Red Robin: Reports Results for Fiscal First Quarter 2019

Greenwood Village / CO. (rrgb) Red Robin Gourmet Burgers Inc., a full-service restaurant chain serving an innovative selection of high-quality gourmet burgers in a family-friendly atmosphere, reported financial results for the quarter ended April 21, 2019.

Q1/2019 Financial Highlights Compared to Q1/2018

• GAAP earnings per diluted share were USD 0.05 compared to USD 0.34;
• Adjusted earnings per diluted share were USD 0.19 compared to USD 0.69 (see Schedule I);
• Total revenues were USD 409.9 million, a decrease of 2.8 percent;
• Off-premise sales increased 20.6 percent, now comprising 11.6 percent of total food and beverage sales, including catering;
• Comparable restaurant revenue decreased 3.3 percent (using constant currency rates); and
• Comparable restaurant guest counts decreased 5.5 percent.

Pattye Moore, board chair and interim chief executive officer of Red Robin Gourmet Burgers, Inc., said, «As our financial results demonstrate, there is still much work to be done on the turnaround, and we are moving with urgency. We continue to focus on our five strategic priorities and are starting to see progress on multiple fronts and in the underlying key operational metrics we are tracking. The Board has engaged The Elliot Group, which has deep experience in our industry, to assist in the CEO search and the Search Committee has already begun the interview process. At the same time, in the nine weeks since I became Interim CEO, I have worked closely with the management team to narrow the list of critical initiatives and simplify our focus. We are actively working with The Cypress Group on selectively refranchising and reassessing our real estate portfolio, and today we announced the closure of 10 underperforming restaurants. We have hired an experienced industry leader as our new vice president of Consumer Insights and we are continuing to identify ways to improve all aspects of our business. All of these efforts are designed to enhance the customer experience, significantly improve cash flow, increase profitability and drive shareholder value. We are confident our initiatives will steadily improve our financial and operational performance and that our search process will identify a leader who can accelerate our turnaround.»

First Quarter 2019 Operating Results

Total revenues, which primarily include Company-owned restaurant revenue and franchise royalties, decreased 2.8 percent to USD 409.9 million in the first quarter of 2019 from USD 421.5 million in the first quarter of 2018. Restaurant revenue decreased USD 14.2 million due to a USD 13.5 million, or 3.3 percent, decrease in comparable restaurant revenue, a USD 2.2 million decrease from closed restaurants, and a USD 0.6 million unfavorable foreign currency exchange impact, offset by a USD 2.1 million increase in revenue from new restaurant openings.

System-wide restaurant revenue (which includes franchised units) for the first quarter of 2019 totaled USD 483.7 million, compared to USD 498.0 million for the first quarter of 2018.

Comparable restaurant revenue decreased 3.3 percent in the first quarter of 2019 compared to the same period a year ago, driven by a 5.5 percent decrease in guest counts offset by a 2.2 percent increase in average guest check. The increase in average guest check was comprised of a 0.3 percent increase in menu mix and a 1.9 percent increase in pricing. Comparable restaurants are those Company-owned restaurants that have operated five full quarters during the period presented, and such restaurants are only included in the comparable metrics if they are comparable for the entirety of both periods presented.

Net income was USD 0.6 million for the first quarter of 2019 compared to USD 4.4 million for the same period a year ago. Adjusted net income was USD 2.4 million for the first quarter of 2019 compared to USD 9.1 million for the same period a year ago.

Restaurant-level operating profit margin (a non-GAAP financial measure) was 18.3 percent in the first quarter of 2019 compared to 20.0 percent in the same period a year ago. Cost of sales as a percentage of restaurant revenue decreased 40 basis points primarily due to a reduction in waste and lower Tavern mix. Restaurant labor costs as a percentage of restaurant revenue increased 120 basis points due to higher average wage rates, increased management headcount to fully staff our restaurants, and sales deleverage. Other restaurant operating costs increased 60 basis points primarily due to increases in third-party delivery fees and equipment repairs and maintenance costs. Occupancy costs increased 30 basis points primarily due to sales deleverage.

Other Results

Depreciation and amortization costs decreased to USD 28.4 million in the first quarter of 2019 from USD 29.2 million in the first quarter of 2018.

General and administrative costs were USD 30.1 million, or 7.3 percent of total revenues, in the first quarter of 2019, compared to USD 28.6 million, or 6.8 percent of total revenues in the same period a year ago. The increase was primarily driven by increases in professional services, travel expenses related to manager training, and salaries, offset by lower incentive and equity compensation.

Selling expenses were USD 18.0 million, or 4.4 percent of total revenues, in the first quarter of 2019, compared to USD 17.7 million, or 4.2 percent of total revenues, during the same period in the prior year.

Other charges in the first quarter of 2019 included USD 2.0 million in executive transition and severance, USD 0.3 million in costs related to restaurants that were previously closed, and USD 0.1 million in executive retention.

The Company had an effective tax rate of a 291.4 percent benefit in the first quarter of fiscal year 2019, compared to an effective tax rate of a 21.2 percent benefit during the same period a year ago. The change in the effective tax rate is primarily due to the decrease in income in the first quarter of 2019 compared to the same period a year ago.

Earnings per diluted share for the first quarter of 2019 were USD 0.05 compared to USD 0.34 in the first quarter of 2018. Excluding charges of USD 0.11 per diluted share for executive transition and severance, USD 0.02 per diluted share for restaurant closure costs, and USD 0.01 per diluted share for executive retention, adjusted earnings per diluted share for the first quarter ended April 21, 2019 were USD 0.19. Excluding charges of USD 0.22 per diluted share for litigation contingencies and USD 0.13 per diluted share for reorganization costs, adjusted earnings per diluted share for the first quarter ended April 22, 2018 were USD 0.69. See Schedule I for a reconciliation of adjusted net income and adjusted earnings per share (each, a non-GAAP financial measure) to net income and earnings per share.

Restaurant Portfolio

There were no Red Robin restaurant openings and one closure during the first quarter of 2019. During the quarter the company counted 484 restaurants.

Effective May 31, 2019, the Company will close 10 restaurants in connection with its previously announced real estate portfolio reassessment. Seven of these restaurants are in enclosed mall locations. This action is expected to drive improved profitability. Where possible, employees will be offered positions at nearby Red Robin locations. The 10 restaurants contributed USD 4.5 million in restaurant sales and USD 0.9 million in restaurant-level pre-tax operating losses, including an immaterial amount of depreciation expense for the four months ended April 21, 2019. As a result of these closures, the Company currently expects to recognize non-cash impairment charges of approximately USD 0.7 million to USD 2.6 million during the second quarter of 2019.

Outlook 2019

Red Robin’s updated 2019 annual outlook reflects lower dine-in sales partially offset by higher off-premise sales, a deliberate decision to delay the rollout of some restaurant-level technology solutions, higher than expected wage rates, incremental commission costs associated with an increase in third-party delivery sales, and lower selling, general and administrative costs. The updated 2019 guidance is as follows:

• Comparable restaurant revenue of down 1.0 percent to up 1.0 percent (using constant currency rates);
• Selling, general and administrative costs of USD 156 million to USD 159 million;
• Net income of USD 8.0 million to USD 16.0 million;
• Adjusted Ebitda, a Non-GAAP measure, of USD 107 million to USD 117 million;
• Adjusted diluted earnings per share, a Non-GAAP measure, of USD 1.14 to USD 1.77, which includes the impact of an estimated tax benefit of USD 0.73 to USD 0.96; and
• Capital expenditures of USD 45 million to USD 55 million