COVID-19 gave Red Robin a chance to pause. When it pivoted to off-premises-only in March, as most restaurants nationwide did, the company leveraged the opportunity to focus on enhancing guest experience—something root to its 2020 comeback efforts under new leadership. In some ways, coronavirus forced Red Robin to hit the accelerator on certain measures.
It had to immediately push up simplification and reduce about a third of its menu to support takeout and delivery. That, coupled with an improved website centered on online ordering, lifted speed of service and accuracy, the company said Friday in a business update. Increased car-side and home options, including direct Red Robin delivery (guests order from the site with outsourced delivery), boosted convenience and off-premises economics, too, the company added.
But there remain serious concerns at hand. The burger chain revealed in a May 29 securities filing that it doesn’t expect to file its Q1 report by the original deadline, and will likely do so no later than 45 days after the original target.
More notable, though, Red Robin said it negotiated concessions from lenders to avoid defaulting on its credit facility. The company said it “is actively evaluating options for raising equity capital in order to satisfy the requirements of the Amendment.”
If Red Robin is unable to raise sufficient equity capital within the timeframe prescribed by the Amendment, and is unable to obtain a further waiver or amendment to its credit facility, “the company could experience an event or default under the credit facility,” it said, “which could have a material adverse effect on the company’s liquidity, financial condition, and results of operation.”
Red Robin’s negotiations with lenders requires it raise at least $25 million through the offering of additional equity. The company filed a prospectus for a shelf offering of up to $75 million in financial options, common and preferred stock included.
“We cannot make any assurances regarding the likelihood, certainty, or exact timing of the company’s ability to raise capital or execute further amendments to the credit facility,” Red Robin said in the filing. “As a result, under applicable accounting standards, the company concluded, because the equity raise is outside of management’s control, substantial doubt exists surrounding the company’s ability to meet its obligations within one year from the financial statement issuance date and to continue as a going concern.”
Before COVID-19—through the first eight weeks of Q1—same-store sales grew 3.7 percent, driven in part by positive guest counts, the company said Friday. They fell 43.2 percent over the next eight. But since a mid-March peak, Red Robin reported sequential increases in each of the last five weeks.
The company’s comps declined 47 percent for the period ended May 24.
Red Robin also reopened 158 company-operated dining rooms in recent days, or 38 percent of its corporate footprint. At those stores, same-store sales are down 31.9 percent, year-over-year.
Here’s a look at some recent sales trends at 414 corporate restaurants in the comps base. There were 556 total leading up to fiscal 2020, including 102 franchises:
Week ended April 26
- Same-store sales: –56 percent
- Average net sales per restaurant: $23,908
Week ended May 3
- Same-store sales: –54.7 percent
- Average net sales per restaurant: $23,994
Week ended May 10
- Same-store sales: –52.2 percent
- Average net sales per restaurant: $26,747
Week ended May 17
- Same-store sales: –47.9 percent
- Average net sales per restaurant: $28,292
Week ended May 24
- Same-store sales: –47 percent
- Average net sales per restaurant: $30,751
And here were the same-store sales leading up to the most recent update:
- Week ending March 1: 0.9 percent
- Week ending March 8: –3.7 percent
- Week ending March 15: –26.3 percent
- Week ending March 22: –72.7 percent
- Week ending March 29: –70.5 percent
- Week ending April 5: –63.9 percent
- Week ending April 12: –65.2 percent
Red Robin Friday also shared preliminary Q1 sales compared to Q1 2019.
Revenues came in at $306.1 million, a decrease of 25.3 percent. Same-store sales fell 20.8 percent—up 3.7 percent in the first eight weeks, down 43.2 percent through the last eight weeks. Comparable restaurant guest counts decreased 20.9 percent as off-premises sales bumped 86.1 percent to 26.3 percent of total food and beverage sales. At the end of Q4, off-premises mixed 13.9 percent of total F&B business.
CEO Paul Murphy, who joined the burger chain in September, said Red Robin managed “continued strong growth” in off-premises sales at reopened spots and “early traction in dine-in sales.”
They’ve been able to maintain significantly higher to-go and delivery business, which tripled compared to pre-COVID-19 levels, despite reopening dining rooms per local regulations.
The improved revenue and previously taken cost reductions dropped estimated average cash burn to $2 million per week in Q2 so far. Red Robin has not shared cash burn figures in previous coronavirus updates.
Red Robin’s most recent filing, however, was not as optimistic.
The company, and certain of its subsidiaries, entered into the aforementioned “first amendment to credit agreement and waiver” Friday with certain lenders “party thereto” and Wells Fargo Bank, national association, as administrative agent. The company said then it “finalized an amendment to its credit facility, which provides further financial flexibility during the COVID-19 pandemic”
As for the “substantial doubt,” Red Robin said it’s “experienced significant disruptions” due to COVID-19 and highlighted the 35 temporarily closures announced in April, the majority of which were mall-based locations.
“The considerable effect of the COVID-19 pandemic has triggered the need to perform additional impairment assessments of our property and equipment, goodwill, and other intangible assets,” the company said. “Due to the effect of the COVID-19 pandemic, we are currently anticipating recognizing a material goodwill impairment up to the full carrying amount totaling approximately $95 million, and long-lived asset impairment losses of approximately $10 million to $20 million in our quarterly report.”
Red Robin also said it has not made full lease payments under its existing agreements for restaurants and its support center, starting April 1. “We have engaged in ongoing constructive discussions with landlords regarding the potential restructuring of lease payments and rent concessions,” the company said. “To the extent we qualify, we will elect to recognize any contractual rent concessions reached in the future as a variable credit to rent expense as opposed to a lease modification consistent with the relief issued by the Financial Accounting Standards Board … Contractual rent concessions expected to be agreed to cannot be reasonably determined at this time based on the status of discussions with our landlords.”
According to BusinessDen, Red Robin is being sued by Tuscany Owner LLC, which owns the office building where the chain is headquartered. The suit said Red Robin didn’t pay its landlord anything in April. As of April 24, when the suit was filed in Arapahoe County District Court, Red Robin owed nearly $186,000, which includes base rent, building operating expenses, and charges for paying late. The brand leases about 62,000 square feet and has operated out of the building since 2000. In 2018, per the suit, Red Robin extended its lease through May 2025.
The landlord said Red Robin’s lease provides for a current base rent of $101,979 per month. Attorney Merc Pittinos told the publication Red Robin paid its share of building operating expenses so far in May but not its base rent.
Red Robin has rolled several cost-saving measures since the onset of the pandemic, such as executive salaries being reduced 20 percent, effective March 30, and board member cash retainer fees sliced by the same number. The brand also postponed the rollout of Donatos pizza and halted non-essential spending on capital expenditures, planned growth, and other initiatives like restaurant redesigns and IT projects. In April, along with the 35 closures, Red Robin furloughed affected restaurant managers and employees. The company temporarily reduced pay by about 20 percent for all non-furloughed restaurant support center and supervisory employees, effective April 20, and eliminated roughly 50 support center G&A positions (active April 17).
Red Robin said it had about $80 million of total liquidity as of May 29.
The company is trying to ignite sales with some programs planned before the crisis.
“Across our 158 reopened dining rooms, sales have been positively impacted by the accelerated implementation of our new hospitality model, coupled with strong health and safety standards,” Murphy said. “Notably, restaurants with reopened dining rooms are still capturing meaningful off-premises sales, demonstrating the enduring and growing popularity of Red Robin for off-premises occasions.”
Red Robin tapped consumer research ahead of reopenings. This led to “several enhanced measures,” the company said, like all employees wearing face coverings and completing daily health surveys, including temperature checks. The brand added it’s made visible cleaning and disinfecting behaviors “important elements of its daily operations.” One employee per shift is currently dedicated to front-of-house sanitation. Additionally, all reopened dining rooms feature the new hospitality model Murphy alluded to, known as “Total Guest Experience,” which Red Robin previously planned to implement over the course of fiscal 2020.
In Q4, Murphy said this was designed to improve the functionality of Red Robin’s service, while elevating hospitality. Handheld point-of-sale terminals are the foundational element. Murphy also noted then Red Robin hoped to improve ordering experience and overall guest satisfaction by rationalizing its menu size. Reduced ticket times and consistency were center to the shift.
So, COVID-19, to an extent, squeezed a year’s worth of initiatives into a three-month window.
Red Robin rolled direct delivery nationally in January to the majority of its corporate restaurants. The move turned out to be a preemptive one, as the channel allows the brand to retain guest data and enables customers to use the Red Robin Royalty program when they pick off-premises—an important consideration given 30 percent of the company’s business is driven through the loyalty platform. Lastly, the economics are simply more favorable than third-party.
The company also filed its recent report to supplement the “risk factors” disclosed in its annual report for the fiscal year ended December 29.
It provides a look into how much uncertainty remains amid the crisis. “The COVID-19 pandemic has impacted and may continue to impact sales and traffic at our restaurants, may make it more difficult to staff restaurants, cause an inability to obtain supplies, increase commodity costs, continue to cause partial or total closures of impacted restaurants, and could damage our reputation,” Red Robin said. “The extent to which the COVID-19 pandemic and other epidemics, disease outbreaks, or public health emergencies will impact our business, liquidity, financial condition, and results of operations, depends on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic, epidemic, disease outbreak, or public health emergency; the negative impact on the economy; the short and longer-term impacts on the demand for restaurant services and levels of consumer confidence; our ability to successfully navigate the impacts; government action, including restrictions on restaurant operations; and increased unemployment and reductions in consumer discretionary spending. Even if a virus or other disease does not spread significantly, the perceived risk of infection or health risk may damage our reputation and adversely affect our business, liquidity, financial condition, and results of operations.”
Red Robin added it can’t predict when government mandates will be reduced or how quickly operations will return to previous levels after measures are scaled back. The company admitted there could be “additional future suspensions of operation for potential future waves of COVID-19 or another epidemic or public health emergency.”
“While a limited number of our restaurants have recently been able to re-open, most of our restaurants have shifted to a take-out, catering, and delivery-only operating model, suspending most sit-down dining. We have also implemented temporary restaurant closures, modified hours, reduced staff, and furloughed employees,” the company said. “…In an effort to preserve liquidity, we have and may continue to take certain actions with respect to some or all of our leases, including negotiating with landlords to obtain rent abatement or deferrals and discontinuing payment. We can provide no assurances that forbearance of any lease obligations will be provided to us, or that, following the COVID-19 pandemic, we will be able to continue restaurant operations on the current terms of our existing leases, any of which could have an adverse effect on our business and results”
