Red Robin Gourmet Burgers Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and welcome to the Red Ribbon Red Robin Gourmet Burger Incorporated 4th Quarter 2023 Earnings Call. This conference is being recorded. These forward looking statements and all other statements that are not historical facts reflects management's beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the company's SEC filing. Management will also discuss non GAAP financial measures as part of today's conference call. These non GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful.

Operator

Reconciliations of the non GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its Q4 2023 earnings release on its website at ir. Redrobin.com. Now I would like to turn the call over to Red Robin's President and Chief Executive Officer, GJ Hart.

Speaker 1

Good afternoon, everyone, and thank you all for joining us today and your interest in Red Robin. 2023 marked the 1st year of our North Star plan and was a successful transformational year for our iconic brand. Operationally, we made the necessary investments in what we serve and how we serve it to ensure that every guest experience at Red Robin is a memorable one and we are seeing early signs of traction from these initiatives. Financially, we made substantial progress by delivering 1.6% increase in comparable restaurant sales, a 33% increase in adjusted EBITDA and we strengthened our balance sheet supported by 2 sale leaseback transactions, ultimately reducing our long term debt by almost $25,000,000 I'd like to extend my heartfelt thank you to all of our more than 20,000 team members around the country. The success of Red Robin in 2023 and in the future is due to your efforts and all of us working towards the same goals, all in this together.

Speaker 1

Before I dive into our plans for 2024, I want to take a look back on what we accomplished in 20 20 through the framework of our North Star plan. 1st, we transformed into an operations focused restaurant company. Our achievements rest on the success of our managing partners and restaurant leadership teams. During the Q2 of 2023, we revamped our market partner compensation program for multiunit operators. Through this program, they now see themselves as owners of the restaurants they oversee and are rewarded based on their profits.

Speaker 1

Said another way, our restaurant leaders are now incentivized to deliver strong financial results like never before with unlimited upside earnings potential for themselves. We believe this has not only helped to recruit and retain the best talent available, but also made the Red Robin experience come to life for both our guests and our team members. The multi unit rollout has gone exceedingly well and has informed the launch of our single unit operator program to start 2024. The initial feedback has been positive and we are thrilled to align the entire organization around the unified goal of driving traffic and ultimately profit dollars. One of the many signals we are monitoring is management turnover, which has improved by 5% in 2023 as compared to 2022.

Speaker 1

We believe this is a reflection of our team's belief in the direction of the company under the North Star plan and the attractiveness of the partner program. 2nd, we elevated the guest experience. During the year, we made substantial investments and upgrades to the guest experience. On the labor front, it was a busy year with the return to an industry best practice staffing model, giving servers fewer tables, adding backbusters and a dedicated expo and bringing back more than 250 dedicated kitchen managers. These investments have led to fewer false weights, increased cleanliness ratings, improved wait times and ultimately better hospitality.

Speaker 1

On the food side of the equation, we were equally as busy as we rolled out flat top grills during the Q2, which delivers a thicker, juicier and more flavorful burger. We also enhanced our food presentation by moving from wax paper wrapping in a basket to showcasing our burgers on beautiful new plateware. Next, we unveiled new and improved recipes in October for each of our more than 20 gourmet burgers now prepared with higher quality and more flavorful ingredients. And finally, we introduced new entrees, appetizers, beverages and seasonal additions to delight our guests with new innovation. In total, we made enhancements to approximately 85% of our menu.

Speaker 1

In terms of drinks, we upgraded our bar menu to include higher quality brands that our guests know and love, while making quality upgrades to things like our margarita mix with fresh lime juice and agave. We've accomplished a lot and our guests are recognizing our efforts. As part of our best practices, we regularly survey our loyalty database and we see a clearly favorable response. 52% indicated our burgers are better, in line with our 3rd quarter measurements. 54% agree our food quality has improved, increased from 46% at the end of the 3rd quarter.

Speaker 1

59% indicate that our service and hospitality have improved, up from 48% at the end of the 3rd quarter. 3rd, we removed cost and complexity. To help fund investments in guest in guest experience, we continually identify and capture numerous non guest facing savings opportunities. These efforts have been centered around the fantastic work of our supply chain team, who have found smart saving levers and have been able to procure products from our vendors of the same or better quality at a lower cost. For example, in the Q4, we changed from previously using a frozen pre bedded chicken breast to now freshly hand battering in the restaurant.

Speaker 1

This change alone accounts for nearly $5,000,000 annual savings and delivers a tremendous quality, flavor and helpful improvement for our guests. This type of change illustrates how we think about cost savings as changes that are beneficial to both our guests and to Red Robin. Finally, as we've previously spoken, in July, we made decisions to discontinue the virtual brands that we added in 2020. While this type of offering had a place at the time, multiple brands, product and procedures created unnecessary complexity for our operators. The economies of these virtual brands resulted in minimal profit, but creates a comparable restaurant sales headwind of 200 to 2.50 basis points until we pass the anniversary of the elimination in the Q3 of 2024.

Speaker 1

4th, we optimize guest engagement. In our ongoing efforts to reinvigorate the Red Robin brand and enhance our restaurant experience, we have proactively been elevating our marketing capabilities. Given the substantial digital traffic from our guests, we have and continue to rapidly improve our guest acquisition capabilities and capacity to target the right audience with timely and pertinent messaging. We significantly increased the efficiency of our paid media strategy through more precise targeting, which we expect will be beneficial to our upcoming marketing program, which I'll speak to in just a moment. We have shifted towards more category specific search strategies to capture the attention of guests seeking an experience like ours.

Speaker 1

Our investments in earned media and targeted social marketing initiatives have also positioned our brand in new consumer touch points, fostering engagements with guests eager to see Red Robin's resurgence and explore our latest menu offerings. As an example to our commitment to focus social engagement, in October, we collaborated with Ariana Mattox, a celebrity bartender and influencer on our Burger Teeni collaboration, which generated over 500,000 views in the 1st few days. More recently, a partnership with Juicy Couture, we reimagined the iconic tracksuit to celebrate our juicier and more flavorful burgers. The social engaged response has been fantastic with over 800,000 impressions to date and counting, and we quickly sold out of the tracksuits themselves. 5th, we drove growth in comparable restaurant revenue and profitability.

Speaker 1

We increased comparable restaurant revenue by 1.6% for the year. While we strive to drive growth in every quarter, the declines we experienced in the 3rd Q4 were not unexpected due to our intentional decision to remove the extreme deep discounting marketing programs the business was executing when I started in the second half of twenty twenty two. Overall, we are on track relative to the expected cadence of the North Star plan. We've seen the tangible results of our work during 2023 as we drove an increase in comparable restaurant revenue, invested approximately $24,000,000 back into the guest experience through food and labor, increased guest satisfaction scores across multiple measurement tools, flushed out the excessive discount and virtual brands decisions of years past, captured our targeted cost savings and delivered a 33% increase in adjusted EBITDA. 2024 will also be a transformational year as well as ensuring that our guests are aware of the improvements that we've made to drive traffic back into our restaurants.

Speaker 1

Driven by the initiatives I will outline below, we fully intend to outpace the industry on traffic growth as we exit the year. Now let's talk about how we plan to get there and the cadence you should expect to see. 1st, we're in the process of launching our new marketing program. Starting in March and into the Q2, you will begin to see our new marketing platform showcasing the work we've been doing to improve the guest experience and remind our guests about some of the unique aspects of Red Robin. For over 54 years, Red Robin has had bottomless sides and other menu items, but has not done a good job historically of telling people that.

Speaker 1

Beginning in March, that will change. On our menu, we have over 30 items that are bottomless, and we want to make sure our consumers know that. From our fan favorite steak fries to our freckled lemonade and all the way down to our root beer float. If you want another, the answer is yes. Additionally, guests can swap items between bottomless refills.

Speaker 1

Get broccoli with your burger and then fries with your milkshake. We want to ensure consumers know this core equity of Red Robin, a place for everyday value for your family. We're excited to utilize our marketing program to get this message out and expect to invest an incremental approximately $3,000,000 in selling expense to support this effort. 2nd, we plan to launch our new loyalty platform. The Red Robin rewards program is an exceptionally strong asset at our disposal with over 13,000,000 loyalty members.

Speaker 1

Historically, it has been more of a discount program rather than rewarding our guests for their loyalty to us. We intend to transform our loyalty program into a VIP like experience, delivering more relevant messaging to our members and ultimately fostering a new generation of Red Robin Ambassadors. We're excited to transition to a point space program that makes it easier for our most loyal guests to earn rewards, giving them incentive to visit us more often. We expect to launch the new program in the middle of this year and we look forward to sharing additional details throughout the year. Finally, we plan to continue removing costs and complexity to strengthen our financial model.

Speaker 1

In addition to the rollover benefit of approximately $8,000,000 from initiatives started in 2023, we expect to generate an additional $11,000,000 of cost savings from new initiatives we plan to launch in 2024 for a total of $19,000,000 in targeted incremental cost savings. We continue to see opportunities in our supply chain and we have launched initiatives to support our operators through upgrades to tools like theoretical food cost and hourly labor and overtime management. With that, let me turn the call over to Todd to walk you through our financial performance for the quarter and year as well as our initial thoughts on 2024 guidance.

Speaker 2

Thank you, G. J, and good afternoon, everyone. In the Q4, total revenues were $309,000,000 an increase of approximately $19,000,000 versus the Q4 of fiscal 2022. The increase in revenue was led by an additional operating week in the quarter, the 53rd week of our fiscal year. The additional week added approximately $24,500,000 to restaurant revenue and was partially offset by a decrease in comparable restaurant revenue of 2.7% driven by the removal of our previous deep discounting marketing promotions and elimination of virtual brands.

Speaker 2

Restaurant level operating profit as a percentage of restaurant revenue was 12.2%, an increase of approximately 90 basis points compared to the Q4 of 2022. The improvement was driven by cost saving initiatives and cost of goods and other operating expenses, menu price increases and reduced discounting. Additionally, the inflation environment continues to improve. The rate of inflation across all major cost categories, including commodities, wages and operating expenses was in line with or reduced from levels experienced during the Q3. General and administrative costs were approximately $22,700,000 versus the prior year of $20,200,000 The increase is led by approximately $1,700,000 due to a 13 week quarter this year versus a 12 week quarter last year and an increase in incentive compensation expense due to the company's improved performance in 2023.

Speaker 2

Selling expenses were approximately $12,100,000 a decrease versus the prior year of approximately $2,100,000 led by a strategic reduction in media spending on social and local channels. Adjusted EBITDA was approximately 10

Operator

adjusted EBITDA was $68,900,000

Speaker 2

and approximately $66,000,000 on a 52 week basis. As we have previously discussed, we are taking actions to strengthen our balance sheet and in combination with gains and adjusted EBITDA, we'll look to use that improved credit profile to refinance our debt with more favorable terms over time. As a reminder, our term loan matures in 2027, so this is an opportunistic effort. While we are in the very early stages of this process, we have been pleased with the initial engagement from potential lenders and look to recent refinancings from others in the industry as markers for what may be possible. Our sale leaseback transactions are in support of this effort.

Speaker 2

Following our 2 successful in 2023, we marketed a 3rd tranche of owned properties, received multiple bids from investors and have been working through diligence items with the winning bidder. I'm pleased to share the diligence period is coming to a close and we expect to complete this transaction in the Q1. We expect the final transaction will include from 8 to 11 properties and generate gross proceeds of $20,000,000 to $26,000,000 with net proceeds used to repay debt. We ended the Q1 with approximately $23,600,000 of cash and cash equivalents, $7,900,000 of restricted cash and $25,000,000 available borrowing capacity under our revolving line of credit. At quarter end, our outstanding principal balance under our credit agreements was $189,100,000 unchanged from the end of the Q3 and letters of credit outstanding were $7,700,000 As a reminder, the 53rd week adds an additional payroll cycle to the Q4.

Speaker 2

This has a short term negative impact on our cash position at the end of 2023 that reverts as we move through 2024. Turning now our guidance for 2024 is as follows. Total revenue of $1,250,000,000 to $1,275,000,000 including comparable restaurant revenue of a low single digit percentage decline Restaurant level operating profit of 12.5 percent to 13.5 percent inclusive of investments in the guest experience and rent expenses related to the sale leaseback transactions adjusted EBITDA of $60,000,000 to $70,000,000 and capital expenditures of $25,000,000 to $35,000,000 The $65,000,000 midpoint of our adjusted EBITDA range represents a modest increase year over year when adjusting for the benefit of the 53rd week in 2023 and the additional rent we will incur in 2024 due to the sale leaseback transactions and compound annual growth of approximately 12% relative to 2022, the starting point of the North Star plan. As added color for our 2024 financial guidance, we expect the following factors to influence our 2024 results. We will revert back to a 52 week fiscal year in 2024 as compared to 53 weeks in 2023.

Speaker 2

We expect this will result in an approximate $25,000,000 reduction in restaurant sales and $3,000,000 reduction in adjusted EBITDA as compared to 2023. The sale leaseback transactions we completed in 2023 and the 3rd tranche we expect to close during this Q1 will result in incremental rent expense of approximately $4,000,000 in 2024 and a reduction of annualized interest of approximately $5,000,000 to $6,000,000 driven by debt reduction. We anticipate inflation will return to more normalized levels with inflation across our entire cost basket, including commodities, wages and operating expenses in a range of 3% to 4%. We expect total selling and general and administrative expenses to be relatively unchanged as compared to 2023. As G.

Speaker 2

J. Mentioned earlier, this includes an increase of approximately $3,000,000 in selling to support our marketing efforts. We expect an offsetting reduction in G and A expenses. We have included in our guidance the impact of adverse weather to start the year. Due to this impact along with the lap of the strong results we had in the Q1 of 2023, we expect results will be particularly challenged in the Q1 of 2024.

Speaker 2

Our confidence in the balance of the year is driven by the significant investments we made in 2023 to enhance the guest experience and the ongoing improvements in guest satisfaction in response to those investments. Our anticipated return on the investments we expect to continue to make in 2024 and levers we generally control including cost savings measures and menu price increases. In summary, while we've made significant progress across all points of our North Star plan, we are still at the start of year 2 of our multi year comeback strategy. We remain on track to achieve our targets and are building this brand to be successful over the long term. With that, I will turn the call back over to G.

Speaker 2

J. J.

Speaker 1

Muse:] Thank you, Todd. The comeback journey of Red Robin and building a long term sustainable and growing business takes some time. We have used the analogy of a baseball game to measure our progress. I believe that we were in the 2nd inning of a 9 inning game. This assessment reflects the fantastic foundational progress we made during 2023 at completion of the 1st inning and the remaining 8 innings as the great opportunity we see ahead.

Speaker 1

Through our operations execution focus, increased marketing communication, the launch of our new loyalty program and continued cost savings, we look forward to demonstrating further step change progress in 2024 as we bring back guests back into our restaurants for moments of connection over craveable food that only Red Robin can provide. With that, we are now happy to open and take questions. Operator?

Operator

Thank you. We will now be conducting a question and answer The first question comes from the line of Alex Slagle with Jefferies. Please go ahead.

Speaker 3

All right. Hey, guys. How are you doing?

Speaker 1

Good, Alex. How are you doing?

Speaker 3

Doing well. So I'm just trying to think about some of the comments you were making towards the end in 2024. It's going to be year 2 on this path. And I guess initially we were sort of thinking a 3 year path to doubling EBITDA margin. I mean it's hard to expect a linear progression towards that target.

Speaker 3

Obviously '24 seems like an important year for customers to come in and start experiencing the improved food and experience for the first time. So it's going to take a while to see that translate into traffic gains and flow through. And it's not like you're going to sort of make cuts that reverse the guest experience improvements you made. But does this outlook for 2024 suggest we should think more like a 4 year plan versus 3 year plan or has the trajectory changed in your mind at all? I mean, there's been a lot of external dynamics as well, but just thoughts on that would be helpful.

Speaker 2

Hey, Alex, this is Todd. I'll start out of to one of your comments. We're really pleased with the improvements in the performance and the feedback from our guests. So we feel like those are the right investments. We're seeing the feedback from guests confirm that.

Speaker 2

So we feel really comfortable with those investments. To your comments on traffic, I think we would agree. We don't expect a linear line. We know that that builds over time. And part of we've talked about this in the past, but part of how we're thinking about the markers of how do we know we're on the right track.

Speaker 2

We've said, hey, the first marker was improved guest satisfaction and we've seen that. Now what we're looking for really is sequential improvements in traffic, especially as we get into the second half of the year. G. J. Referenced that in his prepared remarks.

Speaker 2

But especially with the investments that we've made, 1, resonating with guests 2, getting the marketing plussed up to really get that message out there And then 3, our loyalty program kicking in, in the second half of the year, we are looking for that just sequential improvement. Q2 a little better than Q1, Q3 better than Q2 and so on. And so that's how we're thinking about it. I don't know that I'd tell you we'd put a 2, 3, 4, 5 year timeline on it. It's really continuing to build the brand for the long term and we know that one step at a time gets us ultimately to where we want to be at the end of the journey.

Speaker 1

Yes. And I would just say Alex that to Todd's last comment, to try to build this brand, this iconic brand back to a sustainable business, I think we're doing all the right pieces to make that happen. And so I don't think I would say that it's necessarily a longer period of time. It just it does take some time. It's just not going to happen overnight.

Speaker 1

But when I look at the progress our team members have made in 2023, pretty amazing. And so while we referenced kind of the second, 3rd inning in a baseball game, which I do the point there is that there's just so much upside for us as we get ourselves totally straightened out from some of the decisions of the past.

Speaker 3

That's helpful. And I guess as you look at the performance, you look at sort of your top quartile or bottom quartile stores and I mean maybe even just anecdotally, but if you look at some of the key metrics, the comps, the traffic, the customer satisfaction scores that you pointed to and tenure of management and things like that. How did the metrics compare a year ago? Can you sort of point to some things that tell you about the progress?

Speaker 2

Yes, Alex. When we we've talked about the quartiles and we look at that routinely. One of the things when we look back at last year, there was progress in same store sales across all four quartiles, right? All four quartiles posted positive same store sales as groups. And so that was encouraging to see if not only it's easy sometimes to focus on the 4th quartile, but not only were we able to improve those restaurants, but our top performers, which are fantastic financial restaurants, those were able to increase their same store sales as well.

Speaker 2

And so the sales performance, but also the restaurant profitability, again, that top quartile increased sales, increased profitability. Part of what we saw, we found this interesting. The 4th quartile increased sales, but we had to spend some money to do that. And that's not surprising to us frankly. We knew that would be the case because that we knew they weren't staffed properly.

Speaker 2

We knew that in many cases, the food was not executed to our standards. And so, so I think I'd say it's progressing as we would expect. And the encouraging piece to us is as we make the investments, yes, we know there's investments, but we start to see it pay off in sales even in those most challenged restaurants. And so that's what gives us confidence going forward.

Speaker 3

Okay. And just one quick follow-up on with all the menu work and the new entrees and apps and beverages, seasonal stuff, I guess I would have thought those would be more accretive to the check and you'd sort of see that mix impact start to turn a little bit more positive. And just maybe any thoughts on why that mix is still negative or color on sort of level of trial with new items, anything that surprises you or do you want to share?

Speaker 2

Yes. It's still Todd here, but the texture I'd share there is we've had really nice trial in a lot of our new appetizers as well as some of the new entrees. We added a ribs item at a more premium price point, a shrimp item at a more premium price point and we've seen really good trial and mix overall in those items. The offsetting factors, it's interesting to watch the consumer behavior in this. As we've sold more appetizers, we have seen that somewhat offset by reductions in dessert mix.

Speaker 2

And so you see people just managing their overall check, which is not surprising to us there. And that's been happening for the past several quarters. So that's the dynamic you see in mix. And as we do see some guests gravitating to the more premium priced option, part of what you've seen through all of 2023 is some guests gravitating more to our Tavern lineup, our more value priced burgers. We think that actually positions us really well if there is a value.

Speaker 2

We see a lot of what our competitors are doing with value promotions. And so we actually really like the barbell strategy we've been employing that, hey, if you want a more premium option, we have those options for you. But also if you're looking for a more value option, we have those options for you as well. So we think it actually positions us really well going into 2024.

Speaker 1

The last piece of that, Alex, is that I'll just remind you that although those menu items weren't put in place until the 2nd week of October. So it hasn't been very long at all. And if you think about frequency of the brand, there's just a lot of folks that haven't had the opportunity yet because they haven't been in. So we're still feeling very, very helpful and positive about where we position the brand and as Todd pointed out the whole barbell menu strategy.

Speaker 3

Good point. Thanks.

Speaker 2

That's helpful.

Speaker 4

Thanks, Alex.

Operator

Thank you. The next question comes from the line of Todd Brooks with Benchmark Company. Please go ahead.

Speaker 5

Hey, good evening guys. Thanks for taking my questions.

Speaker 2

Hey Todd.

Speaker 5

First, I'd like to lead off and we've talked in the past with some of the headwinds as far as not lapping the $10 burger meal deal promotion and exiting the virtual brands that you created a headwind that you've been fighting against. So it's probably been masking some internal evidence of traffic benefits from all the work that you did over fiscal year 2023. I know we talked about some of the customer sentiment scores, but are there other examples you can point to that give you real confidence that when the customer finally finds a visit to Red Robin and discovers the better service, better environment, better food experience that you are seeing anything from a frequency of visit standpoint or intend to repeat or anything else you can point to that kind of bolsters the case that the improvements are resonating?

Speaker 2

Hey, Todd. Todd here again. Yes, a few things come to mind there. One of the pieces that our marketing team has done a great job of this, we were able to track our web traffic pretty well. And this is really about more about new users.

Speaker 2

But over the past quarter or through the Q4, especially on the heels of the menu rollout that G. J. Just mentioned in October, the number of new guests coming to our website has increased substantially. And so to us, that's a very encouraging sign of bringing new users back to Red Robin. A lot of our marketing has been focused in new channels.

Speaker 2

And so that's one of the markers we've been looking at in terms of data points that tells us we're on the right track beyond to your point the customer satisfaction.

Speaker 1

Yes. And I would just add Todd that in addition what we're seeing is on this sentiment the scores are actually even higher from new guests coming into the restaurants than what they've been in the past. So that's pretty encouraging that we're obviously striking a chord and we've seen them the repeat visits increase as well.

Speaker 5

Excellent. Second question, you talked about the incremental $3,000,000 in selling expenses to really get out there and message the work that you've done on the brand over the course of 2023. Is there a place knowing that the focus has been repositioned around local store marketing, digital platform marketing. Is there a place at all, especially in denser markets for any more of maybe a mass channel overlay that maybe gets that message out in a way that you hit a broader swath of people and really highlight the improvement in the brand and drive some traffic that way?

Speaker 2

Yes, Todd. I think we're thinking very much along similar channels. Part of the marketing push, that the first stages have just kicked off and it will really ramp up in Q2. But one of the pieces to the marketing plan is really a going on TV, we're going to test that in 6 of our core markets to really very much to your point get that message out. It's still targeted, right?

Speaker 2

We're targeting certain channels, certain times of day, certain events, but it's much more of a mass media type of approach that we think obviously there will be other levers or layers as well, but we think going on TV really does get the word out broadly. And so part of our approach in that is to go to those 6 markets, measure performance and that will then inform how we approach the second half of the year. But it's very much along the lines of what you're talking about there, really pushing to get the word out and get people to come back in to experience what we know by all the data is going to be a great experience.

Speaker 5

Okay, great. And I have one more and then I'll hop back in queue. If you look at where the Street kind of went to for 24 restaurant level margins, we had the improvement north of 14%. Our sense is we may have gotten a little bit over our tips relative to the reality of what it takes to improve and inflect margin. But is there anything incremental?

Speaker 5

I mean, the commodity inflation outlook sounded good. I know you've put a lot of the labor investment back into the model. Is there anything in 'twenty four that's kind of layered into that guidance that you provided, that 12.5% to 13.5 percent restaurant level margin? Thanks.

Speaker 2

I think we laid out the big pieces and I think you just mentioned many of them. So I think we laid out the big pieces. I think the piece that relative to any information that you or others had out there on us, I think the piece that we layered in that's perhaps incremental to that is really just the impact of what we saw to start the year. We were certainly impacted by the weather. We've seen those comments from others in the industry, certainly impacted by the weather to start the year.

Speaker 2

And quite frankly, when we look back at 2023, we had a great Q1 of 2023. We were up 8.6% comparable restaurant sales last year. And quite frankly, the heaviest hurdles, January was the biggest hurdle, February was the 2nd biggest hurdle. And then the hurdle, so to speak, isn't quite so severe in the rest of the quarter and the rest of the year. But I think when you put those really big hurdles from P1 or from January February on top of then the weather events of this year, I think that's the piece that we're reacting to a little bit real time.

Speaker 2

And then my sense is that the street numbers probably didn't have that factor incorporated where we did added that factor in.

Speaker 5

Okay. Do you want to speak to Todd, I don't know in this forum, if you either want to talk to quarter to date or knowing that you still have this is a 16 week for you guys, maybe frame up the expectation for the full quarter so that we're not trying to guess how much you can chase back against some easier compares as Q1 progresses?

Speaker 2

Yes. It's a fair question, Todd. And I think as we think about it, I go right where you went of. We do have, right. We're somewhat unique and we have a 16 week Q1 that really we're only halfway through, meaning we still got a really long way to go.

Speaker 2

I think the obviously weeks months and even quarters can sometimes be volatile. So I don't know that we're ready to give you a number for Q1, but I think the way that we're thinking about it is part of the progression that we've seen through the Q1. When we look at the January results and then the improvement as we get into February, we've seen basically a 600 basis point improvement from January to February. Now those are still January was still a decline in same store sales as was February. But seeing that sequential improvement gives us confidence that it is a year over year lap that's driving our numbers so far this year and seeing them improve gives us confidence in the balance of the quarter.

Speaker 2

So, I don't know that we're ready to put out a number yet on Q1, but it is one that obviously it's been a headwind to start the year, but we're seeing the sequential improvement in the right direction.

Speaker 5

Okay, perfect. Thanks, Todd.

Operator

Thank you. Next question comes from the line of Andrew Wolf with CL King. Please go ahead.

Speaker 4

Thank you. Good afternoon. I kind of wanted to piggyback on Todd's question on the comps kind of the cadence, but not in the quarter. I mean, I think you wouldn't have called it out as particularly challenging and you're not alone, if it wasn't going to be well below somewhat to well below trend well below guidance. So I guess what I want to get to is the compares get a lot easier in the second half and obviously, the Q1 is going to be what it is.

Speaker 4

But I'm certainly I'm going to model it below meaningfully below the guidance you put in of look down low single digits.

Speaker 3

So could you give

Speaker 4

I mean are you guys is it reasonable to expect your comps to at least flatten out if not turn positive in the second half when you start to hit the easier comparisons? Is that sort of how you're viewing the year? Like, I know the Q1 is not in the books yet, but certainly the 2 1st 2 months 1st 2, 4 week periods put you in a tough spot?

Speaker 2

Yes, Andy, you're spot on. We do expect with what we've seen so far in the Q1 that I just referenced of our February period better than the January period. We are looking for that to continue. That is both true for same store sales as well as the traffic side of things. I referenced that in prepared remarks that especially on the traffic side, the marker is going to be each quarter better than the last.

Speaker 2

So you're thinking about that the right way and we do see a track that gets us positive as we move through the year.

Speaker 4

And kind of related to what I'm asking about, when is your marketing incremental marketing going to really start to hit the mediums you're going to use?

Speaker 1

As we I think we mentioned it, it will start in March. Okay. As we begin that and it really goes into the Q2 really full stop.

Speaker 4

All right. And then a housekeeping, I think you mentioned you had an extra payroll cycle which hit your cash. Was that a meaningful number? Did it improve your liquidity position from year end?

Speaker 2

Andy, no. It was actually a headwind to our liquidity position, which is part of why I called it out. One pay for us is $17,000,000 or $18,000,000 Now admittedly, we have an extra week of revenue to help offset that, but it was definitely a headwind to our liquidity. It's just a point in time headwind though, right? It quickly balances out.

Speaker 2

But just because we drew the line of the fiscal year end a week later, we ended up carrying effectively 7 payroll cycles in the quarter rather than a typical 6.

Speaker 4

That's what I was asking. So your liquidity position is somewhere $17,000,000 plus or minus better than you ended the year?

Speaker 2

Exactly. It

Speaker 1

is unusually

Speaker 2

depressed versus what we feel like it should have been so to speak if we were on a normal 52 week calendar.

Speaker 4

Okay. And we'll look at the cash flow statement. But sort of backing into that, there must be some other things in there either in working capital or that seem to have hit the cash from operations that might not repeat?

Speaker 2

That's correct. Yes, that was the big headwind that I'd call out on cash. And again, that's just the timing aspect. But we can certainly talk through the cash flow statement as you're able to digest it.

Speaker 4

Okay. Thank you. That's it for me. Thank you.

Speaker 2

Thank

Operator

you. Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to G. J.

Operator

Hart for closing comments.

Speaker 3

J. Hart:]

Speaker 1

All right. Well, thank you all for joining us today. We look forward to our next report. And again, we're excited about this comeback and making it come to reality. So take care.

Speaker 1

Thank you. We'll talk soon.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
Red Robin Gourmet Burgers Q4 2023
00:00 / 00:00