Red Robin Completed 32 Remodels During the First Quarter
Red Robin Gourmet Burgers, Inc. reported financial results for the quarter ended April 17.
- First Quarter 2016 Financial Highlights Compared to First Quarter 2015
- Total revenues were $402.1 million, an increase of 1.8 percent
- Comparable restaurant revenue decreased 2.6 percent (using constant currency rates)
- Restaurant-level operating profit, as a percent of restaurant revenue, was 22.5 percent compared to 23 percent
- Net income was $14.2 million compared to $16.6 million. Adjusted net income was $17.6 million, an increase of 12.5 percent from $15.6 million
- Acquired 13 franchised restaurants in Texas
“We achieved higher revenues and adjusted earnings per share in the first quarter of 2016 compared to a year ago, and we were encouraged by the sequential improvement in our performance versus the fourth quarter of 2015,” says Steve Carley, Red Robin Gourmet Burgers, Inc. chief executive officer. “Nevertheless, we were disappointed, particularly with our guest counts. We have a solid strategy for long-term success, including a number of operations and marketing initiatives. We believe these efforts will generate superior results in a highly competitive casual dining environment.”
Total company revenues, which primarily include company-owned restaurant revenue and franchise royalties, increased 1.8 percent to $402.1 million in the first quarter of 2016 from $394.9 million in the first quarter of 2015. Restaurant revenues increased $19.6 million due to new restaurant openings and acquired restaurants, partially offset by an $11 million, or 2.9 percent, decrease in comparable restaurant revenue, which included a $1.2 million, or 0.3 percent, unfavorable foreign exchange impact, and $0.4 million from closed restaurants. Franchise and other revenue decreased $1 million, primarily driven by a decrease in gift card breakage revenue from the same period a year ago.
System-wide restaurant revenue (including franchised units) for the first quarter of 2016 totaled $493 million, compared to $488.1 million for the first quarter in 2015.
Using constant currency rates, comparable revenue decreased 2.6 percent in the first quarter of 2016 compared to the same period a year ago, driven by a 4.1 percent decrease in guest counts, which was partially offset by a 1.5 percent increase in average guest check. 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-level operating profit margin (a non-GAAP financial measure) was 22.5 percent in the first quarter of 2016 compared to 23 percent in the same period a year ago. First quarter 2015 included an 80 basis point benefit from lower health care and workers’ compensation costs. Excluding this benefit a year ago, the 30 basis point margin increase in the first quarter of 2016 resulted from a 70 basis point increase in labor costs, a 50 basis point increase in other restaurant operating expenses, and a 40 basis point increase in occupancy costs, offset by a 190 basis point decrease in cost of sales. 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.
Depreciation and amortization costs increased to $24 million in the first quarter of 2016 from $23 million in the first quarter of 2015. The increased depreciation was primarily related to restaurants remodeled under the Brand Transformation Initiative and new restaurants opened since the first quarter 2015, partially offset by a change in estimated useful lives of certain assets.
General and administrative costs were $35.9 million, or 8.9 percent of total revenues, in the first quarter of 2016, compared to $35 million, or 8.9 percent of total revenues in the same period a year ago. Excluding $3.9 million of litigation contingencies, general and administrative costs decreased 8.6 percent to $32 million from the same period a year ago, primarily due to a decrease in incentive compensation.
Selling expenses decreased to $11.4 million, or 2.8 percent of total revenues, in the first quarter of 2016, compared to $13.1 million, or 3.3 percent, of total revenues during the same period in the prior year. The decrease was primarily due to lower spending on television media in the first quarter.
Pre-opening costs were $1.7 million in the first quarter of 2016, compared to $1.0 million in the same period a year ago. The increase was primarily due to timing of restaurant openings. In the first quarter of 2016, the company recorded $0.7 million of acquisition costs related to the acquired franchised restaurants.
During the first quarter of 2016, the company recognized a $0.8 million charge for asset impairment costs related to the relocation of one restaurant.
The company had an effective tax rate of 23.3 percent in the first quarter of fiscal year 2016, compared to a 27.3 percent effective tax rate in the same period a year ago.
Restaurant Development and Acquisitions
As of the end of the first quarter of 2016, there were 443 company-owned Red Robin restaurants, 11 Red Robin Burger Works and 86 franchised Red Robin restaurants, for a total of 540 restaurants. During the first quarter, the company opened two Red Robin restaurants and one Red Robin Burger Works. The company also relocated one Red Robin Burger Works.
As previously announced, on March 21, the company completed the acquisition of 13 franchised restaurants in the U.S. for approximately $40 million, including $18.8 million for four properties and other leasehold improvements and equipment based on the preliminary purchase price allocation. The 13 franchised restaurants generate approximately $35 million in restaurant revenue on an annualized basis.
Under the Brand Transformation Initiative, the company completed 32 restaurant remodels during the first quarter 2016. The company has over 350 restaurants conforming to its new brand standards, including new restaurant openings, and will substantially complete the remodeling of company-owned restaurants by the end of 2016.