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Red Robin Gourmet Burgers Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 4, 2011 05:46PM
Red Robin Gourmet Burgers Inc. (RRGB) filed Quarterly Report for the period ended 2011-10-02.
Highlight of Business Operations:The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. The Company recognizes revenue from gift cards when: (i) the gift card is redeemed by the customer or (ii) the likelihood of the gift card being redeemed by the customer is remote (gift card breakage), and the Company determines that there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Companys specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage over the period of estimated performance (generally, 24 months). The Company completed its initial analysis of unredeemed gift card liabilities for gift cards that it sold in its restaurants during the first quarter 2010. The Company completed initial analysis of unredeemed gift card liabilities for gift cards sold in third party locations during the first quarter of 2011 and recognized $438,000 into revenue as an initial adjustment. The Company completed initial analysis of unredeemed gift card liabilities for gift cards sold in restaurants during the first quarter of 2010 and recognized $3.5 million into revenue as an initial adjustment. For the twelve and forty weeks ended October 2, 2011, the Company recognized gift card breakage of $274,000 and $1.3 million, respectively, (inclusive of initial cumulative program adjustment for third party gift card sales). For the twelve and forty weeks ended October 3, 2010, the Company recognized $192,000 and $4.2 million, respectively, (inclusive of an initial cumulative program adjustment for restaurant gift card sales). Gift card breakage is included in other revenue in the consolidated statements of operations.
As a result of this activity, AOCL increased by $673,000 and $262,000 on a pretax basis or $411,000 and $214,000 on an after tax basis for the twelve and forty weeks ended October 2, 2011, respectively. For the twelve and forty weeks ended October 3, 2010, AOCL decreased by $305,000 and $1.2 million on a pretax basis or $114,000 and $888,000 on an after tax basis for the twelve and forty weeks ended October 3, 2010, respectively. The interest rate swap had no hedge ineffectiveness, and as a result, no unrealized gains or losses were reclassified into net earnings as a result of hedge ineffectiveness. The company expects no ineffectiveness in the next twelve months. Additionally, the Company had no obligations at October 2, 2011 to post collateral under the terms of the Interest Rate Swap Agreement.
Restaurant revenue during the twelve weeks ended October 2, 2011, which is comprised almost entirely of food and beverage sales, increased by $11.1 million compared to third quarter 2010. Gross sales in our comparable restaurant base experienced an increase of approximately $4.0 million or 2.1% during the third quarter 2011. This increase was primarily the result of a 5.3% increase in average guest check partially offset by 3.2% decrease in guest counts. We believe the gross sales increase was driven by a combination of our second quarter menu price increase, the nationwide rollout of our tri-fold menu, and the Red Royalty loyalty program. Discounts related to our Red Royalty loyalty program are accounted for as a reduction of sales so that our net comparable restaurant sales increased 0.8%. Sales for non-comparable restaurants contributed an increase of $10.3 million, primarily all of which was attributed to sales from restaurants opened since the end of the third quarter of 2010.
Franchise royalties and fees, which consist primarily of royalty income and initial franchise fees, increased 8.6% and 7.5% for the twelve and forty weeks ended October 2, 2011, respectively. The twelve and forty week increase is primarily attributable to the increased sales at franchise locations and six new franchise locations opened since October 3, 2010. Our franchisees reported that comparable restaurant sales increased 2.1% for U.S. restaurants and increased 4.7% for Canadian restaurants for the third quarter of 2011 compared to the third quarter of 2010. For the forty weeks ended October 2, 2011, our franchisees reported that comparable restaurant sales for U.S. restaurants increased 2.4% and Canadian restaurants increased 2.0% from the forty week period ended October 3, 2010.
Other revenue consists primarily of gift card breakage. We recognized $0.3 million and $0.2 million, respectively, of gift card breakage for the twelve weeks ended October 2, 2011 and October 3, 2010. For the forty weeks ended October 2, 2011 and October 3, 2010, we recognized $1.3 million and $4.2 million, respectively, of gift card breakage. During the first quarter 2011, we recognized $438,000 of third-party gift card revenue as an initial cumulative program adjustment for gift card sales sold in third party retail locations, while during the first quarter 2010, we recognized $3.5 million of breakage revenue as an initial cumulative program adjustment for gift cards sold in our restaurants.