What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-08-18 · 149 added, 144 removed, 231 unchanged (56% 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 twelve and twenty-eight weeks ended July 11, 2021 and July 12, 2020, unless otherwise indicated.

All comparisons under this heading between 2021 and 2020 refer to the twelve and forty weeks ended October 3, 2021 and October 4, 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 July 11, 2021, the Company owned 430 restaurants located in 38 states.

As of October 3, 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.

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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.

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.

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.

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.

The COVID-19 pandemic continues to create unprecedented challenges for our industry including government mandated restrictions, changing consumer behavior, labor and supply chain challenges, and wide spread inflationary costs.

Even as government restrictions were lifted, and dining rooms returned to full capacity, the surge in the Delta variant continued to highlight the critical importance of providing a safe environment for our Team Members and Guests.

In response to these COVID-19 challenges, the Company limited dining hours and seating capacity in order to preserve the consistent quality experience our Guests expect from us.

Our disciplined Guest focus is delivered through our Total Guest Experience hospitality model ("TGX"), off-premises enhancements, and our management labor model.

Our ability to attract and retain Team Members has become more challenging in the current competitive job market.

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.

we have supported our staffing efforts through technology enhancements to the application and hiring process, improving our wage policies, holding national hiring days, and deploying internal and external resources to augment recruiting, hiring, and training efforts.

The challenges in hiring and retention and global supply chain disruptions have affected many of our vendor partners, resulting in intermittent product and distribution shortages.

We remain focused on proactively addressing these industry challenges, while delivering a great Guest experience and continuing to prioritize the satisfaction and retention of our Team Members.

Financial and Operational Highlights

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

The following summarizes the operational and financial highlights during the twelve weeks ended October 3, 2021:

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

Restaurant Revenue for the twelve weeks ended July 12, 2020

Restaurant Revenue for the twelve weeks ended October 4, 2020

Increase in comparable restaurant revenue 67.0

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Total increase 73.2

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 for the twelve weeks ended October 3, 2021

The following summarizes the operational and financial highlights during the forty weeks ended October 3, 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

Restaurant Revenue for the forty weeks ended October 4, 2020

Increase in comparable restaurant revenue 200.6

Decrease from non-comparable restaurants 1.8

Total increase/(decrease) 129.3

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

Total increase 202.4

Restaurant Revenue for the forty weeks ended October 3, 2021

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

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)

October 3, 2021 October 4, 2020 Increase/(Decrease) October 6, 2019 (1)

Increase/(Decrease)

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

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)

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

October 3, 2021 October 4, 2020 Increase/(Decrease) October 6, 2019 (1)

Increase/(Decrease)

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(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

The following table summarizes Net loss, loss per diluted share, and adjusted loss per diluted share for the twelve and forty weeks ended October 3, 2021 and October 4, 2020;

Twelve Weeks Ended Forty Weeks Ended

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

Net loss as reported $ (14,980) $ (6,179) $ (28,689) $ (236,738)

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Net loss as reported $ (0.95) $ (0.40) $ (1.83) $ (16.98)

Restaurant closure and refranchising costs 0.11 0.55 0.27 0.68

Restaurant closure costs 0.07 0.26 0.34 0.93

Asset impairment — — 0.09 1.49

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

Twelve Weeks Ended Twenty-Eight Weeks Ended

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

Twelve Weeks Ended Forty Weeks Ended

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

Company-owned:

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Beginning of period 101 102 103 102

Opened during the period — 1 — 1

Closed during the period — — (2) —

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________________________________________________________

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

The following table presents total Company-owned and franchised restaurants by state or province as of October 3, 2021:

Company-Owned Restaurants Franchised Restaurants

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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.

Twelve Weeks Ended Twenty-Eight Weeks Ended

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

Twelve Weeks Ended Forty Weeks Ended

October 3, 2021 October 4, 2020 October 6, 2019 (1)

Restaurant revenue 98.1 % 98.3 % 98.5 % 98.0 % 98.6 % 98.1 %

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Depreciation and amortization 6.9 % 9.6 % 7.2 % 7.3 % 10.2 % 7.0 %

Selling, general and administrative 10.2 % 12.2 % 11.4 % 9.8 % 13.1 % 11.6 %

General and administrative expenses 6.4 % 7.6 % 6.5 % 6.6 % 8.4 % 7.0 %

Selling expenses 4.6 % 3.0 % 6.0 % 3.6 % 4.0 % 4.8 %

Pre-opening and acquisition costs 0.2 % — % — % 0.1 % — % — %

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Loss before income taxes (5.4) % (13.4) % (2.4) % (3.3) % (36.1) % (2.2) %

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 %

Income tax benefit 0.0 % (10.3) % (1.8) % — % (0.6) % (2.1) %

Net loss (5.4) % (3.1) % (0.6) % (3.3) % (35.5) % — %

___________________________________

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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.

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

Twelve Weeks Ended Forty Weeks Ended

(Revenues in thousands) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Restaurant revenue $ 270,202 $ 197,009 37.2 % $ 861,036 $ 658,587 30.7 %

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Net sales per square foot $ 101 $ 75 33.6 % $ 322 $ 247 30.4 %

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.

Restaurant revenue for the twelve weeks ended October 3, 2021, which comprises primarily food and beverage sales, increased $73.2 million, or 37.2%, as compared to the twelve weeks ended October 4, 2020.

The increase was due to a $67.0 million, or 34.3%, increase in comparable restaurant revenue, and a $6.2 million increase primarily from reopened restaurants that were temporarily closed during third quarter 2020.

The comparable restaurant revenue increase was driven by a 22.5% increase in Guest count and a 11.8% 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 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 8.4% increase in menu mix, partially offset by a 0.1% decrease from higher discounting.

The increase in menu mix was primarily driven by higher sales of beverages and our limited time menu offerings.

Off-premises sales comprised 30.8% of total food and beverage sales during third quarter 2021, compared to 40.7% in the same period in 2020.

Restaurant revenue for the forty weeks ended October 3, 2021, increased $202.4 million or 30.7%, as compared to the forty weeks ended October 4, 2020.

The increase was due to a $200.6 million, or 31.5%, increase in comparable restaurant revenue and a $1.8 million increase primarily from reopened restaurants that were temporarily closed during 2020.

The comparable restaurant revenue increase was driven by a 21.1% increase in Guest counts and a 10.5% increase in average Guest check.

The increase in average Guest check resulted from a 3.5% increase in pricing and a 6.6% increase in menu mix, and a 0.4% increase from lower discounting.

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

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

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.

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.

Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the twelve and forty weeks ended October 3, 2021 or October 4, 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 $3.8 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.

Franchise and other revenue increased $1.8 million for the twelve weeks ended October 3, 2021 compared to the twelve weeks ended October 4, 2020, due to improved comparable franchise sales performance during the third fiscal quarter of 2021.

Franchise and other revenue increased $8.6 million for the forty weeks ended October 3, 2021 compared to the forty weeks ended October 4, 2020, due to improved comparable franchise sales performance, charging and collecting royalty payments and advertising contributions from our franchisees during the third fiscal quarter of 2021.

During 2020, the Company had temporarily abated franchisee royalty and advertising contribution payments in mid-March, and resumed collection during the latter half of the second fiscal quarter of 2020, and increased gift card breakage.

Cost of Sales

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Cost of sales $ 62,671 $ 46,037 36.1 % $ 193,754 $ 155,243 24.8 %

As a percent of restaurant revenue 23.2 % 23.4 % (0.2) % 22.5 % 23.6 % (1.1) %

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 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

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 20 basis points for the twelve weeks ended October 3, 2021 as compared to the same period in 2020.

The decrease was primarily driven by pricing, favorable mix shifts, lower waste, and higher rebates, partially offset by commodity inflation.

Cost of sales as a percentage of restaurant revenue decreased 110 basis points for the forty weeks ended October 3, 2021 as compared to the same period in 2020.

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Labor $ 99,725 $ 74,344 34.1 % $ 310,333 $ 255,652 21.4 %

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

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.

For the twelve weeks ended October 3, 2021, labor as a percentage of restaurant revenue decreased 80 basis points compared to the same period in 2020.

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

$3.1 million of transitory labor and other operating costs were incurred due to staffing challenges, including hiring and training costs, temporarily outsourced janitorial costs, one time bonuses, and overtime pay.

For the forty weeks ended October 3, 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

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Other operating $ 51,462 $ 37,631 36.8 % $ 156,102 $ 124,585 25.3 %

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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 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

For the twelve weeks ended October 3, 2021, other operating costs as a percentage of restaurant revenue decreased 10 basis points as compared to the same period in 2020.

The decrease was primarily driven by sales leverage and lower utilities, and lower supplies due to lower off-premises sales mix, partially offset by increased hiring advertisement costs and janitorial and maintenance expenses.

For the forty weeks ended October 3, 2021, other operating costs as a percentage of restaurant revenue decreased 80 basis points as compared to the same period in 2020.

The decrease was primarily driven by sales leverage and lower utilities and supplies due to lower off-premises sales mix, partially offset by increased hiring costs.

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Occupancy $ 22,519 $ 22,099 1.9 % $ 74,233 $ 76,514 (3.0) %

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

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.

For the twelve weeks ended October 3, 2021, occupancy costs as a percentage of restaurant revenue decreased 290 basis points compared to the same period in 2020 primarily driven by sales leverage and restructured leases.

For the forty weeks ended October 3, 2021, occupancy costs as a percentage of restaurant revenue decreased 300 basis points compared to the same period in 2020 primarily driven by sales leverage, savings from permanently closed restaurants and restructured leases.

Our fixed rents for the twelve weeks ended October 3, 2021 and October 4, 2020 were $15.8 million and $14.7 million, an increase of $1.1 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.

Our fixed rents for the forty weeks ended October 3, 2021 and October 4, 2020 were $52.8 million and $51.0 million, an increase of $1.8 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

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Depreciation and amortization $ 18,881 $ 19,173 (1.5) % $ 63,984 $ 68,053 (6.0) %

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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 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.

For the twelve weeks ended October 3, 2021, depreciation and amortization expense as a percentage of revenue decreased 270 basis points over the same period in 2020.

For the forty weeks ended October 3, 2021, depreciation and amortization expense as a percentage of revenue decreased 290 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

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) %

General, and Administrative expenses

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

General, and administrative expenses $ 17,691 $ 15,190 16.5 % $ 57,664 $ 56,054 2.9 %

As a percent of total revenues 6.4 % 7.6 % (1.2) % 6.6 % 8.4 % (1.8) %

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;

General, and administrative costs include all corporate and administrative functions, excluding Selling expenses discussed below.

Components of this category include our restaurant support center, regional, and franchise support salaries and benefits;

professional and consulting fees;

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and board of directors expenses.

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.

General, and administrative expenses in the twelve weeks ended October 3, 2021 increased $2.5 million, or 16.5 %, as compared to the same period in 2020.

The increase in general and administrative expenses in 2021 was primarily driven by merit increases and lapping temporary salary reductions in 2020, increased travel costs, and higher professional services spend.

General, and administrative expenses in the forty weeks ended October 3, 2021 increased $1.6 million, or 2.9 %, as compared to the same period in 2020.

The increase in general and administrative expenses in 2021 was primarily driven by higher Team Member benefit costs, merit increases and lapping temporary salary reductions in 2020, partially offset by decreased travel costs and other corporate costs.

Selling expenses

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Selling expenses $ 12,652 $ 6,094 * $ 31,635 $ 26,429 19.7 %

As a percent of total revenues 4.6 % 3.0 % 1.6 % 3.6 % 4.0 % (0.4) %

Selling expenses include all marketing and advertising costs associated with the Company's marketing strategy.

Selling expenses in the twelve weeks ended October 3, 2021 increased $6.6 million, as compared to the same period in 2020.

The increase in selling expenses in 2021 was primarily driven by the return of marketing spend closer to a more normalized level in 2021.

Selling expenses in the forty weeks ended October 3, 2021 increased $5.2 million, or 19.7 %, as compared to the same period in 2020.

The increase in selling expenses in 2021 was primarily driven by the return of marketing spend closer to a more normalized level in 2021.

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

Pre-opening Costs

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Pre-opening costs $ 418 $ 89 * $ 792 $ 245 *

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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 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.

We incurred pre-opening costs during the twelve and forty weeks ended October 3, 2021 and October 4, 2020 related to the rollout of Donatos®.

The Company completed the rollout of 38 restaurants during the twelve weeks ended October 3, 2021, and expects to continue its roll out of Donatos® to approximately 40 restaurants in the fourth quarter of fiscal year 2021.

Interest Expense, Net and Other

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.

Interest expense, net and other was $2.9 million for the twelve weeks ended October 3, 2021, an increase of $0.6 million, or 26.1%, 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, partially offset by a lower average outstanding debt balance compared to the same period in 2020.

Our weighted average interest rate was 6.8% for the twelve weeks ended October 3, 2021 as compared to 5.0% for the same period in 2020.

Interest expense, net and other was $10.0 million for the forty weeks ended October 3, 2021, an increase of $2.4 million, or 31.6%, 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.

Our weighted average interest rate was 6.6% for the forty weeks ended October 3, 2021 as compared to 4.5% for the same period in 2020.

Provision for Income Taxes

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 effective tax rate for the twelve weeks ended October 3, 2021 was a 0.2% benefit, compared to a 77.0% benefit for the twelve weeks ended October 4, 2020.

The effective tax benefit for the forty weeks ended October 3, 2021 was 1.1%, compared to a 1.8% benefit for the forty weeks ended October 4, 2020.

The decrease in tax benefit for the twelve and forty weeks ended October 3, 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.

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Liquidity and Capital Resources

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.

Cash and cash equivalents increased $1.6 million to $17.8 million as of October 3, 2021, from $16.1 million at the beginning of the fiscal year.

As of October 3, 2021, the Company had approximately $75.2 million in liquidity, including the impact of a $30 million capacity reduction on our revolving line of credit pursuant to the Second Amendment, including cash on hand and available borrowing capacity.

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

Twenty-Eight Weeks Ended

July 11, 2021 July 12, 2020

Forty Weeks Ended

October 3, 2021 October 4, 2020

Net cash provided by (used in) operating activities $ 37,617 $ (22,401)

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Operating Cash Flows

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.

Net cash flows provided by (used in) operating activities increased $61.0 million to $37.6 million for the forty weeks ended October 3, 2021.

The changes in net cash provided by (used in) operating activities are primarily attributable to a $103.3 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, 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 $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

Net cash flows used in investing activities increased $5.8 million to $20.0 million for the forty weeks ended October 3, 2021, as compared to $14.1 million for the same period in 2020.

The increase is primarily due to increased spend on Donatos ® associated with adding 38 restaurants in the third fiscal quarter.

The following table lists the components of our capital expenditures, net of currency translation, for the forty weeks ended October 3, 2021 and October 4, 2020 (in thousands):

Forty Weeks Ended

October 3, 2021 October 4, 2020

Donatos ® expansion

Restaurant improvement capital and other 6,467 8,433

Investment in technology infrastructure and other 5,355 6,437

Donatos ® expansion

New restaurants and restaurant refreshes 478 —

Total capital expenditures $ 19,987 $ 14,870

Financing Cash Flows

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.

Net cash flows used in financing activities increased $51.0 million to $16.0 million for the forty weeks ended October 3, 2021, as compared to net cash flows provided by financing activities of $34.0 million in the same period in 2020.

The decrease is due to a $28.9 million decrease in proceeds from the issuance of common stock, net of issuance costs, and a $24.7 million increase in net repayments 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 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.

As of October 3, 2021, the Company had outstanding borrowings under the Credit Facility of $156.3 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 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.

As of October 3, 2021, the Company had $57.4 million of available borrowing capacity under its Credit Facility, including the impact of a $30 million capacity reduction on our revolving line of credit pursuant to the Second Amendment.

Net payments during the forty weeks ended October 3, 2021 totaled $14.3 million, and net draws during the same period in 2020 totaled $9.2 million.

We have made net repayments on our Credit Facility of $50.5 million since December 29, 2019.

As discussed in Footnote 6, Borrowings , in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, In response to the continued uncertainty around the impact of industry labor and supply chain challenges, as well as the COVID-19 Delta variant, the Company amended its current Credit Facility on November 9, 2021 to obtain additional flexibility to continue to implement our business strategy.

The Company anticipates refinancing its Credit Facility in 2022.

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 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.

As discussed in Footnote 6, 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 Third Amendment on November 9, 2021, which waives compliance with the Leverage Ratio Covenant for the third fiscal quarter of 2021, and provides for adjustments during fourth fiscal quarter of 2021, and the first, second, and third fiscal quarters of 2022.

Additionally, the Third Amendment provides for adjustments to the calculation of the FCCR Covenant when it becomes applicable in the first fiscal quarter of 2022.

See Footnote 6, Borrowings for additional details.

As of October 3, 2021, the Company is in compliance with all applicable covenants applicable to our Credit Facility, as amended.

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

Debt Outstanding

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 .

Total debt outstanding decreased $13.4 million to $157.2 million at October 3, 2021 , from $170.6 million at December 27, 2020, primarily due to net payments of $14.3 million on the Credit Facility, offset by accruing utilization fees on the Credit Facility during the forty weeks ended October 3, 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 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.

From the date of the current program approval through October 3, 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 October 3, 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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Contractual Obligations

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 3, 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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Forward-looking statements may relate to, among other things:

(i) our business objectives and strategic plans, including projected growth in Guest traffic and revenue, planned improvements in operational efficiencies, gross margins, and expense management and enhancements to our restaurant environments and Guest engagement;

(ii) our expectations about pricing strategy and average check size;

(iii) our ability to hire, train, and retain Team Members;

(iv) investments in information technology systems and anticipated related benefits;

(v) our expectations about restaurant operating costs, including commodity and food prices and labor and energy costs;

(vi) anticipated legislation and other regulation of our business;

(vii) recent initiatives such as changes to our service model and our partnership with Donato's®;

(viii) our expectations about future cash flows, liquidity, future capital expenditures and other capital deployment opportunities, and taxes;

(ix) our expectations regarding competition;

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

(i) our ability to re-finance our Credit Facility in 2022, (ii) anticipated impacts of litigation, including employment-related claims, on our financial position and results of operations, (iii) anticipated impacts of COVID-19 on our business, our financial position and results of operations, (iv) expectations regarding our ability to attract and retain Team Members, (v) our business focus and strategy, (vi) expectations regarding claims for tax refunds, (vii) our ability to maintain our working capital position, (viii) our ability to use our Credit Facility to satisfy our working capital deficit, short-term liquidity requirements and capital expenditures, (ix) anticipated impacts of inflation, and (x) availability of food and supplies meeting our specifications from alternate sources.g.

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 effectiveness of the Company's strategic initiatives, including alternative labor models, service, and operational improvement initiatives;

• our ability to staff, train, and retain our workforce for service execution;

• our ability to recruit staff, train, and retain our workforce for service execution;

• the effectiveness of the Company's marketing strategies and promotions;

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• changes in consumer spending trends and habits;

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

• changes in the cost and availability of key food products and distribution, restaurant equipment, construction materials, labor, and energy, including the existence of alternate suppliers and the availability of supplies meeting our specification;

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

• the adequacy of cash flows and the cost and availability of capital or credit facility borrowings;

• the adequacy of cash flows and the cost and availability of capital or Credit Facility borrowings, including our ability to refinance our Credit Facility, on terms we expect or at all

• government delays in processing tax refund claims

• the level and impacts of inflation;

• the impact of federal, state, and local regulation of the Company's business;

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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