Red Robin Gourmet Burgers, Inc.

Good afternoon and welcome to the Red Robin Gourmet Burgers first quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. I would now like to turn the conference over to Rafael Gross, Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers Incorporated first quarter 2021 earnings call. Please note that today's call is being recorded. During today's conference call, management will make forward-looking statements about the company's business outlook and expectations. These forward-looking statements and all other statements that are not historical facts reflect management beliefs and predictions as of today, and therefore are subject to risks and uncertainties as described in the safe harbor discussion found in the company's SEC filings. During today's conference call, management will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate an alternative measure of the company's operating performance that may be useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its fiscal first quarter 2021 earnings release and supplemental financial information related to the results on its website at www.redrobin.com in the investor relations section. Now, I'd like to turn the call over to Red Robin CEO, Paul Murphy.

Good afternoon, and thank you for joining us today. Here with me is Lynn Schweinfurt, our Chief Financial Officer, who will review our quarterly results after my prepared remarks. Before I provide a recap of Q1, I wanted to first welcome Darla Morse, our new Chief Information Officer, and Andrea Vornado as our newest Independent Director. They are both strong additions to the Red Robin family. and we look forward to their many contributions as we execute our transformation strategy and position ourselves for long-term success. We believe our Q1 results are a strong indicator as to where Red Robin is headed, and we have tremendous confidence in the future of our brand. During our previous call, we outlined the significant groundwork we undertook to strongly position Red Robin for an eventual recovery from COVID-19. Now, as the recovery begins, we are realizing the benefits of our strategic initiatives and are very pleased to have delivered a strong first quarter despite our largest markets operating at restricted capacity of 50% or less. Importantly, by the end of Q1, 55% of company-owned restaurants had positive, comparable restaurant revenue compared to 2019. We also had 85 comparable company-owned restaurants with no capacity or social distancing restrictions, realizing an increase in comparable restaurant revenue of 5.2% compared to the same period in 2019. While these restaurants are able to operate with no restrictions, several are still operating below 100% capacity due to limited operating hours due to staffing challenges and COVID exclusions. As of the end of our fiscal fifth period, all company-owned restaurants have reopened for indoor dining with varying levels of capacity. Taking into account jurisdictional requirements, our average capacity is approximately 65%. We are excited to note that this is the first time our system has had all indoor dining rooms open with varying levels of capacity since the onset of the pandemic. During the first quarter, our average indoor dining capacity was approximately 48%. We are continuing to offer outdoor seating as an option for guests who would prefer a more distant occasion or would prefer to dine outside as we move into the warmer weather months. Even as we welcome more guests back into our restaurants, we have sustained our momentum in terms of off-premises sales, demonstrating that our off-premises business is highly incremental to the dine-in occasion and largely serves as a different dining occasion for our guests. Average weekly off-premises sales per restaurant are more than double pre-pandemic sales levels in comparable company-owned restaurants able to operate at 100% indoor capacity levels. realizing off-premises mix of 29.9% as of the end of the first fiscal quarter. Of course, our ability to fully participate in a recovery-oriented environment is only possible with the highest quality of operational execution, both dine-in and off-premises. We continue to maintain a disciplined focus on execution so our guests can trust Red Robin to deliver a consistent quality experience each and every time they visit. We are sustaining high guest satisfaction scores as we scale our operations up with the recovery achieved through a combination of our TGX hospitality program, off-premises enhancements, and our new management labor model. As of the end of fiscal year 2020, we were well positioned for a post-pandemic operating environment. With 99% restaurant manager staffing, restaurant team member turnover rates approaching industry best-in-class levels, and a prescriptive ready, set, reopen guide addressing best practices for resuming operations at 100% capacity. As the company has continued our reopening plan throughout the first fiscal quarter, we have adjusted our ready, set, reopen playbook to account for staffing headwinds driven by COVID-19 and associated macroeconomic factors. We have implemented technology enhancements to streamline the application process, which significantly reduces time to hire. We also further modularized our kitchen training program to assist new team members in achieving competency in a handful of impactful tasks more quickly, flattening the learning curve and setting them up to make a meaningful contribution to the shift while providing valuable assistance to our legacy team members. Over the course of subsequent weeks, the new team members are certified in additional positions, one back of the house station at a time. Additionally, we have recently implemented a wage progression program that targets improving retention in the critical first six months of a new team member's onboarding, including automatic wage increases over the course of their first 24 months on the team. Our teams are doing a great job of hiring and training, and we are on track to be fully staffed by early summer. Let's now discuss our continued progress with respect to our transformation strategy, including the results that we are seeing from our key growth initiatives. Our restaurants offering Donato's Pizza continue to outperform other restaurants by approximately 300 basis points. In the fourth quarter of 2020, we added Donato's to 31 locations in the Pacific Northwest. when restaurants reverted to off-premise only. Given the circumstances, we pulled back our related marketing plans, but expect to resume these plans during Q2. We are still on track to add Donato's to 120 restaurants in 2021, with approximately 40 restaurants by the end of Q2 and the remaining 80 over Q3 and Q4. This will bring the total number of company-owned restaurants that offer Donato's to approximately 200 by the end of the year. We believe Donato's will generate annual company pizza sales of more than $60 million and profitability of more than $25 million by 2023, when we expect to have completed our rollout to approximately 400 company-owned restaurants. You may recall that in March, we announced the launch of three new virtual brands to build on our off-premises business. These new brands feature a mix of our high-quality menu items for which Red Robin is not typically known, as well as offering new menu items that are variations on core products, enabling our team members to execute on these items without additional operational complexity. All three brands are live on our largest delivery service partner, DoorDash. as well as additional national and regional partners, and reflect the latest in our expansion into off-premises dining, which began three years ago when we successfully launched our partnership with Donato's. As part of that partnership, we have been featuring Donato's as a standalone delivery brand in third-party marketplaces for over a year. To date, we are pleased with both the feedback and performance of these virtual brands. and are excited to see where they can go from here. Early results show that 70% of guests had never ordered online from Red Robin before, so we are activating an entirely new audience through this channel. These virtual brands are still in their infancy, but we look forward to sharing more as we better understand the long-term impact to our overall results. Turning to our revamped loyalty program, We have now had segmentation and targeting in place since Q4 last year. We're not only bringing back our lapsed guests, but the visit frequency of our most loyal guests increased by over 10% in the first quarter compared to pre-pandemic frequency. We currently have 9.7 million Red Robin Royalty members, which increased by 300,000 members since Q4 last year. The enhancement to this program have enabled us to drive sales through personalized target offers directly to our royalty members. In the first fiscal quarter, we pivoted our marketing to 100% digital media. This enabled us to be nimble and targeted as restaurant capacity evolved throughout the quarter. Our digital media buy over-delivered on impressions, driving higher reach and frequency. resulted in a two times return on investment. Since implementing our search engine optimization strategy last year, traffic to RedRobin.com driven from search has increased 66%. Our featured Q1 plant-based LTO items, cauliflower wings and cauliflower pizza crusts in our Donato's locations also outperformed our sales expectations. While the Red Robin guest is representative of a robust, diverse, and multi-generational demographic, our primary demographic includes Gen X, Millennials, and Centennials. These guests represent approximately two-thirds of sales and are generally much younger and more active in the digital space than our casual dining peers. Our pivot to targeted digital marketing communicates with this demographic where and how they consume media. driving a more effective and less expensive marketing spin. We view ourselves as well-positioned for how people want to re-engage post-pandemic. They want to resume their favorite activities, including gathering around the table with their friends and family and enjoying a meal out. Through targeted strategic and meaningful improvements we have made across the business, we now have positioned ourselves to deliver an even better experience for our guests. This will in turn generate higher sales and profitability while opportunistically improving the value proposition of the Red Robin brand. We believe that our brand promise to create memorable moments connecting family, friends, and fun positions us well to be a leading choice as guests return to restaurants. The combination of pent-up demand and the meaningful contraction of the number of restaurants in the industry over the past year provides us with an opportunity to increase our market share and bring guests back to Red Robin with increased frequency. We are also maintaining our focus on the savings initiatives we put in place last year as evidenced by our first quarter results. Recall that our cost restructuring work in 2020 represents permanent savings, and we are maintaining active fiscal diligence in measuring ourselves against the savings initiatives put in place last year. excluding natural inflation and future growth initiatives. Previously, I mentioned we had 85 comparable company-owned restaurants that were able to operate at full capacity as of the end of the quarter. Our fourth period restaurant-level operating profit for these restaurants was 21.1%, which is 1.5% ahead of restaurant-level operating profit for these restaurants during the same period in 2019. While we recognize that part of this margin improvement is due to the temporary impact of staffing vacancies in our restaurants, we believe this demonstrates that we are on track to deliver more than 100 basis points of enterprise-level margin improvement as we continue to operate additional dining rooms at full capacity. Looking ahead, we have every reason to be confident in our future. Moving through 2021 and beyond, We have a number of levers we can bring to bear on the business over the next several years. The strategic initiatives we have in place are achievable and will provide meaningful impact to Red Robin and our shareholders. These include, one, continued off-premises growth through operational and technology improvements. We will maintain our off-premises stickiness by continuing to implement modifications to our processes, staffing, floor plans, and technology, enabling our team members to execute more effectively, thus delivering a more elevated off-premises experience. Two, improving our digital online experience with the release of a new Red Robin mobile app and refined website by year-end. Research shows apps drive better order conversion than websites, while both can generate opportunities to upsell and cross-sell. These platforms will also leverage the targeting enhancements made to our royalty program I mentioned earlier, creating an improved and engaging digital presence for our brand. Three, delivering our brand promise in restaurant and with consistent execution of our TGX hospitality standards. enabling our guests to capture memorable moments of connection. Four, reintroducing menu innovation, which supports check growth concurrent with a higher dine-in mix as restaurants reopen. This quarter, we are featuring a bake and bash lineup that we're very excited about. From the sales we've seen so far, these items are already outperforming our expectations. Five, combined with the ongoing growth of Donato's, and other virtual brands, we see catering as a growth driver for Red Robin as people return to office environments. Catering currently represents 1% of our sales mix, But we believe that we have the opportunity to significantly grow this sales channel over the next few years. In summary, the enterprise improvements we made during 2020 have enhanced our brand's value proposition, both to our shareholders and to our guests. These strategic transformation improvements represent the groundwork from which we can continue to focus on earning and perpetuating our guest trust and fostering brand loyalty by delivering a consistent, high-quality Red Robin occasion, ultimately building frequency. When coupled with the strategic levers I mentioned, it is easy to understand our confidence in Red Robin for the remainder of 2021 and beyond. Let me now turn the call over to Lynn to review our Q1 results.