for purposes of the Leverage Ratio Covenant for the fourth fiscal quarter of 2021 and the first, second and third fiscal quarters of 2022, with the definition of the Leverage Ratio Covenant also being amended to provide that it shall not be calculated on a basis that gives effect to a seasonally adjusted annualized consolidated EBITDA in future periods;
•decrease the minimum fixed charge coverage ratio required for purposes of the fixed charge coverage ratio financial covenant (the “FCCR Covenant”) for the first fiscal quarter of 2022, with the definition of the FCCR Covenant also being amended to account for cash tax refunds received in any future period and certain capital expenditures constituting "Expansion Capital Expenditures" being excluded from the calculation thereof;
•decrease the minimum liquidity required for purposes of the minimum liquidity covenant and provide for the testing of such minimum liquidity covenant at all times;
•make certain amendments to the Credit Facility to (i) provide that certain additional capital expenditures shall constitute "Expansion Capital Expenditures" and (ii) provide that "Expansion Capital Expenditures" shall be permitted for all periods on or prior to the last day of the fiscal quarter of the Company ending on or about October 2, 2022, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) such "Expansion Capital Expenditures" do not exceed certain agreed amounts in each fiscal quarter (with carryforward of unused amounts to the immediately succeeding fiscal quarter), and, for all periods thereafter, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) on a pro forma basis, lease adjusted leverage ratio shall not exceed 5.00x;
•increase the pricingborrower under the Credit Facility for (a) the period from the Third Amendment Effective Date through the first interest determination date occurring after the last dayAgreement, and certain of the fiscal quarter ofits subsidiaries and the Company ending on or about April 17, 2022 to LIBOR (subject to a 1.00% floor) plus 6.00% and (b) periods thereafter to LIBOR (to which a 1.00% LIBOR floor shall apply) plus 6.50%;
•provide that the previously agreed utilization feeare guarantors of 0.75% per annum of the daily outstanding principal amount of term loans, revolving loans, swingline loans and letter of creditborrower’s obligations under the Credit Facility shall be owing solely in respectAgreement. Borrowings under the Credit Agreement are secured by substantially all of the period commencing on February 25, 2021 and ending on the Third Amendment Effective Date, with all such amounts payable on the Third Amendment Effective Date;
•reduce the aggregate revolving commitment to $75,000,000 on the last dayassets of the fiscal quarterborrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, ending on or about April 17, 2022;the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments.
•amendOn March 4, 2022, Red Robin International, Inc., the anti-cash hoarding provision to require revolver repayments (but with no associated permanent reduction inCompany, and the revolving commitment)guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the extent thatAdministrative Agent a first priority security interest in substantially all of the Company’s consolidated cash on hand exceeds $30,000,000 at any time;
•reviseassets of the requirement thatborrower and the annual audited financial statements be delivered without a "going concern qualification"guarantors to permit such a qualification solely relating to (i) any impending debt maturity (whethersecure the obligations under the Credit Facility or otherwise) or (ii) any actual or prospective inabilityAgreement. This new Security Agreement replaced the existing security agreement, dated January 10, 2020, which was entered into in connection with the Prior Credit Agreement.
Red Robin International, Inc. as the borrower is obligated to satisfy a financial maintenance covenant; and
•make certain amendmentspay customary fees to the agents, lenders and issuing banks under the Credit FacilityAgreement with respect to address LIBOR transition matters.
providing, maintaining, or administering, as applicable, the credit facilities.
In connection with entry into the new Credit Agreement, the Company’s Prior Credit Agreement was terminated. In connection with such termination and new borrowings under the new Credit Agreement, the Company paid off all outstanding borrowings, accrued interest, and fees under the Prior Credit Agreement.
The description above is a summary descriptions of the Third AmendmentCredit Agreement and isthe Security Agreement do not purport to be complete and are qualified in itstheir entirety by reference to the completefull text of the agreement,Credit Agreement and the Security Agreement, respectively, which is incorporated herein by reference. In conjunctionwere filed as exhibits to the Company’s Current Report on Form 8-K filed with the Third Amendment,Securities and Exchange Commission on March 10, 2022.
During the first quarter of 2022, the Company paid certain customary amendment feesexpensed approximately $1.7 million of deferred financing charges related to the lenders under the Credit Facility totaling approximately $0.8 million, which will be capitalized as deferred loan fees and amortized over the remaining termextinguishment of the Prior Credit Facility.Agreement on March 4, 2022. These charges were recorded to interest expense, net and other on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the forty weeks ended October 2, 2022. In association with the execution of the new Credit Agreement, the Company recognized $4.8 million of deferred financing charges, and $6.1 million of original issuance discount.
7. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate fair value due to the short term nature or maturity of the instruments.
The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying consolidated balance sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets).
The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying Condensed Consolidated Balance Sheets as of October 3, 20212, 2022 and December 27, 202026, 2021 (in thousands): | | | October 3, 2021 | | Level 1 | | Level 2 | | Level 3 | | October 2, 2022 | | Level 1 | | Level 2 | | Level 3 |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Investments in rabbi trust | Investments in rabbi trust | | $ | 5,999 | | | $ | 5,999 | | | $ | — | | | $ | — | | Investments in rabbi trust | | $ | 4,020 | | | $ | 4,020 | | | $ | — | | | $ | — | |
Total assets measured at fair value | Total assets measured at fair value | | $ | 5,999 | | | $ | 5,999 | | | $ | — | | | $ | — | | Total assets measured at fair value | | $ | 4,020 | | | $ | 4,020 | | | $ | — | | | $ | — | |
| | | December 27, 2020 | | Level 1 | | Level 2 | | Level 3 | | December 26, 2021 | | Level 1 | | Level 2 | | Level 3 |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Investments in rabbi trust | Investments in rabbi trust | | $ | 6,740 | | | $ | 6,740 | | | $ | — | | | $ | — | | Investments in rabbi trust | | $ | 6,276 | | | $ | 6,276 | | | $ | — | | | $ | — | |
Total assets measured at fair value | Total assets measured at fair value | | $ | 6,740 | | | $ | 6,740 | | | $ | — | | | $ | — | | Total assets measured at fair value | | $ | 6,276 | | | $ | 6,276 | | | $ | — | | | $ | — | |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the Condensed Consolidated Financial Statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired.
The Company has measured non-financial assets for impairment using continuing and projected future cash flows, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement. See footnote 5Note 5. Other Charges (Gains), net.
We impaired long-lived restaurant assets with a carrying value (including right of this Quarterly Report on Form 10-Q for additional detail.use lease assets) of $5.8 million and $27.3 million, recognizing an impairment expense of $2.2 million and $13.0 million during the twelve and forty weeks ended October 2, 2022, respectively, related to the net book value of these long-lived restaurant assets. We determined the fair value of these long-lived assets to be $3.6 million and $14.3 million in the twelve and forty weeks ended October 2, 2022, respectively. The impairment was recorded as a result of quantitative impairment analyses.
Disclosures of Fair Value of Other Assets and Liabilities
The Company's liability under its Credit Facilitycredit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. As of October 3, 2021,2, 2022, the carrying value of the liability under the Company's Credit Facility approximated fair value. As of December 27, 2020, the carrying value and fair value of the Credit Facility were $169.8credit facility was approximately $194.8 million and $172.6the principal amount carrying value was $199.0 million. The credit facility term loan is reported net of $8.6 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of October 2, 2022. The carrying value approximated the fair value of the credit facility as of December 26, 2021, as the interest rate on the instrument approximated current market rates. The interest rate on the Credit Facilitycredit facility represents a level 2 fair value input.
8. Commitments and Contingencies
Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the condensed consolidated financial statements. However, the ultimate resolution of litigated claims may differ from our current estimates.
In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment related claims and claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns. To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows.
As of October 2, 2022, we had a balance of $4.5 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet. We ultimately may be subject to greater or less than the accrued amount.
As of October 2, 2022, we had non-cancellable purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $128.4 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 20212022 and 20202021 refer to the twelve and forty weeks ended October 3, 20212, 2022 and October 4, 2020,3, 2021, unless otherwise indicated.
Overview
Description of Business
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 531525 locations in North America. As of October 3, 2021,2, 2022, the Company owned 430424 restaurants located in 38 states. The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
COVID-19 Impact
The COVID-19 pandemic continues to create unprecedented challenges for our industry including government mandated restrictions, changing consumer behavior, labor and supply chain challenges, and wide spread inflationary costs. Even as government restrictions were lifted, and dining rooms returned to full capacity, the surge in the Delta variant continued to highlight the critical importance of providing a safe environment for our Team Members and Guests.
In response to these COVID-19 challenges, the Company limited dining hours and seating capacity in order to preserve the consistent quality experience our Guests expect from us. Our disciplined Guest focus is delivered through our Total Guest Experience hospitality model ("TGX"), off-premises enhancements, and our management labor model.
Our ability to attract and retain Team Members has become more challenging in the current competitive job market. Staffing is our number one priority; we have supported our staffing efforts through technology enhancements to the application and hiring process, improving our wage policies, holding national hiring days, and deploying internal and external resources to augment recruiting, hiring, and training efforts. The challenges in hiring and retention and global supply chain disruptions have affected many of our vendor partners, resulting in intermittent product and distribution shortages.
We remain focused on proactively addressing these industry challenges, while delivering a great Guest experience and continuing to prioritize the satisfaction and retention of our Team Members.
Financial and Operational Highlights
The following summarizes the operational and financial highlights during the twelve weeks ended October 3, 2021:2, 2022:
Restaurant Revenue, compared to the same period in the prior year, is presented in the table below: | | | | | | | | | | | | |
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| | (millions) | | | | |
Restaurant Revenue for the twelve weeks ended October 4, 20203, 2021 | | $ | 197.0270.2 | | | | | |
IncreaseIncrease/(decrease) in comparable restaurant revenue(1)
| | 67.014.1 | | | | | |
IncreaseIncrease/(decrease) from non-comparable restaurants | | 6.2 (1.9) | | | | | |
Total increaseincrease/(decrease) | | 73.212.2 | | | | | |
Restaurant Revenue for the twelve weeks ended October 3, 20212, 2022 | | $ | 270.2282.4 | | | | | |
The following summarizes the operational and financial highlights during the forty weeks ended October 3, 2021:2, 2022:
Restaurant Revenue, compared to the same period in the prior year, is presented in the table below: | | | | | | | | | | | | |
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| | (millions) | | | | |
Restaurant Revenue for the forty weeks ended October 4, 20203, 2021 | | $ | 658.6861.0 | | | | | |
IncreaseIncrease/(decrease) in comparable restaurant revenue(1)
| | 200.693.6 | | | | | |
DecreaseIncrease/(decrease) from non-comparable restaurants | | 1.8 (2.9) | | | | | |
Total increaseincrease/(decrease) | | 202.490.7 | | | | | |
Restaurant Revenue for the forty weeks ended October 3, 20212, 2022 | | $ | 861.0951.7 | | | | | |
(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period presented.
Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve weeks ended | | 2021 compared to 2020 | | Twelve Weeks Ended | | 2021 compared to 2019(1) |
| | October 3, 2021 | | October 4, 2020 | | Increase/(Decrease) | | October 6, 2019(1) | | Increase/(Decrease) |
Restaurant revenue (millions) | | $ | 270.2 | | | $ | 197.0 | | | 37.2 | % | | $ | 289.9 | | | (6.8) | % |
Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | (Percentage of Restaurant Revenue) | | (Basis Points) |
Cost of sales | | 23.2 % | | 23.4 % | | (20) | | | 23.8 | % | | (60) | |
Labor | | 36.9 % | | 37.7 % | | (80) | | | 36.2 | % | | 70 | |
Other operating | | 19.0 % | | 19.1 % | | (10) | | | 15.3 | % | | 370 | |
Occupancy | | 8.3 % | | 11.2 % | | (290) | | | 8.6 | % | | (30) | |
Total | | 87.5 % | | 91.4 % | | (390) | | | 83.9 | % | | 360 | |
(1) Presented for improved comparability to pre-COVID-19 operations.
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| | Forty weeks ended | | 2021 compared to 2020 | | Forty Weeks Ended | | 2021 compared to 2019(1) |
| | October 3, 2021 | | October 4, 2020 | | Increase/(Decrease) | | October 6, 2019(1) | | Increase/(Decrease) |
Restaurant revenue (millions) | | $ | 861.0 | | | $ | 658.6 | | | 30.7 | % | | $ | 992.8 | | | (13.3) | % |
Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | (Percentage of Restaurant Revenue) | | (Basis Points) |
Cost of sales | | 22.5 % | | 23.6 % | | (110) | | | 23.7 | % | | (120) | |
Labor | | 36.0 % | | 38.8 % | | (280) | | | 35.7 | % | | 30 | |
Other operating | | 18.1 % | | 18.9 % | | (80) | | | 14.4 | % | | 370 | |
Occupancy | | 8.6 % | | 11.6 % | | (300) | | | 8.6 | % | | — | |
Total | | 85.3 | % | | 92.9 % | | (760) | | | 82.4 | % | | 280 | |
(1) Presented for improved comparability to pre-COVID-19 operations. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | | | |
| | October 2, 2022 | | October 3, 2021 | | Increase/(Decrease) | | | | |
Restaurant revenue (millions) | | $ | 282.4 | | | $ | 270.2 | | | 4.5 | % | | | | |
Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | | | |
Cost of sales | | 25.0 | % | | 23.2 | % | | 180 | | | | | |
Labor | | 35.6 | | | 36.9 | | | (130) | | | | | |
Other operating | | 18.7 | | | 19.0 | | | (30) | | | | | |
Occupancy | | 8.1 | | | 8.3 | | | (20) | | | | | |
Total | | 87.4 | % | | 87.5 | % | | (10) | | | | | |
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| | Forty Weeks Ended | | | | |
| | October 2, 2022 | | October 3, 2021 | | Increase/(Decrease) | | | | |
Restaurant revenue (millions) | | $ | 951.7 | | | $ | 861.0 | | | 10.5 | % | | | | |
Restaurant operating costs: | | (Percentage of Restaurant Revenue) | | (Basis Points) | | | | |
Cost of sales | | 24.6 | % | | 22.5 | % | | 210 | | | | | |
Labor | | 35.8 | | | 36.0 | | | (20) | | | | | |
Other operating | | 18.1 | | | 18.1 | | | — | | | | | |
Occupancy | | 8.0 | | | 8.6 | | | (60) | | | | | |
Total | | 86.5 | % | | 85.3 | % | | 120 | | | | | |
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, loss per diluted share, and adjusted loss per diluted share for the twelve and forty weeks ended and October 2, 2022 and October 3, 20212021:
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| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Net loss as reported | | $ | (12,567) | | | $ | (14,980) | | | $ | (33,605) | | | $ | (28,689) | |
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Loss per share - diluted: | | | | | | | | |
Net loss as reported | | $ | (0.79) | | | $ | (0.95) | | | $ | (2.12) | | | $ | (1.83) | |
Asset impairment | | 0.14 | | | — | | | 0.82 | | | 0.09 | |
Gain on sale of restaurant property | | (0.58) | | | — | | | (0.58) | | | — | |
Change in accounting estimate, gift card breakage revenue, net of commissions(1) | | — | | | — | | | (0.33) | | | — | |
Executive transition | | 0.11 | | | — | | | 0.12 | | | — | |
Write-off of unamortized debt issuance costs(2) | | — | | | — | | | 0.11 | | | — | |
Other financing costs(3) | | 0.06 | | | — | | | 0.09 | | | — | |
Income tax expense | | 0.09 | | | (0.03) | | | (0.08) | | | (0.16) | |
COVID-19 related charges | | 0.01 | | | 0.02 | | | 0.03 | | | 0.07 | |
Restaurant closure costs (gains) | | (0.10) | | | 0.07 | | | 0.02 | | | 0.34 | |
Closed corporate office, net of sublease income | | 0.02 | | | — | | | 0.02 | | | — | |
Litigation contingencies | | 0.01 | | | 0.01 | | | — | | | 0.08 | |
Board and stockholder matter costs | | — | | | — | | | — | | | 0.01 | |
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Adjusted loss per share - diluted | | $ | (1.03) | | | $ | (0.88) | | | $ | (1.90) | | | $ | (1.40) | |
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Weighted average shares outstanding: | | | | | | | | |
Basic | | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | |
Diluted | | 15,892 | | | 15,709 | | | 15,816 | | | 15,647 | |
(1) During the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards. See Note 1. Basis of Presentation and October 4, 2020;Recent Accounting Pronouncements included in Part I. Financial Information in this Quarterly Report on form 10-Q. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Net loss as reported | | $ | (14,980) | | | $ | (6,179) | | | $ | (28,689) | | | $ | (236,738) | |
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Loss per share - diluted: | | | | | | | | |
Net loss as reported | | $ | (0.95) | | | $ | (0.40) | | | $ | (1.83) | | | $ | (16.98) | |
Restaurant closure costs | | 0.07 | | | 0.26 | | | 0.34 | | | 0.93 | |
Asset impairment | | — | | | — | | | 0.09 | | | 1.49 | |
Litigation contingencies | | 0.01 | | | — | | | 0.08 | | | 0.32 | |
COVID-19 related costs | | 0.02 | | | 0.03 | | | 0.07 | | | 0.09 | |
Board and stockholder matter costs | | — | | | — | | | 0.01 | | | 0.18 | |
Severance and executive transition | | — | | | — | | | — | | | 0.06 | |
Goodwill impairment | | — | | | — | | | — | | | 6.84 | |
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Income tax effect | | (0.03) | | | (0.08) | | | (0.16) | | | (2.57) | |
Adjusted loss per share - diluted | | $ | (0.88) | | | $ | (0.19) | | | $ | (1.40) | | | $ | (9.64) | |
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Weighted average shares outstanding | | | | | | | | |
Basic | | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | |
Diluted | | 15,709 | | | 15,540 | | | 15,647 | | | 13,945 | |
(2) Write-off of unamortized debt issuance costs related to the remaining unamortized debt issuance costs related to our Prior Credit Agreement (as defined below) with the completion of the refinancing of our Prior Credit Agreement in the first quarter of fiscal year 2022.
(3) Other financing costs includes legal and other charges related to the refinancing of our Prior Credit Agreement in the first quarter of 2022.
We believe the non-GAAP measure of adjusted loss per diluted share gives the reader additional insight into the ongoing operational results of the Company, and it is intended to supplement the presentation of the Company's financial results in accordance with GAAP. Adjusted loss per diluted share excludes the effects of changes in accounting estimates, asset impairment, litigation contingencies, the write-off of unamortized debt issuance costs, restaurant and office closure costs, other financing costs, COVID-19 related costs, executive transition costs, and related income tax effects. Other companies may define adjusted net loss per diluted share differently, and as a result our measure of adjusted loss per diluted share may not be directly comparable to those of other companies. Adjusted loss per diluted share should be considered in addition to, and not as a substitute for, net loss as reported in accordance with U.S. GAAP as a measure of performance.
Restaurant Data
The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 3, 2021 | | October 4, 2020 |
Company-owned: | | | | | | | | |
Beginning of period | | 430 | | | 450 | | | 443 | | | 454 | |
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Closed during the period | | — | | | (6) | | | (13) | | | (10) | |
End of period | | 430 | | | 444 | | | 430 | | | 444 | |
Franchised: | | | | | | | | |
Beginning of period | | 101 | | | 102 | | | 103 | | | 102 | |
Opened during the period | | — | | | 1 | | | — | | | 1 | |
Closed during the period | | — | | | — | | | (2) | | | — | |
End of period | | 101 | | | 103 | | | 101 | | | 103 | |
Total number of restaurants | | 531 | | | 547 | | | 531 | | | 547 | |
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| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
Company-owned: | | | | | | | | |
Beginning of period | | 426 | | | 430 | | | 430 | | | 443 | |
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Closed during the period | | (2) | | | — | | | (6) | | | (13) | |
End of period | | 424 | | | 430 | | | 424 | | | 430 | |
Franchised: | | | | | | | | |
Beginning of period | | 102 | | | 101 | | | 101 | | | 103 | |
Opened during the period | | — | | | — | | | 1 | | | — | |
Closed during the period | | (1) | | | — | | | (1) | | | (2) | |
End of period | | 101 | | | 101 | | | 101 | | | 101 | |
Total number of restaurants | | 525 | | | 531 | | | 525 | | | 531 | |
The following table presents total Company-owned and franchised restaurants by state or province as of October 3, 2021:2, 2022:
| | | Company-Owned Restaurants | | Franchised Restaurants | | Company-Owned Restaurants | | Franchised Restaurants |
| State: | State: | | | | | State: | | | | |
Arkansas | Arkansas | | 2 | | 2 | Arkansas | | 2 | | 2 |
Alaska | Alaska | | — | | 3 | Alaska | | 3 |
Alabama | Alabama | | 4 | | — | Alabama | | 4 | |
Arizona | Arizona | | 18 | | 1 | Arizona | | 17 | | 1 |
California | California | | 59 | | — | California | | 57 | |
Colorado | Colorado | | 22 | | — | Colorado | | 22 | |
Connecticut | Connecticut | | — | | 3 | Connecticut | | 3 |
Delaware | Delaware | | — | | 5 | Delaware | | 5 |
Florida | Florida | | 19 | | — | Florida | | 18 | |
Georgia | Georgia | | 6 | | — | Georgia | | 6 | |
Iowa | Iowa | | 5 | | — | Iowa | | 5 | |
Idaho | Idaho | | 8 | | — | Idaho | | 8 | |
Illinois | Illinois | | 22 | | — | Illinois | | 22 | |
Indiana | Indiana | | 13 | | — | Indiana | | 13 | |
Kansas | Kansas | | — | | 4 | Kansas | | 5 |
Kentucky | Kentucky | | 4 | | — | Kentucky | | 4 | |
Louisiana | Louisiana | | 2 | | — | Louisiana | | 2 | |
Massachusetts | Massachusetts | | 4 | | 2 | Massachusetts | | 4 | | 2 |
Maryland | Maryland | | 13 | | — | Maryland | | 12 | |
Maine | Maine | | 2 | | — | Maine | | 2 | |
Michigan | Michigan | | — | | 20 | Michigan | | 20 |
Minnesota | Minnesota | | 4 | | — | Minnesota | | 4 | |
Missouri | Missouri | | 8 | | 3 | Missouri | | 8 | | 3 |
Montana | Montana | | — | | 2 | Montana | | 2 |
North Carolina | North Carolina | | 17 | | — | North Carolina | | 17 | |
Nebraska | Nebraska | | 4 | | — | Nebraska | | 4 | |
New Hampshire | New Hampshire | | 3 | | — | New Hampshire | | 3 | |
New Jersey | New Jersey | | 12 | | 1 | New Jersey | | 12 | | 1 |
New Mexico | New Mexico | | 3 | | — | New Mexico | | 3 | |
Nevada | Nevada | | 6 | | — | Nevada | | 6 | |
New York | New York | | 14 | | — | New York | | 14 | |
Ohio | Ohio | | 18 | | 2 | Ohio | | 18 | | 2 |
Oklahoma | Oklahoma | | 5 | | — | Oklahoma | | 5 | |
Oregon | Oregon | | 15 | | 5 | Oregon | | 15 | | 5 |
Pennsylvania | Pennsylvania | | 11 | | 21 | Pennsylvania | | 11 | | 21 |
Rhode Island | Rhode Island | | 1 | | — | Rhode Island | | 1 | |
South Carolina | South Carolina | | 4 | | — | South Carolina | | 4 | |
South Dakota | South Dakota | | 1 | | — | South Dakota | | 1 | |
Tennessee | Tennessee | | 11 | | — | Tennessee | | 11 | |
Texas | Texas | | 20 | | 9 | Texas | | 20 | | 9 |
Utah | Utah | | 1 | | 6 | Utah | | 1 | | 5 |
Virginia | Virginia | | 20 | | — | Virginia | | 20 | |
Washington | Washington | | 38 | | — | Washington | | 37 | |
Wisconsin | Wisconsin | | 11 | | — | Wisconsin | | 11 | |
| Province: | Province: | | Province: | |
British Columbia | British Columbia | | — | | 12 | British Columbia | | 12 |
Total | Total | | 430 | | 101 | Total | | 424 | | 101 |
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Results of Operations
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 20202021 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.
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| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 6, 2019(1) | | | | October 3, 2021 | | October 4, 2020 | | October 6, 2019(1) |
Revenues: | | | | | | | | | | | | | | |
Restaurant revenue | | 98.1 % | | 98.3 % | | 98.5 | % | | | | 98.0 % | | 98.6 % | | 98.1 | % |
Franchise and other revenues | | 1.9 % | | 1.7 % | | 1.5 | % | | | | 2.0 % | | 1.4 % | | 1.9 | % |
Total revenues | | 100.0 % | | 100.0 % | | 100.0 | % | | | | 100.0 % | | 100.0 % | | 100.0 | % |
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Costs and expenses: | | | | | | | | | | | | | | |
Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | | | | | | | | | | | | | | |
Cost of sales | | 23.2 % | | 23.4 % | | 23.8 | % | | | | 22.5 % | | 23.6 % | | 23.7 | % |
Labor | | 36.9 % | | 37.7 % | | 36.2 | % | | | | 36.0 % | | 38.8 % | | 35.7 | % |
Other operating | | 19.0 % | | 19.1 % | | 15.3 | % | | | | 18.1 % | | 18.9 % | | 14.4 | % |
Occupancy | | 8.3 % | | 11.2 % | | 8.6 | % | | | | 8.6 % | | 11.6 % | | 8.6 | % |
Total restaurant operating costs | | 87.5 % | | 91.4 % | | 83.9 | % | | | | 85.3 | % | | 92.9 % | | 82.4 | % |
Depreciation and amortization | | 6.9 % | | 9.6 % | | 7.2 | % | | | | 7.3 % | | 10.2 % | | 7.0 | % |
General and administrative expenses | | 6.4 % | | 7.6 % | | 6.5 | % | | | | 6.6 % | | 8.4 % | | 7.0 | % |
Selling expenses | | 4.6 % | | 3.0 % | | 6.0 | % | | | | 3.6 % | | 4.0 % | | 4.8 | % |
Pre-opening and acquisition costs | | 0.2 % | | — | % | | — | % | | | | 0.1 % | | — | % | | — | % |
Other charges | | 0.6 % | | 2.2 % | | (0.6) | % | | | | 1.1 % | | 20.7 % | | 1.7 | % |
Loss from operations | | (4.4) | % | | (12.3) | % | | (1.8) | % | | | | (2.2) | % | | (35.0) | % | | (1.4) | % |
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Interest expense, net and other | | 1.0 % | | 1.1 % | | 0.6 | % | | | | 1.1 % | | 1.1 % | | 0.7 | % |
Loss before income taxes | | (5.4) | % | | (13.4) | % | | (2.4) | % | | | | (3.3) | % | | (36.1) | % | | (2.2) | % |
Income tax benefit | | 0.0 | % | | (10.3) | % | | (1.8) | % | | | | — | % | | (0.6) | % | | (2.1) | % |
Net loss | | (5.4) | % | | (3.1) | % | | (0.6) | % | | | | (3.3) | % | | (35.5) | % | | — | % |
(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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 2, 2022 | | October 3, 2021 | | | | | | October 2, 2022 | | October 3, 2021 |
Revenues: | | | | | | | | | | | | |
Restaurant revenue | | 98.5 | % | | 98.1 | % | | | | | | 97.5 | % | | 98.0 | % |
Franchise and other revenues | | 1.5 | | | 1.9 | | | | | | | 2.5 | | | 2.0 | |
Total revenues | | 100.0 | | | 100.0 | | | | | | | 100.0 | | | 100.0 | |
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Costs and expenses: | | | | | | | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | |
Cost of sales | | 25.0 | | | 23.2 | | | | | | | 24.6 | | | 22.5 | |
Labor | | 35.6 | | | 36.9 | | | | | | | 35.8 | | | 36.0 | |
Other operating | | 18.7 | | | 19.0 | | | | | | | 18.1 | | | 18.1 | |
Occupancy | | 8.1 | | | 8.3 | | | | | | | 8.0 | | | 8.6 | |
Total restaurant operating costs | | 87.4 | | | 87.5 | | | | | | | 86.5 | | | 85.3 | |
Depreciation and amortization | | 6.1 | | | 6.9 | | | | | | | 6.0 | | | 7.3 | |
Selling, general, and administrative expenses | | 12.4 | | | 11.0 | | | | | | | 10.5 | | | 10.2 | |
Pre-opening costs | | 0.1 | | | 0.2 | | | | | | | 0.1 | | | 0.1 | |
Other charges (gains), net | | (1.8) | | | 0.6 | | | | | | | 0.8 | | | 1.1 | |
Loss from operations | | (2.8) | | | (4.4) | | | | | | | (1.7) | | | (2.2) | |
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Interest expense, net and other | | 1.6 | | | 1.0 | | | | | | | 1.7 | | | 1.1 | |
Loss before income taxes | | (4.4) | | | (5.4) | | | | | | | (3.4) | | | (3.3) | |
Income tax provision (benefit) | | — | | | — | | | | | | | — | | | — | |
Net loss | | (4.4) | % | | (5.4) | % | | | | | | (3.4) | % | | (3.3) | % |
Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(Revenues in thousands) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change |
Restaurant revenue | | $ | 282,449 | | | $ | 270,202 | | | 4.5 | % | | $ | 951,718 | | | $ | 861,036 | | | 10.5 | % |
Franchise and other revenues | | 4,439 | | | 5,242 | | | (15.3) | % | | 24,810 | | | 17,658 | | | 40.5 | % |
Total revenues | | $ | 286,888 | | | $ | 275,444 | | | 4.2 | % | | $ | 976,528 | | | $ | 878,694 | | | 11.1 | % |
Average weekly net sales volumes in Company-owned restaurants | | $ | 55,469 | | | $ | 52,599 | | | 5.5 | % | | $ | 55,927 | | | $ | 50,324 | | | 11.1 | % |
Total operating weeks | | 5,092 | | | 5,137 | | | (0.9) | % | | 17,017 | | | 17,110 | | | (0.5) | % |
Net sales per square foot | | 106 | | | 101 | | | 5.3 | % | | 358 | | | 322 | | | 11.1 | % |
Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(Revenues in thousands) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Restaurant revenue | | $ | 270,202 | | | $ | 197,009 | | | 37.2 | % | | $ | 861,036 | | | $ | 658,587 | | | 30.7 | % |
Franchise royalties, fees and other revenue | | 5,242 | | | 3,469 | | | 51.1 | % | | 17,658 | | | 9,078 | | | 94.5 | % |
Total revenues | | $ | 275,444 | | | $ | 200,478 | | | 37.4 | % | | $ | 878,694 | | | $ | 667,665 | | | 31.6 | % |
Average weekly net sales volumes in Company-owned restaurants | | $ | 52,599 | | | $ | 39,418 | | | 33.4 | % | | $ | 50,324 | | | $ | 38,352 | | | 31.2 | % |
Total operating weeks | | 5,137 | | | 4,998 | | | 2.8 | % | | 17,110 | | | 17,172 | | | (0.4) | % |
Net sales per square foot | | $ | 101 | | | $ | 75 | | | 33.6 | % | | $ | 322 | | | $ | 247 | | | 30.4 | % |
Restaurant revenue for the twelve weeks ended October 3, 2021,2, 2022, which comprises primarily food and beverage sales, increased $73.2$12.2 million, or 37.2%4.5%, as compared to the twelve weeks ended October 4, 2020.third quarter of 2021. The increase was due to a $67.0$14.1 million, or 34.3%5.3%, increase in comparable restaurant revenue, and a $6.2$1.9 million increase primarily from reopeneddecrease at non-comparable restaurants, that were temporarily closed during third quarter 2020.including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 22.5% increase in Guest count and a 11.8%9.0% increase in average Guest check.check, and a 3.7% decrease in Guest count. The increase in average Guest check resulted from a 3.5%2.5% increase in menu mix, a 7.7% increase in pricing, and a 8.4% increase in menu mix,was partially offset by a 0.1%1.2% decrease from higher discounting.discounts. The increase in menu mix was primarily driven by higher sales of beverages and our limited time menu offerings. Off-premisesofferings and higher dine-in sales volumes. Dine-in sales comprised 30.8%72.3% of total food and beverage sales during the third quarter 2021,of 2022, as compared to 40.7%69.2% in the same period in 2020.2021.
Restaurant revenue for the forty weeks ended October 3, 2021,2, 2022, increased $202.4$90.7 million, or 30.7%10.5%, as compared to the forty weeks ended October 4, 2020.3, 2021. The increase was due to a $200.6$93.6 million, or 31.5%11.2%, increase in comparable restaurant revenue, and a $1.8$2.9 million increase primarily from reopeneddecrease at non-comparable restaurants, that were temporarily closed during 2020.including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 21.1% increase in Guest counts and a 10.5%10.6% increase in average Guest check.check, and a 0.6% increase in Guest count. The increase in average Guest check resulted from a 3.5%4.2% increase in menu mix, a 6.3% increase in pricing, and a 6.6% increase0.1% decrease in menu mix, and a 0.4% increase from lower discounting.discounts. The increase in menu mix was primarily driven by higher sales of beverages, appetizers, andour limited time menu offerings.offerings and higher dine-in sales volumes. Dine-in sales comprised 70.9% of total food and beverage sales during the forty weeks ended October 2, 2022, as compared to 64.5% in the same period in 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 twelve and forty weeks ended October 3, 20212, 2022 or October 4, 2020.3, 2021. Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of newreopened and acquirednew 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 $1.8decreased $0.8 million, or 15.3% for the twelve weeks ended October 3, 20212, 2022 compared to the twelve weeks ended October 4, 2020, due3, 2021. Our franchisees reported flat comparable restaurant revenue for the twelve weeks ended October 2, 2022 compared to improved comparable franchise sales performance during the third fiscal quarter ofsame period in 2021.
Franchise and other revenue increased $8.6$7.2 million for the forty weeks ended October 3, 20212, 2022 compared to the forty weeks ended October 4, 2020,3, 2021, primarily due to improved comparable franchise sales performance, charging and collecting royalty payments and advertising contributions from our franchisees during the third fiscal quarter of 2021. During 2020, the Company had temporarily abated franchisee royalty and advertising contribution payments in mid-March, and resumed collection during the latter halfre-evaluation of the second fiscal quarter of 2020, and increasedestimated redemption pattern related to gift cards resulting in a $5.9 million adjustment to gift card breakage.
8.0% for the forty weeks ended October 2, 2022 compared to the same period in 2021. Cost of Sales | | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change |
Cost of sales | Cost of sales | | $ | 62,671 | | | $ | 46,037 | | | 36.1 % | | $ | 193,754 | | | $ | 155,243 | | | 24.8 % | Cost of sales | | $ | 70,640 | | | $ | 62,671 | | | 12.7 | % | | $ | 234,283 | | | $ | 193,754 | | | 20.9 | % |
As a percent of restaurant revenue | As a percent of restaurant revenue | | 23.2 % | | 23.4 % | | (0.2) | % | | 22.5 % | | 23.6 % | | (1.1) | % | As a percent of restaurant revenue | | 25.0 | % | | 23.2 | % | | 1.8 | % | | 24.6 | % | | 22.5 | % | | 2.1 | % |
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 decreased 20increased 180 basis points for the twelve weeks ended October 3, 20212, 2022 as compared to the same period in 2020.2021. The decreaseincrease was primarily driven by pricing, favorable mix shifts, lower waste, and higher rebates,commodity inflation, partially offset by commodity inflation.pricing and favorable mix shifts.
Cost of sales as a percentage of restaurant revenue decreased 110increased 210 basis points for the forty weeks ended October 3, 20212, 2022 as compared to the same period in 2020.2021. The decreaseincrease was primarily driven by pricing,commodity inflation, partially offset by favorable mix shifts and rebates.pricing.
Labor | | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change |
Labor | Labor | | $ | 99,725 | | | $ | 74,344 | | | 34.1 % | | $ | 310,333 | | | $ | 255,652 | | | 21.4 % | Labor | | $ | 100,522 | | | $ | 99,725 | | | 0.8 | % | | $ | 340,273 | | | $ | 310,333 | | | 9.6 | % |
As a percent of restaurant revenue | As a percent of restaurant revenue | | 36.9 % | | 37.7 % | | (0.8) | % | | 36.0 % | | 38.8 % | | (2.8) | % | As a percent of restaurant revenue | | 35.6 | % | | 36.9 | % | | (1.3) | % | | 35.8 | % | | 36.0 | % | | (0.2) | % |
Labor costs include restaurant-level hourly wages and management salaries as well as related taxes and benefits. For the twelve weeks ended October 3, 2021,2, 2022, labor as a percentage of restaurant revenue decreased 80130 basis points compared to the same period in 2020.2021. The decrease was primarily driven by industry staffing shortagessales leverage, lower hiring costs, and sales leverage,lower management incentive compensation costs, partially offset by higher wage rates, staffing costs and increased restaurant management compensation costs in 2021.
$3.1 million of transitory labor and other operating costs were incurred due to staffing challenges, including hiring and training costs, temporarily outsourced janitorial costs, one time bonuses, and overtime pay.rate inflation.
For the forty weeks ended October 3, 2021,2, 2022, labor as a percentage of restaurant revenue decreased 28020 basis points compared to the same period in 2020.2021. The decrease was primarily driven by staffing shortages,sales leverage, lower group insurance, and sales leverage,lower management incentive compensation costs, partially offset by higher wage rates, staffing costs and increased restaurant management compensation costs in 2021.rate inflation.
Other Operating
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Other operating | | $ | 51,462 | | | $ | 37,631 | | | 36.8 % | | $ | 156,102 | | | $ | 124,585 | | | 25.3 % |
As a percent of restaurant revenue | | 19.0 % | | 19.1 % | | (0.1) | % | | 18.1 % | | 18.9 % | | (0.8) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change |
Other operating | | $ | 52,858 | | | $ | 51,462 | | | 2.7 | % | | $ | 172,725 | | | $ | 156,102 | | | 10.6 | % |
As a percent of restaurant revenue | | 18.7 | % | | 19.0 | % | | (0.3) | % | | 18.1 | % | | 18.1 | % | | — | % |
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 October 3, 2021,2, 2022, other operating costs as a percentage of restaurant revenue decreased 1030 basis points as compared to the same period in 2020.2021. The decrease was primarily driven by sales leverage and lower utilities, and lower supplies due tohiring advertisement costs, lower off-premises supplies, and sales mix,leverage, partially offset by increased hiring advertisement costsan increase in utilities and janitorial and maintenance expenses.credit card fees.
For the forty weeks ended October 3, 2021,2, 2022, other operating costs as a percentage of restaurant revenue decreased 80 basis points aswas flat compared to the same period in 2020. The decrease was primarily driven by sales leverage and lower utilities and supplies due to lower off-premises sales mix, partially offset by increased hiring costs.
Occupancy | | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change |
Occupancy | Occupancy | | $ | 22,519 | | | $ | 22,099 | | | 1.9 % | | $ | 74,233 | | | $ | 76,514 | | | (3.0) | % | Occupancy | | $ | 22,828 | | | $ | 22,519 | | | 1.4 | % | | $ | 76,406 | | | $ | 74,233 | | | 2.9 | % |
As a percent of restaurant revenue | As a percent of restaurant revenue | | 8.3 % | | 11.2 % | | (2.9) | % | | 8.6 % | | 11.6 % | | (3.0) | % | As a percent of restaurant revenue | | 8.1 | % | | 8.3 | % | | (0.2) | % | | 8.0 | % | | 8.6 | % | | (0.6) | % |
|
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 October 3, 2021,2, 2022, occupancy costs as a percentage of restaurant revenue decreased 29020 basis points compared to the same period in 20202021 primarily driven by sales leverage and restructured leases.leverage.
For the forty weeks ended October 3, 2021,2, 2022, occupancy costs as a percentage of restaurant revenue decreased 30060 basis points compared to the same period in 20202021 primarily driven by sales leverage, savings from permanently closed restaurants and restructured leases.partially offset by higher insurance costs.
Our fixed rents for the twelve weeks ended October 2, 2022 and October 3, 2021 and October 4, 2020 were $15.8$16.1 million and $14.7$15.8 million, an increase of $1.1 million due to recognizing ongoing fixed rents of Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic in Closed restaurant expense (a component of Other Charges) in 2020, compared to Occupancy in 2021.
$0.3 million. Our fixed rents for the forty weeks ended October 2, 2022 and October 3, 2021 and October 4, 2020 were $52.8$53.5 million and $51.0$52.8 million, an increase of $1.8 million due to recognizing ongoing fixed rents$0.6 million.
Depreciation and Amortization | | | Twelve Weeks Ended | | Forty Weeks Ended | | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | (In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change | (In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change |
Depreciation and amortization | Depreciation and amortization | | $ | 18,881 | | | $ | 19,173 | | | (1.5) | % | | $ | 63,984 | | | $ | 68,053 | | | (6.0) | % | Depreciation and amortization | | $ | 17,368 | | | $ | 18,881 | | | (8.0) | % | | $ | 58,924 | | | $ | 63,984 | | | (7.9) | % |
As a percent of total revenues | As a percent of total revenues | | 6.9 % | | 9.6 % | | (2.7) | % | | 7.3 % | | 10.2 % | | (2.9) | % | As a percent of total revenues | | 6.1 | % | | 6.9 | % | | (0.8) | % | | 6.0 | % | | 7.3 | % | | (1.3) | % |
Depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquired franchise rights, leasehold interests, and certain liquor licenses. For the twelve weeks ended October 3, 2021,2, 2022, depreciation and amortization expense as a percentage of revenue decreased 27080 basis points over the same period in 2020. 2021 primarily due to net closed Company-owned restaurants, and sales leverage.
For the forty weeks ended October 3, 2021,2, 2022, depreciation and amortization expense as a percentage of revenue decreased 290130 basis points over the same period in 2020. The decreases are2021 primarily due to net closed Company-owned restaurants and sales leverage.
Selling, General, and Administrative expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change |
Selling, general, and administrative | | $ | 35,692 | | | $ | 30,343 | | | 17.6 | % | | $ | 102,168 | | | $ | 89,299 | | | 14.4 | % |
As a percent of total revenues | | 12.4 | % | | 11.0 | % | | 1.4 | % | | 10.5 | % | | 10.2 | % | | 0.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
General, and administrative expenses | | $ | 17,691 | | | $ | 15,190 | | | 16.5 % | | $ | 57,664 | | | $ | 56,054 | | | 2.9 % |
As a percent of total revenues | | 6.4 % | | 7.6 % | | (1.2) | % | | 6.6 % | | 8.4 % | | (1.8) | % |
General,Selling, general, and administrative costs include all corporate and administrative functions, excluding Selling expenses discussed below.functions. Components of this category include ourmarketing and advertising costs; restaurant support center, regional, and franchise support salaries and benefits; travel; professional and consulting fees; corporate information systems; legal expenses; office rent; training; and board of directors expenses.
General, and administrative expensescosts in the twelve weeks ended October 3, 20212, 2022 increased $2.5$3.8 million, or 16.5 %,21.5%, as compared to the same period in 2020.2021. The increase in general and administrative expenses in 2021 was primarily driven by a timing shift of our annual leadership conference, increased stock based compensation expense, and merit increases, and lapping temporary salary reductions in 2020, increased travel costs, and higher professional services spend.
partially offset by lower corporate office costs. General, and administrative expensescosts in the forty weeks ended October 3, 20212, 2022 increased $1.6$7.0 million, or 2.9 %,12.1%, as compared to the same period in 2020.2021. The increase in general and administrative expenses in 2021 was primarily driven by higher Team Member benefit costs,the 2022 leadership conference, increased stock based compensation expense, merit increases, and lapping temporary salary reductions in 2020,increased manager-in-training costs, partially offset by decreased travel costs and otherlower corporate office costs.
Selling expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Selling expenses | | $ | 12,652 | | | $ | 6,094 | | | * | | $ | 31,635 | | | $ | 26,429 | | | 19.7 % |
As a percent of total revenues | | 4.6 % | | 3.0 % | | 1.6 % | | 3.6 % | | 4.0 % | | (0.4) | % |
Selling expenses include all marketing and advertising costs associated with the Company's marketing strategy.
Selling expenses in the twelve weeks ended October 3, 20212, 2022 increased $6.6$1.5 million, or 12.2%, as compared to the same period in 2020.2021. The increase in selling expenses in 2021 was primarily driven by the return ofincreased marketing spend closer to a more normalized level in 2021.spend.
Selling expensescosts in the forty weeks ended October 3, 20212, 2022 increased $5.2$5.9 million, or 19.7 %,18.5%, as compared to the same period in 2020.2021. The increase in selling expenses in 2021 was primarily driven by the return ofincreased marketing spend closer to a more normalized level in 2021.spend.
Pre-opening Costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 2, 2022 | | October 3, 2021 | | Percent Change | | October 2, 2022 | | October 3, 2021 | | Percent Change |
Pre-opening costs | | $ | 217 | | | $ | 418 | | | (48.1) | % | | $ | 514 | | | $ | 792 | | | (35.1) | % |
As a percent of total revenues | | 0.1 | % | | 0.2 | % | | (0.1) | % | | 0.1 | % | | 0.1 | % | | — | % |
| | | | | | | | | | | | |
* Percentage increases and decreases over 100 percent were not considered meaningful. Pre-opening Costsmeaningful | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(In thousands, except percentages) | | October 3, 2021 | | October 4, 2020 | | Percent Change | | October 3, 2021 | | October 4, 2020 | | Percent Change |
Pre-opening costs | | $ | 418 | | | $ | 89 | | | * | | $ | 792 | | | $ | 245 | | | * |
As a percent of total revenues | | 0.2 % | | — | % | | 0.2 % | | 0.1 % | | — | % | | 0.1 % |
| | | | | | | | | | | | |
* Percentage increases and decreases over 100 percent were not considered meaningful.
Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos®, and other initiatives, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force. Our pre-opening costs fluctuate from period to period, depending upon, but not limited to, the number of restaurants where Donatos® has been introduced, the number of restaurant openings, the size of the restaurants being opened, and the location of the restaurants. Pre-opening costs for any given quarter will typically include expenses associated with restaurants opened during the quarter as well as expenses related to restaurants opening in subsequent quarters.
We incurred pre-opening costs during the twelve and forty weeks ended October 3, 2021 and October 4, 20202, 2022 related to the rollout of Donatos®. TheAs of October 2, 2022, the Company had completed theits rollout of 38Donatos® at approximately 50 restaurants during the twelve weeks ended October 3, 2021, and expects to continue its roll outfor 2022.
Interest Expense, Net and Other
Interest expense, net and other was $2.9$4.6 million for the twelve weeks ended October 3, 2021,2, 2022, an increase of $0.6$1.7 million, or 26.1%59.9%, compared to the same period in 2020.2021. The increase was primarily related to higher average outstanding debt, which increased $50.5 million compared to the same period in 2021, and a higher weighted average interest rate for the quarter due to increased rates associated with the Second Amendment, partially offset by a lower average outstanding debt balance compared to the same period in 2020.quarter. Our weighted average interest rate on our credit facility debt was 6.8%9.7% for the twelve weeks ended October 3, 20212, 2022 as compared to 5.0%6.8% for the same period in 2020.2021.
Interest expense, net and other was $10.0$16.2 million for the forty weeks ended October 3, 2021,2, 2022, an increase of $2.4$6.2 million, or 31.6%61.7%, fromcompared to the same period in 2020.2021. The increase was primarily related to higher average outstanding debt, which increased $37.2 million compared to the same period in 2021, and a higher weighted average interest rate for the period as well as the partial write off of approximately $1.2$1.7 million of deferred financing charges related to the modification of our revolver in conjunction withCompany's Prior Credit Facility upon the execution of the Second AmendmentCredit Agreement on February 25, 2021, partially offset by a lower average outstanding debt balance compared to the same period in 2020.March 4, 2022. Our weighted average interest rate on our credit facility debt was 6.6%8.7% for the forty weeks ended October 3, 20212, 2022 as compared to 4.5%6.6% for the same period in 2020.2021.
Provision for Income TaxesTax Provision
The effective tax rate for the twelve weeks ended October 3, 20212, 2022 was a 0.2%0.3% benefit, compared to a 77.0%0.2% benefit for the twelve weeks ended October 4, 2020. 3, 2021.
The effective tax rate for the forty weeks ended October 2, 2022 was a 1.4% expense, compared to a 1.1% benefit for the forty weeks ended October 3, 2021 was 1.1%, compared to a 1.8% benefit for2021.
During the forty weeks ended October 4, 2020. The decrease in tax benefit for2, 2022, the twelve and forty weeks ended October 3, 2021 is primarily due to the change in full valuation allowance recognition.
The Company has filedreceived $14.8 million of federal and state cash tax refund claims, totaling approximately $16 million during 2021 from net operating loss carrybacks. While we expectrespectively, and expects to receive a portion ofan additional $0.7 million over the refunds in 2021,next 12-15 months due to governmentprocessing delays in processing these claims we do not expect to receiveat the majority until 2022.IRS and state authorities.
Liquidity and Capital Resources
Cash and cash equivalents, and restricted cash increased $1.6$35.4 million to $17.8$58.1 million as of October 3, 2021,2, 2022, from $16.1$22.8 million at the beginning of the fiscal year. As the Company continues to recover from the COVID-19 pandemic and generates operating cash flow, the Company is using available cash flow from operations to pay down debt, maintain existing restaurants and infrastructure, and execute on its long-term strategic initiatives.initiatives, and pay down debt. As of October 3, 2021,2, 2022, the Company had approximately $75.2$75.0 million in liquidity, including the impact of a $30 million capacity reduction on our revolving line of credit pursuant to the Second Amendment, including cash on hand and available borrowing capacity.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):
| | | | | | | | | | | | | | |
| | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 |
Net cash provided by (used in) operating activities | | $ | 37,617 | | | $ | (22,401) | |
Net cash used in investing activities | | (19,967) | | | (14,131) | |
Net cash (used in) provided by financing activities | | (16,037) | | | 34,020 | |
Effect of exchange rate changes on cash | | 28 | | | (166) | |
Net change in cash and cash equivalents | | $ | 1,641 | | | $ | (2,678) | |
| | | | | | | | | | | | | | |
| | Forty Weeks Ended |
| | October 2, 2022 | | October 3, 2021 |
Net cash provided by operating activities | | $ | 38,800 | | | $ | 37,617 | |
Net cash used in investing activities | | (18,297) | | | (19,967) | |
Net cash provided by (used in) financing activities | | 14,921 | | | (16,037) | |
Effect of exchange rate changes on cash | | (44) | | | 28 | |
Net change in cash and cash equivalents, and restricted cash | | $ | 35,380 | | | $ | 1,641 | |
Operating Cash Flows
Net cash flows provided by (used in) operating activities increased $61.0$1.2 million to $37.6$38.8 million for the forty weeks ended October 3, 2021.2, 2022. The changeschange in net cash provided by (used in) operating activities areis primarily attributable to a $103.3 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, as well as other changes in working capital, including the tax refunds received in 2022, partially offset by decreased cash from earnings after non-cash items, as presented in the Condensed Consolidated Statements of Cash Flows.
Investing Cash Flows
Net cash flows used in investing activities increased $5.8decreased $1.7 million to $20.0$18.3 million for the forty weeks ended October 3, 2021,2, 2022, as compared to $14.1$20.0 million for the same period in 2020.2021. The increasedecrease is primarily due to proceeds received in connection with the sale of a restaurant property, partially offset by increased spendspending on Donatos® associated with adding 38 restaurantsrestaurant improvements, and investments in the third fiscal quarter.technology.
The following table lists the components of our capital expenditures, net of currency translation, for the forty weeks ended October 3, 20212, 2022 and October 4, 20203, 2021 (in thousands):
| | | Forty Weeks Ended | | Forty Weeks Ended |
| | October 3, 2021 | | October 4, 2020 | | October 2, 2022 | | October 3, 2021 |
Donatos® expansion | $ | 7,687 | | | $ | — | | |
Restaurant improvement capital and other | Restaurant improvement capital and other | 6,467 | | | 8,433 | | Restaurant improvement capital and other | $ | 12,376 | | | $ | 6,467 | |
Investment in technology infrastructure and other | 5,355 | | | 6,437 | | |
Investment in technology, infrastructure, and other | | Investment in technology, infrastructure, and other | 8,274 | | | 5,355 | |
Donatos® expansion | | Donatos® expansion | 4,396 | | | 7,687 | |
New restaurants and restaurant refreshes | New restaurants and restaurant refreshes | 478 | | | — | | New restaurants and restaurant refreshes | 1,989 | | | 478 | |
| Total capital expenditures | Total capital expenditures | $ | 19,987 | | | $ | 14,870 | | Total capital expenditures | $ | 27,036 | | | $ | 19,987 | |
Financing Cash Flows
Net cash flows used inprovided by financing activities increased $51.0$31.0 million to $16.0$14.9 million for the forty weeks ended October 3, 2021,2, 2022, as compared to net cash flows provided byused in financing activities of $34.0$16.0 million in the same period in 2020.2021. The decreaseincrease is primarily due to a $28.9$15.9 million decrease in proceeds from the issuance of common stock, net of issuance costs, and a $24.7 million increase in net repayments madeborrowings in 2022 compared to a net paydown of debt of $15.7 million in 2021 as a result of the Company's refinancing of debt on long-term debt,March 4, 2022 and $3.9 million in initial deposit proceeds received related to the sale of a restaurant property in the second quarter of 2022, partially offset by a decreasean increase in cash used for debt issuance costs,costs.
New Credit Agreement
On March 4, 2022 the Company entered into a new Credit Agreement (the "Credit Agreement"), which replaced its prior amended and restated credit agreement (the "Prior Credit Agreement"). The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of credit and a decrease in cash used to$200.0 million term loan (collectively, the “Credit Facility”). The new Credit Agreement references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Company's common stock due toAlternate Base Rate ("ABR"), which represents the temporary suspensionhighest of (a) the Company's share repurchase program beginning in 2020.
Credit FacilityPrime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum.
As of October 3, 2021,2, 2022, the Company had outstanding borrowings under the Credit FacilityAgreement of $156.3$190.4 million net of $8.6 million of unamortized deferred financing charges and discounts, of which $9.7$2.0 million was classified as current, in addition to amounts issued under letters of credit of $8.6 million. Amounts issued under letters of credit reduce the amount available under the Credit Facility but are not recorded as debt.current. As of October 3, 2021,2, 2022, the Company had $57.4$25.0 million of available borrowing capacity under its Credit Facility, includingAgreement.
As of October 2, 2022, the impactCompany had $7.8 million of a $30letters of credit issued against cash collateral, compared to $8.6 million capacity reductionas of the prior comparable period. The Company's cash collateral is recorded in Restricted cash on our revolving lineCondensed Consolidated Balance Sheets as of credit pursuant to the Second Amendment. Net payments during the forty weeksquarter ended October 3, 2021 totaled $14.3 million, and net draws during the same period in 2020 totaled $9.2 million. We have made net repayments on our Credit Facility of $50.5 million since December 29, 2019.
As discussed in Footnote6, Borrowings, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, In response to the continued uncertainty around the impact of industry labor and supply chain challenges, as well as the COVID-19 Delta variant, the Company amended its current Credit Facility on November 9, 2021 to obtain additional flexibility to continue to implement our business strategy. The Company anticipates refinancing its Credit Facility in2, 2022.
Covenants
We are subject to a number of customary covenants under our new Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments. As discussed in Footnote6, Borrowings, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, we entered into the Third Amendment on November 9, 2021, which waives compliance with thepayments, as well as a Total Net Leverage Ratio Covenant for the third fiscal quarter of 2021, and provides for adjustments during fourth fiscal quarter of 2021, and the first, second, and third fiscal quarters of 2022. Additionally, the Third Amendment provides for adjustments to the calculation of the FCCR Covenant when it becomes applicable in the first fiscal quarter of 2022. See Footnote 6, Borrowings for additional details.
ratio covenant. As of October 3, 2021, the Company is2, 2022, we were in compliance with all applicable covenants applicable to our Credit Facility, as amended. Due to an anticipated delay in the timing of receipt of cash tax refunds, during the third fiscal quarter and in addition to the Third Amendment, the Company obtained a waiver from our lenders, waiving the application of our FCCR Covenant for the third and fourth fiscal quarters of 2021.debt covenants.
Debt Outstanding
Total debt outstanding decreased $13.4increased $22.9 million to $157.2$199.9 million at October 3, 2021,2, 2022, from $170.6$177.0 million at December 27, 2020,26, 2021, primarily due todriven by net paymentsproceeds from the execution of $14.3 million on the Credit Facility, offset by accruing utilization fees on thenew Credit Facility during the forty weeks ended October 3, 2021.
Working Capital
We typically maintain current liabilities in excess of our current assets which results in a working capital deficit. We are able to operate with a working capital deficit because restaurant sales are primarily conducted on a cash or credit card basis. Rapid turnover of inventory results in limited investment in inventories, and cash from sales is usually received before related payables for food, supplies, and payroll become due. In addition, receipts from the sale of gift cards are received well in advance of related redemptions. Rather than maintain higher cash balances that would result from this pattern of operating cash flows, we typically utilize operating cash flows in excess of those required for currently-maturing liabilities to pay for capital expenditures, debt repayment, or to repurchase stock as allowed. When necessary, we utilize our Credit Facilitycredit 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 Facilitycredit facility will be sufficient to satisfy any working capital deficits and our planned capital expenditures.
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 October 3, 2021,2, 2022, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million. Accordingly, as of October 3, 2021,2, 2022, 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 Second Amendment to our Credit Facility prohibiting us from repurchasing additional shares untilAgreement; repurchases shall not exceed (in any fiscal year) the first fiscal quartergreater of 2022 at$2,500,000 and 4% of Consolidated EBITDA calculated on a Pro Forma Basis for the earliest and not until we deliver a covenant compliance certificate demonstrating a lease adjusted leverage ratio less than or equal to 5.00:1.00.then most recently ended period.
Inflation
The primary inflationary factors affecting our operations are food, labor costs, energy costs, and materials used in the construction of new restaurants. Increases in wage rates have directly affected our labor costs in recent years. Additionally, many of our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary increases. Labor cost and commodity cost inflation had a negative impact on our financial condition and results of operations during the twelve and forty weeks ended October 2, 2022. Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed or potential minimumand other wage increases, and construction materials make it difficult to predict what impact, if any, inflation may continue to have on our business, but it is anticipated inflation will have a negative impact on labor and commodity costs for the remainder of 2021.2022.
Seasonality
Our business is subject to seasonal fluctuations. Prior to the COVID-19 pandemic, sales in most of our restaurants have been higher during the summer months and winter holiday season and lower during the fall season. As a result, our quarterly operating results and comparable restaurant revenue may fluctuate significantly as a result of seasonality. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, and comparable restaurant sales for any particular future period may decrease.
Contractual Obligations
There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2021, except for long-term debt obligations resulting from the refinancing of our Credit Agreement in March 2022 as previously discussed above and in Note 6. Borrowings, of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, Contractual long-term debt payments as of October 2, 2022 are as follows (in thousands):
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| | Payments Due by Period |
| | Total | | 2022 | | 2023-2024 | | 2025-2026 | | 2027 and Thereafter |
Long-term debt obligations(1) | | $ | 291,775 | | | $ | 5,707 | | | $ | 45,187 | | | $ | 44,351 | | | $ | 196,530 | |
Purchase obligations(2) | | $ | 171,974 | | | $ | 18,335 | | | $ | 68,287 | | | $ | 38,848 | | | $ | 46,504 | |
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(1) Long-term debt obligations primarily represent minimum required principal payments under our Credit Facility including estimated interest of $91.9 million based on a 10.31% average borrowing interest rate.
(2)Purchase obligations includes the Company's share of expected system-wide fixed price commitments for food, beverage, equipment, and restaurant supply items. These amounts are estimates based on both purchase commitments for contracts, as well as anticipated inventory needed for the fiscal quarter ended April 18, 2021, except for lease obligations as a resultCompany's restaurants, and could vary due to the timing of contractual rent concessions negotiated by the Company during the fiscal quarter ended October 3, 2021. anticipated volumes.
See the maturity of lease liabilities table in Note 3,3. 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 27, 2020.
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.None noted.
Forward-Looking Statements
Certain information and statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA") codified at Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act.Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts. These statements may be identified, without limitation, by the use of forward-looking terminology such as "anticipate," "assume," "believe," "could," "estimate," "expect," "future," "intend," "may," "plan," "project," "will," "continue," and similar expressions. Forward-looking statements may relate to, among other things: (i) our ability to re-finance our Credit Facility in 2022, (ii) anticipated impacts of litigation, including employment-related claims, on our financial position and results of operations, (iii)(ii) anticipated impacts of COVID-19 on our business, our financial position and results of operations, (iv)(iii) expectations regarding our ability to attract and retain Team Members, (v)(iv) our business focus and strategy, (vi) expectations regarding claims for tax refunds, (vii)(v) our ability to maintain our working capital position, (viii)(vi) our ability to use our Credit Facilitycredit facility to satisfy our working capital deficit, short-term liquidity requirements and capital expenditures, (ix)(vii) anticipated impacts of inflation, and (x)(viii) availability of food and supplies meeting our specifications from alternate sources.g.sources.
Although we believe the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties.
In some cases, information regarding certain important factors that could cause actual results to differ materially from a forward-looking statement appears together with such statement. In addition, the factors described under Risk Factors, as well as other possible factors not listed, could cause actual results to differ materially from those expressed in forward-looking statements, including, without limitation, the following:
•the impact of COVID-19 on our results of operations, supply chain, and liquidity;
•the effectiveness of the Company's strategic initiatives, including alternative labor models, service, and operational improvement initiatives;
•our ability to recruit staff, train, and retain our workforce for service execution;
•the effectiveness of the Company's marketing strategies and promotions;
•menu changes, including the anticipated sales growth, costs, and timing of the Donatos® expansion;
•the implementation, rollout, and timing of technology solutions in our restaurants and at our restaurant support center, in addition to digital platforms that are accessed by our Guests;
•our ability to achieve and sustain revenue and cost savings from off-premise sales and other initiatives;
•competition in the casual dining market and discounting by competitors;
•changes in consumer spending trends and habits;
•changes in the cost and availability of key food products and distribution, restaurant equipment, construction materials, labor, and energy, including the existence of alternate suppliers and the availability of supplies meeting our specification;
•general economic conditions, including changes in consumer disposable income, weather conditions, and related events in regions where our restaurants are operated;
•the adequacy of cash flows and the cost and availability of capital or Credit Facilitycredit facility borrowings, including our ability to refinance our Credit Facility,credit facility, on terms we expect or at all
•government delays in processing tax refund claims
•the level and impacts of inflation;
•the impacts of interest rate increases;
•the impact of federal, state, and local regulation of the Company's business;
•changes in federal, state, or local laws and regulations affecting the operation of our restaurants, including minimum wages, consumer health and safety, health insurance coverage, nutritional disclosures, and employment eligibility-related documentation requirements; and
•costs and other effects of legal claims by Team Members, franchisees, customers, vendors, stockholders, and others, including negative publicity regarding food safety or cyber security.
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the interest rate risk, foreign currency exchange risk, or commodity price risk or interest rate risk since the disclosures included in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included infiling of the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2020, filed with the SEC on March 3,26, 2021.
We continue to monitor our interest rate risk on an ongoing basis and may use interest rate swaps or similar instruments in the future to manage our exposure to interest rate changes related to our borrowings as the Company deems appropriate. During the quarter endedAs of October 3, 2021,2, 2022, we had an average of $154.7$199.0 million of borrowings subject to variable interest rates. A 1.0% change in the effective interest rate applied to these loans would have resulted in a pre-tax interest expense fluctuation of $1.5$2.0 million on an annualized basis.
The Company's restaurant menus are highly dependent upon a few select commodities, including ground beef, poultry, and potatoes. We purchase food, supplies and other commodities for use in our operations based on prices established with our suppliers. Many of the commodities purchased by us are subject to volatility due to market supply and demand factors outside of our control, including the price of other commodities, weather, seasonality, production, trade policy, and other factors. As a result of the COVID-19 pandemic, we have experienced and expect to continue to experience distribution disruptions, commodity cost inflation, and certain food and supply shortages. To manage this risk in part, we enter into fixed-price purchase commitments for certain commodities; however, it may not be possible for us to enter into fixed-price purchase commitments for certain commodities, or we may choose not to enter into fixed-price contracts for certain commodities. We believe that substantially all of our food and supplies meeting our specifications are available from alternate sources, which we have identified to diversify our supply chain to mitigate our overall commodity risk. We may or may not have the ability to increase menu prices, or vary menu items, in response to commodity price increases. A 1.0% increase in food and beverage costs would negatively impact cost of sales by approximately $2.0$3.0 million on an annualized basis.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the management of the Company ("Management"), including the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. The Company's CEO and CFO have concluded that, based upon the evaluation of disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act), the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings
Evaluating contingencies related to litigation is a complex process involving subjective judgment on the potential outcome of future events and the ultimate resolution of litigated claims may differ from our current analysis. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements.
For further information related to our litigation contingencies, see Note 8, 8. Commitments and Contingencies,, in the Notes to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. Risk Factors
Risk factors associated with our business are contained in Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended December 27, 2020 (“Annual Report”)26, 2021 filed with the SEC on March 3, 2021. Except as set forth below, there10, 2022. There have been no material changes to the Company’s risk factors since the Annual Report.
We are supplementingfrom the risk factors disclosed in ourthe fiscal year 2021 Annual Report as follows:
We are susceptible to the impacts of labor shortages, which have and may continue to negatively impact our financial condition and results of operations.
Our ability to provide the experience our Guests expect and desire depends on our ability to continue attracting and retaining a sufficient number of qualified management and operating Team Members. Labor shortages in our industry and in the broader economy have disrupted, and may further disrupt, our ability to maintain adequate staffing levels at our restaurants. Increasing competition in the market for Team Members may increase our labor costs, including by requiring us to take additional measures to ensure that our compensation and benefits for Team Members remain competitive within the restaurant industry and and with other industries that compete with us for workers, which could materially increase our expenses. During the third quarter of 2021 we took, and we may continue to take, certain measures to limit the impact of staffing shortages on the Guest experience. These measures included limiting operating hours and dine-in services at some of our restaurants. If labor shortages continue or worsen, we may be required to take similar or additional measures at a larger number of our restaurants. If we are not successful in implementing these measures, or if these measures are insufficient to mitigate the impacts of any labor shortages, our Guest experience may be negatively impacted, leading to a decline in traffic and sales, which may impact our financial condition and results of operations.
Additionally, in the third quarter of 2021, many of our vendor partners have experienced challenges in hiring and retention, which together with global supply chain disruptions have contributed to intermittent product and distribution shortages. We may be unable to mitigate the impacts of such disruptions by locating vendors who can provide us with supplies that meet our timing, quality, and cost requirements and expectations, or at all, particularly in the event of widespread supply chain disruptions. Sustained supply shortages have and could continue to adversely affect our revenue and profits.Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the twelve and forty weeks ended October 3, 2021,2, 2022, the Company did not have any sales of securities in transactions that were not registered under the Securities Act of 1933, as amended, that have not been reported in a Current Report on Form 8-K. No8-K, nor were any share repurchases were made by the Company during the third fiscal quarter of 2021.Company. Our ability to repurchase shares is limited to conditions set forth by our lenders in the Second Amendment prohibiting us from repurchasing additional shares untilCredit Agreement; repurchases shall not exceed (in any fiscal year) the first fiscal quartergreater of 2022 at$2,500,000 and 4% of Consolidated EBITDA calculated on a Pro Forma Basis for the earliest and not until we deliver a covenant compliance certificate demonstrating a lease adjusted leverage ratio less than or equal to 5.00:1.00.then most recently ended period (as each term is defined in the Credit Agreement).
ITEM 6. Exhibits | | | | | | | | |
Exhibit Number | | Description |
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| | Third Amendment to Credit Agreement, dated as of November 9, 2021,Offer Letter by and among Red Robin International, Inc.,between Red Robin Gourmet Burgers, Inc., the Guarantors, the Lenders party thereto and Wells Fargo Bank, National Association, as administration agent.G.J. Hart, dated July 13, 2022. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 10, 2021.July 14, 2022. |
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101 | | The following financial information from the Quarterly Report on Form 10-Q of Red Robin Gourmet Burgers, Inc. for the quarter ended October 3, 20212, 2022 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at October 3, 20212, 2022 and December 27, 2020;26, 2021; (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the twelve and forty weeks ended October 3, 20212, 2022 and October 4, 2020;3, 2021; (iii) Condensed Consolidated Statements of Stockholders' Equity at October 3, 20212, 2022 and October 4, 2020;3, 2021; (iv) Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 3, 20212, 2022 and October 4, 2020;3, 2021; and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
( ) Exhibits previously filed in the Company's periodic filings as specifically noted.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | | | | | | | |
| | RED ROBIN GOURMET BURGERS, INC. (Registrant) |
November 10, 20212, 2022 | | By: | | /s/ Lynn S. Schweinfurth |
(Date) | | | | Lynn S. Schweinfurth (Chief Financial Officer) |