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Item 2. Management’s Discussion and Analysis

2021-08-18 compared with 2021-05-25 · 151 added, 147 removed, 224 unchanged (57% of the section changed)

1 unchanged sentence

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.

All comparisons under this heading between 2021 and 2020 refer to the sixteen weeks ended April 18, 2021 and April 19, 2020, unless otherwise indicated.

All comparisons under this heading between 2021 and 2020 refer to the twelve and twenty-eight weeks ended July 11, 2021 and July 12, 2020, unless otherwise indicated.

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 531 locations in North America.

As of April 18, 2021, the Company owned 440 restaurants located in 38 states.

As of July 11, 2021, the Company owned 430 restaurants located in 38 states.

The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province.

The Company operates its business as one operating and one reportable segment.

Company Response to COVID-19 Pandemic

Due to the novel coronavirus ("COVID-19") pandemic, we continue to navigate an unprecedented time for our business and industry.

During first quarter 2021, the Company continued to expand dine-in seating capacity at Company-owned restaurants in accordance with local limits.

Reopening dining rooms and expanding seating capacity was executed with the health, safety, and well-being of Red Robin's Team Members, Guests, and communities in mind with strict adherence to US Centers for Disease Control and Prevention, state, and local guidelines as our top priority.

The Company continues to maintain a disciplined focus on execution to provide our Guests a consistent quality experience each and every time they visit.

We are pleased to be able to demonstrate that we can sustain high Guest satisfaction scores as we continue to expand our operating capacity with the recovery and opening of dining rooms at higher capacities.

This is achieved through a combination of our Total Guest Experience hospitality model ("TGX"), off-premises enhancements, and our new management labor model.

As our dining rooms have continued to reopen, sales and the Guest experience have been positively impacted by our new TGX hospitality model.

We expect to build further sales momentum from additional seating expansion from increasing capacities at our restaurants, including use of outdoor seating to cater to our Guests that prefer a more distanced full service dining option, or prefer to dine outside.

As the implications of the COVID-19 pandemic have begun to ease with approved vaccines being distributed and administered, certain states in which we operate have lifted mandatory mask mandates.

In States with mask mandates still in place, we continue to require Guests to wear face coverings at all locations while entering, exiting, and walking around our restaurants, and face masks are provided for Guests who arrive without one to ensure we are enabling the mutual safety of our Guests and Team Members.

We remain focused on consistently delivering a great Guest experience, sustaining off-premises sales levels, and expanding seating capacity to continue to drive our improving sales.

Notably, restaurants with reopened dining rooms are sustaining off-premises sales mix of over two times pre-pandemic levels, demonstrating the enduring and growing popularity of Red Robin for off-premises occasions.

As of the end of our fiscal fifth period, all Company-owned restaurants have re-opened indoor dining rooms with varying levels of capacity.

Notably, these restaurants have sustained off-premises sales that are more than double pre-pandemic levels, even in comparable Company-owned restaurants that are able to operate at full indoor capacity.

As of April 18, 2021, total Company-owned restaurants included 12 restaurants that have remained closed since the onset of the COVID-19 pandemic;

of these restaurants, 10 will permanently close and two will re-open in 2021.

COVID-19 Impact

Due to the coronavirus ("COVID-19") pandemic, we continue to navigate an unprecedented time for our business and industry.

During the second quarter of 2021, the Company continued to expand dine-in seating capacity at Company-owned restaurants.

The Company continues to maintain a disciplined focus on execution to provide our Guests a consistent quality experience each and every time they visit through our Total Guest Experience hospitality model ("TGX"), off-premises enhancements, and our new management labor model.

Notably, as of the end of our fiscal eighth period, the Company has sustained off-premises sales that are more than double pre-pandemic levels, even as its restaurants were operating without indoor capacity restrictions.

Restaurant operating level expenses incurred for these restaurants during the temporary closures have been recorded in Restaurant closure and refranchising costs in Other charges;

see Note 6, Other Charges, in the Notes to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Selected operating metrics are presented below for the Company's 28 day accounting periods through the fourth period of fiscal year 2021, and the four weeks that comprise our fiscal fifth period of 2021 are as follows:

Period Ended (2)

Company-owned Restaurants 24-Jan 21-Feb (3)

21-Mar 18-Apr 16-May (6)

Net comparable (1) restaurant revenues

(26.7)% (22.9)% 21.9% 165.9% 102.6%

Net comparable (1) restaurant revenues compared to Fiscal Year 2019

(8.5)% 0.0% (3.3)%

Average weekly net sales per restaurant $39,701 $41,384 $53,240 $55,600 $52,731

Number of comparable Company-owned restaurants (1)

413 411 410 410 410

Company-owned restaurants with closed dining rooms (1)

Average weekly off-premises net sales per restaurant $20,896 $18,696 $20,056 $19,894 $19,078

Open system capacity (5)

40.0% 41.0% 48.0% 61.0% 65.0%

(1) Comparable restaurants are those Company-owned restaurants that have operated five full fiscal quarters as of the period presented.

Restaurant count shown is as of the end of the period presented.

(2) The periods ended January 24, February 21, March 21, and April 18, 2021 comprise the Company's first fiscal quarter.

The period ended May 16, 2021 falls within our second fiscal quarter of 2021, and amounts presented for the period are preliminary and subject to closing adjustments.

(3) Period includes the impact of reduced traffic due to winter weather in February of approximately 2% to 3%.

(4) This metric is presented to compare current year operating results to periods that are not impacted by the COVID-19 pandemic.

There was no meaningful COVID-19 impact in P1 or P2 of 2020.

(5) Represents the percentage of indoor seating of Company-owned restaurants with open dining rooms, as of the end of the period presented.

(6) Period includes the impact of limited operating hours, in part due to staffing shortages.

In addition, as our dining rooms have re-opened, our ability to attract and retain restaurant-level employees has become more challenging, as the job market for restaurant managers and hourly Team Members has become more competitive.

Staffing is our number one priority;

during the second fiscal quarter, we have supported our staffing efforts through technology enhancements to the application and hiring process, holding two national hiring days, and deploying internal and external resources to augment recruiting, hiring, and training efforts.

We plan to achieve staffing levels above those in 2019 to support elevated demand compared to 2019.

The challenges in hiring and retention have also affected certain of our suppliers, resulting in some intermittent product and distribution shortages.

Financial and Operational Highlights

The following summarizes the operational and financial highlights during the sixteen weeks ended April 18, 2021:

The following summarizes the operational and financial highlights during the twelve weeks ended July 11, 2021:

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

Restaurant Revenue for the sixteen weeks ended April 19, 2020

Increase/(decrease) in comparable restaurant revenue 28.3

Increase/(decrease) from closed restaurants (11.0)

Restaurant Revenue for the twelve weeks ended July 12, 2020

Increase in comparable restaurant revenue 105.4

Increase from non-comparable restaurants 6.7

Total increase 112.1

Restaurant Revenue for the twelve weeks ended July 11, 2021

The following summarizes the operational and financial highlights during the twenty-eight weeks ended July 11, 2021:

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

Restaurant Revenue for the twenty-eight weeks ended July 12, 2020

Increase in comparable restaurant revenue 133.7

Decrease from non-comparable restaurants (4.4)

Total increase/(decrease) 129.3

Restaurant Revenue for the sixteen weeks ended April 18, 2021

Restaurant Revenue for the twenty-eight weeks ended July 11, 2021

Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below:

Sixteen Weeks

Ended 2021 compared to 2020 Sixteen Weeks Ended 2021 compared to 2019 (1)

April 18, 2021 April 19, 2020 Increase/(Decrease) 4/21/2019 (1)

Twelve weeks ended 2021 compared to 2020 Twelve Weeks Ended 2021 compared to 2019 (1)

July 11, 2021 July 12, 2020 Increase/(Decrease) July 14, 2019 (1)

Increase/(Decrease)

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(1) Presented for improved comparability to pre-COVID-19 operations.

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.

The following table summarizes Net Loss, loss per diluted share, and adjusted loss per diluted share for the sixteen weeks ended April 18, 2021 and April 19, 2020;

Sixteen Weeks Ended

April 18, 2021 April 19, 2020

Twenty-Eight weeks ended 2021 compared to 2020 Twenty-Eight Weeks Ended 2021 compared to 2019 (1)

July 11, 2021 July 12, 2020 Increase/(Decrease) July 14, 2019 (1)

Increase/(Decrease)

Restaurant revenue (millions) $ 590.8 $ 461.6 28.0 % $ 702.9 (15.9) %

Restaurant operating costs:

(Percentage of Restaurant Revenue) (Basis Points) (Percentage of Restaurant Revenue) (Basis Points)

Cost of sales 22.2 % 23.7 % (150) 23.6 % (140)

Labor 35.6 % 39.3 % (370) 35.5 % 10

Other operating 17.7 % 18.8 % (110) 14.0 % 370

Occupancy 8.8 % 11.8 % (300) 8.6 % 20

Total 84.3 % 93.6 % (930) 81.7 % 260

(1) Presented for improved comparability to pre-COVID-19 operations.

The following table summarizes Net Loss, loss per diluted share, and adjusted loss per diluted share for the twelve and twenty-eight weeks ended July 11, 2021 and July 12, 2020;

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 11, 2021 July 12, 2020 July 11, 2021 July 12, 2020

Net loss as reported $ (4,996) $ (56,261) $ (13,709) $ (230,559)

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Restaurant closure and refranchising costs 0.11 0.55 0.27 0.68

Restaurant asset impairment 0.08 1.20

Asset impairment 0.01 0.38 0.09 1.57

Litigation contingencies — — 0.07 0.34

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

Sixteen Weeks Ended

April 18, 2021 April 19, 2020

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 11, 2021 July 12, 2020 July 11, 2021 July 12, 2020

Company-owned:

3 unchanged sentences

Beginning of period 103 102 103 102

Closed during the period (2) — (2) —

End of period 101 102 101 102

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________________________________________________________

(1) In addition to the permanent closures during the sixteen weeks ended April 18, 2021, total Company-owned restaurants included 12 restaurants that have remained closed since the onset of the COVID-19 pandemic;

of these restaurants, 10 will permanently close and two will re-open in 2021.

The following table presents total Company-owned and franchised restaurants by state or province as of April 18, 2021:

Company-Owned Restaurants (1)

Franchised Restaurants

The following table presents total Company-owned and franchised restaurants by state or province as of July 11, 2021:

Company-Owned Restaurants Franchised Restaurants

California 59 —

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———————————————————

(1) Includes 12 Company-owned restaurants that remained closed due to the COVID-19 pandemic as of April 18, 2021.

Results of Operations

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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.

Sixteen Weeks Ended

April 18, 2021 April 19, 2020 April 21, 2019 (1)

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 11, 2021 July 12, 2020 July 14, 2019 (1)

Restaurant revenue 98.3 % 99.4 % 98.2 % 97.9 % 98.8 % 97.9 %

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Loss before income taxes (1.9) % (32.6) % (4.9) % (2.3) % (45.8) % (2.1) %

Income tax benefit 0.0 % 4.1 % (0.1) %

Net loss (2.7) % (56.9) % 0.2 %

Income tax (benefit) provision (0.1) % 2.3 % (5.2) % (0.1) % 3.5 % (2.3) %

Net (loss) income (1.8) % (34.9) % 0.3 % (2.3) % (49.4) % 0.2 %

___________________________________

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Certain percentage 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.

Sixteen Weeks Ended

(Revenues in thousands) April 18, 2021 April 19, 2020 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(Revenues in thousands) July 11, 2021 July 12, 2020 Percent Change July 11, 2021 July 12, 2020 Percent Change

Restaurant revenue $ 272,157 $ 160,144 69.9 % $ 590,834 $ 461,578 28.0 %

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Net sales per square foot $ 102 $ 62 64.1 % $ 221 $ 171 29.1 %

Restaurant revenue for the sixteen weeks ended April 18, 2021, which comprises primarily food and beverage sales, increased $17.3 million, or 5.7 %, as compared to the first quarter of 2020.

The increase was due to a $28.3 million, or 10.0%, increase in comparable restaurant revenue, partially offset by a $11.0 million decrease primarily from closed restaurants.

Restaurant revenue for the twelve weeks ended July 11, 2021, which comprises primarily food and beverage sales, increased $112.1 million, or 69.9%, as compared to the twelve weeks ended July 12, 2020.

The increase was due to a $105.4 million, or 66.3%, increase in comparable restaurant revenue, and a $6.7 million increase primarily from reopened restaurants that were temporarily closed during second quarter 2020.

The comparable restaurant revenue increase was driven by a 47.7% increase in Guest count and a 18.6% increase in average Guest check.

The increase in average Guest check resulted from a 3.0% increase in pricing, a 14.9% increase in menu mix and a 0.7% increase from lower discounting.

The increase in menu mix was primarily driven by higher sales of appetizers and Gourmet burgers, partially offset by lower beverage mix.

Off-premises sales increased 75.5% and comprised 41.7% of total food and beverage sales during first quarter 2021.

The increase in menu mix was primarily driven by higher sales of beverages and appetizers, partially offset by lower gourmet burger mix.

Off-premise sales comprised 32.8% of total food and beverage sales during second quarter 2021, compared to 63.8% in the same period in 2020.

Restaurant revenue for the twenty-eight weeks ended July 11, 2021, increased $129.3 million or 28.0%, as compared to the twenty-eight weeks ended July 12, 2020.

The increase was due to a $133.7 million, or 30.3%, increase in comparable restaurant revenue, partially offset by a $4.4 million decrease primarily from closed restaurants.

The comparable restaurant revenue decrease was driven by a 20.4% increase in Guest counts and a 9.9% increase in average Guest check.

The increase in average Guest check resulted from a 3.5% increase in pricing and a 5.8% increase in menu mix, and a 0.6% increase from lower discounting.

The increase in menu mix was primarily driven by higher sales of appetizers and beverages.

Average weekly net sales volumes represent 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.

Comparable restaurant revenues are comprised of Company-owned restaurants that have operated five full quarters as of the end of the period presented.

The Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the sixteen weeks ended April 18, 2021 or April 19, 2020.

Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the twelve and twenty-eight weeks ended July 11, 2021 or July 12, 2020.

Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of new and acquired restaurants during the period, the average square footage of our restaurants, as well as the impact of changing capacity limitations in response to COVID-19 levels in a given locality.

Net sales per square foot represents the total restaurant revenue for Company-owned restaurants included in the comparable base divided by the total square feet of Company-owned restaurants included in the comparable base.

Franchise and other revenue increased $3.0 million for the sixteen weeks ended April 18, 2021 compared to the sixteen weeks ended April 19, 2020 due to charging and collecting royalty payments and advertising contributions from our franchisees for first fiscal quarter of 2021;

during the same period in 2020, the Company temporary abated all franchisee royalty and advertising contribution payments in response to COVID-19's effect on our franchisee's operations.

Our franchisees reported a comparable restaurant revenue increase of 15.1% for the sixteen weeks ended April 18, 2021 compared to the same period in 2020.

Franchise and other revenue increased $3.8 million for the twelve weeks ended July 11, 2021 compared to the twelve weeks ended July 12, 2020, due to charging and collecting royalty payments and advertising contributions from our franchisees during the second fiscal quarter of 2021;

during the same period in 2020, the Company had temporarily abated franchisee royalty and advertising contribution payments, resuming collection during the latter half of the second fiscal quarter of 2020.

Our franchisees reported a comparable restaurant revenue increase of 69.7% for the twelve weeks ended July 11, 2021 compared to the same period in 2020.

Franchise and other revenue increased $6.8 million for the twenty-eight weeks ended July 11, 2021 compared to the twenty-eight weeks ended July 12, 2020, due to charging and collecting royalty payments and advertising contributions from our franchisees during the second fiscal quarter of 2021;

during the same period in 2020, the Company had temporarily abated franchisee royalty and advertising contribution payments in mid-March, resuming collection during the latter half of the second fiscal quarter of 2020, as well as an increase in gift card breakage.

Our franchisees reported a comparable restaurant revenue increase of 35.7% for the twenty-eight weeks ended July 11, 2021 compared to the same period in 2020.

Cost of Sales

Sixteen Weeks Ended

(In thousands, except percentages) April 18, 2021 April 19, 2020 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 11, 2021 July 12, 2020 Percent Change July 11, 2021 July 12, 2020 Percent Change

Cost of sales $ 61,917 $ 38,780 59.7 % $ 131,083 $ 109,206 20.0 %

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Cost of sales, which comprises of food and beverage costs, is variable and generally fluctuates with sales volume.

Cost of sales as a percentage of restaurant revenue decreased 170 basis points for the sixteen weeks ended April 18, 2021 as compared to the same period in 2020.

The decrease was primarily driven by favorable commodity costs and rebates.

Sixteen Weeks Ended

(In thousands, except percentages) April 18, 2021 April 19, 2020 Percent Change

Cost of sales as a percentage of restaurant revenue decreased 140 basis points for the twelve weeks ended July 11, 2021 as compared to the same period in 2020.

The decrease was primarily driven by pricing, favorable mix shifts, and discounts, partially offset by commodity inflation.

Cost of sales as a percentage of restaurant revenue decreased 150 basis points for the twenty-eight weeks ended July 11, 2021 as compared to the same period in 2020.

The decrease was primarily driven by pricing and favorable mix shifts.

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 11, 2021 July 12, 2020 Percent Change July 11, 2021 July 12, 2020 Percent Change

Labor $ 98,949 $ 62,742 57.7 % $ 210,608 $ 181,308 16.2 %

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Labor costs include restaurant-level hourly wages and management salaries as well as related taxes and benefits.

For the sixteen weeks ended April 18, 2021, labor as a percentage of restaurant revenue decreased 430 basis points compared to the same period in 2020.

The decrease was primarily driven by a more efficient management labor structure, staffing shortages, and simplifying our menu resulting in reduced kitchen labor hours, partially offset by higher wage rates.

For the twelve weeks ended July 11, 2021, labor as a percentage of restaurant revenue decreased 280 basis points compared to the same period in 2020.

The decrease was primarily driven by staffing shortages, and sales leverage, partially offset by higher wage rates, staffing costs and increased restaurant management compensation costs in 2021.

$1.6 million of incremental labor costs were incurred due to increased hiring ads, incremental hiring and training resources, and retention and sign-on bonuses to support our staffing initiatives.

For the twenty-eight weeks ended July 11, 2021, labor as a percentage of restaurant revenue decreased 370 basis points compared to the same period in 2020.

The decrease was primarily driven by staffing shortages, and sales leverage, partially offset by higher wage rates and staffing costs.

Other Operating

Sixteen Weeks Ended

(In thousands, except percentages) April 18, 2021 April 19, 2020 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 11, 2021 July 12, 2020 Percent Change July 11, 2021 July 12, 2020 Percent Change

Other operating $ 46,928 $ 34,663 35.4 % $ 104,640 $ 86,954 20.3 %

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Other operating costs include costs such as equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology, and other miscellaneous costs.

For the sixteen weeks ended April 18, 2021, other operating costs as a percentage of restaurant revenue increased 80 basis points as compared to the same period in 2020.

The increase was primarily due to higher third party delivery commissions and supply costs driven by higher off-premises sales.

Sixteen Weeks Ended

(In thousands, except percentages) April 18, 2021 April 19, 2020 Percent Change

For the twelve weeks ended July 11, 2021, other operating costs as a percentage of restaurant revenue decreased 440 basis points as compared to the same period in 2020.

The decrease was primarily driven by lower third party delivery fees and supplies due to lower off-premises sales volumes, and sales leverage.

For the twenty-eight weeks ended July 11, 2021, other operating costs as a percentage of restaurant revenue decreased 110 basis points as compared to the same period in 2020.

The decrease was primarily driven by sales leverage and supply costs, partially offset by higher third party delivery commissions.

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 11, 2021 July 12, 2020 Percent Change July 11, 2021 July 12, 2020 Percent Change

Occupancy $ 21,614 $ 20,758 4.1 % $ 51,714 $ 54,415 (5.0) %

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Occupancy costs incurred prior to opening our new restaurants are included in pre-opening costs.

For the sixteen weeks ended April 18, 2021, occupancy costs as a percentage of restaurant revenue decreased 180 basis points compared to the same period in 2020 primarily due to savings from permanently closed restaurants and restructuring of lease payments and rent concessions.

Our fixed rents for the sixteen weeks ended April 18, 2021 and April 19, 2020 were $21.1 million and $21.6 million, a decrease of $0.5 million due to savings from permanently closed restaurants and restructuring of lease payments and rent concessions.

For the twelve weeks ended July 11, 2021, occupancy costs as a percentage of restaurant revenue decreased 510 basis points compared to the same period in 2020 primarily driven by savings from permanently closed restaurants and restructuring of lease payments, rent concessions, and sales leverage.

For the twenty-eight weeks ended July 11, 2021, occupancy costs as a percentage of restaurant revenue decreased 300 basis points compared to the same period in 2020 primarily driven by savings from permanently closed restaurants and restructuring of lease payments and rent concessions.

Our fixed rents for the twelve weeks ended July 11, 2021 and July 12, 2020 were $16.0 million and $14.7 million, an increase of $1.3 million due to recognizing ongoing fixed rents of Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic in Closed restaurant expense (a component of Other Charges) in 2020, compared to Occupancy in 2021, partially offset by a net decrease in store count resulting from 10 locations permanently closed during the period.

Our fixed rents for the twenty-eight weeks ended July 11, 2021 and July 12, 2020 were $37.0 million and $36.3 million, an increase of $0.7 million due to recognizing ongoing fixed rents of Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic in Closed restaurant expense (a component of Other Charges) in 2020, compared to Occupancy in 2021, partially offset by a net decrease in store count resulting from 13 locations permanently closed during the period.

Depreciation and Amortization

Sixteen Weeks Ended

(In thousands, except percentages) April 18, 2021 April 19, 2020 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 11, 2021 July 12, 2020 Percent Change July 11, 2021 July 12, 2020 Percent Change

Depreciation and amortization $ 19,215 $ 20,560 (6.5) % $ 45,103 $ 48,880 (7.7) %

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Depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquired franchise rights, leasehold interests, and certain liquor licenses.

For the sixteen weeks ended April 18, 2021, depreciation and amortization expense as a percentage of revenue decreased 140 basis points over the same period in 2020 primarily due to net closed Company-owned restaurants, and sales leverage.

For the twelve weeks ended July 11, 2021, depreciation and amortization expense as a percentage of revenue decreased 590 basis points over the same period in 2020.

For the twenty-eight weeks ended July 11, 2021, depreciation and amortization expense as a percentage of revenue decreased 300 basis points over the same period in 2020.

The decreases are primarily due to net closed Company-owned restaurants, and sales leverage.

Selling, General, and Administrative

Sixteen Weeks Ended

(In thousands, except percentages) April 18, 2021 April 19, 2020 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 11, 2021 July 12, 2020 Percent Change July 11, 2021 July 12, 2020 Percent Change

Selling, general, and administrative $ 28,346 $ 19,697 43.9 % $ 58,956 $ 61,199 (3.7) %

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and board of directors expenses.

Selling, general, and administrative costs in the sixteen weeks ended April 18, 2021 decreased $10.9 million, or 26.2%, as compared to the same period in 2020.

The decrease was primarily driven by reduced marketing due to capacity limitations and a shift to an all-digital marketing strategy, which has enabled us to communicate with our guests in a more compelling and cost effective way, as well as a decrease in travel and entertainment costs and a permanent reduction in force in 2020, partially offset by higher Team Member benefit costs.

Selling, general, and administrative costs in the twelve weeks ended July 11, 2021 increased $8.6 million, or 43.9%, as compared to the same period in 2020.

The increase in selling, general and administrative costs in 2021 was primarily driven by lapping the significant reduction in marketing spend in 2020 due to the COVID-19 pandemic, increased Team Member benefits, and temporary salary reductions in 2020, partially offset by lower professional services spend.

Selling, general, and administrative costs in the twenty-eight weeks ended July 11, 2021 decreased $2.2 million, or 3.7%, as compared to the same period in 2020.

The decrease was primarily driven by a decrease in travel and entertainment costs, decreased broadcast and national media marketing spend, decreased professional services spend and decreased salaries and wage expenses, partially offset by increased Team Member benefit costs.

Pre-opening Costs

Sixteen Weeks Ended

(In thousands, except percentages) April 18, 2021 April 19, 2020 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 11, 2021 July 12, 2020 Percent Change July 11, 2021 July 12, 2020 Percent Change

Pre-opening costs $ 374 $ 3 * $ 374 $ 156 *

As a percent of total revenues 0.1 % — % 0.1 % 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.

* Percentage increases and decreases over 100 percent were not considered meaningful.

Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos®, 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 given quarter will typically include expenses associated with restaurants opened during the quarter as well as expenses related to restaurants opening in subsequent quarters.

We incurred pre-opening costs during the sixteen weeks ended April 19, 2020 related to the rollout of Donatos®.

The Company expects to continue its roll out of Donatos® in 2021 to approximately 120 restaurants, including approximately 40 restaurants in our second fiscal quarter, and approximately 80 restaurants in the second half of the fiscal year.

We incurred pre-opening costs during the twelve and twenty-eight weeks ended July 11, 2021 and July 12, 2020 related to the rollout of Donatos®.

The Company completed the rollout of 41 restaurants during the twelve weeks ended July 11, 2021, and expects to continue its roll out of Donatos® to approximately 80 restaurants in the second half of fiscal year 2021.

Interest Expense, Net and Other

Interest expense, net and other was $4.3 million for the sixteen weeks ended April 18, 2021, an increase of $0.9 million, or 26.5%, compared to the same period in 2020.

The increase was primarily related to a higher weighted average interest rate for the quarter as well as the partial write off of approximately $1.2 million of deferred financing charges related to the modification of our revolver in conjunction with the execution of the Second Amendment on February 25, 2021, partially offset by a lower average outstanding debt balance compared to the same period in 2020.

Our weighted average interest rate was 6.3% for the sixteen weeks ended April 18, 2021 as compared to 4.3% for the same period in 2020.

Interest expense, net and other was $2.8 million for the twelve weeks ended July 11, 2021, an increase of $0.8 million, or 40.0%, compared to the same period in 2020.

The increase was primarily related to a higher weighted average interest rate for the quarter due to increased rates associated with the Second Amendment to Credit Agreement (the "Second Amendment"), partially offset by a lower average outstanding debt balance compared to the same period in 2020.

Our weighted average interest rate was 7.4% for the twelve weeks ended July 11, 2021 as compared to 4.2% for the same period in 2020.

Interest expense, net and other was $7.1 million for the twenty-eight weeks ended July 11, 2021, an increase of $1.8 million, or 34.0%, from the same period in 2020.

The increase was primarily related to a higher weighted average interest rate for the period as well as the partial write off of approximately $1.2 million of deferred financing charges related to the modification of our revolver in conjunction with the execution of the Second Amendment on February 25, 2021, partially offset by a lower average outstanding debt balance compared to the same period in 2020.

Our weighted average interest rate was 6.7% for the twenty-eight weeks ended July 11, 2021 as compared to 4.2% for the same period in 2020.

Provision for Income Taxes

The effective tax rate for the sixteen weeks ended April 18, 2021 was a 0.6% expense, compared to a 7.9% expense for the sixteen weeks ended April 19, 2020.

The decrease in tax expense for the sixteen weeks ended April 18, 2021 is primarily due to the recognition of a smaller valuation allowance during the first quarter of 2021.

The Company will be able to carry back federal and state net operating losses that are expected to generate approximately $16 million of cash tax refunds during 2021.

The effective tax rate for the twelve weeks ended July 11, 2021 was a 6.6% benefit, compared to a 7.0% expense for the twelve weeks ended July 12, 2020.

The decrease in tax expense for the twelve weeks ended July 11, 2021 is primarily due to the change in full valuation allowance recognition.

The effective tax benefit for the twenty-eight weeks ended July 11, 2021 and July 12, 2020 was 2.2%, compared to a 7.7% expense for the twelve weeks ended July 12, 2020.The decrease in tax expense for the twenty-eight weeks ended July 11, 2021 is primarily due to the change in full valuation allowance recognition.

The Company has filed federal and state cash tax refund claims totaling approximately $16 million during 2021 from net operating loss carrybacks.

While we expect to receive a portion of the refunds in 2021, due to government delays in processing these claims we do not expect to receive the majority until 2022.

Liquidity and Capital Resources

Cash and cash equivalents increased $6.2 million to $22.3 million as of April 18, 2021, from $16.1 million at the beginning of the fiscal year.

As the Company continues to recover from the COVID-19 pandemic and generates operating cash flow, we expect to begin using available cash flow from operations to pay down debt, maintain existing restaurants and infrastructure, and execute on our long-term strategic initiatives.

As of April 18, 2021, the Company had approximately $107 million in liquidity, including cash on hand and available borrowing capacity under its credit facility.

Cash and cash equivalents increased $9.5 million to $25.6 million as of July 11, 2021, from $16.1 million at the beginning of the fiscal year.

As the Company continues to recover from the COVID-19 pandemic and generates operating cash flow, the Company is using available cash flow from operations to pay down debt, maintain existing restaurants and infrastructure, and execute on our long-term strategic initiatives.

As of July 11, 2021, the Company had approximately $117 million in liquidity, including cash on hand and available borrowing capacity, under its credit facility.

The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):

Sixteen Weeks Ended

April 18, 2021 April 19, 2020

Net cash provided by (used in) provided by operating activities $ 18,932 $ (13,320)

Twenty-Eight Weeks Ended

July 11, 2021 July 12, 2020

Net cash provided by (used in) operating activities $ 37,184 $ (18,607)

Net cash used in investing activities (10,834) (11,413)

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Operating Cash Flows

Net cash flows provided by (used in) operating activities increased $32.3 million to $18.9 million for the sixteen weeks ended April 18, 2021.

Net cash flows provided by (used in) operating activities increased $55.8 million to $37.2 million for the twenty-eight weeks ended July 11, 2021.

The changes in net cash provided by (used in) operating activities are primarily attributable to a $90.5 million increase in profit from operations (defined as the change in operating margins from comparable and non-comparable restaurants), lower accounts receivable and higher accounts payable balances due to the timing of operational receipts and payments, deferral of payroll tax payments under the CARES Act, as well as other changes in working capital as presented in the Condensed Consolidated Statements of Cash Flows.

Investing Cash Flows

Net cash flows used in investing activities decreased $3.3 million to $5.4 million for the sixteen weeks ended April 18, 2021, as compared to $8.7 million for the same period in 2020.

The decrease is primarily due to targeted investment in restaurant technology and restaurant improvement capital in line with the Company's emphasis on strategic capital and cost management.

The following table lists the components of our capital expenditures, net of currency translation, for the sixteen weeks ended April 18, 2021 and April 19, 2020 (in thousands):

Sixteen Weeks Ended

April 18, 2021 April 19, 2020

Net cash flows used in investing activities decreased $0.6 million to $10.8 million for the twenty-eight weeks ended July 11, 2021, as compared to $11.4 million for the same period in 2020.

The decrease is primarily due to the Company selectively pursuing projects aligned with strategic uses of capital and cost management in restaurant technology and restaurant improvement capital, as well as increased spend on Donatos ® associated with adding 41 restaurants in the second fiscal quarter.

The following table lists the components of our capital expenditures, net of currency translation, for the twenty-eight weeks ended July 11, 2021 and July 12, 2020 (in thousands):

Twenty-Eight Weeks Ended

July 11, 2021 July 12, 2020

Restaurant improvement capital and other $ 6,184 $ 7,194

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Financing Cash Flows

Net cash flows used in financing activities increased $89.1 million to $7.4 million for the sixteen weeks ended April 18, 2021, as compared to net cash flows provided by financing activities of $81.7 million in the same period in 2020.

The decrease is due to a $91.0 million decrease in net draws made on long-term debt, a decrease in cash used to repurchase the Company's common stock due to the temporary suspension of the Company's share repurchase program, and a decrease in cash used for debt issuance costs.

Net cash flows used in financing activities increased $43.3 million to $16.9 million for the twenty-eight weeks ended July 11, 2021, as compared to net cash flows provided by financing activities of $26.4 million in the same period in 2020.

The decrease is due to a $29.7 million decrease in proceeds from the issuance of common stock, net of issuance costs, and a $17.5 million decrease in net draws made on long-term debt, partially offset by a decrease in cash used for debt issuance costs, and a decrease in cash used to repurchase the Company's common stock due to the temporary suspension of the Company's share repurchase program beginning in 2020.

Credit Facility

As of April 18, 2021, the Company had outstanding borrowings under the credit facility of $163.3 million, of which $9.7 million was classified as current, in addition to amounts issued under letters of credit of $8.6 million.

As of July 11, 2021, the Company had outstanding borrowings under the credit facility of $153.9 million, of which $9.7 million was classified as current, in addition to amounts issued under letters of credit of $8.6 million.

Amounts issued under letters of credit reduce the amount available under the credit facility but are not recorded as debt.

As of April 18, 2021, the Company had $84.4 million of available borrowing capacity under its credit facility.

Net payments during the sixteen weeks ended April 18, 2021 totaled $6.4 million, and net draws during the first quarter of 2020 totaled $84.0 million.

As of July 11, 2021, the Company had $91.4 million of available borrowing capacity under its credit facility.

Net payments during the twenty-eight weeks ended July 11, 2021 totaled $15.8 million, and net draws during the same period in 2020 totaled $0.6 million.

We are subject to a number of customary covenants under our credit facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments.

As discussed in Note 7, Borrowings , in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, we entered into the Second Amendment on February 25, 2021, which waives compliance with the lease adjusted leverage ratio financial covenant ("LALR ratio") and fixed charge coverage ratio financial covenant ("FCC ratio") for the first two fiscal quarters of 2021, and provides for adjustments during the third and fourth fiscal quarter of 2021 and the first and second fiscal quarters of 2022 for the LALR and FCC ratios and related calculations.

The Company is currently in compliance with applicable covenants, and forecasts compliance in the next twelve calendar months as the LALR ratio and FCC ratio become applicable.

As discussed in Note 7, Borrowings , in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of the Quarterly Report on Form 10-Q filed May 25, 2021, we entered into the Second Amendment to our Credit Agreement on February 25, 2021, which waives compliance with the lease adjusted leverage ratio financial covenant ("LALR") and fixed charge coverage ratio financial covenant ("FCCR") for the first two fiscal quarters of 2021, and provides for adjustments during the third and fourth fiscal quarter of 2021 and the first and second fiscal quarters of 2022 for the LALR and FCCR and related calculations.

As of July 11, 2021, the Company is in compliance with all applicable covenants.

Due to an anticipated delay in the timing of receipt of cash tax refunds, the Company proactively obtained a waiver from our lenders, waiving the application of our FCCR for our third and fourth fiscal quarters of 2021.

Debt Outstanding

Total debt outstanding decreased $6.4 million to $164.2 million at April 18, 2021 , from $170.6 million at December 27, 2020, due to net payments of $6.4 million on the credit facility during the sixteen weeks ended April 18, 2021 .

Total debt outstanding decreased $15.8 million to $154.8 million at July 11, 2021 , from $170.6 million at December 27, 2020, due to net payments of $15.8 million on the credit facility during the twenty-eight weeks ended July 11, 2021 .

Working Capital

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Pursuant to the repurchase program, purchases may be made from time to time at the Company's discretion and the Company is not obligated to acquire any particular amount of common stock.

From the date of the current program approval through April 18, 2021, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million.

Accordingly, as of April 18, 2021, we had $68.4 million of availability under the current share repurchase program.

From the date of the current program approval through July 11, 2021, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million.

Accordingly, as of July 11, 2021, we had $68.4 million of availability under the current share repurchase program.

Effective March 14, 2020, the Company temporarily suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic.

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The primary inflationary factors affecting our operations are food, labor costs, energy costs, and materials used in the construction of new restaurants.

A large number of our restaurant personnel are paid at rates based on the applicable minimum wage, and increases in the minimum wage rates have directly affected our labor costs in recent years.

Many of our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary increases.

Labor cost inflation had a negative impact on our financial condition and results of operations during the sixteen weeks ended April 18, 2021.

Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed or potential minimum wage increases, and construction materials make it difficult to predict what impact, if any, inflation may continue to have on our business, but it is anticipated inflation will have a negative impact on labor and commodity costs for the remainder of 2021.

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Contractual Obligations

There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2020, except for lease obligations as a result of contractual rent concessions negotiated by the Company during the fiscal quarter ended April 18, 2021, and long-term debt obligations resulting from the changes to our Credit Facility in February 2021 as previously discussed in Note 7, Borrowings , of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, Contractual long-term debt payments as of April 19, 2020 are as follows (in thousands):

Payments Due by Period

Total 2021 2022-2023 2024-2025 2026 and Thereafter

Long-term debt obligations (1)

$ 179,833 $ 13,512 $ 165,348 $ 65 $ 908

(1) Long-term debt obligations primarily represent minimum required principal payments under our Credit Facility including estimated interest of $15.4 million based on a 5.50% average borrowing interest rate.

There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 18, 2021, except for lease obligations as a result of contractual rent concessions negotiated by the Company during the fiscal quarter ended July 11, 2021.

See the maturity of lease liabilities table in Note 4, Leases, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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(ix) our expectations regarding competition;

and (x) our expectations regarding

demand and business recovery, consumer preferences, and consumer discretionary spending.

and (x) our expectations regarding demand and business recovery, consumer preferences, and consumer discretionary spending.

Although we believe the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties.

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• the implementation, rollout, and timing of technology solutions in our restaurants and at our restaurant support center, in addition to digital platforms that are accessed by our Guests;

• our ability to achieve revenue and cost savings from off-premise sales and other initiatives;

• our ability to achieve and sustain revenue and cost savings from off-premise sales and other initiatives;

• competition in the casual dining market and discounting by competitors;

• changes in consumer spending trends and habits;

• changes in the cost and availability of key food products, distribution, labor, and energy;

• changes in the cost and availability of key food products and distribution, restaurant equipment, construction materials, labor, and energy;

• general economic conditions, including changes in consumer disposable income, weather conditions, and related events in regions where our restaurants are operated;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis