Market Overview

Red Robin Gourmet Burgers Reports Results for the Fiscal Third Quarter Ended October 6, 2019

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Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) ("Red Robin" or the "Company"), a full-service restaurant chain serving an innovative selection of high-quality gourmet burgers in a family-friendly atmosphere, today reported financial results for the quarter ended October 6, 2019.

Third Quarter 2019 Financial Summary Compared to Third Quarter 2018

  • Comparable restaurant revenue increased 1.6% (using constant currency rates), the third consecutive quarter of improved trends;
  • Comparable restaurant guest counts decreased 3.1%;
  • Off-premise sales, including catering, increased 37.3% and comprised 13.2% of total food and beverage sales, including catering;
  • Total revenues were $294.2 million, a decrease of 0.2%;
  • GAAP loss per diluted share was $0.14 compared to earnings per diluted share of $0.13;
  • Adjusted loss per diluted share was $0.24 compared to adjusted earnings per diluted share of $0.16 (see Schedule I);
  • Net loss was $1.8 million compared to net income of $1.7 million; and
  • Adjusted EBITDA was $14.7 million compared to $24.2 million (see Schedule III).

Paul J.B. Murphy III, Red Robin's President and Chief Executive Officer, said, "I am encouraged by the current momentum at Red Robin, reflected in rising operating and guest metrics, complemented by an effective new omni-channel creative campaign, that are driving better topline results. The team is making progress strengthening and transforming the dine-in business while investing in our strategic priorities. While there still is much work to do, these efforts are enabling us to build our brand reputation and the confidence of our Guests, which are critical to driving sustainable improvements in sales and profitability for years to come."

Murphy added, "On behalf of the entire Red Robin team, I would like to thank Pattye Moore for her tremendous contributions during her tenure as interim CEO and for her service to the Company over the past 12 years. Under her effective leadership, the executive team established a stronger operational foundation that we can now build upon to create value for stockholders, Guests, Team Members, and other stakeholders."

Third Quarter 2019 Operating Results

Total revenues, which primarily include Company-owned restaurant revenue and franchise royalties, decreased 0.2% to $294.2 million in the third quarter of 2019, from $294.9 million in the third quarter of 2018. Restaurant revenue decreased $0.4 million due to a $4.8 million decrease from restaurant closures, partially offset by a $4.4 million, or 1.6%, increase in comparable restaurant revenue.

System-wide restaurant revenue (which includes franchised units) for the third quarter of 2019 totaled $351.9 million, compared to $351.0 million for the third quarter of 2018.

Comparable restaurant revenue(1) increased 1.6% in the third quarter of 2019 compared to the same period a year ago, driven by a 4.7% increase in average guest check, partially offset by a 3.1% decrease in guest count. The increase in average guest check comprised a 3.2% increase in menu mix and a 1.5% increase in pricing. The increase in menu mix was primarily driven by the Company's current menu and promotional strategy, resulting in lower Tavern burger sales and higher Finest burger and entrée sales.

Net loss was $1.8 million for the third quarter of 2019 compared to a net income of $1.7 million for the same period a year ago. Adjusted net loss was $3.1 million for the third quarter of 2019 compared to adjusted net income of $2.1 million for the same period a year ago (see Schedule I).

Restaurant-level operating profit margin (a non-GAAP financial measure) was 16.1% in the third quarter of 2019 compared to 16.8% in the same period a year ago. Cost of sales as a percentage of restaurant revenue remained flat. Restaurant labor costs as a percentage of restaurant revenue increased 90 basis points due to higher average wage rates and increased manager staffing levels. Other restaurant operating costs increased 30 basis points primarily due to a 70 basis point increase in third party delivery fees, partially offset by a 20 basis point decrease in utilities and a 20 basis point decrease in other restaurant expenses. Occupancy costs decreased 60 basis points due to restaurant closures. Schedule II of this earnings release defines restaurant-level operating profit, discusses why it is a useful metric for investors, and reconciles this metric to income from operations and net income, in each case under GAAP.

________________________________________
 

(1)

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

Restaurant Revenue Performance

 

Third Quarter 2019

 

Third Quarter 2018

Average weekly sales per unit(1):

 

 

 

Company-owned – Total

$

51,221

 

$

49,925

Company-owned – Comparable

$

51,304

 

$

50,454

Franchised units – Comparable

$

57,788

 

$

57,267

Total operating weeks:

 

 

 

Company-owned units

 

5,659

 

 

5,805

Franchised units

 

1,080

 

 

1,064

________________________________________
 

(1)

Calculated using constant currency rates. Using historical currency rates, the average weekly sales per unit in the third quarter of 2018 for Company-owned – Total and Company-owned – Comparable was $49,926 and $50,455. The Company calculates non-GAAP constant currency average weekly sales per unit by translating prior year local currency average weekly sales per unit to U.S. dollars based on current quarter average exchange rates. The Company considers non-GAAP constant currency average weekly sales per unit to be a useful metric to investors and management as they facilitate a more useful comparison of current performance to historical performance.

Other Results

Depreciation and amortization costs decreased to $21.3 million in the third quarter of 2019 from $21.8 million in the third quarter of 2018.

General and administrative costs were $19.2 million, or 6.5% of total revenues, in the third quarter of 2019, compared to $16.8 million, or 5.7% of total revenues, in the same period a year ago. The increase was primarily driven by interim CEO expenses and lower incentive based costs in 2018, partially offset by decreases in professional services and travel.

Selling expenses were $17.6 million, or 6.0% of total revenues, in the third quarter of 2019, compared to $12.0 million, or 4.1% of total revenues, during the same period a year ago. The increase was primarily driven by an increase in national and local media spend to support the launch of the Company's new creative brand campaign.

Other gains in the third quarter of 2019 included $3.9 million in net gains related to lease terminations for previously closed restaurants, partially offset by $1.3 million of board and stockholder matter costs, $0.6 million in executive transition and severance, and $0.3 million in executive retention.

The Company had an effective tax benefit of 74.1% in the third quarter of 2019, compared to an effective tax benefit of 448.3% during the same period a year ago. The change in the twelve week effective tax benefit is primarily due to the decrease in income compared to the same period a year ago. The Company currently anticipates a full year tax benefit of $11 million to $13 million and full year cash tax payments of between $3.5 million and $4.0 million.

Loss per diluted share for the third quarter of 2019 was $0.14 compared to earnings per diluted share of $0.13 in the third quarter of 2018. Excluding a gain included in Other (gains) charges of $0.23 related to lease terminations for previously closed restaurants offset by costs included in Other (gains) charges of $0.07 for board and stockholder matter costs, $0.04 for executive transition and severance, and $0.02 for executive retention, adjusted loss per share for the third quarter ended October 6, 2019 was $0.24. Excluding charges of $0.03 for reorganization costs, adjusted earnings per diluted share for the third quarter ended October 7, 2018 were $0.16. 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

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

 

 

Twelve Weeks

Ended

 

Twelve Weeks

Ended

 

Forty Weeks

Ended

 

Forty Weeks

Ended

 

 

October 6, 2019

 

October 7, 2018

 

October 6, 2019

 

October 7, 2018

Company-owned:

 

 

 

 

 

 

 

 

Beginning of period

 

472

 

484

 

484

 

480

Opened during the period(1)

 

1

 

2

 

 

8

Closed during the period

 

(2)

 

(1)

 

(13)

 

(3)

End of period

 

471

 

485

 

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