Q1 2022 Red Robin Gourmet Burgers Inc Earnings Call
Good afternoon, everyone and welcome to the Red Robin Gourmet Burgers incorporated first quarter 2022 earnings call. Please note that today's call is being recorded.
During today's conference call management will be making forward looking statements about the company's business outlook and expectations. These forward looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the safe Harbor discussion found in the company's SEC filings.
During today's conference call management will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended intended to illustrate an alternate alternative measure of the company's operating performance that may be useful.
A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release.
The company has posted its fiscal first quarter 2022 earnings release on its website at IR Dot Red Robin Dot com.
Now I would like to turn the call over to Red Robin's CEO Paul Murphy.
Hello, Thank you for being with US today I am joined by lunch, one first our Chief Financial Officer, who will review our results for fiscal first quarter in detail and update our financial outlook. After I provide some general commentary along with an update on our ongoing business.
<unk> well.
Let me begin by expressing how pleased we are that the economy is now fully reopen.
This has led to positive sales momentum characterized by improving dine in sales, while our off premise sales dollars are continuing to hold at more than double pre pandemic levels.
We will continue to monitor the situation closely but at this point, we are continuing to experience topline momentum despite macroeconomic and consumer headwinds.
Because of our brand is all about moments of connection at an affordable value for friends and family across a diverse and multi generational demographic, we are well suited to address pent up demand. This.
This is true even as economic pressures persist such as navigating the inflationary environment that has been further impacted by the continuing more in the Ukraine and related global supply chain challenges.
Our craveable L. T O product promotions are selling at record levels and if conditions were to change we have proven value oriented promotions on the shelf that can be add as needed.
As dine in demand has increased we have also maintained our G M and restaurant management staffing levels, who are focused on attracting and retaining quality team members by improving that staffing we are best able to capitalize on the incremental opportunity for dine in sales and grow profitability.
Okay.
We are also deploying increased targeted marketing support to take advantage of rising staffing levels.
Most of this expenditure is digital because it is more targeted and cost effective and importantly is driving record engagement levels.
As part of the support we will began to build awareness for our new App and website order and experience, while highlighting our successful whiskey River backyard barbecue L T O as well as our value message around bottomless.
In addition, we will be running local media in selected to not as markets to build awareness around this new product offering.
In terms of our fiscal Q2 2022 sales trends to date during the fifth period preliminary comparable restaurant revenue rose seven 3% compared to 2019.
Comparable restaurant revenue for the first fiscal quarter Rose three 9% compared to 2019, and rose 19, 7% compared to 2021.
Sales growth compared to 2021 was driven primarily by higher pricing and mix and to a lesser extent higher traffic as more guests felt comfortable dining out partially offset by staffing challenges.
As we have emphasized over the past few quarters staffing remains our number one priority when restaurants are staffed properly we deliver a more consistent quality experience, which leads to higher guest satisfaction higher throughput and higher sales.
It also supports our team members in a manner that prioritizes their own satisfaction and retention.
We are making progress in hiring and retaining team members, while we are not where we need to be particularly as it relates to retention, we have been able to reduce the number of restaurants that have had to close early and we were able to deliver more operating hours in Q1 than in Q4 last year.
If we compare ourselves to par staffing levels by individual restaurants staffing requirements as of the end of our fiscal fifth period, we improved our staffing levels to above 85% of our target.
Importantly, we are staffed at par at the GM level.
This is particularly relevant because as we approach full staffing and our management positions. We expect overall restaurant staffing improvement to accelerate because the ladder is highly correlated with the former.
The action plan, we are executing with regards to people is focused on three key areas.
One restaurant leadership.
<unk> with team members quality training and execution and running great chefs to wages, we are addressing at the local level to remain competitive and three scheduling and flexibility accommodating scheduling needs of team members and we are also in the process of implementing an improved sketch.
To provide more scheduling flexibility.
We are also driving quality up and flow through various means including utilizing an outsourced staffing organization to support more challenging locations of.
Of course, we must not only attract talent, but also retain talent given the competitiveness of the market district.
This requires raising the bar on workforce engagement. So that we can further improve our team member value proposition.
Our intention is to remain an active and two way dialogue with our team members. So that we can further improve these important relationships.
Our food is centered on a variety of gourmet burgers and other mainstream favorites that guests love.
And we are continuing to differentiate and elevate red Robin's offerings through a highly successful limited time offer menu items.
In fact, having already implemented a scaled down menu pre pandemic R. L T O us or getting more attention than ever before.
This is helping us drive PPA incremental margin and attachment.
On a related note even as we emerge from the pandemic, we have no intention to broaden the menu.
This not only ensures that we do not add operational complexity, but also because our LTE offerings keep the menu fresh and exciting for our guests.
Recall that our Q1 L. T O lineup began with what was a continuation of what we featured in Q4 last year.
Our cheese lovers L. T O featuring our cheesy Bacon fondue Burger and mozzarella cheese sticks. This has been among our best performing <unk> of all time.
Since March we've been featuring the Whiskey River backyard barbecue menu lineup, which includes our smokehouse brisket Burger and Tequila sensor cocktail. This is our third consecutive L. T O promotion to hit record levels of sales.
Providing an outstanding guest experience.
Port and as ever and we believe that staffing training and experience will further improve the quality of execution by our team members.
Having welcome more guests in Q1 than we have since the onset of the pandemic, we are more focused than ever on execution.
This approach is based upon the elements of our total guest experience hospitality program, which entailed to delivering fun and playful service that is tailored to our guest's time, an occasion and delivering exceptional value through our commitment to bottomless steak fries and beverages.
Our emphasis on execution, producing improving operating metrics and sales momentum.
As we have discussed over the past several quarters, we are implementing process and minor floor plan modifications to improve off premise is efficiency and accuracy and intend to complete these modifications by year end.
We are also evaluating opportunities to make heart of the house execution simpler, which will reduce ticket times and enable us to better cater to our guests' time and occasion.
Turning to our foundation, we are continuing to hone multiple growth platforms designed to drive consistent and profitable dine in and off premise sales growth.
Beginning with Donato Pizza this as a long term growth vehicle that is exceeding our expectations.
We had approximately 200 restaurants, serving this high quality product during Q1, which is similar to Q4. The analysis piece of sales reached more than $7 million in Q1 and were supported by additional marketing support at certain locations.
Restaurants, serving Donato has continued to outperform the rest of the Red Robin system for restaurants that had donato comparable restaurant revenue grew by more than 5% over our restaurants that did not yet have donato.
Additionally, guest checks had included Donato pizza, where on average over $10 higher than those that did not include pizza. We also see that donato strives higher visit frequency among our royalty members, adding one more visit per year.
Recall that we are pacing, our donato rollout with approximately 50 restaurants this year.
Most of which will be completed in Q2 and Q3, while the remaining 150 restaurants will be implemented in 2023.
All of the kitchen equipment that will be installed in 2022 has been secured therefore, we are confident that we will meet our rollout schedule.
By the end of 2024, we expect <unk> to generate annual company pizza sales of at least $60 million and profitability of at least $25 million.
While we continue to leverage Donato, so enhance the red Robin dining experience of growth. We also believe there's more runway to drive long term incremental transactions through catering and delivery.
Let me now turn to our digital initiatives I am pleased that we're now have an integrated and seamless digital ecosystem to drive frequency traffic and check.
We view these digital assets is a key strategy for our brand and we will make enhancements to them on an ongoing basis with some exciting new features being rolled out over the remainder of the year and beyond.
We are continuing to enhance our integrated and seamless digital ecosystem.
In late March we launched a new website experience with user friendly enhancements to presentation navigation and online ordering that are geared towards driving incremental frequency traffic and guest check.
We were honored that our website was nominated for a Webby Award with the People's Choice category and was one of the top five nominees.
We view this external recognition is a big accomplishment that validates our digital efforts and traction.
Recall that in Q4, we soft launched our iOS and Android mobile apps.
An integrated in with our newly enhanced loyalty platform. We have since implemented four major releases with guest facing enhancements, but theres still more to come such as an online weightless and additional payment options and.
In spite of limited marketing support as of the end of our fifth fiscal period, we have already had over 400000 downloads and have achieved an average rating of 4.6 out of five.
Notably, both our website and App are generating increased conversion and as we add marketing support this year, we expect to see further increases in our downloads.
On a related note, our new Red Robin royalty platform, which is integrated with our new App and online ordering experience as vastly improved our communication capabilities.
This is reflected in our ability to improve segmentation so in automated and personalized messaging based upon purchase history.
Offer smarter campaign offers and elevate interactions via push notifications.
These enhancements are resulting in all time high levels of engagement for our $10 6 million royalty members, which grew by roughly 300000 members since the end of 2021.
Turning to new restaurant development in Q4 last year, we opened a relocated high volume restaurant, which utilizes our new prototype configuration.
The design enhancements are geared towards improving dine in off premises and curbside execution, while the optimized kitchen layout enhances efficiency.
We are highly encouraged by performance of this restaurant, which is on track to deliver sales of over $4 million in its first full year.
We are developing our real estate pipeline for resuming modest new restaurant growth beginning next year.
Leveraging our enhanced prototype design and targeting high return markets, where we have a combination of quality operations and financial performance and strong brand recognition in.
In addition to company development. We're also encouraged that two new franchise restaurants are poised to open by 2023.
We are also reestablishing our restaurant refresh program, which includes testing our scope of work with elements of our new prototypes this year.
Our plan will be to begin rolling this out to the system beginning next year.
Finally, I wanted to make you aware that we recently issued our first sustainability report as part of our commitment to environmental sustainability and governance reporting.
Port, which outlines red Robin's journey to sustainability and blueprint for better business can be found on our Investor Relations website at IR Dot Red Robin Dot Com and we encourage you to review it at your convenience of course. This is just the first step on our path to progressing sustained.
The ability and we have set clear goals for where we go next across people products and place let.
Let me now turn the call over to Lance to review our Q1 results. Thank you Paul I remain confident in our future given our improving diamond sales trajectory incremental off premises sales channels and continued dedicated execution of our business strategy together are creating value for our shareholders.
Turning to first quarter result, the 19, 7% increase in first quarter comparable restaurant revenues compared to 2021 was primarily driven by operating our dining rooms at higher capacities.
As Paul mentioned, we have seen positive sales momentum in Q1 as the country emerges from the COVID-19 pandemic, our full quarter comparable restaurant revenues increased three 9% compared to the same period in 2019, marking the first full quarter of positive comparable restaurant revenues.
Pre pandemic sale, we delivered our eighth consecutive quarter of off premises sales dollars that more than double of pre pandemic levels demonstrating the lasting improvements made in our off premises sales channel since 2019.
As a percentage of total off premise sales third party delivery represented 55% to go represented 36, 7% catering represented four 3% and Red Robin delivery represented 4%.
Full year net cash provided by operating activities was $13 $3 million, while cash used in investing activities was $9 $5 million in cash provided by financing activities was $15 $4 million during the first quarter, we paid approximately $8 $8 million.
Representing approximately half of the payroll taxes, we were able to defer during the COVID-19 pandemic.
We'll pay the remaining balance of approximately $8 $9 million in early 2023, we completed a new five year credit agreement, which gives us financial flexibility to execute our long term strategic plan, we ended the quarter with liquidity of approximately $55 $8 million.
<unk> cash and cash equivalents and available borrowing capacity under our revolving line of credit.
We intend to continue to effectively manage our bottom line and are dedicating free cash flow over the next several quarters to reinvesting in our restaurants and infrastructure, while maintaining flexibility to pursue strategic initiatives that will generate profitable sales growth going forward, including adding donato.
Through the balance of our system ongoing investments in restaurant technology, and our digital ecosystem and new restaurant development.
Now turning to some of the specifics related to the first fiscal quarter Q1, 2022 comparable restaurant revenues increased 19, 7% driven by 12, 8% increase in average guest check and a six 9% increase in guest traffic the increase in average guest.
Check resulted from a 6% increase in menu mix, a five 4% increase in pricing and a one 4% decrease in discount.
First quarter total company revenue increased 21, 2% to $395 $6 million at $69 $3 million from a year ago, driven by operating our restaurants that increased capacities in Q1 2022.
And lapping prior year sales more aggressively impacted by the COVID-19 pandemic.
Restaurant level operating profit as a percentage of restaurant revenue was 14% an improvement of 100 basis points compared with Q4, 'twenty, one and a decrease of one seven percentage points compared to 2021.
Primarily due to the following.
Restaurant revenue increased by $61 $9 million, primarily driven by favorable guest counts menu mix pricing and discounting cost of goods sold increased by 220 basis points, primarily driven by commodity inflation, partially offset by favorable mix shifts and pricing labor.
Costs increased by 130 basis points, primarily driven by higher labor inflation and staffing costs, partially offset by sales leverage other operating expenses decreased by 30 basis points, primarily driven by lower supply costs, driven by lower off premises sales and sounds black.
Bridge, partially offset by increased maintenance costs due to outsourcing and occupancy costs decreased by 140 basis points, primarily driven by sales leverage.
<unk> pricing was five 4% for the quarter, given our relatively modest pre pandemic price increases that have been in line or lagged. The industry. We believe we have flexibility to take additional price if needed to mitigate ongoing inflationary commodity and labor pressures looking forward less.
<unk>, our digital ordering enhancements, we expect to drive higher checks by featuring appetizers beverages and other add on items that appeal to specific guest segments, while staying committed to our bottomless promise and core value proposition.
Building on our recent success with new products, such as the current backyard barbecue L. T O lineup, our cheesy Bacon funded Burger and Scorpion Gourmet Burger our menu innovation focuses on creative recipes, which are driving higher check and margin. While these items represent higher priced offerings at our restaurant.
We also have promotions with proven effectiveness ready to implement that offer our guests the great value that compels a dine in occasion general and administrative costs were $25 million, an increase versus the prior year of $2 $8 million, primarily driven by increased stock based comp.
<unk> expense merit increases and higher manager and training costs.
Selling expenses were $9 $3 million, an increase versus the prior year of $1 million driven by increased marketing spend.
During the quarter, we recognized other charges of $5 $3 million, including $2 $1 million related to the impairment of long lived assets $1 $7 million related to litigation contingencies $1 million related to restaurant closures point $3 million related to other final.
<unk> costs associated with our new credit agreement and $2 million for COVID-19 related costs, including purchasing personal protective equipment and COVID-19 related sick time for our restaurant team members.
First quarter, adjusted EBITDA was $28 million as compared to adjusted EBITDA of 27 $4 million in Q1, 'twenty 'twenty. One Q1 adjusted loss per diluted share was <unk> 12 cents as compared to adjusted loss per diluted share of <unk> 30 in Q1, 2021.
On March 4th the company replaced its prior credit agreement with a new $225 million IV aircrafts agreement. The new credit agreement provides for a $200 million term loan and a $25 million revolving line of credit the new agreement gives us long term flexibility.
To strategically invest in our business and create value for our shareholders at quarter end, our outstanding debt balance was $194.4 million the company like all others in the casual dining space is facing pressure from commodity inflation and disruptions in the supply chain.
Impacting the availability of product due to the continued and prolonged impact of geopolitical events and their impact on the microeconomic environment. During the first quarter, we are updating our guidance to low double digit commodity inflation for the full 2022 fiscal year. Please refer to.
Our earnings release that was issued today shortly before this conference call.
Fight these challenges we reaffirm the remainder of our 2022 guidance, including delivering adjusted EBITDA of $80 million to $90 million.
A big and sincere thank you to our entire Red Robin.
We are making meaningful progress on increasing the dining capacity of our restaurants through staffing, which will drive improved financial and operating performance. We are also executing strategic growth initiatives that will provide platforms for incremental profitability in the years to come including denials digital.
All menu quality and innovation or differentiated team member value proposition and new restaurant development, but that I will turn the call back over to Paul.
Thank you Lynn we have our arms around the business and are pleased with our current momentum dine in sales are returning and we are maintaining our off premises sales, we have the strategic initiatives to drive market share and frequency and can certainly pivot should there be changes in consumer behavior.
As you heard lets say, we are maintaining our 2022 adjusted EBITDA guidance, while navigating the inflationary pressures challenging in the industry.
When we have pulled our brand promise and deliver a consistent quality guest experience, we make red Robin synonymous with connecting family friends and fun through memorable moments over great. Food. This is why we are so focused on ensuring that we are properly staffed to serve our guests.
Our team has always demonstrated an incredible passion for red Robin and are always eager to find ways to do what we do even better in pursuit of top line growth profitability and long term shareholder value.
They are why I'm, so optimistic on our future and why so greatly applaud their efforts and all they do on our behalf and with that let's now open the call for questions.
And at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
One more.
All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star and Keith.
One moment, please while we poll for questions.
And our first question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.
Alright, Thanks, Hey, Paul and congrats on the progress.
Thank you al.
Hi.
Pretty good.
The day to day.
Earnings season is over.
Pops out.
So I just wanted to start on the consumer side.
Like you're not really seeing anything I just wanted to dig a little more into that if you're seeing any changes in how consumers are using the brand or managing check at all or are you of any changes in behaviors that rewards members not non rewards member and anything we can kind of start to look at there.
Hello, Alex.
As I mentioned in my remarks it at this point, we're not seeing it.
We still see that.
The off premises business is holding up.
We mentioned that so we haven't seen.
Really any any decline there.
We're seeing this kind.
So it kind of consistent build or the dine in sales or <unk>.
This is the third one in a row that basically set a record and are continuing to perform.
Very strongly I mean, I think the main changes is against a reduced menu, but it's.
Now Theres, a burger Theres an appetizer.
Non alcoholic beverage and alcohol beverage and shake and those together, we're seeing extremely high take rate and no more in the premium category of pricing.
<unk>.
Quite honestly, they just have continued to to accelerate.
All that being said.
If we do start to see it we have some things that are not only off the shelf, but that are going into test that will be ready if the consumer does start to.
The back half.
Back off at all in and quite honestly I think in our segment.
And when we take a look at our PPA versus what the rest of the casual dining segment as well.
We have a lower PPA. So I think our value proposition is still very strong in conjunction with with our bottomless aspect of it. So I think we're well set up and I think the last thing I'd add is is the whole digital ecosystem that we're now able to bring to bear on the.
This both with our royalty members and the general public.
He is bearing fruit for us. So we're we feel like we're in a good place and it's going to be able to so basically meet any challenges that come our way the balance of the year.
Makes sense.
What's the PPA or average ticket her dine in like now versus pre Covid is it similar.
Any changes on that front.
Yeah, I mean overall PPA has gone up it's certainly quite at that as we mentioned.
I think pricing is up about 10% compared to 2019 as a data point.
So we're seeing people being driven by pricing of that magnitude in addition to Max.
Because we have been promoting more premium priced.
Items within our restaurants and in our marketing.
Okay and.
<unk> wondering if you could comment on recent guest metrics and if you see any opportunities to refine the model further now that capacities sort of expanded and filling up the dining rooms in Denmark.
Well I think from a metric standpoint, we still see opportunity on the expansion of the dine in business Alex.
We're not.
We're not to where we were in terms of 2019.
I mean, obviously theoretically some of that offset is an off premises, but I do believe that there is just more room and I think thats.
Now just to be Frank tied to the Uh huh.
The improvements, we're making on our overall no capacity or staffing inside the restaurants, we're seeing that as as that continues to improve we're improving the dine in business and so I think that theres actually.
More room for growth there in <unk>.
Fortunately the dine in business is our most profitable channel. So we think that the most growth we have coming forward is in a very profitable channel.
Great. Thanks.
Yes.
And our next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your question.
Hi, Thanks, and good evening I wanted to ask about the updated EBITDA guidance and I think you've maintained your EBITDA guide you.
You raised your commodity inflation expectations and I was just curious what the offsets were there did you raise your sales expectations that were embedded in your prior guide or perhaps there were some cost lines that moved to help offset that or maybe some incremental savings initiatives. Just just a little more color on the puts and <unk>.
So it would be great.
I would say you know to a great extent, we updated all of our cost expectations sales, we actually did adjust sales, but not by a meaningful amount but.
But we did adjust some labor expectations associated with transactions that we're seeing from a trending perspective.
Which did take down expenses a little bit.
But then the big offset from a cost standpoint was in the commodity line item and we increased that from high single digits to low double digits for the year.
Okay. Thank you and also on the SG&A guidance. It's something also just always wanted to check in with you on the $1 45 to $1 55.
Just help us what does that assume in terms of selling cost versus G&A and rest of year do you expect selling cost to be fairly evenly spread the rest of the year, it's been a little moving around a little bit and in recent quarters. Just wanted to make sure. We're all on the same page in terms of forecasting that line item Yeah. No. Thank you for the question we were a little.
Lower in terms of selling expenses in the first quarter.
That was the result of one micron and also marketing a little bit less as we were staffing our restaurants. So that number will go up in quarters, two and three and then probably go up a little more in the fourth quarter based on our current expectations.
The actual number will be anywhere from say $52 million to $56 million and then the balance will be G&A and from a cadence for G&A, we will expect to see higher G&A in the third quarter, which corresponds to the timing of our GM conference. This year.
Okay. That's very helpful. And then two quick ones if I could on the labor front, Paul I think you mentioned that the operating hours improved in the first quarter versus the fourth quarter I guess could you help quantify the degree of improvement that you've seen and to what degree that is still constraining your recent sales.
Volumes.
I'll jump in on that one I mean, we have certainly improved our operating hours by quite a bit. So we don't expect that that will have a meaningful impact on a go forward basis and it didn't have as much impact in this first quarter compared to fourth quarter.
Okay, and then last one from me on wage inflation, sorry, if I missed it but what was your year on year wage inflation maybe.
Specifically on the hourly side in the first quarter and our wage pressures starting to moderate as the supply of labor seems to continuing to improve.
Or inflation for the first quarter year over year was.
Roughly 11% in the first quarter and we do expect that to continue into the second quarter, but then it should go down a little bit in quarters, three and four when we saw inflation rise in the prior year I would say right now we're seeing it.
Wages being more consistent not necessarily getting worse or getting better.
But sort of stabilizing.
Good way to do it.
That's a good way to characterize it Brian .
Stabilizing okay, and maybe for the year it'll sell your wage inflation year on year would be somewhere maybe in the high single digits.
Ballpark correct.
Okay, Okay, great alright, well, thank you I'll pass it along.
Okay.
And we have reached the end of the question and answer session. Also this concludes today's conference and you may disconnect. Your lines at this time.
Thank you for your participation.
Okay.
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