Red Robin Gourmet Burgers, Inc., a casual dining restaurant chain focused on serving an innovative selection of high-quality gourmet burgers in a family-friendly atmosphere, today reported financial results for the 16 weeks ended April 17, 2011.
Financial and Operational Highlights
Highlights for the 16 weeks ended April 17, 2011, compared to the 16 weeks ended April 18, 2010, are as follows:
- Restaurant revenue increased 5.2% to $281.5 million.
- Company-owned comparable restaurant sales increased 1.9%.
- Restaurant-level operating profit margin increased to 19.8% from 18.2%
- Restaurant-level operating profit increased 14.2% to $55.7 million.
- Cash from operations increased 25.2% to $29.9 million.
- GAAP diluted earnings per share were $0.56 vs. $0.32 in the same period a year ago.
- Non-GAAP adjusted earnings per diluted share were $0.58 compared to adjusted earnings per diluted share of $0.15 in the same period a year ago. (See Schedule II at the end of this release for a reconciliation of these non-GAAP calculations to GAAP.)
- One new company-owned Red Robin restaurant and one new franchised restaurant opened during the fiscal first quarter 2011.
- The Company repurchased 397,000 shares of the Company’s stock in the fiscal first quarter of 2011, representing 2.5% of its outstanding shares.
As of the end of the fiscal first quarter 2011, there were 315 company-owned and 137 franchised Red Robin restaurants.
“Over the last few months, the entire Red Robin team has been focused on implementing the initiatives of our strategic plan – Project RED – and working with a sense of urgency to drive performance improvement and build a foundation for long-term growth and profitability,” said Steven Carley, Red Robin Gourmet Burgers, Inc.’s chief executive officer. “While we are still in the early stages of this effort, we are encouraged by the traction that our Team Members have already achieved by strengthening our business performance and setting a course to become a best-in-class restaurant company.”
Fiscal First Quarter 2011 Results
Comparable restaurant sales increased 1.9% for company-owned restaurants in the fiscal first quarter of 2011 compared to the fiscal first quarter of 2010, driven by a 0.9% increase in guest counts and a 1.0% increase in the average guest check. Average weekly comparable sales from the 301 company-owned comparable restaurants were $56,977 in the fiscal first quarter of 2011, compared to $55,896 for the 286 company-owned comparable restaurants in the fiscal first quarter of 2010. Average weekly sales for the 14 non-comparable company-owned restaurants were $66,685 in the fiscal first quarter of 2011, compared to $56,560 for the 22 non-comparable restaurants in the fiscal first quarter a year ago. For all company-owned restaurants, average weekly sales were $57,405 from 5,038 operating weeks in the fiscal first quarter of 2011 compared to $55,909 from 4,906 operating weeks, in the fiscal first quarter of 2010.
Total Company revenues, which include company-owned restaurant sales, franchise royalties and fees, and gift card breakage income, which is included in other revenue, increased 4.1% to $286.8 million in the fiscal first quarter of 2011, versus $275.5 million last year. Franchise royalties and fees increased 7.1% to $4.5 million in the fiscal first quarter of 2011 compared to $4.2 million for the same period in 2010.
For the fiscal first quarter of 2011, the Company’s U.S. franchise restaurant sales of $100.5 million were 7.4% higher compared to $93.6 million in the prior year period. Comparable sales in the fiscal first quarter of 2011 for franchise restaurants in the U.S. increased 2.5% and for franchise restaurants in Canada decreased 1.2% from the fiscal first quarter of 2010. Average weekly comparable sales for the U.S. franchised restaurants were $53,403 from the 107 comparable restaurants in the fiscal first quarter of 2011, compared to $51,857 for the 106 comparable restaurants in the fiscal first quarter of 2010. Average weekly sales in the fiscal first quarter of 2011 for the Company’s 18 comparable franchise restaurants in Canada were C$53,762 versus C$54,293 in the same period last year. Canadian results are in Canadian dollars.
Other revenue in the fiscal first quarter of 2011 included $757,000 in gift card breakage revenue, including $629,000 from gift cards that the Company sells through third parties, of which $438,000 represented an initial cumulative adjustment. The Company now expects on-going revenue from unredeemed gift cards, sold through its restaurants and through third parties, to total between $350,000 and $385,000 per quarter.
Restaurant-level operating profit margins at company-owned restaurants were 19.8% in the fiscal first quarter of 2011 compared to 18.2% in the fiscal first quarter of 2010. As a percentage of restaurant revenue, fiscal first quarter 2011 restaurant-level operating profit margins improved as a result of a 1.2% decrease in labor costs, a 0.6% decrease in other operating costs and a 0.4% decrease in occupancy costs, partially offset by a 0.7% increase in food and beverage costs.
Schedule I of this earnings release defines restaurant-level operating profit and reconciles this metric to income from operations and net income for all periods presented. The Company’s restaurant-level operating profit metric is designed to afford management and investors with a basis for considering and comparing restaurant performance. It is not calculated in conformity with generally accepted accounting principles (“GAAP”). It is intended to supplement, rather than replace GAAP results. Restaurant-level operating profit is useful to management and to the Company’s investors because it is widely regarded in the restaurant industry as a meaningful metric by which to evaluate restaurant-level operating efficiency and performance.
Selling, general and administrative (“SG&A”) expenses were $32.0 million in the fiscal first quarter of 2011 and $30.8 million in the fiscal first quarter of 2010, which were 11.2% of total revenue in the fiscal first quarter of both years. Included in the fiscal first quarter of 2011 was a $4.4 million investment in the Company’s television media campaign, compared to $6.6 million in the fiscal first quarter of 2010. Also included in SG&A expense in the first fiscal quarter of 2011 is approximately $785,000 in severance costs related to the elimination of 32 corporate positions in January 2011. In addition, the Company has accrued $1.4 million in higher performance-based bonuses in the first quarter of 2011 compared to the prior year. And finally, about $1.6 million was incurred in 2011 primarily for the Company’s data systems infrastructure project, and for legal and corporate governance expenses compared to the prior year.
Interest expense was $1.4 million in the fiscal first quarter of 2011, compared to $1.9 million in the fiscal first quarter of 2010.
Net income for the fiscal first quarter of 2011 was $8.7 million or $0.56 per diluted share, compared to net income of $4.9 million, or $0.32 per diluted share, in the fiscal first quarter of 2010. Schedule II of this earnings release reconciles the impact on the net income and earnings per share as reported on a GAAP basis to adjusted amounts excluding certain revenue and expenses in the fiscal first quarters of 2011 and 2010.
The Company had an effective tax rate of 11.5% or a tax expense of $1.1 million in the fiscal first quarter of 2011, compared to an effective tax rate of 17.1% in the first quarter 2010. The Company anticipates that the effective tax rate for the full fiscal year 2011 will be approximately 11.5%.
During the fiscal first quarter of 2011, the Company repurchased 397,000 shares of Company stock for $9.5 million.
Balance Sheet and Liquidity
On April 17, 2011, the Company held $14.6 million in cash and cash equivalents and had a total outstanding debt balance of $141.8 million, including $94.6 million of borrowings under its $150 million term loan, $36 million of borrowings under its $150 million revolving credit facility and $11.2 million outstanding for capital leases. The Company had also issued $7.0 million of outstanding letters of credit under its revolving credit facility. Subsequent to the end of the Company’s fiscal first quarter, this credit facility has been amended as described below.
The Company’s cash from operations of $29.9 million for the fiscal first quarter this year exceeded the Company’s capital expenditures of $7.6 million. The Company paid down debt of $16.4 million during the fiscal first quarter of 2011. The Company also repurchased $9.5 million or 397,000 shares of the Company’s stock in the first quarter 2011 in accordance with its announced intent to do so in February 2011.
The Company amended its credit agreement effective May 6, 2011, which decreased the aggregate loan commitments under the credit agreement from $300 million to $250 million. The amended agreement is comprised of a $150 million term loan and a $100 million revolving line of credit. The amended agreement extends the maturity date on the term loan to May 6, 2016, with an option to extend the maturity date on the revolving line of credit for up to two additional one-year extensions at the borrower’s request and lenders’ participation.
Outlook
The Company’s fiscal second quarter of 2011 is a 12-week quarter. Eight new company-owned restaurants and one new franchised restaurant are currently under construction. During fiscal 2011, the Company expects to open 10 new company-owned restaurants, one of which opened in the fiscal first quarter of 2011 and two opened early in the fiscal second quarter of 2011. Four additional new company-owned restaurants are expected to open in the fiscal second quarter of 2011. Franchisees are expected to open three to four new restaurants in fiscal 2011, one of which opened in the fiscal first quarter of 2011 and another in the fiscal second quarter of 2011.
Through May 15, 2011, the first four weeks of the Company’s fiscal second quarter of 2011, comparable restaurant sales increased 0.5% from the prior year comparable period for company-owned restaurants, compared to a year-over-year decrease of 1.2% in the first four weeks of the fiscal second quarter of 2010.
The Company expects commodity inflation of 5% to 6% for the full fiscal year 2011 mainly due to the continued increase in ground beef costs. Labor costs are expected to be lower for the full fiscal year 2011 compared to the fiscal year 2010 by 80 to 100 basis points, taking into account fiscal first quarter 2011 savings from improved leverage, reduced training costs and improved labor productivity, offset by payroll tax holiday benefits realized last year that are not continuing in 2011.
In the fiscal second quarter of 2011, the Company will support its summer limited time offer (LTO) promotion with TV advertising. The cost of the TV advertising support is expected to be approximately $3.8 million in the fiscal second quarter of 2011. Television advertising spending during fiscal 2011 is expected to be $13 million to $14 million. The Company’s total marketing expense in the full fiscal year 2011 is expected to be about $27.7 million compared to $28.8 million spent in the full fiscal year 2010, which is included in selling, general and administrative expense in both years. Total SG&A for fiscal 2011 is expected to be $2.5 to $3.0 million higher than SG&A incurred in fiscal 2010 but will be leveraged as a percentage of revenue as the Company’s sales continue to grow.
Based on the Company’s development plans and other infrastructure and maintenance costs, the Company expects total fiscal year 2011 capital expenditures to be between $39 million and $41 million, which the Company expects to fund entirely out of operating cash flow. Under the terms of the amended term loan facility, the Company will make scheduled quarterly principal payments beginning June 30, 2011, of $1.875 million. The Company expects to use its remaining free cash flow to maintain financial flexibility so that it can opportunistically repurchase shares of the Company’s common stock and execute its long term strategic initiatives. The Company’s Board had previously authorized up to $50 million for the opportunistic repurchases of the Company’s stock, of which the Company previously announced its intention to spend up to $25 million from operating cash flow and available cash in the first half of 2011, subject to appropriate valuation of the Company’s shares and other customary considerations. In the first fiscal quarter of 2011, $9.5 million in stock was repurchased.
The sensitivity of the Company’s restaurant sales to a 1% change in Guest counts for fiscal 2011 equates to approximately $0.25 per diluted share, and a 1% change in the average guest check for fiscal 2011 is about $0.43 per diluted share. A 10 basis point change in restaurant-level operating margin is about $0.05 per diluted share, and a change of $174,000 in pre-tax income or expense is $0.01 per diluted share.
Red Robin Gourmet Burgers, Inc., a casual dining restaurant chain founded in 1969 that operates through its wholly-owned subsidiary, Red Robin International, Inc., serves up wholesome, fun, feel-good experiences in a family-friendly environment. Red Robin® restaurants are famous for serving more than two dozen insanely delicious, high-quality gourmet burgers in a variety of recipes with Bottomless Steak Fries, as well as salads, soups, appetizers, entrees, desserts, and signature Mad Mixology Beverages. There are more than 450 Red Robin restaurants located across the United States and Canada, including company-owned locations and those operating under franchise agreements.