Restaurant revenue decreased 8.2% to $179.6 million
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 27, 2009 and announced several key governance changes impacting the Company. “The Company’s Board of Directors has taken these steps to further align executive compensation with the long-term performance of the Company and shareholder interests.” Financial and Operational Results
Results for the 12 weeks ended December 27, 2009, compared to the 12 weeks ended December 28, 2008, are as follows:
* Restaurant revenue decreased 8.2% to $179.6 million.
* Company-owned comparable restaurant sales decreased 10.5%.
* Restaurant-level operating profit decreased 19.8% to $31.2 million.
* GAAP diluted earnings per share were $0.10 vs. $0.38 in the same period a year ago. GAAP diluted earnings per share in the fourth fiscal quarter 2008 included $0.05 per diluted share of asset impairment charges.
* Two new company-owned Red Robin® restaurants and one new franchised restaurant opened during the fourth quarter 2009.
Results for the 52 weeks ended December 27, 2009, compared to the 52 weeks ended December 28, 2008, are as follows:
* Restaurant revenue decreased 3.1% to $828.0 million.
* Company-owned comparable restaurant sales decreased 11.1%.
* Restaurant-level operating profit decreased 13.6% to $156.3 million.
* GAAP diluted earnings per share were $1.14, which included $0.21 per diluted share in compensation expense related to the Company’s tender offer for certain stock options and $0.03 per diluted share in costs related to the closing of four company-owned restaurants early in fiscal 2009, vs. GAAP diluted earnings per share in fiscal 2008 of $1.69, which included $0.09 per diluted share of asset impairment charges, $0.02 per diluted share of reacquired franchise costs, and $0.01 per diluted share of acquisition-related integration costs.
* A total of 20 new Red Robin® restaurants, 15 company-owned and five franchised locations were opened during the 52-week period.
As of the end of the fiscal year 2009, there were 306 company-owned and 133 franchised Red Robin® restaurants.
“While 2009 was, without a doubt, a difficult year for the restaurant industry and for Red Robin, we were able to leverage our experiences with marketing, promotional activity and consumer research to develop a comprehensive plan to drive traffic in 2010,” said Dennis Mullen, Red Robin Gourmet Burgers, Inc.’s chief executive officer. “We expect that our 2010 plan will allow us to strengthen guest loyalty and retention with product news that emphasizes Red Robin quality, variety and value, and remain focused on the fundamentals of our business by managing controllable costs and further increasing brand awareness. In addition, as follow up to a Form 13D filing with the SEC on December 22, 2009, we have had constructive dialog with the shareholder group that filed the Form 13D, and our independent directors have also had discussions with our large shareholders. We also are implementing several corporate governance changes that have been under consideration for some time that we believe will benefit the Company and its shareholders. And, as always, we are extremely proud of our Team Members for their hard work and dedication to serving our Guests and contributing to Red Robin’s success.”
Fiscal Fourth Quarter 2009 Results
Comparable restaurant sales decreased 10.5% for company-owned restaurants in the fiscal fourth quarter of 2009 compared to the fiscal fourth quarter of 2008, driven by a 9.3% decrease in guest counts and a 1.2% decrease in the average guest check. Average weekly comparable sales from the 277 company-owned comparable restaurants were $50,249 in the fiscal fourth quarter of 2009, compared to $57,073 for the 241 company-owned comparable restaurants in the fiscal fourth quarter of 2008. Average weekly sales for the 29 non-comparable company-owned restaurants were $49,167 in the fiscal fourth quarter of 2009, compared to $55,188 for the 39 non-comparable restaurants in the fiscal fourth quarter a year ago. For all company-owned restaurants, average weekly sales were $50,148 from the 3,666 operating weeks in the fiscal fourth quarter of 2009 compared to $56,446 from the 3,537 operating weeks in the fiscal fourth quarter of 2008.
Total company revenues, which include company-owned restaurant sales and franchise royalties and fees, decreased 8.3% to $182.2 million in the fiscal fourth quarter of 2009, versus $198.6 million last year. Franchise royalties and fees decreased 13.4% to $2.6 million in the fiscal fourth quarter of 2009 compared to $3.0 million in the same period a year ago.
For the fiscal fourth quarter of 2009, the Company’s U.S. franchise restaurant sales of $61.9 million were lower compared to $68.4 million in the prior year period. Comparable sales in the fiscal fourth quarter of 2009 for franchise restaurants in the U.S. decreased 11.9% and for franchise restaurants in Canada increased 0.5% from the fiscal fourth quarter of 2008. Average weekly comparable sales for the U.S. franchised restaurants were $45,798 from the 104 comparable restaurants in the fiscal fourth quarter of 2009, compared to $52,161 for the 96 comparable restaurants in the fiscal fourth quarter of 2008. Average weekly sales in the fiscal fourth quarter of 2009 for the Company’s 18 comparable franchise restaurants in Canada were C$49,297 versus C$49,072 in the same period last year. Canadian results are in Canadian dollars.
Net interest expense was $1.8 million in the fiscal fourth quarter of 2009 and $2.1 million in the fiscal fourth quarter of 2008.
Net income for the fiscal fourth quarter of 2009 was $1.6 million or $0.10 per diluted share, compared to net income of $5.8 million, or $0.38 per diluted share, in the fiscal fourth quarter of 2008.
Schedule II of this earnings release reconciles the impact on net income and diluted earnings per share as reported on a GAAP basis in the fiscal fourth quarters and fiscal full years 2009 and 2008 to adjusted amounts excluding certain charges in the fourth quarter of 2008 and fiscal year 2008 and 2009.
For the full fiscal year 2009, the Company’s effective tax rate was 18.3%, which was below the 21.0% that was previously estimated and lower than the 26.6% effective tax rate for the full fiscal year 2008.
Balance Sheet and Liquidity
On December 27, 2009, the Company held $20.3 million in cash and equivalents and had a total outstanding debt balance of $191.3 million, including $122.7 million in borrowings under the $150 million term loan, $62.0 million of borrowings under the $150 million revolving credit facility and $6.6 million outstanding for capital leases. The Company has also issued $5.0 million of outstanding letters of credit under its revolving credit facility. Since the end of the fourth quarter, the Company has made additional debt repayments of $4.5 million on its revolving facility and $4.6 million on the term loan.
The Company is subject to a number of customary covenants under its credit agreement, including limitations on additional borrowings, acquisitions, dividend payments, and requirements to maintain certain financial ratios. As of December 27, 2009, the Company was in compliance with all of its debt covenants, and we expect to remain in full compliance.
Corporate Governance Update
Today the Company announced several changes to its corporate governance structure that have been under consideration for some time. The Board of Directors approved the separation of the chairman and chief executive officer roles effective immediately. The chairman role will be assumed by board member Pattye Moore – a former president and former board member of Sonic Corp. between 2000 and 2006 and who joined the Red Robin Board in August 2007 -- and Dennis Mullen will continue in his role as chief executive officer and a member of the board. The Company also announced that its two Class II directors, Edward Harvey and Gary Singer, whose terms will expire at the Annual Stockholders Meeting in 2010, have decided to not stand for reelection for personal reasons. Mr. Harvey, who joined the Company’s board in 2001, currently serves as the board’s lead independent director. Mr. Singer, who joined the Company’s board in 2000, currently serves as the chair of the Nominating & Governance Committee of the board. The board will make further announcements related to the Board of Directors at a later time.
The Board of Directors also recently made changes to certain components of its executive compensation to add certain performance metrics. In addition to the changes to Mr. Mullen’s base compensation previously announced in the Company’s 8-K filing on January 11, 2010, the board intends to amend the equity compensation program for all of the Company’s executive officers. Mr. Mullen’s equity awards to be granted in 2010 will be 100% performance-based. For all other executive officer equity awards, all stock options will be performance-based, and restricted stock awards will vest with the passage of time. The metric to be used to measure performance-based vesting will be based on a “Total Shareholder Return” calculation. More details on the specific metrics and other elements of executive compensation will be available in the Company’s proxy statement for the 2010 annual meeting of stockholders.
Pattye Moore, Red Robin’s new board chair, said, “The Company’s Board of Directors has taken these steps to further align executive compensation with the long-term performance of the Company and shareholder interests.”
Outlook
The Company’s fiscal first quarter of 2010 is a 16-week quarter. Five new company-owned restaurants are currently under construction. Three of these restaurants are expected to open in the fiscal first quarter. Two new franchised restaurants are currently under construction and are expected to open early in the fiscal second quarter of 2010. During fiscal year 2010, the Company expects to open between 11 and 13 new company-owned restaurants and franchisees are expected to open four to five new restaurants.
For the 2010 fiscal year, which is a 52-week year, the Company expects revenues of $887 million to $895 million and net income of $1.27 to $1.45 per diluted share. These projected results are also based upon certain assumptions, including an expected comparable restaurant sales result of up 2.4% to 3.4%. Through February 14, 2010, the first seven weeks of the Company’s 16-week fiscal first quarter of 2010, comparable restaurant sales decreased 7.8% from the prior year comparable period for company-owned restaurants. The Company estimates that the impact from winter storms in several of our markets during this seven week period impacted our comparable restaurant sales by approximately -0.8%.
The Company’s annual financial guidance includes the launch next week of a $6.7 million national advertising campaign that will be funded by the Company for the spring 2010 promotion. Depending on the success of the spring promotion, the Company expects to spend another $10 million in company-sponsored advertising to be funded for the remaining two limited time offer (LTO) promotions that the Company expects will be supported with television in the summer and fall. Total 2010 television advertising spending is expected to be approximately $16.0 million to $17.0 million -- up from $2.3 million invested in television in fiscal year 2009. The Company’s total marketing expense in 2010 is expected to be about $31 million compared to $15.2 million spent in fiscal 2009, which is included in selling, general and administrative expense in both years. The 2010 advertising campaign begins on February 22, 2010 for the spring LTO promotion, and will run for four weeks over a five-week period of the eight-week LTO promotion window. The timing of the summer and fall 2010 promotion has not been committed yet.
Based on the Company’s development plans and other infrastructure and maintenance costs, the Company expects fiscal year 2010 capital expenditures to be approximately $35 million to $40 million, which will be funded entirely out of operating cash flow. The Company will also make scheduled payments of $18.7 million required by the term loan portion of its existing credit facility from free cash flow after capital expenditures in fiscal year 2010 and expects to use its remaining free cash flow to make payments on the Company’s revolving credit facility.
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