Red Robin Gourmet Burgers, Inc., (NASDAQ: RRGB), a casual dining restaurant chain focused on serving an innovative selection of high-quality gourmet burgers in a family-friendly atmosphere, today reported financial results for the 12 and 52 weeks ended December 26, 2010.
Financial and Operational Results
Results for the 12 weeks ended December 26, 2010, compared to the 12 weeks ended December 27, 2009, are as follows:
- Restaurant revenue increased 5.4% to $189.3 million.
- Company-owned comparable restaurant sales increased 0.8%.
- Restaurant-level operating profit increased 3.2% to $32.2 million.
- GAAP diluted earnings per share were $0.14 vs. $0.10 in the same period a year ago, including the effects of costs related to closing two company-owned restaurants and executive transition expense in 2010.
- Non-GAAP adjusted net income was $1.9 million, or earnings of $0.12 per diluted share, excluding the restaurant closing and executive transition costs. (See Schedule II at the end of this release for a reconciliation of these non-GAAP calculations to GAAP.)
- Four new company-owned Red Robin restaurants and two new franchised restaurants opened during the fourth quarter 2010.
Results for the 52 weeks ended December 26, 2010, compared to the 52 weeks ended December 27, 2009, are as follows:
- Restaurant revenue increased 2.2% to $846.4 million.
- Company-owned comparable restaurant sales decreased 0.6%.
- Restaurant-level operating profit decreased 3.6% to $150.7 million.
- Selling, general and administrative (SG&A) expense increased to $88.8 million in 2010 from $76.3 million in 2009. Included in the 2010 SG&A expense is an increase in television advertising expense of $12.9 million, CEO transition expense of $2.6 million and restaurant closure costs of $0.8 million.
- GAAP diluted earnings per share were $0.46, including the effects of restaurant impairment and closure charges and executive transition expenses, vs. GAAP diluted earnings per share in fiscal 2009 of $1.14.
- Non-GAAP adjusted net income was $13.4 million, or earnings of $0.85 per diluted share, excluding the effects of restaurant impairment and closure charges and executive transition expenses. (See Schedule II at the end of this release for a reconciliation of these non-GAAP calculations to GAAP.)
- A total of 15 new Red Robin restaurants, 11 company-owned and four franchised locations were opened during the full fiscal year 2010.
As of the end of the fiscal year 2010, there were 314 company-owned and 136 franchised Red Robin restaurants.
“In a matter of a few short months, we have galvanized and focused the entire Red Robin Team to drive performance improvement and re-establish our company as a best-in-class restaurant operator,” said Steven Carley, Red Robin Gourmet Burgers, Inc.’s chief executive officer. “We are implementing significant initiatives, which we call Project RED, to increase same store sales, reduce expenses, improve restaurant level margins and drive overall corporate profitability. We are also allocating capital prudently to maximize long-term shareholder returns.”
Fiscal Fourth Quarter 2010 Results
Comparable restaurant sales increased 0.8% for company-owned restaurants in the fiscal fourth quarter of 2010 compared to the fiscal fourth quarter of 2009, driven by a 1.1% increase in guest counts, partially offset by a 0.3% decrease in the average guest check. Average weekly comparable sales from the 303 company-owned comparable restaurants were $50,565 in the fiscal fourth quarter of 2010, compared to $50,249 for the 277 company-owned comparable restaurants in the fiscal fourth quarter of 2009. Average weekly sales for the 13 non-comparable company-owned restaurants were $65,610 in the fiscal fourth quarter of 2010, compared to $49,167 for the 29 non-comparable restaurants in the fiscal fourth quarter a year ago. For all company-owned restaurants, average weekly sales were $51,103 from 3,771 operating weeks in the fiscal fourth quarter of 2010 compared to $50,148 from 3,666 operating weeks, in the fiscal fourth quarter of 2009.
Total Company revenues, which include company-owned restaurant sales and franchise royalties and fees, increased 5.7% to $192.6 million in the fiscal fourth quarter of 2010, versus $182.2 million last year. Franchise royalties and fees increased 21.8% to $3.1 million in the fiscal fourth quarter of 2010 compared to $2.6 million for the same period in 2009.
For the fiscal fourth quarter of 2010, the Company’s U.S. franchise restaurant sales of $65.3 million were higher compared to $61.9 million in the prior year period. Comparable sales in the fiscal fourth quarter of 2010 for franchise restaurants in the U.S. increased 3.4% and for franchise restaurants in Canada increased 0.9% from the fiscal fourth quarter of 2009. Average weekly comparable sales for the U.S. franchised restaurants were $47,702 from the 106 comparable restaurants in the fiscal fourth quarter of 2010, compared to $45,798 for the 104 comparable restaurants in the fiscal fourth quarter of 2009. Average weekly sales in the fiscal fourth quarter of 2010 for the Company’s 18 comparable franchise restaurants in Canada were C$51,000 versus C$49,297 in the same period last year. Canadian results are in Canadian dollars.
Restaurant-level operating profit margins at company-owned restaurants were 17.0% in the fiscal fourth quarter of 2010 compared to 17.3% in the fiscal fourth quarter of 2009. As a percentage of restaurant revenue, fiscal fourth quarter 2010 restaurant-level operating profit margins were negatively impacted by a 0.6% increase in food and beverage costs and a 0.2% increase in labor costs, partially offset by a 0.3% decrease in occupancy costs and 0.2% decrease in other operating 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 expenses were $19.2 million in the fiscal fourth quarter of 2010 and $17.1 million in the fiscal fourth quarter of 2009, which were 9.9% and 9.4% of total revenue, respectively. Included in the fiscal fourth quarter of 2010 was a $2.1 million investment in the Company’s television media campaign, compared to $833,000 in the fiscal fourth quarter of 2009. Also included in fiscal fourth quarter 2010 SG&A expense was approximately $47,000 in executive transition costs, as well as $767,000 in costs related to closing two company-owned restaurants.
Interest expense was $0.8 million in the fiscal fourth quarter of 2010, compared to $1.8 million in the fiscal fourth quarter of 2009.
Net income for the fiscal fourth quarter of 2010 was $2.2 million or $0.14 per diluted share, compared to net income of $1.6 million, or $0.10 per diluted share, in the fiscal fourth quarter of 2009. Included in fiscal fourth quarter 2010 results were costs related to executive transition and the closing of two company-owned restaurants. Excluding the executive transition expense and restaurant closing costs, and using a normalized annual tax provision of 6.2%, the Company’s fiscal fourth quarter 2010 earnings would have been $0.12 per diluted share. 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 charges in the fiscal fourth quarter and full year of 2010 and 2009.
The Company had an effective tax benefit of $1.1 million in the fiscal fourth quarter of 2010, compared to a $422,000 tax benefit in the fourth quarter 2009. Our full-year 2010 tax is a benefit of $2.6 million, which equates to a full-year tax rate benefit of 54.3%, since general business tax credits, primarily the FICA tip tax credit, significantly exceeded the combined Federal and state statutory provision on a lower income before taxes for 2010.
Balance Sheet and Liquidity
On December 26, 2010, the Company held $17.9 million in cash and cash equivalents and had a total outstanding debt balance of $158.5 million, including $104.0 million of borrowings under its $150 million term loan, $43.0 million of borrowings under its $150 million revolving credit facility and $11.6 million outstanding for capital leases. The Company has also issued $6.6 million of outstanding letters of credit under its revolving credit facility. In the fiscal fourth quarter of 2010, the Company paid down $2.2 million in debt.
The Company is subject to a number of customary covenants under its credit agreement, including limitations on new credit facilities, acquisitions, dividend payments, and requirements to maintain certain financial ratios. As of December 26, 2010, the Company was in compliance with all of its debt covenants, and the Company expects to remain in full compliance with its current credit agreement during the 2011 fiscal year.
Outlook
In 2011, the Company’s strategic focus will be around efforts to support the “Project RED” initiatives. These initiatives support revenue growth, expense management and deployment of capital. Revenue driving initiatives include the implementation of a guest loyalty program called “Red Royalty,” a focus on targeting adult guests and improving alcohol beverage sales, and using a Limited Time Offer strategy supported with television advertising. In addition, the Company plans to take a price increase of 1.5% in April of this year to help mitigate commodity cost increases it expects to incur in 2011. With regard to expense management, the initiatives will be focused on reducing SG&A expense and restaurant costs. The SG&A expense reductions were supported by actions taken early in the year to reduce administrative headcount, which resulted in $3 million in annualized savings. The Company is also in the process of identifying $16 million to $18 million in annualized savings from a reduction in restaurant costs, which it expects to be realized over the next 12 to 24 months. Deployment of capital will focus on the Company’s investment in new restaurant development, the investment in an overhaul of its data infrastructure, the repurchase opportunity related the Company’s stock, as well as future refinancing activities. The Company representatives will be discussing these initiatives in further detail on their earnings conference call scheduled for later today. See below in the “Investor Conference Call and Webcast” section of this release for information on how to access the call and webcast.
The Company’s fiscal first quarter of 2011 is a 16-week quarter. Seven new company-owned restaurants are currently under construction. One new company-owned restaurant opened in the fiscal first quarter. Two new franchised restaurants are currently under construction, with one of these franchised restaurants expected to open later in the first quarter of 2011 and the other in the second quarter of 2011. During fiscal year 2011, the Company expects to open 10 new company-owned restaurants, one of which opened early in the first quarter of 2011, and franchisees are expected to open three to four new restaurants.
Through February 14, 2011, company-owned comparable restaurant sales decreased 0.4%, compared to a year-over-year company-owned comparable restaurant sales decrease of 7.8% for the same period of 2010. Removing the impact of weather so far in 2011 and the timing of Valentine’s Day, the comparable restaurant sales would have been an increase of 0.4%.
Next week the Company will begin TV advertising support for its spring limited time offer (LTO) promotion. The cost of the TV advertising support is expected to be approximately $4.4 million in the first fiscal quarter of 2011. The Company also expects to spend another $9 million on TV advertising during the balance of the year to support LTO promotions in the summer and fall of 2011. Television advertising spending during the full fiscal year 2010 was $15.4 million. The Company’s total marketing expense in 2011 is expected to be about $27.5 million compared to $28.8 million spent in fiscal 2010, which is included in selling, general and administrative expense in both years.
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 continue funding entirely out of operating cash flow. The Company also intends to make scheduled quarterly payments of $4.7 million required by the term loan portion of its existing credit facility from free cash flow after capital expenditures and expects to use its remaining free cash flow to make payments on the Company’s revolving credit facility and maintain flexibility to opportunistically repurchase shares of the Company’s common stock. The Company expects to refinance its current debt in the first half of 2011. The terms of this refinancing may affect the debt reduction discussed above. In addition, the Company’s Board had previously authorized up to $50 million for the opportunistic repurchases of the Company’s stock, of which the Company intends to spend up to $25 million from operating cash flow and available credit in the next six months commencing immediately, subject to appropriate valuation of the Company’s shares and other standard considerations.
Investor Conference Call and Webcast
Red Robin will host an investor conference call to discuss its fiscal fourth quarter and year-end 2010 results today at 5:00 p.m. ET. The conference call number is (888) 264-8954, or for international callers (913) 312-1468. To access the webcast, please visit www.redrobin.com and select the “Investors” link from the menu. The financial information that the Company intends to discuss during the conference call is included in this press release and will be available on the “Investors” link of the Company’s website at www.redrobin.com following the conference call.
About Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB)
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.