rrgb-20240714

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 14, 2024


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34851

RED ROBIN GOURMET BURGERS, INC.

(Exact name of registrant as specified in its charter)


Delaware						84-1573084
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

10000 E. Geddes Avenue, Suite 500
Englewood, Colorado 80112

(Address of principal executive offices) (Zip Code)

(303) 846-6000

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

RRGB

Nasdaq

(Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 20, 2024, there were 15,753,528 shares of the registrant's common stock, par value of $0.001 per share outstanding.

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RED ROBIN GOURMET BURGERS, INC.

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	2
	Condensed Consolidated Statements of Stockholders' Equity (Deficit)	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	31
ITEM 4.	Controls and Procedures	31
PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	32
ITEM 1A.	Risk Factors	32
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
ITEM 5.	Other Information	33
ITEM 6.	Exhibits	34
	Signature	35

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited)

RED ROBIN GOURMET BURGERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands, except for per share amounts)	July 14, 2024		December 31, 2023
Assets:
Current assets:
Cash and cash equivalents	$	23,135	$	23,634
Accounts receivable, net	12,617		21,592
Inventories	27,252		26,839

Prepaid expenses and other current assets	13,876		11,785
Restricted cash	7,992		7,931
Total current assets	84,872		91,781
Property and equipment, net	223,350		261,258
Operating lease assets, net	352,654		361,609

Intangible assets, net	15,064		15,491
Other assets, net	13,192		11,795
Total assets	$	689,132	$	741,934
Liabilities and stockholders' equity (deficit):
Current liabilities:
Accounts payable	$	31,737	$	27,726
Accrued payroll and payroll-related liabilities	35,274		32,524
Unearned revenue	16,703		36,067
Current portion of operating lease obligations	51,912		43,819

Accrued liabilities and other	54,028		46,201
Total current liabilities	189,654		186,337
Long-term debt	162,309		182,594
Long-term portion of operating lease obligations	364,082		383,439
Other non-current liabilities	9,630		10,006
Total liabilities	725,675		762,376
Commitments and contingencies (see Note 8. Commitments and Contingencies)
Stockholders' equity (deficit):
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,755 and 15,528 shares outstanding as of July 14, 2024 and December 31, 2023	20		20
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of July 14, 2024 and December 31, 2023	—		—
Treasury stock 4,694 and 4,921 shares, at cost, as of July 14, 2024 and December 31, 2023	(166,585)		(174,702)
Paid-in capital	224,425		229,680
Accumulated other comprehensive loss, net of tax	(36)		(22)
Accumulated deficit	(94,367)		(75,418)
Total stockholders' equity (deficit)	(36,543)		(20,442)
Total liabilities and stockholders' equity (deficit)	$	689,132	$	741,934

See Notes to Condensed Consolidated Financial Statements

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RED ROBIN GOURMET BURGERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
(in thousands, except for per share amounts)	July 14, 2024		July 9, 2023		July 14, 2024		July 9, 2023
Revenues:
Restaurant revenue	$	294,457	$	293,281	$	673,025	$	700,174
Franchise revenue	4,287		3,544		9,628		8,826
Other revenue	1,410		1,823		6,042		7,460
Total revenues	300,154		298,648		688,695		716,460
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Cost of sales	69,444		71,372		159,653		171,042
Labor	113,908		109,678		262,866		255,100
Other operating	51,783		51,842		118,273		123,892
Occupancy	24,595		23,482		56,023		53,283
Depreciation and amortization	13,402		15,756		31,556		37,581
Selling, general, and administrative expenses	28,652		26,864		68,041		61,387
Pre-opening costs	—		4		—		586
Other charges (gains), net	2,931		(10,607)		(1,045)		(848)
Total costs and expenses	304,715		288,391		695,367		702,023

Income (loss) from operations	(4,561)		10,257		(6,672)		14,437
Other expense:
Interest expense	5,107		6,483		12,587		14,252
Interest income and other, net	(139)		(304)		(451)		(655)



Income (loss) before income taxes	(9,529)		4,078		(18,808)		840
Income tax provision (benefit)	(40)		156		141		176
Net income (loss)	$	(9,489)	$	3,922	$	(18,949)	$	664
Income (loss) per share:
Basic	$	(0.61)	$	0.24	$	(1.21)	$	0.04
Diluted	$	(0.61)	$	0.24	$	(1.21)	$	0.04
Weighted average shares outstanding:
Basic	15,680		16,037		15,608		16,014
Diluted	15,680		16,291		15,608		16,367

Other comprehensive income (loss):
Foreign currency translation adjustment	$	4	$	4	$	(14)	$	11
Other comprehensive income (loss), net of tax	4		4		(14)		11
Total comprehensive income (loss)	$	(9,485)	$	3,926	$	(18,963)	$	675

See Notes to Condensed Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)


	Common Stock			Treasury Stock					Accumulated Other Comprehensive Income/(Loss), net of tax
							Paid-in Capital				Accumulated Deficit
(in thousands)	Shares	Amount		Shares	Amount								Total
Balance, December 31, 2023	20,449	$	20	4,921	$	(174,702)	$	229,680	$	(22)	$	(75,418)	$	(20,442)
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(84)	3,011		(3,382)		—		—		(371)


Non-cash stock compensation	—	—		—	—		1,190		—		—		1,190
Net loss	—	—		—	—		—		—		(9,460)		(9,460)
Other comprehensive income (loss), net of tax	—	—		—	—		—		(18)		—		(18)

Balance, April 21, 2024	20,449	$	20	4,837	$	(171,691)	$	227,488	$	(40)	$	(84,878)	$	(29,101)

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(143)	5,106		(4,919)		—		—		187

Non-cash stock compensation	—	—		—	—		1,856		—		—		1,856
Net loss	—	—		—	—		—		—		(9,489)		(9,489)
Other comprehensive income (loss), net of tax	—	—		—	—		—		4		—		4
Balance, July 14, 2024	20,449	$	20	4,694	$	(166,585)	$	224,425	$	(36)	$	(94,367)	$	(36,543)

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	Common Stock			Treasury Stock					Accumulated Other Comprehensive Income/(Loss), net of tax
							Paid-in Capital				Accumulated Deficit
(in thousands)	Shares	Amount		Shares	Amount								Total
Balance, December 25, 2022	20,449	$	20	4,515	$	(182,810)	$	238,803	$	(34)	$	(54,190)	$	1,789
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(129)	5,330		(5,106)		—		—		224


Non-cash stock compensation	—	—		—	—		2,179		—		—		2,179
Net income (loss)	—	—		—	—		—		—		(3,256)		(3,256)
Other comprehensive income (loss), net of tax	—	—		—	—		—		8		—		8

Balance, April 16, 2023	20,449	$	20	4,386	$	(177,480)	$	235,876	$	(26)	$	(57,445)	$	945
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(250)	9,933		(8,297)		—		—		1,636

Acquisition of treasury stock	—	—		382	(4,999)		—		—		—		(4,999)
Non-cash stock compensation	—	—		—	—		1,519		—		—		1,519
Net income (loss)	—	—		—	—		—		—		3,922		3,922
Other comprehensive income (loss), net of tax	—	—		—	—		—		4		—		4

Balance, July 9, 2023	20,449	$	20	4,518	$	(172,546)	$	229,098	$	(22)	$	(53,524)	$	3,026

See Notes to Condensed Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Twenty-Eight Weeks Ended
(in thousands)	July 14, 2024		July 9, 2023
Cash flows from operating activities:
Net income (loss)	$	(18,949)	$	664
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	31,556		37,581


Asset impairment	1,128		2,387
Non-cash other charges (gains), net	539		(619)

Stock-based compensation expense	3,046		3,691
Gain on sale of restaurant property	(7,425)		(14,803)

Other, net	1,074		251
Changes in operating assets and liabilities, net of business acquisition:
Accounts receivable	8,778		8,703
Income tax receivable	197		102
Inventories	(492)		(225)
Prepaid expenses and other current assets	(86)		(386)
Operating lease assets, net of liabilities	(224)		(6,879)
Trade accounts payable and accrued liabilities	16,171		500
Unearned revenue	(19,364)		(13,230)
Other operating assets and liabilities, net	(1,703)		488
Net cash provided by operating activities	14,246		18,225
Cash flows from investing activities:
Purchases of property, equipment, and intangible assets	(13,856)		(25,814)
Net proceeds from sale-leaseback	23,271		28,451
Proceeds from sales of property and equipment and other investing activities	—		794
Acquisition of franchised restaurants	—		(3,529)
Net cash provided by (used in) investing activities	9,415		(98)
Cash flows from financing activities:
Proceeds from borrowings on revolving credit facilities	25,500		—
Repayments of borrowings on revolving credit facilities	(25,500)		(15,000)

Repayments of borrowings on term loan	(21,232)		(1,500)
Repayments of finance lease obligations	(619)		(448)
Purchase of treasury stock	—		(4,999)



(Uses) Proceeds from other financing activities, net	(2,246)		1,861
Net cash used in financing activities	(24,097)		(20,086)
Effect of exchange rate changes on cash	(2)		—
Net change in cash and cash equivalents, and restricted cash	(438)		(1,959)
Cash and cash equivalents, and restricted cash, beginning of period	31,565		58,206
Cash and cash equivalents, and restricted cash, end of period	$	31,127	$	56,247

Supplemental disclosure of cash flow information
Income tax paid, net	$	47	$	104
Interest paid, net of amounts capitalized	$	10,767	$	11,495
Right of use assets obtained in exchange for operating lease obligations	$	17,832	$	34,928
Right of use assets obtained in exchange for finance lease obligations	$	—	$	82

See Notes to Condensed Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Recent Accounting Pronouncements

Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of July 14, 2024, the Company owned and operated 411 restaurants located in 39 states. The Company also had 92 franchised full-service restaurants in 14 states and one Canadian province. The Company operates its business as one operating and one reportable segment.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year.

The accompanying Condensed Consolidated Financial Statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual Condensed Consolidated Financial Statements on Form 10-K have been condensed or omitted. The Condensed Consolidated Balance Sheet as of December 31, 2023 has been derived from the audited Condensed Consolidated Financial Statements as of that date but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim Condensed Consolidated Financial Statements in conjunction with the Company's audited Condensed Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 28, 2024.

Our current, prior, and upcoming year periods, period end dates, and number of weeks included in the period are summarized in the table below:

Periods

Period End Date

Number of Weeks in Period

Current, Prior and Upcoming Fiscal Quarters:

First Quarter 2024

April 21, 2024

First Quarter 2023

April 16, 2023

Second Quarter 2024

July 14, 2024

Second Quarter 2023

July 9, 2023

Third Quarter 2024

October 6, 2024

Third Quarter 2023

October 1, 2023

Current and Prior Fiscal Years:

Fiscal Year 2024

December 29, 2024

Fiscal Year 2023

December 31, 2023

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Reclassifications

Certain amounts presented have been reclassified to conform with the current period presentation. The reclassifications had no effect on the Company’s consolidated results. We made adjustments to the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) to disaggregate franchise and other revenue and to disaggregate interest expense and interest income and other, net. Additionally, we made adjustments to the Condensed Consolidated Statements of Cash Flows to disaggregate borrowings and repayments on revolving credit facilities, repayments on the term loan and finance lease obligations and to reclassify gift card breakage within unearned revenue.

Recently Issued and Recently Adopted Accounting Standards

In December 2023, FASB issued Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures which updates income tax disclosures related to the rate reconciliation and requires disclosure of income taxes paid by jurisdiction. The amendment also provides further disclosure comparability. The amendment is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively. However, retrospective application is permitted. We do not expect these amended disclosures will have a material impact to the Company's Consolidated Financial Statements or Notes to the Consolidated Financial Statements upon adoption.

In November 2023, FASB issued Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures.

We reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on the Company's Condensed Consolidated Financial Statements.

Summary of Significant Accounting Policies

Revenue Recognition - Revenues consist of sales from restaurant operations (including third party delivery), franchise revenue, and other revenue including gift card breakage and miscellaneous revenue. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant Guest, franchisee, or other customer.

The Company recognizes revenues from restaurant operations when payment is tendered at the point of sale, as the Company's performance obligation to provide food and beverage to the customer has been satisfied.

The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. We recognize revenue from gift cards as either: (i) Restaurant revenue, when the Company's performance obligation to provide food and beverage to the customer is satisfied upon redemption of the gift card, or (ii) gift card breakage, as discussed below.

Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company's specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption.

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During the second quarter of fiscal 2024, we re-launched our Red Robin RoyaltyTM program ("Royalty"). Under the re-launched program, Royalty members generally earn points for every dollar spent. We may also periodically offer promotions, which typically provide the customer with the opportunity to earn bonus points or other rewards. Upon reaching certain point thresholds, Royalty members earn rewards that may be redeemed for food and beverage items. Earned rewards generally expire 90 days after they are issued, and points generally expire if a qualifying purchase is not made within 365 days of the last purchase. We defer revenue based on the estimated stand-alone selling price of points or rewards earned by customers as each point or reward is earned, net of points or rewards we do not expect to be redeemed. Our estimate of points and rewards expected to be redeemed is based on historical Company-specific data. We evaluate Royalty redemption rates annually, or more frequently as circumstances warrant. Estimating future redemption rates requires judgment based on current and historical trends, and actual redemption rates may vary from our estimates.

Revenues we receive from our franchise arrangements include sales-based royalties, advertising fund contributions, and franchise fees. Red Robin franchisees are required to remit 4.0% to 5.0% of their revenues as royalties to the Company and contribute up to 3% of revenues to two national advertising funds. The Company recognizes these sales-based royalties and advertising fund contributions as the underlying franchisee sales occur. Contributions to these Advertising Funds from franchisees are recorded as revenue under Franchise revenue in the Consolidated Statements of Operations and Comprehensive Income (Loss) in accordance with ASC Topic 606, Revenue from Contracts with Customers.

The Company typically grants franchise rights to franchisees for a term of 20 years, with the right to extend the term for an additional 10 years if various conditions are satisfied by the franchisee.

Other revenue consists of gift card breakage, licensing income, and recycling income.

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2. Revenue

Disaggregation of revenue

In the following table, revenue is disaggregated by type of good or service (in thousands):


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	July 14, 2024		July 9, 2023		July 14, 2024		July 9, 2023
Restaurant revenue	$	294,457	$	293,281	$	673,025	$	700,174
Franchise revenue	4,287		3,544		9,628		8,826
Gift card breakage	1,025		533		5,188		5,342
Other revenue	385		1,290		854		2,118
Total revenues	$	300,154	$	298,648	$	688,695	$	716,460

Contract Liabilities

Components of Unearned revenue in the Condensed Consolidated Balance Sheets are as follows (in thousands):


	July 14, 2024		December 31, 2023
Unearned gift card revenue	$	14,899	$	28,558
Unearned Royalty revenue	1,804		7,509
Unearned revenue	$	16,703	$	36,067

Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands):


	Twenty-Eight Weeks Ended
	July 14, 2024		July 9, 2023
Gift card revenue	$	14,539	$	16,038

We recognize Royalty revenue within Restaurant revenue in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) when a customer redeems an earned reward. Unearned revenue associated with Royalty is included in Unearned revenue in our Condensed Consolidated Balance Sheets.

Changes in our unearned revenue balance related to our Royalty program (in thousands):


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	July 14, 2024		July 9, 2023		July 14, 2024		July 9, 2023
Unearned Royalty revenue, beginning balance	$	8,032	$	11,356	$	7,509	$	11,107
Revenue deferred	715		2,247		3,039		4,763
Revenue recognized(1)	(6,943)		(1,980)		(8,744)		(4,247)
Unearned Royalty revenue, ending balance	$	1,804	$	11,623	$	1,804	$	11,623

(1) Restaurant revenue includes an approximately $6.4 million credit related to the transition to the new Royalty program in the second quarter of 2024, primarily due to the cancellation of unused points that were earned more than 365 days prior to the launch of the new program.

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3. Leases

The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) as follows (in thousands):


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	July 14, 2024		July 9, 2023		July 14, 2024		July 9, 2023
Operating lease cost	$	17,412	$	16,279	$	40,418	$	37,174
Finance lease cost:
Amortization of right of use assets	216		221		504		549
Interest on lease liabilities	106		111		243		284
Total finance lease cost	$	322	$	332	$	747	$	833
Variable lease cost	4,538		4,477		10,441		10,269
Total	$	22,272	$	21,088	$	51,606	$	48,276

Refer to Footnote 5, Other Charges (Gains), net, for information regarding the sale-leaseback transactions completed during the year to date periods ended July 14, 2024 and July 9, 2023, respectively.

4. Earnings (Loss) Per Share

Basic earnings (loss) per share amounts are calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share amounts are calculated based upon the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted earnings per share reflects the potential dilution that could occur if holders of options exercised their options into common stock. As the Company was in a net loss position for both the quarter to date and year to date periods ended July 14, 2024, all potentially dilutive common shares are considered anti-dilutive.

The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):


	Twelve Weeks Ended		Twenty-Eight Weeks Ended
	July 14, 2024	July 9, 2023	July 14, 2024	July 9, 2023
Basic weighted average shares outstanding	15,680	16,037	15,608	16,014
Dilutive effect of stock options and awards	—	254	—	353
Diluted weighted average shares outstanding	15,680	16,291	15,608	16,367

Awards excluded due to anti-dilutive effect on diluted income (loss) per share	1,996	560	1,668	577

5. Other Charges (Gains), net

Other charges (gains), net consisted of the following (in thousands):


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	July 14, 2024		July 9, 2023		July 14, 2024		July 9, 2023
Gain on sale of restaurant property	$	—	$	(14,586)	$	(7,425)	$	(14,586)

Litigation contingencies	356		1,240		776		5,540
Restaurant closure costs, net	423		(112)		597		1,638
Severance and executive transition	137		962		1,082		2,854
Asset impairment	1,128		1,693		1,128		2,387
Asset disposal and other, net	825		83		2,620		1,144
Closed corporate office costs, net of sublease income	62		113		177		175
Other charges (gains), net	$	2,931	$	(10,607)	$	(1,045)	$	(848)

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Gain on Sale of Restaurant Property

During the first quarter of fiscal 2024, the Company sold ten restaurant properties for total proceeds of $23.9 million in a sale-leaseback transaction that resulted in a gain, net of expenses of $7.4 million. During the second quarter of fiscal 2023, the Company sold nine restaurant properties for total proceeds of $28.5 million in a sale-leaseback transaction that resulted in a gain, net of expenses of $14.6 million.

Severance and Executive Transition

During the quarter and year to date periods of fiscal 2024, the Company incurred costs primarily related to a reduction in force of Team Members. During the second quarter and year to date periods of fiscal 2023, the Company incurred severance and executive transition costs associated with changes in leadership positions.

Asset Impairment

During the second quarter of fiscal 2024, the Company recognized non-cash impairment charges primarily related to the closure of two locations. During the second quarter and year to date periods of fiscal 2023, the Company recognized non-cash impairment charges primarily related to impairments of long-lived assets at four underperforming locations and the closed corporate office. See Note 7. Fair Value Measurements.

Asset Disposal and Other

Asset disposals and other relate primarily to terminated capital projects.

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6. Borrowings

Borrowings as of July 14, 2024 and December 31, 2023 are summarized below (in thousands):


	July 14, 2024		Variable Interest Rate		December 31, 2023		Variable Interest Rate

Term loan	$	167,911	12.10	%	$	189,143	11.62	%

Total borrowings	167,911				189,143
Less: unamortized debt issuance costs and discounts	5,602				6,549

Long-term debt	$	162,309			$	182,594

Revolving line of credit unamortized deferred financing charges:	$	625			$	752

Credit Agreement

On March 4, 2022, the Company entered into a credit agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of credit and a $200.0 million term loan (collectively, the "Credit Facility"). The borrower maintains the option to increase the Credit Facility in the future, subject to lenders’ participation, by up to an additional $40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement.

The Credit Facility will mature on March 4, 2027. No amortization is required with respect to the revolving Credit Facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0% of the original principal amount of the term loan. As of July 14, 2024, quarterly principal payments are no longer required as a result of the debt repayments from the proceeds of the recent sale-leaseback transactions. The Credit Agreement's interest rate references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Alternate Base Rate, which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum.

As of July 14, 2024, the Company had outstanding borrowings under the Credit Facility of $162.3 million, in addition to amounts issued under letters of credit of $7.7 million. As of December 31, 2023, the Company had outstanding borrowings under the Credit Facility of $182.6 million, in addition to amounts issued under letters of credit of $7.7 million.

Red Robin International, Inc., is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of the borrower’s obligations under the Credit Agreement. Borrowings under the Credit Agreement are secured by substantially all of the assets of the borrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments.

On March 4, 2022, Red Robin International, Inc., the Company, and the guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the Administrative Agent a first priority security interest in substantially all of the assets of the borrower and the guarantors to secure the obligations under the Credit Agreement.

Red Robin International, Inc. as the borrower is obligated to pay customary fees to the agents, lenders and issuing banks under the Credit Agreement with respect to providing, maintaining, or administering, as applicable, the credit facilities.

On July 17, 2023, the Company amended the Credit Agreement (the “Credit Agreement Amendment”) to, among other things, remove the previously included $50.0 million aggregate cap on sale-leasebacks of Company-owned real property that are permitted under the Credit Agreement, subject to certain conditions set forth in the Credit Agreement.

The summary descriptions of the Credit Agreement, the Security Agreement, and the Credit Agreement Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of each agreement, each of which was filed February 28, 2024, as an exhibit to the Annual Report on Form 10-K.

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7. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate fair value due to the short-term nature or maturity of the instruments.

The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying Condensed Consolidated Balance Sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets).

The following tables present the Company's assets measured at fair value on a recurring basis (in thousands):


	July 14, 2024		Level 1		Level 2		Level 3
Assets:
Investments in rabbi trust	$	2,055	$	2,055	$	—	$	—
Total assets measured at fair value	$	2,055	$	2,055	$	—	$	—

	December 31, 2023		Level 1		Level 2		Level 3
Assets:
Investments in rabbi trust	$	2,079	$	2,079	$	—	$	—
Total assets measured at fair value	$	2,079	$	2,079	$	—	$	—

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities recognized or disclosed at fair value in the Condensed Consolidated Financial Statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, and other intangible assets. These assets are measured at fair value if determined to be impaired.

During 2024 and 2023, the Company measured non-financial assets for impairment using continuing and projected future cash flows, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement.

During the second quarter of fiscal 2024, we impaired long-lived assets at two restaurant locations that we closed during the quarter with a carrying value of approximately $3.1 million. We determined the fair value of these long-lived assets to be $0.9 million as a result of the closures, resulting in a $1.1 million impairment charge and a $1.1 million decrease in right of use assets due to remeasurement. During the first half of fiscal 2023, we impaired long-lived assets at four restaurant locations and the closed corporate office with carrying values of $12.4 million. We determined the fair value of these long-lived assets to be $10.0 million, resulting in impairment charges of $2.4 million during the quarter and year to date periods ended July 9, 2023.

Disclosures of Fair Value of Other Assets and Liabilities

The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. As of July 14, 2024, the fair value of the credit facility was approximately $168.3 million and the principal amount carrying value was $167.9 million. The credit facility term loan is reported net of $5.6 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of July 14, 2024. The carrying value of the credit facility was $189.1 million and the fair value of the credit facility was $186.9 million as of December 31, 2023. The interest rate on the credit facility represents a level 2 fair value input.

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8. Commitments and Contingencies

Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the Condensed Consolidated Financial Statements. However, the ultimate resolution of litigated claims may differ from our current estimates.

As of July 14, 2024, we had reserves of $8.1 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet. In the normal course of business, there are various claims in process, matters in litigation, administrative proceedings, and other contingencies. These include employment related claims and class action lawsuits, claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns, and lease and other commercial disputes. To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

As of July 14, 2024, we had non-cancellable purchase commitments primarily related to certain vendors who provide food and beverage and other supplies to our restaurants, for an aggregate of $202.2 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.

9. Subsequent Events

Subsequent to the second quarter of fiscal 2024, the Company entered into the Second Amendment to our Credit Agreement (the “Second Amendment”). The Second Amendment amends the Credit Agreement to, among other things:

•increase the required Maximum Net Total Leverage Ratio beginning in the third fiscal quarter of 2024 through the third fiscal quarter of 2025;

•increase the aggregate revolving commitments by $15.0 million to $40.0 million on the Second Amendment effective date through the third fiscal quarter of 2025;

•remove the variable Pricing Grid and increase the Applicable Margin on all Term Loans and Revolving Facility Loans that are SOFR Loans to 7.50% per annum and that are ABR Loans to 6.50% per annum;

•add certain additional reporting requirements.

In conjunction with the Second Amendment, the Company paid certain customary amendment fees to the lenders under the credit facility totaling approximately $2.9 million. Terms in this section that are capitalized but not defined have the meanings given to them in the Second Amendment. The summary description of the Second Amendment does not purport to be complete and is qualified in its entirety to the full text of the Second Amendment, which is attached hereto as Exhibit 10.6 and is incorporated by reference herein.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying Condensed Consolidated Financial Statements. References to the second quarter and year to date periods of fiscal 2024 and fiscal 2023 refer to the twelve and twenty-eight weeks ended July 14, 2024 and July 9, 2023, respectively.

Description of Business

Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 503 locations in North America. As of July 14, 2024, the Company owned 411 restaurants located in 39 states, and had 92 franchised restaurants in 14 states and one Canadian province. The Company operates its business as one operating and one reportable segment.

Our primary source of revenue is from the sale of food and beverages at Company-owned restaurants. We also earn revenue from royalties and fees from franchised restaurants.

Highlights for the Second Quarter of Fiscal 2024, Compared to the Second Quarter of Fiscal 2023:

•Total revenues are $300.2 million, an increase of $1.5 million.

•Comparable restaurant revenue(1) declined 0.8% excluding a deferred revenue benefit led by the change in the Company's loyalty program. Including this benefit, Comparable restaurant revenue(1) increased 1.4%.

•Net loss is $9.5 million, compared to net income of $3.9 million last year.

•Adjusted EBITDA(2) is $11.8 million compared to $15.5 million last year.

•Subsequent to the close of the second quarter, executed an amendment to the credit agreement that revises financial covenants and expands revolver capacity.

Highlights for the Year to Date Period of Fiscal 2024, Compared to the Year to Date Period of Fiscal 2023:

•Total revenues are $688.7 million, a decrease of $27.8 million.

•Comparable restaurant revenue(1) declined 4.0% excluding a deferred revenue benefit led by the change in the Company's loyalty program. Including this benefit, Comparable restaurant revenue(1) declined 3.2%.

•Net loss is $18.9 million, compared to net income of $0.7 million last year.

•Adjusted EBITDA(2) is $24.0 million compared to $51.9 million last year.

•Completed a sale-leaseback transaction for ten restaurants in the first quarter of fiscal 2024, generating net proceeds of approximately $23.3 million and a gain, net of expenses of $7.4 million.

(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated for 18 months as of the beginning of the period presented.

(2) See below for a reconciliation of Adjusted EBITDA to Net income (loss).

Key Performance Indicators

Restaurant Revenue, compared to the same quarter in the prior year, is presented in the table below:


(Dollars in millions)	Twelve Weeks Ended		Twenty-Eight Weeks Ended
Restaurant Revenue for the period ended July 9, 2023	$	293.3	$	700.2
Increase/(decrease) in comparable restaurant revenue	4.1		(21.5)
Decrease in non-comparable and closed restaurant revenue	(2.9)		(5.7)
Total increase/(decrease)	1.2		(27.2)
Restaurant Revenue for the period ended July 14, 2024	$	294.5	$	673.0

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Restaurant Data

The following table details restaurant unit data for our Company-owned and franchised locations for the periods presented:


	Twelve Weeks Ended		Twenty-Eight Weeks Ended
	July 14, 2024	July 9, 2023	July 14, 2024	July 9, 2023
Company-owned:
Beginning of period	413	415	415	414
Opened during the period	—	—	—	1
Acquired from franchisees	—	5	—	5
Closed during the period	(2)	(2)	(4)	(2)
End of period	411	418	411	418
Franchised:
Beginning of period	92	96	92	97
Opened during the period	—	—	—	—
Closed during the period	—	—	—	(1)
Sold to Company during the period	—	(5)	—	(5)
End of period	92	91	92	91
Total number of restaurants	503	509	503	509

Comparable Restaurant Revenue

As of the first quarter of fiscal 2024, the Company revised its definition of comparable restaurant revenue to reflect Company-owned restaurants that have operated for 18 months as of the beginning of the period presented. The prior definition included Company-owned restaurants that have operated for five full quarters as of the beginning of the period presented. The Company believes this change will provide investors with a better understanding of our financial performance from period to period. The change did not have a material impact on previously reported results and as such, prior periods were not revised to reflect the new definition.

For the second quarter and year to date periods of fiscal 2024, there were 405 and 404 comparable restaurants, respectively.

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The following table presents total Company-owned and franchised restaurants by state or province as of July 14, 2024:


	Company-Owned Restaurants	Franchised Restaurants

State:
Arkansas	2	1
Alaska		3
Alabama	4
Arizona	18	1
California	57
Colorado	22
Connecticut	3
Delaware		5
Florida	17
Georgia	6
Iowa	5
Idaho	8
Illinois	17
Indiana	11
Kansas		5
Kentucky	4
Louisiana	1
Massachusetts	5
Maryland	11
Maine	2
Michigan		19
Minnesota	4
Missouri	8	3
Montana		1
North Carolina	17
Nebraska	4
New Hampshire	3
New Jersey	11	1
New Mexico	3
Nevada	6
New York	14
Ohio	16	3
Oklahoma	5
Oregon	15	5
Pennsylvania	11	20
Rhode Island	1
South Carolina	4
South Dakota	1
Tennessee	9
Texas	18	9
Utah	1	5
Virginia	19
Washington	37
Wisconsin	11

Province:
British Columbia		11
Total	411	92

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Results of Operations

Operating results for each fiscal period presented below are expressed as a percentage of total revenues, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.

This information has been prepared on a basis consistent with our audited 2023 annual financial statements, and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. Our operating results may fluctuate significantly as a result of a variety of factors, and operating results for any period presented are not necessarily indicative of results for a full fiscal year.


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
(Dollars in thousands)	July 14, 2024		July 9, 2023		July 14, 2024		July 9, 2023
Revenues:
Restaurant revenue	98.1	%	98.2	%	97.7	%	97.7	%
Franchise revenue	1.4		1.2		1.4		1.2
Other revenue	0.5		0.6		0.9		1.1
Total revenues	100.0		100.0		100.0		100.0

Costs and expenses:
Restaurant operating costs (1) (excluding depreciation and amortization shown separately below):
Cost of sales	23.6		24.3		23.7		24.4
Labor	38.7		37.4		39.1		36.4
Other operating	17.6		17.7		17.6		17.7
Occupancy	8.4		8.0		8.3		7.6
Total restaurant operating costs	88.1		87.3		88.6		86.1
Depreciation and amortization	4.5		5.3		4.6		5.2
Selling, general, and administrative expenses	9.5		9.0		9.9		8.6
Pre-opening costs	—		—		—		0.1
Other charges (gains), net	1.0		(3.6)		(0.2)		(0.1)
Income (loss) from operations	(1.5)		3.4		(1.0)		2.0

Other expense (income):
Interest expense	1.7		2.3		1.8		2.1
Interest income and other, net	—		(0.2)		(0.1)		(0.1)
Income (loss) before income taxes	(3.2)		1.4		(2.7)		0.1
Income tax provision (benefit)	—		0.1		—		—
Net income (loss)	(3.2)	%	1.3	%	(2.8)	%	0.1	%

(1) Expressed as a percentage of restaurant revenue.

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Revenues


	Twelve Weeks Ended						Twenty-Eight Weeks Ended
(Dollars in thousands)	July 14, 2024		July 9, 2023		Percent Change		July 14, 2024		July 9, 2023		Percent Change
Restaurant revenue	$	294,457	$	293,281	0.4	%	$	673,025	$	700,174	(3.9)	%
Franchise revenue	4,287		3,544		21.0	%	9,628		8,826		9.1	%
Other revenue	1,410		1,823		(22.7)	%	6,042		7,460		(19.0)	%
Total revenues	$	300,154	$	298,648	0.5	%	$	688,695	$	716,460	(3.9)	%
Average weekly net sales volumes in Company-owned restaurants	$	59,498	$	58,477	1.7	%	$	58,220	$	60,124	(3.2)	%
Total operating weeks	4,949		5,018		(1.4)	%	11,560		11,648		(0.8)	%

Restaurant revenue, which comprises primarily food and beverage sales, increased $1.2 million, or 0.4%, in the second quarter of fiscal 2024, as compared to the comparable period of 2023. Restaurant revenue increased primarily due to a benefit resulting from a change in the Company's loyalty program. Excluding this benefit, comparable restaurant revenue declined 0.8%. Including this benefit, comparable restaurant revenue increased 1.4%. Comparable restaurant revenue reflects a 6.7% decrease in Guest count, offset in part by a 5.9% increase in average Guest check. The increase in average Guest check resulted from a 7.6% increase in menu prices, partially offset by a 0.9% decrease from menu mix and a 0.8% decrease from discounts. The decrease in menu mix was primarily driven by Guests shifting visits from third party delivery platforms with elevated menu prices, to dine in visits at standard menu prices, and reduced incidence of add on menu items. Dine-in sales comprised 76.8% of total food and beverage sales during the second quarter of 2024, as compared to 74.7% in the same period in 2023.

Restaurant revenue decreased $27.1 million or 3.9% in the year to date period of fiscal 2024, as compared to the same period of 2023. Restaurant revenue decreased primarily due to a 4.0% decrease in comparable restaurant revenue led by the change in the Company's loyalty program. Including the benefit of loyalty adjustments, comparable restaurant revenue decreased 3.2%. Comparable restaurant revenue reflects an 8.3% decrease in Guest count, partially offset by a 4.3% increase in average Guest check. The decrease in Guest count is due in part to overlapping elevated performance in the first quarter of fiscal 2023, our exit of virtual brands in the third quarter of fiscal 2023, and adverse weather impacts during the first quarter of fiscal 2024. The increase in average Guest check resulted from a 6.4% increase in menu prices, partially offset by a 1.4% decrease from menu mix and a 0.7% decrease from discounts. The decrease in menu mix was primarily driven by Guests shifting visits from third party delivery platforms with elevated menu prices, to dine in visits at standard menu prices, and reduced incidence of add on menu items. Dine-in sales comprised 76.4% of total food and beverage sales during the year to date period of 2024, as compared to 71.4% in the same period in 2023.

Average weekly net sales volumes are calculated as the total restaurant revenue for all Company-owned Red Robin restaurants for each time period presented, divided by the number of operating weeks in the period.

Franchise revenue increased by $0.7 million, or 21.0%, in the second quarter of fiscal 2024 compared to the same period of 2023, primarily due to an increase in franchisee contributions. The increase in 2024 follows a reduction in 2023, and returns franchisee contributions to their typical historical level. Franchise restaurants reported a decrease of 1.7% in comparable restaurant revenue in the second quarter of fiscal 2024 and a decrease of 3.2% for the year to date period of fiscal 2024 compared to the same periods in fiscal 2023.

Other revenue decreased $0.4 million and $1.4 million in the second quarter and year to date periods of fiscal 2024 compared to 2023, primarily related to business interruption insurance recoveries recognized in 2023.

Cost of Sales


	Twelve Weeks Ended								Twenty-Eight Weeks Ended
(In thousands, except percentages)	July 14, 2024			July 9, 2023			Percent Change		July 14, 2024			July 9, 2023			Percent Change
Cost of sales	$	69,444		$	71,372		(2.7)	%	$	159,653		$	171,042		(6.7)	%
As a percent of restaurant revenue	23.6		%	24.3		%	(0.7)	%	23.7		%	24.4		%	(0.7)	%

Cost of sales, which comprises food and beverage costs, is variable and generally fluctuates with sales volume. Cost of sales as a percentage of restaurant revenue decreased 70 basis points for the second quarter of fiscal 2024 as compared to the comparable period in 2023. The improvement was primarily driven by menu price increases and implementation of various cost savings initiatives, partially offset by negative product mix and commodity inflation.

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Cost of sales as a percentage of restaurant revenue decreased 70 basis points for the year to date period of fiscal 2024 as compared to the comparable period in 2023. The improvement was primarily driven by menu price increases and implementation of various cost savings initiatives, partially offset by product mix shifts to higher cost menu items and commodity inflation.

Labor


	Twelve Weeks Ended								Twenty-Eight Weeks Ended
(In thousands, except percentages)	July 14, 2024			July 9, 2023			Percent Change		July 14, 2024			July 9, 2023			Percent Change
Labor	$	113,908		$	109,678		3.9	%	$	262,866		$	255,100		3.0	%
As a percent of restaurant revenue	38.7		%	37.4		%	1.3	%	39.1		%	36.4		%	2.7	%

Labor costs include restaurant level hourly wages and management salaries as well as related taxes and benefits. For the second quarter of fiscal 2024, labor as a percentage of restaurant revenue increased 130 basis points compared to the same period in 2023. The increase was primarily driven by strategic investments in hourly and management labor, increased incentive compensation related to a new partner bonus plan, and higher group health insurance costs.

For the year to date period of fiscal 2024, labor as a percentage of restaurant revenue increased 270 basis points compared to the same period in 2023. The increase was primarily driven by strategic investments in hourly and management labor, increased incentive compensation related to a new partner bonus plan, and higher workers compensation and group health insurance costs.

Other Operating


	Twelve Weeks Ended								Twenty-Eight Weeks Ended
(In thousands, except percentages)	July 14, 2024			July 9, 2023			Percent Change		July 14, 2024			July 9, 2023			Percent Change
Other operating	$	51,783		$	51,842		(0.1)	%	$	118,273		$	123,892		(4.5)	%
As a percent of restaurant revenue	17.6		%	17.7		%	(0.1)	%	17.6		%	17.7		%	(0.1)	%

Other operating costs include costs such as repair and maintenance costs, restaurant supplies, utilities, restaurant technology, and other miscellaneous costs. For the second quarter of fiscal 2024, other operating costs as a percentage of restaurant revenue decreased 10 basis points as compared to the comparable period in 2023. The decrease was primarily driven by reduced third party commission expenses associated with lower off premise mix and lower commission rates, partially offset by higher utilities costs.

For the year to date period of fiscal 2024, other operating costs as a percentage of restaurant revenue decreased 10 basis points as compared to the comparable period in 2023. The decrease was primarily driven by reduced third party commission expenses associated with lower off premise mix and lower commission rates.

Occupancy


	Twelve Weeks Ended								Twenty-Eight Weeks Ended
(In thousands, except percentages)	July 14, 2024			July 9, 2023			Percent Change		July 14, 2024			July 9, 2023			Percent Change
Occupancy	$	24,595		$	23,482		4.7	%	$	56,023		$	53,283		5.1	%
As a percent of restaurant revenue	8.4		%	8.0		%	0.4	%	8.3		%	7.6		%	0.7	%

Occupancy costs include fixed rents, property taxes, common area maintenance charges, general liability insurance, contingent rents, and other property costs. Occupancy costs as a percentage of restaurant revenue increased 40 basis points for the second quarter of fiscal 2024 compared to the comparable period in 2023. The increase is due to the impact of an increase in fixed rents related to the sale-leaseback of 28 locations.

Occupancy costs as a percentage of restaurant revenue increased 70 basis points for the year to date period of fiscal 2024 compared to the comparable period in 2023. The increase is due to the impact of an increase in fixed rents related to the sale-leaseback of 28 locations and the acquisition of five restaurants from a franchisee in the second quarter of fiscal 2023.

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Depreciation and Amortization


	Twelve Weeks Ended								Twenty-Eight Weeks Ended
(In thousands, except percentages)	July 14, 2024			July 9, 2023			Percent Change		July 14, 2024			July 9, 2023			Percent Change
Depreciation and amortization	$	13,402		$	15,756		(14.9)	%	$	31,556		$	37,581		(16.0)	%
As a percent of total revenues	4.5		%	5.3		%	(0.8)	%	4.6		%	5.2		%	(0.6)	%

Depreciation and amortization include depreciation on capital expenditures for restaurants and corporate assets as well as amortization of reacquired franchise rights, leasehold interests, and certain liquor licenses. For the second quarter of fiscal 2024, depreciation and amortization expense as a percentage of revenue decreased 80 basis points compared to the comparable period in 2023, primarily due to asset impairments and sale-leaseback transactions reducing the depreciable asset base.

For the year to date period of fiscal 2024, depreciation and amortization expense as a percentage of revenue decreased 60 basis points compared to the comparable period in 2023, primarily due to asset impairments and sale-leaseback transactions reducing the depreciable asset base.

Selling, General, and Administrative


	Twelve Weeks Ended								Twenty-Eight Weeks Ended
(In thousands, except percentages)	July 14, 2024			July 9, 2023			Percent Change		July 14, 2024			July 9, 2023			Percent Change
Selling, general, and administrative	$	28,652		$	26,864		6.7	%	$	68,041		$	61,387		10.8	%
As a percent of total revenues	9.5		%	9.0		%	0.5	%	9.9		%	8.6		%	1.3	%

Selling, general, and administrative costs include all corporate and administrative functions. Components of this category include marketing and advertising costs; restaurant support center, regional, and franchise support salaries and benefits; travel; professional and consulting fees; corporate information systems; legal expenses; office rent; training; and Board of Directors' expenses. Selling, general and administrative expense increased $1.8 million, or 6.7% in the second quarter of fiscal 2024 as compared to the comparable period in 2023.

General and administrative costs in the second quarter of fiscal 2024 were $16.6 million, a decrease of $3.5 million compared to the comparable period in 2023. The decrease is primarily related to reduced incentive compensation accruals as compared to the prior year quarter.

Selling costs in the second quarter of fiscal 2024 were $12.0 million, an increase of $5.3 million compared to the comparable period in 2023. The increase was primarily driven by increased marketing communication with consumers and related production costs.

General and administrative costs in the year to date period of fiscal 2024 were $42.5 million, a decrease of $3.8 million compared to the comparable period in 2023. The decrease is primarily related to reduced incentive compensation accruals as compared to the same period last year, partially offset by higher benefit costs.

Selling costs in the year to date period of fiscal 2024 were $25.6 million, an increase of $10.5 million compared to the comparable period in 2023. The increase was primarily driven by increased marketing communication with consumers and related production costs.

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Pre-opening Costs


	Twelve Weeks Ended								Twenty-Eight Weeks Ended
(In thousands, except percentages)	July 14, 2024			July 9, 2023			Percent Change		July 14, 2024			July 9, 2023			Percent Change
Pre-opening costs	$	—		$	4		(100.0)	%	$	—		$	586		(100.0)	%
As a percent of total revenues	—		%	—		%	—	%	—		%	0.1		%	(0.1)	%

Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos® and other initiatives, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force. Our pre-opening costs fluctuate from period to period, depending upon, but not limited to, the number of restaurants where Donatos® has been introduced, the number of restaurant openings, the size of the restaurants being opened, and the location of the restaurants. Pre-opening costs for any period will typically include expenses associated with restaurants opened during the period as well as expenses related to restaurants opening in subsequent periods.

We did not open any new restaurants or roll out any Donatos® locations in the first half of fiscal 2024. We opened one restaurant and completed the rollout of 25 Donatos® locations in the first half of fiscal 2023.

Interest Expense

Interest expense for the second quarter of fiscal 2024 and 2023 was $5.1 million and $6.5 million, respectively. The $1.4 million decrease was primarily due to the $29.6 million repayment of debt with the proceeds from the sale-leaseback transactions subsequent to the second quarter of fiscal 2023, partially offset by an increase in the weighted average interest rate to 13.6% in the second quarter of fiscal 2024 compared to 11.1% in the prior year quarter. Average outstanding debt was $175.2 million and $207.1 million as of July 14, 2024 and July 9, 2023, respectively.

Interest expense was $12.6 million for the year to date period of fiscal 2024 and $14.3 million for the year to date period of fiscal 2023. The $1.7 million decrease was primarily due to the $29.6 million repayment of debt with the proceeds from the sale-leaseback transactions subsequent to the second quarter of fiscal 2023, partially offset by an increase in the weighted average interest rate to 13.5% for the year to date period of fiscal 2024 compared to 12.3% in the same period last year. Average outstanding debt was $175.2 million and $210.7 million as of July 14, 2024 and July 9, 2023, respectively.

Income Tax Provision

The effective tax rate for the second quarter of fiscal 2024 was a 0.4% benefit, compared to a 3.8% expense for the second quarter of fiscal 2023. The effective tax rate for the year to date period of fiscal 2024 was 0.7%, compared to 21.0% for the year to date period of fiscal 2023. The effective tax rate for the quarter and year to date periods of fiscal 2024 reflects the valuation allowance recorded against the Company's net tax assets in addition to certain federal and state income taxes due to attribute limitations, minimum state income taxes, and state franchise taxes. The increase in tax rate for the fiscal 2023 periods as compared to the fiscal 2024 periods is due to the near break-even pretax book income generated in fiscal 2023.

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Non-GAAP Financial Measures

Restaurant revenue and operating costs, and restaurant level operating profit for the periods presented are detailed in the table below:


	Twelve Weeks Ended						Twenty-Eight Weeks Ended
(Dollars in millions)	July 14, 2024		July 9, 2023		Increase/ (Decrease)		July 14, 2024		July 9, 2023		Increase/ (Decrease)
Restaurant revenue	$	294.5	$	293.3	0.4	%	$	673.0	$	700.2	(3.9)	%
Restaurant operating costs:
Cost of sales	69.4		71.4		(2.8)	%	159.7		171.0		(6.6)	%
Labor	113.9		109.7		3.8	%	262.9		255.1		3.1	%
Other operating	51.8		51.8		—	%	118.3		123.9		(4.5)	%
Occupancy	24.6		23.5		4.7	%	56.0		53.3		5.1	%
Total Restaurant Operating Costs	$	259.7	$	256.4	1.3	%	$	596.9	$	603.3	(1.1)	%

Restaurant level operating profit(1)	$	34.8	$	36.9	(5.7)	%	$	76.1	$	96.9	(21.5)	%

(1) Restaurant level operating profit is a non-GAAP measure. See below for a reconciliation of restaurant level operating profit to income from operations and income from operations as a percentage of total revenues.


	Twelve Weeks Ended								Twenty-Eight Weeks Ended
(Dollars in millions)	July 14, 2024			July 9, 2023			Increase/ (Decrease)		July 14, 2024			July 9, 2023			Increase/(Decrease)
Restaurant revenue	$	294.5		$	293.3		0.4	%	$	673.0		$	700.2		(3.9)	%
Restaurant operating costs:	(Percentage of Restaurant Revenue)						(Basis Points)		(Percentage of Restaurant Revenue)						(Basis Points)
Cost of sales	23.6		%	24.3		%	(70)		23.7		%	24.4		%	(70)
Labor	38.7			37.4			130		39.1			36.4			270
Other operating	17.6			17.7			(10)		17.6			17.7			(10)
Occupancy	8.4			8.0			40		8.3			7.6			70
Total Restaurant Operating Costs	88.1		%	87.3		%	80		88.6		%	86.1		%	250

Restaurant level operating profit	11.8		%	12.6		%	(80)		11.3		%	13.8		%	(250)

Certain percentage and basis point amounts in the table above do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.

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The following table summarizes net income (loss), income (loss) per diluted share, and adjusted income (loss) per diluted share for the periods presented:


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
(in thousands, except per share amounts)	July 14, 2024		July 9, 2023		July 14, 2024		July 9, 2023
Net income (loss) as reported	$	(9,489)	$	3,922	$	(18,949)	$	664


























Income (loss) per share - diluted:
Net income (loss) as reported	$	(0.61)	$	0.24	$	(1.21)	$	0.04


Other charges (gains), net:
Gain on sale of restaurant property	—		(0.91)		(0.48)		(0.89)
Litigation contingencies	0.02		0.08		0.05		0.34
Restaurant closure costs, net	0.03		(0.01)		0.04		0.10
Severance and executive transition	0.01		0.06		0.07		0.17
Asset impairment	0.07		0.11		0.07		0.15
Asset disposal and other, net	0.05		0.01		0.17		0.07
Closed corporate office costs, net of sublease income	—		0.01		0.01		0.01
Income tax effect	(0.05)		0.17		0.02		0.01




Adjusted income (loss) per share - diluted	$	(0.47)	$	(0.24)	$	(1.26)	$	—

Weighted average shares outstanding:
Basic	15,680		16,037		15,608		16,014
Diluted	15,680		16,291		15,608		16,367

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The following table summarizes Net loss, EBITDA, and Adjusted EBITDA for the periods presented (in thousands):


	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	July 14, 2024		July 9, 2023		July 14, 2024		July 9, 2023
Net income (loss) as reported	$	(9,489)	$	3,922	$	(18,949)	$	664
Interest expense, net	4,997		6,305		12,311