Red Robin Gourmet Burgers, Inc. reported financial results for the quarter ended July 10.

Second Quarter 2016 Financial Highlights Compared to Second Quarter 2015

Total revenues were $305.5 million, an increase of 4.3 percent.

Comparable restaurant revenue decreased 3.2 percent (using constant currency rates).

Restaurant-level operating profit margin was 20.9 percent compared to 22.5 percent.

The company repurchased $20 million of its common stock.

Net income for the second quarter ended July 10 was $7.6 million compared to $11.2 million for the same period a year ago.

“While Red Robin's overall results during the second quarter fell short of our expectations, we anticipate that our relative performance will improve by the fourth quarter of this year and we will regain market share,” says Steve Carley, Red Robin Gourmet Burgers, Inc. chief executive officer. “Given the challenges facing our industry, we are addressing immediate opportunities by focusing on things we can control. These include increasing speed of service, accentuating everyday value, and fostering more ‘top of mind’ awareness through local marketing initiatives and a new media campaign that will launch in the fourth quarter with incremental spending in select, high penetration markets. We will also remain disciplined in allocating capital, investing in initiatives to improve performance and open new restaurants while returning excess cash to shareholders via stock repurchases.”

Operating Results

Total company revenues, which primarily include company-owned restaurant revenue and franchise royalties, increased 4.3 percent to $305.5 million in the second quarter of 2016 from $293 million in the second quarter of 2015. Restaurant revenues increased $23.7 million due to new restaurant openings and acquired restaurants, partially offset by a $9.5 million, or 3.4 percent, decrease in comparable restaurant revenue, which included a $0.5 million, or 0.2 percent, unfavorable foreign exchange impact, and $0.8 million from closed restaurants. Franchise and other revenue decreased $0.8 million, primarily driven by a decrease the number of franchisees from the same period a year ago.

System-wide restaurant revenue (including franchised units) for the second quarter of 2016 totaled $366 million, compared to $363.2 million for the second quarter in 2015.

Using constant currency rates, comparable revenue decreased 3.2 percent in the second quarter of 2016 compared to the same period a year ago, driven by a 3.9 percent decrease in guest counts, which was partially offset by a 0.7 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 20.9 percent in the second quarter of 2016 compared to 22.5% in the same period a year ago. The 160 basis point margin decrease in the second quarter of 2016 resulted from a 160 basis point increase in labor costs, a 110 basis point increase in other restaurant operating expenses, and a 30 basis point increase in occupancy costs, partially offset by a 140 basis point decrease in cost of sales.

Other Results

Depreciation and amortization costs increased to $19.2 million in the second quarter of 2016 from $17.3 million in the second quarter of 2015. The increased depreciation was primarily related to new restaurants opened and acquired since the second quarter 2015 and restaurants remodeled under the Brand Transformation Initiative.

General and administrative costs were $20 million, or 6.5 percent of total revenues, in the second quarter of 2016, compared to $23 million, or 7.9 percent of total revenues in the same period a year ago. The decrease of $3 million resulted primarily from decreased incentive compensation and professional services.

Selling expenses were $11 million, or 3.6 percent of total revenues, in the second quarter of 2016, compared to $11.1 million, or 3.8 percent, of total revenues during the same period in the prior year.

Pre-opening costs were $2.2 million in the second quarter of 2016, compared to $1.4 million in the same period a year ago. The increase was primarily due to timing of restaurant openings.

The company had an effective tax rate of 15.4 percent in the second quarter of fiscal year 2016, compared to a 28.3 percent effective tax rate in the same period a year ago.

Restaurant Development and Acquisitions

As of the end of the second quarter of 2016, there were 449 Company-owned Red Robin restaurants, 11 Red Robin Burger Works, and 86 franchised Red Robin restaurants, for a total of 546 restaurants. During the second quarter, the company opened seven Red Robin restaurants and relocated one Red Robin restaurant.

Under the Brand Transformation Initiative, the company completed 30 restaurant remodels during the second quarter 2016. The company has over 390 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.