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Item 2. Management’s Discussion and Analysis

2025-05-29 compared with 2024-11-06 · 158 added, 208 removed, 224 unchanged (62% 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.

References to the third quarter and year to date periods of fiscal 2024 and fiscal 2023 refer to the twelve and forty weeks ended October 6, 2024 and October 1, 2023, respectively.

References to the first quarter of fiscal 2025 and fiscal 2024 refer to the sixteen weeks ended April 20, 2025 and April 21, 2024, respectively.

Description of Business

Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 491 locations in North America.

As of October 6, 2024, the Company owned 408 restaurants located in 39 states, and had 92 franchised restaurants in 14 states and one Canadian province.

As of April 20, 2025, the Company owned 401 restaurants located in 39 states, and had 90 franchised restaurants in 13 states and one Canadian province.

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

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We also earn revenue from royalties and fees from franchised restaurants.

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

• Total revenues are $274.6 million, a decrease of $2.9 million.

Highlights for the First Quarter of Fiscal 2025, Compared to the First Quarter of Fiscal 2024:

• Total revenues are $392.4 million, an increase of $3.8 million.

• Comparable restaurant revenue (1) increased 3.1%.

• Net loss is $18.9 million, compared to a net loss of $8.2 million last year.

• Adjusted EBITDA (2) is $2.1 million compared to $6.8 million last year.

• Relaunched Loyalty Program increased to 14.5 million members compared to 13.1 million last year.

• Subsequent to the close of the third quarter, executed an amendment to the credit agreement that extends the adjustments to the financial covenants and expanded revolver capacity through the first quarter of fiscal 2026.

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

• Total revenues are $963.3 million, a decrease of $30.7 million.

• Comparable restaurant revenue (1) declined 2.6% excluding a deferred revenue benefit led by the change in the Company's loyalty program.

Including this benefit, Comparable restaurant revenue (1) declined 2.1%.

• Net loss is $37.8 million, compared to net loss of $7.5 million last year.

• Adjusted EBITDA (2) is $26.1 million compared to $58.3 million last year.

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

• Net income is $1.2 million, compared to a net loss of $9.5 million last year, a $10.7 million increase.

• Adjusted EBITDA (2) is $27.9 million compared to $13.4 million last year, a 108.2% increase.

• Completed sale of three owned properties during the first quarter for gross proceeds of $5.8 million.

• Repaid $17.8 million of debt.

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

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

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

Business Trends

We are closely monitoring evolving macroeconomic conditions, including ongoing inflationary pressures and uncertainty stemming from proposed and enacted trade policies such as tariffs.

Although a significant portion of our supply chain is domestically sourced, helping to mitigate some exposure, we recognize that changes to trade regulations and tariff implementations could lead to increased costs for certain commodities and materials.

Additionally, the broader implications of tariff-driven price increases could influence consumer spending habits and negatively affect our business.

At this time, we do not anticipate a material adverse impact to our financial performance for the remainder of fiscal year 2025;

however, continued volatility in global trade and economic policy presents a risk to both profitability and future demand.

Key Performance Indicators

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

(Dollars in millions) Twelve Weeks Ended Forty Weeks Ended

Restaurant Revenue for the period ended October 1, 2023

$ 273.1 $ 973.3

(Dollars in millions) Sixteen Weeks Ended

Restaurant Revenue for the period ended April 21, 2024

Increase/(decrease) in comparable restaurant revenue 11.5

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Total increase/(decrease) 7.2

Restaurant Revenue for the period ended October 6, 2024

$ 270.5 $ 943.6

Restaurant Revenue for the period ended April 20, 2025

Restaurant Data

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

Twelve Weeks Ended Forty Weeks Ended

October 6, 2024 October 1, 2023 October 6, 2024 October 1, 2023

Sixteen Weeks Ended

April 20, 2025 April 21, 2024

Company-owned:

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Opened during the period — —

Acquired from franchisees — — — 5

Closed during the period (6) (2)

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Closed during the period (1) —

Sold to Company during the period — — — (5)

End of period 90 92

Total number of restaurants 491 505

Comparable Restaurant Revenue

As of the first quarter of fiscal 2024, the Company revised its definition of comparable restaurant revenue to reflect Company-owned restaurants that have operated for 18 months as of the beginning of the period presented.

The prior definition included Company-owned restaurants that have operated for five full quarters as of the beginning of the period presented.

The Company believes this change will provide investors with a better understanding of our financial performance from period to period.

The change did not have a material impact on previously reported results and as such, prior periods were not revised to reflect the new definition.

For the third quarter and year to date periods of fiscal 2024, there were 402 and 401 comparable restaurants, respectively.

The following table presents total Company-owned and franchised restaurants by state or province as of October 6, 2024:

The following table presents total Company-owned and franchised restaurants by state or province as of April 20, 2025:

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 Forty Weeks Ended

(Dollars in thousands) October 6, 2024 October 1, 2023 October 6, 2024 October 1, 2023

Sixteen Weeks Ended

(Dollars in thousands) April 20, 2025 April 21, 2024

Restaurant revenue 98.4 % 97.4 %

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Depreciation and amortization 3.9 4.7

Selling, general, and administrative expenses 9.6 10.1 9.8 9.0

Pre-opening costs — — — 0.1

General and administrative

Selling 2.4 3.5

Other charges (gains), net

3 unchanged sentences

Interest (income) and other, net (0.1) (0.1)

Loss before income taxes (6.9) (2.8) (3.9) (0.7)

Income (loss) before income taxes 0.3 (2.4)

Income tax provision (benefit) — —

Net loss (6.9) % (2.9) % (3.9) % (0.8) %

Net income (loss) 0.3 % (2.4) %

(1) Expressed as a percentage of restaurant revenue.

Twelve Weeks Ended Forty Weeks Ended

(Dollars in thousands) October 6, 2024 October 1, 2023 Percent Change October 6, 2024 October 1, 2023 Percent Change

Sixteen Weeks Ended

(Dollars in thousands) April 20, 2025 April 21, 2024 Percent Change

Restaurant revenue $ 385,809 $ 378,568 1.9 %

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Total operating weeks 6,486 6,611 (1.9) %

Restaurant revenue, which is comprised primarily of food and beverage sales, decreased $2.5 million, or 0.9%, in the third quarter of fiscal 2024, as compared to the comparable period of 2023.

Restaurant revenue decreased primarily due to the closure of 9 locations subsequent to October 1, 2023.

Comparable restaurant revenue increased 0.6% and includes a 4.9% increase in average Guest check offset in part by a 4.3% decrease in Guest count.

The increase in average Guest check resulted from a 7.5% increase in menu prices, partially offset by a 1.1% decrease from menu mix and a 1.4% decrease from additional discounts.

The decrease in menu mix was primarily driven by greater incidence of promotional menu items offered at reduced prices.

Restaurant revenue decreased $29.7 million or 3.0% in the year to date period of fiscal 2024, as compared to the same period of 2023.

Restaurant revenue decreased primarily due to a 2.1% decrease in comparable restaurant revenue inclusive of a benefit from the change in the Company's loyalty program.

Comparable restaurant revenue reflects a 6.5% decrease in Guest count, partially offset by a 4.4% increase in average Guest check.

The decrease in Guest count is due in part to overlapping elevated performance in the first quarter of fiscal 2023, our exit of virtual brands in the third quarter of fiscal 2023, and adverse weather impacts during the first quarter of fiscal 2024.

The increase in average Guest check resulted from a 6.7% increase in menu prices, partially offset by a 2.0% decrease from menu mix and a 0.8% decrease from discounts.

The decrease in menu mix was primarily driven by Guests shifting visits from third party delivery platforms with elevated menu prices, to dine in visits at standard menu prices, and reduced incidence of add on menu items.

Dine-in sales comprised 76.5% of total food and beverage sales during the year to date period of 2024, as compared to 74.8% in the same period in 2023.

Restaurant revenue, which is comprised primarily of food and beverage sales, increased $7.2 million, or 1.9%, in the first quarter of fiscal 2025, as compared to the comparable period of fiscal 2024.

Comparable restaurant revenue increased $11.5 million, or 3.1%, partially offset by a $2.9 million decrease associated with the closure of 12 locations since the first fiscal quarter of 2024.

The comparable restaurant revenue increase includes a 6.6% increase in average Guest check offset in part by a 3.5% decrease in Guest count.

The increase in average Guest check resulted from a 6.8% increase in menu prices, partially offset by a 0.1% decrease from menu mix.

The decrease in menu mix was primarily driven by growth in our catering business that contributes a lower average Guest check than our other channels.

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

Franchise revenue decreased by $0.4 million, or 12.0%, in the third quarter of fiscal 2024 compared to the same period of 2023, primarily due to a decrease in franchisee contributions.

Franchise revenue increased by $0.4 million, or 3.2%, in the year to date period of fiscal 2024 compared to the same period of 2023, primarily due to an increase in franchisee contributions.

Franchisee contributions were reduced in the third quarter of fiscal 2024 in line with the reduction in overall selling expense, following an increase in the first half of fiscal 2024.

Franchise restaurants reported a decrease of 1.6% in comparable restaurant revenue in the third quarter of fiscal 2024 and a decrease of 2.7% for the year to date period of fiscal 2024 compared to the same periods in fiscal 2023.

Other revenue did not change and decreased $1.4 million in the third quarter and year to date periods of fiscal 2024 compared to 2023, respectively.

The decrease in the year to date period of fiscal 2024 compared to 2023 is primarily related to business interruption insurance recoveries recognized in 2023.

Franchise revenue decreased by $0.9 million, or 16.0%, in the first quarter of fiscal 2025 compared to the same period of fiscal 2024, primarily due to a decrease in franchisee contributions for marketing programs.

Franchise restaurants reported a decrease of 1.6% in comparable restaurant revenue in the first quarter of fiscal 2025 compared to the same period in fiscal 2024.

Other revenue decreased $2.6 million in the first quarter of fiscal 2025 compared to the same period of fiscal 2024.

The decrease is primarily related to lower gift card breakage in the current period.

Cost of Sales

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 6, 2024 October 1, 2023 Percent Change October 6, 2024 October 1, 2023 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 20, 2025 April 21, 2024 Percent Change

Cost of sales $ 88,028 $ 90,209 (2.4) %

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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 increased 30 basis points for the third quarter of fiscal 2024 as compared to the comparable period in 2023.

The increase was primarily driven by commodity inflation, product mix shift to higher cost menu items, and higher discounts, partially offset by menu price increases and vendor contributions to support our Managing Partner conference recorded as a reduction to cost of sales.

Cost of sales as a percentage of restaurant revenue decreased 50 basis points for the year to date period of fiscal 2024 as compared to the comparable period in 2023.

The improvement was primarily driven by menu price increases and implementation of various cost savings initiatives, partially offset by product mix shifts to higher cost menu items and commodity inflation.

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 6, 2024 October 1, 2023 Percent Change October 6, 2024 October 1, 2023 Percent Change

Cost of sales as a percentage of restaurant revenue decreased 100 basis points for the first quarter of fiscal 2025 as compared to the comparable period in fiscal 2024.

The decrease was primarily driven by menu price increases and vendor contributions to support our annual Partner recognition events which is recorded as a reduction to cost of sales, partially offset by an increase in commodity prices.

Sixteen Weeks Ended

(In thousands, except percentages) April 20, 2025 April 21, 2024 Percent Change

Labor $ 143,058 $ 148,958 (4.0) %

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

For the third quarter of fiscal 2024, labor as a percentage of restaurant revenue increased 180 basis points compared to the same period in 2023.

The increase was primarily driven by strategic investments in management labor and incentive compensation related to a new partner bonus plan, increased hourly labor costs, and higher workers compensation insurance costs.

For the year to date period of fiscal 2024, labor as a percentage of restaurant revenue increased 240 basis points compared to the same period in 2023.

The increase was primarily driven by strategic investments in hourly and management labor, increased incentive compensation related to a new partner bonus plan, and higher workers compensation and group health insurance costs.

For the first quarter of fiscal 2025, labor as a percentage of restaurant revenue decreased 220 basis points compared to the same period in fiscal 2024.

The decrease was primarily driven by ongoing efforts to reduce hourly labor costs, and reduced turnover.

Other Operating

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 6, 2024 October 1, 2023 Percent Change October 6, 2024 October 1, 2023 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 20, 2025 April 21, 2024 Percent Change

Other operating $ 67,532 $ 66,490 1.6 %

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

For the third quarter of fiscal 2024, other operating costs as a percentage of restaurant revenue is unchanged compared to the same period in 2023.

For the year to date period of fiscal 2024, other operating costs as a percentage of restaurant revenue decreased 10 basis points as compared to the same period in 2023.

The decrease was primarily driven by reduced third party commission expenses associated with lower off premise mix and lower commission rates.

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 6, 2024 October 1, 2023 Percent Change October 6, 2024 October 1, 2023 Percent Change

For the first quarter of fiscal 2025, other operating costs as a percentage of restaurant revenue decreased 10 basis points compared to the same period in fiscal 2024.

Sixteen Weeks Ended

(In thousands, except percentages) April 20, 2025 April 21, 2024 Percent Change

Occupancy $ 32,197 $ 31,428 2.4 %

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Occupancy costs include fixed rents, property taxes, common area maintenance charges, general liability insurance, contingent rents, and other property costs.

Occupancy costs as a percentage of restaurant revenue increased 20 basis points for the third quarter of fiscal 2024 compared to the same period in 2023.

The increase is due primarily to the impact of fixed rents associated with the sale-leaseback of 28 locations.

Occupancy costs as a percentage of restaurant revenue increased 60 basis points for the year to date period of fiscal 2024 compared to the same period in 2023.

The increase is due primarily to the impact of fixed rents associated with the sale-leaseback of 28 locations and the acquisition of five restaurants from a franchisee in the second quarter of fiscal 2023.

Occupancy costs as a percentage of restaurant revenue was consistent for the first quarter of fiscal 2025 compared to the same period in fiscal 2024.

Depreciation and Amortization

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 6, 2024 October 1, 2023 Percent Change October 6, 2024 October 1, 2023 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 20, 2025 April 21, 2024 Percent Change

Depreciation and amortization $ 15,434 $ 18,154 (15.0) %

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

For the third quarter of fiscal 2024, depreciation and amortization expense as a percentage of revenue decreased 40 basis points compared to the comparable period in 2023, primarily due to asset impairments and sale-leaseback transactions reducing the depreciable asset base.

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

Selling, General, and Administrative

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 6, 2024 October 1, 2023 Percent Change October 6, 2024 October 1, 2023 Percent Change

Selling, general, and administrative $ 26,290 $ 27,961 (6.0) % $ 94,329 $ 89,348 5.6 %

For the first quarter of fiscal 2025, depreciation and amortization expense as a percentage of revenue decreased 80 basis points compared to the comparable period in 2024, primarily due to asset impairments, restaurant closures, and a sale-leaseback transaction reducing the depreciable asset base.

General and Administrative Expenses

Sixteen Weeks Ended

(In thousands, except percentages) April 20, 2025 April 21, 2024 Percent Change

General and administrative

$ 26,989 $ 25,842 4.4 %

As a percent of total revenues 6.9 % 6.7 % 0.2 %

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;

professional and consulting fees;

corporate information systems;

legal expenses;

and Board of Directors' expenses.

Selling, general and administrative expense decreased $1.7 million, or 6.0% in the third quarter of fiscal 2024 as compared to the comparable period in 2023.

General and administrative costs in the third quarter of fiscal 2024 were $20.8 million, an increase of $2.3 million compared to the comparable period in 2023.

The increase is primarily related to costs incurred for the 2024 Managing Partner conference, partially offset by reduced incentive compensation and legal fees as compared to the prior year quarter.

Selling costs in the third quarter of fiscal 2024 were $5.5 million, a decrease of $4.0 million compared to the comparable period in 2023.

The decrease was primarily driven by reduced marketing communication with consumers and related production costs.

General and administrative costs in the year to date period of fiscal 2024 were $63.3 million, a decrease of $1.5 million compared to the comparable period in 2023.

The decrease is primarily related to reduced incentive compensation accruals as compared to the same period last year, partially offset by costs associated with the 2024 Managing Partner conference.

Selling costs in the year to date period of fiscal 2024 were $31.1 million, an increase of $6.5 million compared to the comparable period in 2023.

The increase was primarily driven by increased marketing communication with consumers and related production costs in the first half of fiscal 2024.

Pre-opening Costs

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 6, 2024 October 1, 2023 Percent Change October 6, 2024 October 1, 2023 Percent Change

Pre-opening costs $ — $ — — % $ — $ 586 (100.0) %

General and administrative costs include all corporate and administrative functions.

Components of this category include restaurant support center, regional, and franchise support salaries and benefits, travel, professional and consulting fees, corporate information systems, legal expenses, office rent, training, and Board of Directors' expenses.

General and administrative costs in the first quarter of fiscal 2025 were $27.0 million, an increase of $1.1 million compared to the comparable period in 2024.

The increase is primarily related to higher costs associated with noncash stock-based compensation expense and other costs incurred for annual Partner recognition events.

This increase is partially offset by a reduction in team member costs associated with lower headcount.

Selling Expenses

Sixteen Weeks Ended

(In thousands, except percentages) April 20, 2025 April 21, 2024 Percent Change

$ 9,376 $ 13,547 (30.8) %

As a percent of total revenues 2.4 % 3.5 % (1.1) %

Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos ® and other initiatives, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force.

Our pre-opening costs fluctuate from period to period, depending upon, but not limited to, the number of restaurants where Donatos ® has been introduced, the number of restaurant openings, the size of the restaurants being opened, and the location of the restaurants.

Pre-opening costs for any period will typically include expenses associated with restaurants opened during the period as well as expenses related to restaurants opening in subsequent periods.

We did not open any new restaurants or roll out any Donatos ® locations in the year to date period of fiscal 2024.

We opened one restaurant and completed the rollout of 25 Donatos ® locations in the year to date period of fiscal 2023.

Selling costs are comprised of all marketing and advertising costs.

Selling costs in the first quarter of fiscal 2025 were $9.4 million, a decrease of $4.2 million compared to the comparable period in 2024.

The decrease was primarily driven by reduced paid media spend overlapping a marketing test last year.

Interest Expense

Interest expense for the third quarter of fiscal 2024 and 2023 was $6.3 million and $6.1 million, respectively.

The $0.2 million increase was primarily due to an increase in the weighted average interest rate to 14.0% in the third quarter of fiscal 2024 compared to 13.4% in the prior year quarter.

Average outstanding debt was $191.6 million and $194.5 million as of October 6, 2024 and October 1, 2023, respectively.

Interest expense was $18.9 million for the year to date period of fiscal 2024 and $20.4 million for the year to date period of fiscal 2023.

The $1.4 million decrease was primarily due to the net paydown of debt with the proceeds from the sale-leaseback transactions, partially offset by an increase in the weighted average interest rate to 13.3% for the year to date period of fiscal 2024 compared to 12.6% in the same period last year.

Average outstanding debt was $185.2 million and $205.9 million as of October 6, 2024 and October 1, 2023, respectively.

Income Tax Provision

The effective tax rate for the third quarter of fiscal 2024 was a 0.5% benefit, compared to a 3.5% expense for the third quarter of fiscal 2023.

The effective tax rate for the year to date period of fiscal 2024 was 0.1%, compared to 6.4% for the year to date period of fiscal 2023.

The effective tax rate for the quarter and year to date periods of fiscal 2024 reflects the valuation allowance recorded against the Company's net tax assets in addition to certain state income taxes due to attribute limitations, minimum state income taxes, and state franchise taxes.

The higher effective tax rate for the fiscal 2023 periods as compared to the fiscal 2024 periods is due to the near break-even pretax book income generated in fiscal 2023.

Interest expense for the first quarter of fiscal 2025 and fiscal 2024 was $8.1 million and $7.5 million, respectively.

The $0.6 million increase was primarily due to an increase in the weighted average interest rate to 14.1% in the first quarter of fiscal 2025 compared to 13.2% in the first quarter of fiscal 2024.

Average outstanding debt was $187.7 million and $187.0 million for the first quarter of fiscal 2025 and fiscal 2024, respectively.

Income Tax Provision (benefit)

Income tax benefit was $0.0 million in the first quarter of fiscal 2025, compared to an income tax provision of $0.2 million in the first quarter of fiscal 2024.

Our effective tax rate was a 0.2% benefit in the first quarter of fiscal 2025 reflecting state income taxes.

Our effective tax rate was a 2.0% provision in the first quarter of fiscal 2024, reflecting minimum state income taxes and state franchise taxes despite a pretax net loss position.

Non-GAAP Financial Measures

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

Twelve Weeks Ended Forty Weeks Ended

(Dollars in millions) October 6, 2024 October 1, 2023 Increase/

(Decrease) October 6, 2024 October 1, 2023 Increase/

A reconciliation of Restaurant revenue to restaurant level operating profit is detailed in the table below:

Sixteen Weeks Ended

(Dollars in millions) April 20, 2025 April 21, 2024 Increase/

Restaurant revenue $ 385.8 $ 378.6 1.9 %

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Total restaurant operating costs

$ 330.8 $ 337.1 (1.9) %

Restaurant level operating profit (1)

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See below for a reconciliation of restaurant level operating profit to Income from Operations and Income from Operations as a percentage of total revenues.

Twelve Weeks Ended Forty Weeks Ended

(Dollars in millions) October 6, 2024 October 1, 2023 Increase/

(Decrease) October 6, 2024 October 1, 2023 Increase/(Decrease)

Sixteen Weeks Ended

(Dollars in millions) April 20, 2025 April 21, 2024 Increase/(Decrease)

Restaurant revenue $ 385.8 $ 378.6 1.9 %

1 unchanged sentence

(Percentage of Restaurant Revenue) (Basis

Points) (Percentage of Restaurant Revenue) (Basis

Cost of sales 22.8 % 23.8 % (100)

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Total restaurant operating costs

85.6 % 88.9 % (330)

Restaurant level operating profit

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

Twelve Weeks Ended Forty Weeks Ended

(in thousands, except per share amounts) October 6, 2024 October 1, 2023 October 6, 2024 October 1, 2023

Sixteen Weeks Ended

(in thousands, except per share amounts) April 20, 2025 April 21, 2024

Net income (loss) as reported $ 1,249 $ (9,460)

1 unchanged sentence

Net Income (loss) as reported $ 0.07 $ (0.61)

$ (1.20) $ (0.52) $ (2.42) $ (0.47)

Stock-based compensation expense 0.14 0.08

Other charges (gains), net:

Restaurant closure costs, net 0.01 0.01

Gain on sale of restaurant property (0.06) (0.48)

Litigation contingencies 0.02 0.23 0.07 0.57

Restaurant closure costs (gains), net (0.01) (0.01) 0.03 0.10

Severance and executive transition 0.05 0.06

Asset impairment 0.01 0.30 0.08 0.45

Litigation contingencies — 0.03

Asset disposal and other, net 0.03 0.13

0.07 0.02 0.24 0.09

Closed corporate office costs, net of sublease income — — 0.01 0.02

Income tax effect (0.05) 0.05

Adjusted income (loss) per share - diluted (1)

$ 0.19 $ (0.73)

Weighted average shares outstanding:

1 unchanged sentence

Diluted 18,302 15,554

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

Twelve Weeks Ended Forty Weeks Ended

October 6, 2024 October 1, 2023 October 6, 2024 October 1, 2023

(1) Beginning in the fiscal first quarter of 2025, the Company revised its definition of Adjusted Net income (loss) to exclude noncash stock-based compensation expense.

The Company believes this change provides investors with a better understanding of our financial performance from period to period.

Previously reported results have been revised to reflect the new presentation.

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

Sixteen Weeks Ended

April 20, 2025 April 21, 2024

Net income (loss) as reported $ 1,249 $ (9,460)

3 unchanged sentences

EBITDA 24,644 16,188

Stock-based compensation expense 2,589 1,190

Other charges (gains), net:

Gain on sale of restaurant property (1,137) (7,425)

Litigation contingencies 271 3,600 1,047 9,140

Restaurant closure costs (gains), net (175) (91) 422 1,546

Restaurant closure costs, net 210 175

Severance and executive transition 880 945

Asset impairment 178 4,800 1,306 7,187

Litigation contingencies 12 420

Asset disposal and other, net 711 1,909

1,179 277 3,799 1,366

Closed corporate office costs, net of sublease income 57 78 234 253

Adjusted EBITDA (1)

$ 27,909 $ 13,402

(1) Beginning in the fiscal first quarter of 2025, the Company revised its definition of Adjusted EBITDA to exclude noncash stock-based compensation expense.

The Company believes this change provides investors with a better understanding of our financial performance from period to period.

Previously reported results have been revised to reflect the new presentation.

We define EBITDA as net income (loss) before interest expense, income taxes, and depreciation and amortization.

1 unchanged sentence

We believe these non-GAAP measures give the reader additional insight into the ongoing operational results of the Company, and are intended to supplement the presentation of the Company's financial results in accordance with GAAP.

Adjusted EBITDA and adjusted income (loss) per share-diluted exclude the impact of non-operating or nonrecurring items including changes in estimates, asset impairments, litigation contingencies, gains (losses) on debt extinguishment, restaurant and office closure costs, gains on sale leaseback transactions, severance and executive transition costs and other non-recurring, non-cash or discrete items net of income tax impacts.

Other companies may define these non-GAAP measures differently, and as a result our measures may not be directly comparable to those of other companies.

Adjusted EBITDA, Adjusted net income (loss) and Adjusted net income (loss) per share-diluted exclude the impact of non-operating or nonrecurring items including changes in estimates, asset impairments, litigation contingencies, gains (losses) on debt extinguishment, restaurant and office closure costs, gains (losses) on restaurant sales, severance and executive transition costs, stock-based compensation expense and other non-recurring, non-cash or discrete items;

net of income tax impacts.

Other companies may define these non-GAAP measures differently, and as a result may not be directly comparable to those of other companies.

Adjusted income (loss) per share-diluted and Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income (loss) as reported in accordance with U.S.

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The following table summarizes Income (Loss) from Operations and Restaurant Level Operating Profit for the periods presented (dollars in thousands):

Twelve Weeks Ended Forty Weeks Ended

October 6, 2024 October 1, 2023 October 6, 2024 October 1, 2023

Sixteen Weeks Ended

April 20, 2025 April 21, 2024

Income (loss) from operations $ 9,061 2.3% $ (2,111) (0.5)%

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Other charges (gains), net

Pre-opening costs — — — — — — 586 0.1

Selling 5,467 2.0 9,418 3.4 31,052 3.2 24,547 2.5

676 0.2 (3,976) (1.0)

General and administrative expenses 26,989 6.9 25,842 6.7

Selling 9,376 2.4 13,547 3.5

Depreciation and amortization 15,434 3.9 18,154 4.7

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Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, and availability under our revolving Credit Facility.

Cash and cash equivalents, and restricted cash decreased $1.3 million to $30.3 million as of October 6, 2024, from $31.6 million at the beginning of the fiscal year.

As of October 6, 2024, the Company had approximately $42.0 million in liquidity, including cash and cash equivalents and $20.0 million available borrowing capacity under our Credit Facility.

Cash and cash equivalents, and restricted cash decreased $6.1 million to $33.3 million as of April 20, 2025, from $39.4 million at the beginning of the fiscal year.

As of April 20, 2025, the Company had approximately $59.2 million in liquidity, including cash and cash equivalents and $35.0 million available borrowing capacity under our Credit Facility.

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

Forty Weeks Ended

October 6, 2024 October 1, 2023

Sixteen Weeks Ended

April 20, 2025 April 21, 2024

Net cash provided by operating activities $ 19,574 $ 13,734

Net cash provided by investing activities 4,873 18,992

Net cash provided by (used in) investing activities (6,379) 15,145

Net cash used in financing activities (19,308) (21,894)

Effect of exchange rate changes on cash 2 2

Net change in cash and cash equivalents, and restricted cash $ (6,111) $ 6,987

Operating Cash Flows

Net cash flows provided by operating activities decreased $15.5 million to $1.8 million for the year to date period of fiscal 2024 compared to $17.4 million for the comparable period in fiscal 2023.

The decrease in net cash provided by operating activities is primarily attributable to the decrease in restaurant level profitability.

Net cash flows provided by operating activities increased $5.8 million to $19.6 million for the first quarter of fiscal 2025 compared to $13.7 million for the comparable period in fiscal 2024.

The increase in net cash provided by operating activities is primarily attributable to the increase in restaurant level profitability.

Investing Cash Flows

Net cash flows provided by investing activities decreased to $4.9 million for the year to date period of fiscal 2024, as compared to net cash flows provided by investing activities of $19.0 million for the comparable period in fiscal 2023.

The $14.1 million decrease in cash flows provided by investing activities is primarily due to lower proceeds from sale lease-back transactions in the current year period, partially offset by a reduction in current year capital expenditures.

In addition, cash provided by investing activities in the prior year included a $3.5 million cash outflow for the acquisition of five franchised restaurants.

Net cash flows used in investing activities was $6.4 million for the first quarter of fiscal 2025, as compared to net cash flows provided by investing activities of $15.1 million for the comparable period in fiscal 2024.

The $21.5 million decrease in cash flows from investing activities is primarily due to an increase in capital expenditures, coupled with lower proceeds from the sale of restaurant locations in the current year period as compared to the prior year period.

The following table lists the components of our capital expenditures for the periods presented (in thousands):

Forty Weeks Ended

October 6, 2024 October 1, 2023

Sixteen Weeks Ended

April 20, 2025 April 21, 2024

Restaurant improvement capital and other $ 6,146 $ 4,892

Technology, infrastructure, and other 5,826 3,356

Donatos ® expansion

New restaurants and restaurant refreshes — 1,421

Total capital expenditures $ 11,972 $ 8,248

Financing Cash Flows

Net cash flows used in financing activities decreased to $8.0 million for the year to date period of fiscal 2024, as compared to $33.7 million for the comparable period in fiscal 2023.

Cash flows used in financing activities in fiscal 2024 primarily relate to the paydown of $21.2 million of debt with proceeds from the sale-leaseback transaction and debt issuance costs associated with an amendment to the credit facility, partially offset by $20 million in net borrowings on the revolving credit facility.

Cash flows used in financing activities in fiscal 2023 primarily relate to the net paydown of debt of $24.6 million and $10.0 million in share repurchases.

Net cash flows used in financing activities decreased to $19.3 million for the first quarter of fiscal 2025, as compared to $21.9 million for the comparable period in fiscal 2024.

Cash flows used in financing activities in the first quarter of fiscal 2025 primarily relate to the paydown of debt with cash flow from operations and net proceeds from the sale of three restaurant locations.

Cash flows used in financing activities in the comparable period in fiscal 2024 primarily relate to the net paydown of debt with the net proceeds from the sale-leaseback transaction.

Credit Facility

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Treasury securities, or the Alternate Base Rate, which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum.

On August 21, 2024, the Company entered into the second amendment to our Credit Agreement (the “Second Amendment”).

The Second Amendment among other things:

provides certain relief from the financial covenant by increasing the required maximum net total leverage ratio beginning in the third quarter of 2024 through the end of the third quarter of 2025;

increases the aggregate revolving commitments by $15.0 million to $40.0 million through the end of the third quarter of 2025;

removes the variable pricing grid and increases the applicable margin on all term loans and revolving loans that are SOFR-based loans to 7.50% per annum and that are ABR-based loans to 6.50% per annum;

and adds certain additional reporting requirements.

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

On August 21, 2024, the Company entered into the second amendment to the Credit Agreement (the “Second Amendment”).

The Second Amendment, among other things, provides certain relief from the financial covenant by increasing the required maximum net total leverage ratio beginning in the third quarter of 2024 through the third quarter of 2025, increases the aggregate revolving commitments by $15.0 million to $40.0 million through the third quarter of 2025, removes the variable pricing grid and increases the applicable margin on all term loans and revolving loans that are SOFR-based loans to 7.50% per annum and that are ABR-based loans to 6.50% per annum, and adds additional reporting requirements.

On November 4, 2024, the Company entered into the third amendment to our Credit Agreement (the "Third Amendment") which extends the provisions of the Second Amendment through the end of the first fiscal quarter of 2026.

As of October 6, 2024, the Company had outstanding borrowings under the Credit Facility of $180.7 million, net of $7.2 million of unamortized deferred financing charges and discounts, none of which was classified as current.

As of October 6, 2024, the Company had $20.0 million of available borrowing capacity under its Credit Facility and $8.1 million of letters of credit issued against cash collateral.

As of April 20, 2025, the Company had outstanding borrowings under the Credit Facility of $164.8 million, net of $6.9 million of unamortized deferred financing charges and discounts, none of which was classified as current.

As of April 20, 2025, the Company had $35.0 million of available borrowing capacity under its Credit Facility and $8.8 million of letters of credit issued against cash collateral.

The Company's cash collateral is reported in Restricted cash on our Condensed Consolidated Balance Sheets.

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 well as a net total leverage ratio covenant, as defined, that adjusts periodically as specified in the Third Amendment to our Credit Agreement.

As of October 6, 2024, we were in compliance with all debt covenants.

Additionally, as noted under " Credit Facility ” above, the Third Amendment extended the increase in the required maximum net total leverage ratio covenant from the third quarter of 2025 through the end of the first quarter of 2026.

As of April 20, 2025, we were in compliance with all debt covenants.

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 October 6, 2024, we have repurchased a total of 1,088,588 shares at an average price of $15.18 per share for an aggregate amount of $16,520,000.

The Company completed no share repurchases during the quarter and year to date periods ended October 6, 2024.

Accordingly, as of October 6, 2024, we had $58.5 million of availability under the current share repurchase program.

From the date of the current program approval through April 20, 2025, we have repurchased a total of 1,088,588 shares at an average price of $15.18 per share for an aggregate amount of $16,520,000.

The Company completed no share repurchases during the periods presented.

Accordingly, as of April 20, 2025, we had $58.5 million of availability under the current share repurchase program.

Our Credit Agreement limits our ability to repurchase shares to certain conditions set forth by the lenders in the Credit Facility.

Our business is subject to seasonal fluctuations.

Sales in most of our restaurants were historically higher during the spring months and winter holiday season due to factors including our retail-oriented locations and family appeal.

As a result, our quarterly operating results may fluctuate significantly as a result of seasonality, and seasonality of sales may shift over time.

Sales in most of our restaurants were historically higher during the spring and summer months and winter holiday season.

The timing of holidays and school vacations, as well as severe storms, extended periods of inclement weather, or climate extremes may affect the seasonal operating results in the areas impacted.

As a result, our quarterly operating results may fluctuate significantly due to seasonality, and seasonality of sales may shift over time.

Accordingly, results for any one quarter or year are not necessarily indicative of results to be expected for any other quarter or for any year.

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Forward-Looking Statements

Certain information and statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA") codified at Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Certain information and statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 codified at Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts.

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Forward-looking statements in this report relate to, among other things:

(i) our business objectives and strategic plans;

(ii) working capital, and the ability of our future cash flows from restaurant operations and our borrowing capacity to satisfy future working capital deficits and capital expenditures;

(iii) our share repurchase program;

(iv) our expectations about restaurant operating costs, including commodity and food prices and labor and energy costs, and our ability to mitigate potential increases in such costs;

(v) anticipated continued investments in our partnership with Donatos® and other restaurant improvements, including the timing thereof;

(vi) our expectations about anticipated uses of, and risks associated with, future cash flows, liquidity, capital expenditures, other capital deployment opportunities and taxes;

(vii) the seasonality of our business;

(viii) our ability to successfully implement, and our expectations regarding, our North Star five-point plan to enhance the Company’s competitive positioning;

(ix) litigation contingencies and the adequacy of our reserves for legal matters;

(x) our expectations regarding, and our ability to mitigate changes in, interest rates, commodity prices, and other factors;

(xi) our strategies to enhance our liquidity position;

and (xii) transactions including sale-leaseback transactions and acquisitions of certain restaurants from a franchisee.

our business objectives and strategic plans;

our financial condition, including working capital, and the ability of our future cash flows from restaurant operations and our borrowing capacity to satisfy our anticipated cash requirements and fund capital expenditures;

our expectations about restaurant operating costs, including labor, food, supplies, and other commodities, as well as interest rates, and our ability to mitigate potential increases in such costs;

our expectations about anticipated uses of, and risks associated with, future cash flows, liquidity, capital expenditures, other capital deployment opportunities, and taxes;

the seasonality of our business;

and our purchase commitments and litigation contingencies and the adequacy of our reserves for legal matters.

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.

In some cases, information regarding certain important factors that could cause actual results to differ materially from a forward-looking statement appears together with such statement.

In addition, the factors described under Risk Factors, as well as other possible factors not listed, could cause actual results to differ materially from those expressed in forward-looking statements, including, without limitation, the effectiveness of the Company's strategic initiatives, including our “North Star” plan, labor and service models, and operational improvement initiatives and our ability to execute on such strategic initiatives;

the global and domestic economic and geopolitical environment;

In addition, the factors described under Risk Factors, as well as other possible factors not listed, could cause actual results to differ materially from those expressed in forward-looking statements, including, without limitation, the effectiveness of the Company's strategic initiatives, including our strategic plan, labor and service models, and operational improvement initiatives and our ability to execute on such strategic initiatives;

the global and domestic economic and geopolitical environment including tariffs, counter-tariffs and other trade barriers;

our ability to effectively compete in the industry and attract and retain Guests;

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

our ability to service our debt and comply with the covenants in our credit facility;

a privacy or security breach or a failure of our information technology systems;

the effectiveness and timing of the Company's marketing and branding strategies, including the loyalty program and social media platforms;

the effectiveness and timing of the Company's marketing and branding strategies and impact on reputation, including the loyalty program and social media platforms;

changes in consumer preferences;

leasing space including the location of such leases in areas of declining traffic;

changes in cost and availability of commodities;

changes in cost and availability of commodities and the uncertain impact of tariffs or other potential disruptions in the supply chain;

interruptions in the delivery of food and other products from third parties;

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changes in consumer behavior or preference;

aging technology infrastructure;

expanding our restaurant base;

maintaining and improving our existing restaurants;

the transition and retention of our key personnel;

potential acquisitions or refranchising of our restaurants;

our geographic concentration in the Western United States;

the retention of our management team;

our ability to recruit, staff, train, and retain our workforce;

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protection of our intellectual property rights;

changes in federal, state, or local laws and regulations affecting the operation of our restaurants;

an increase in litigation or legal claims by Team Members, franchisees, customers, vendors, stockholders and others;

changes in laws and regulations affecting the operation of our restaurants;

and an increase in litigation or legal claims by team members, franchisees, customers, vendors, stockholders, and others;

and the other Risk Factors described from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 29, 2024.

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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