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.

Thank you, Paul. I share Paul's excitement for our future. Our improving dine-in sales trajectory, improved business model, incremental off-premises sales channels, and continuation of our transformation strategy together will drive meaningful long-term shareholder value. Turning to high-level first quarter results, we experienced a 10% increase in first quarter comparable restaurant revenue, primarily driven by operating our dining rooms at increasing capacity. Compared to the first quarter of 2019, comparable restaurant revenue was down 12.8%. Our average weekly sales performance improved sequentially through the first quarter. with comparable restaurant revenue over the final four weeks that were even with 2019. We sustained strong off-premises sales, comprising 41.7% of total food and beverage sales, a material increase from 26.3% and 11.6% in 2020 and 2019, respectively. Approximately 80% of our off-premises orders were driven through digital channels. Net cash provided by operating activities was $18.9 million, including the negative impact of a one-time legal settlement of $8.5 million, while cash used in investing activities was $5.4 million. We ended the quarter with liquidity of approximately $107 million, including approximately $22.3 million of cash and cash equivalents and available borrowing capacity under our revolving line of credit. Beyond the end of the first quarter, California and Washington are largest markets that are operating at restricted dining capacities of 50% or less, generated positive restaurant revenue versus 2019 in the four weeks ended May 16th. We believe further recovery of our West Coast restaurants will provide significant revenue increases as their dining room capacities increase. We are continuing to take advantage of the tax benefits and deferrals as allowed by the CARES Act. More specifically, as of the end of the first quarter, we have deferred approximately $18 million in payroll taxes to be paid back in early fiscal 2022 and 2023. and we currently expect to generate additional cash tax refunds of approximately $16 million during 2021 from net operating loss carrybacks. We are nearing conclusion on our lease negotiations. Combining the success of our lease restructuring work, permanent cost savings initiatives, and restaurant closures, we are emerging from the pandemic with a much healthier restaurant portfolio. Additionally, we are confident in the future of Red Robin, and we continue to execute on our transformation strategy and initiatives that we discussed during our Q4 call. We are prioritizing our strategic initiatives that deliver strong financial returns while maintaining our diligence on cost management and liquidity as the restaurant industry begins to recover. We intend to dedicate our free cash flow over the next several quarters to de-levering our balance sheet. while maintaining flexibility to pursue our strategic growth initiative. Now, turning to some of the specifics related to the fiscal first quarter, Q1 2021 comparable restaurant revenues increased 10%, driven by a 4.4% increase in guest traffic and a 5.6% increase in average check. The increase in average guest check resulted from a 3.7% increase in pricing a 1.3% increase in menu mix, and a 0.6% increase from lower discounts. First quarter total company revenues increased 6.6% to $326.3 million, up $20.2 million from a year ago, driven by operating our restaurants at increased capacities in Q1. Total company revenues decreased by 20.2% compared to the same period in 2019. Dine-in sales were down 12.8%, partially offset by off-premises sales growth. Our continued focus on our off-premises service model, technology, and incremental sales initiatives allowed us to capture meaningful growth in the channel, which rose 75.5% in the first quarter, representing 41.7% of total food and beverage sales. As I mentioned previously, this compares to pre-pandemic off-premises sales mix of approximately 11.6% in the first quarter of 2019. Restaurant-level operating profit as a percentage of restaurant revenue was 15.7%, an improvement of 690 basis points compared to 2020, primarily due to the following. Restaurant revenue increased by 5.7% due to favorable guest counts, pricing, and sales mix. Cost of goods sold decreased by 170 basis points, primarily driven by favorable commodity costs and rebates. Labor costs decreased by 430 basis points, primarily driven by a more efficient management labor structure, staffing shortages, and simplifying our menu, resulting in reduced kitchen labor hours partially offset by higher wage rates. Other operating expenses increased by 80 basis points, primarily driven by higher third-party delivery commissions and supply costs due to higher off-premises sales. And occupancy costs decreased by 180 basis points, primarily driven by savings from permanently closed restaurants and the restructuring of lease payments and rent concessions. Restaurant-level operating profit as a percentage of restaurant revenue was 18.3% in Q1 2019, and higher than 2021 by 250 basis points, primarily driven by higher restaurant revenue of almost $82 million that more than offset a more efficient cost structure established during the pandemic. General and administrative costs were $22.3 million, a decrease versus the prior year of $4.5 million, primarily driven by a decrease in travel and entertainment costs and a reduction in force in 2020, partially offset by higher team member benefits costs. General and administrative costs were $30.1 million in 2019. Selling expenses were $8.4 million, a decrease versus the prior year of $6.4 million, primarily driven by reduced marketing due to capacity limitations and a shift to an all digital marketing strategy, which has enabled us to communicate with our guests in a more compelling and cost-effective way. Selling expenses were $18 million in 2019. We recognized a tax expense of $0.1 million in the first quarter and our effective tax rate for the quarter was 0.6%. The company will be able to carry back federal and state net operating losses that are expected to generate approximately $16 million of cash tax refunds during 2021. During the quarter, we recognized other charges of $5.5 million, primarily triggered by the COVID-19 pandemic. These charges included $2.4 million related to restaurant closures, $1.2 million related to restaurant asset impairment driven by the decision to permanently close 10 of the 12 remaining temporarily closed locations, $1.1 million related to litigation contingencies, $0.6 million for COVID-19 related costs, including purchasing personal protective equipment for our restaurant team members and guests, and providing emergency sick pay to our restaurant team members, and $0.1 million of board and stockholder matter costs. First quarter adjusted EBITDA was $27.4 million as compared to adjusted EBITDA losses of $10.7 million in Q1 2020. Q1 adjusted loss per diluted share was 30 cents as compared to adjusted loss per diluted share of $6.66 cents in Q1 2020. Adjusted EBITDA was $34.3 million in the first quarter of 2019, and adjusted earnings per diluted share were 19 cents. At quarter end, our outstanding debt balance was $164.2 million, and letters of credit outstanding were $8.6 million. Guidance for 2021 is as follows. We expect capital expenditures of $45 to $55 million, including continued investment in maintaining our restaurants and infrastructure with maintenance and systems capital, Donato's expansion to approximately 120 restaurants, including approximately 40 restaurants in our second fiscal quarter and approximately 80 in our third and fourth fiscal quarters, digital guest and operational technology solutions, and off-premises services execution enhancements. We also currently expect our full-year effective tax rate to be between 1% and 5%. We expect low single-digit commodity inflation throughout the remainder of 2021, driven primarily by rising protein prices. Before I conclude, I'd like to thank our entire Red Robin team for the results they are generating. We are confident in our ability to deliver long-term value for all of our stakeholders. With that, I will turn the call back over to Paul.

Thank you, Lynn. Let me wrap up things with a few thoughts before we take your questions. The strategy that we developed and implemented last year is now paying dividends as we move into the recovery phase, and we believe that the growth drivers in place will continue providing us with business momentum for the foreseeable future. While Red Robin has always offered a differentiated proposition and unique casual dining experience, our understanding of our guests, how we interact with them both within our restaurants and through digital channels, and what they expect of us from their experience has never been greater. What we have to offer, a playful, family-friendly atmosphere enabling people to connect while enjoying gourmet burgers and other mainstream favorites, or enjoying our great food outside of our restaurants is exactly what we can all use right now after the challenges we have faced this past year. We are now able to accelerate our profitability in a manner that was not previously possible, and we are determined to create and grow long-term value for our shareholders. Our great team is, of course, the reason why I've been able to accomplish everything that we have. and I sincerely appreciate their efforts in getting us to this point. Let us now open the call for questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Our first question today comes from Alex Slagle with Jefferies.

Hey, thank you. I had a question on the staffing shortages, and I know you were preparing and training and hiring well ahead of this, so it is notable, and I imagine you're not alone in this, but just kind of wondering if you could talk about kind of where you're seeing the most significant challenges, and has this issue been broadening over the course of the last few weeks? Just trying to... think about what the next four weeks would look like and if it's fair to think that we'll see another step down in average weekly sales similar to what you saw from April 18th to May 16th or whether the training program changes and the retention efforts that you outlined are going to kick in to offset this.

Well, Alex, this is Paul. You're correct. Part of our Ready, Set, Reopen plan was geared towards the staffing. I don't expect actually to see sales slope up. To give you an average, we're right now looking to add about six more team members per restaurant. combination between heart of the house and the front of the house. So it's not as dire as maybe you're hearing from some other brands in any form or fashion. And frankly, part of the impact that you look at for the April number was not only some of the staffing issues, but also we had an uptick in COVID exclusions that we are now seeing that starting to decline also. So That was really a combination of them both, but as we said a little earlier, I feel very confident that in short order we're going to get the staffing put to bed, get it stabilized. The things that we've done, the technology enhancements to really get the onboarding on quicker, getting people trained and productive inside of two or three days. And then the wage progression are all things that we're seeing already beginning to have an impact on our ability to staff the restaurants.

Yeah, and Alex, I would just add, you know, as we look out into the future, I think you probably saw in the press release our West Coast markets are performing incredibly strong. And as we're able to increase capacities in California as we're staffing up, also in Washington and some of the other states, there is really going to be an upward trajectory in our sales as we move forward. And while we're focused on the staffing challenges currently, it's a priority, but we do believe they're temporary in nature.

Okay, that's helpful. Is there an impact on the restaurant level margin, you know, looking ahead to 2Q that we should think about, just sort of balancing, you know, some of the lower labor costs?

Yes, we did see lower labor costs as a result of some of our staffing challenges. So as you're thinking about modeling the company, I would increase some of your labor expense line items above, you know, the current run rate.

Okay.

Thank you. And again, if you have a question, please press star then one. Our next question comes from Brian Vaccaro with Raymond James.

Hi, thanks and good evening. I wanted to ask about the recent sales trends you're seeing, and it's obviously very encouraging to be well back into that low to mid $50,000 a week range. And I don't want to be overly nitpick, but I did want to ask about May. I'm just trying to sort through the moving pieces because it looks like average weekly sales still strong but decelerated a bit versus April, and that's despite dine-in capacity increasing and some of the strength you noted in California and Washington, obviously. So is there a normal seasonality or some other dynamic you'd highlight there? Just curious to get your take on the cadence you're seeing in recent weeks and months.

Sure. Sure. What I would say, Brian, is in May we did see a little bit of a downward trajectory. We attribute that to a few things. One is some seasonality we believe affecting our business. And then we did have to reduce some operating hours associated with the exclusions and the staffing shortages we've been experiencing. And so, again, as we start to see capacities open in conjunction with staffing, we think that trajectory will certainly start to improve.

Okay. That's helpful. And on that staffing shortage impact, is there a way to quantify sort of the impact to your operating hours or even your ability to see staff? you know, full sections, if you will, up to the capacity limit? Is there any way to quantify that, how much that's constraining sales to a degree?

Well, you know, I don't think we're prepared to quantify it today, but certainly there will be an increase in expenses as we move forward, a portion of which is management labor around shift supervisors as well as some of our team members in the restaurants.

Okay. And on the labor inflation, wage inflation front, sorry if I missed it in your prepared remarks, but what was wage inflation in one queue, and what's your expectation for the rest of the year?

Yeah, it was actually fairly modest. We saw wage inflation between 1% and 1.5% in the first quarter, but we also saw the impact of higher off-premise sales, which carries higher wage rates in the front of house. We do expect wage inflation to increase from that point through the balance of the year, and we expect it to fall somewhere in the low single digits.

Okay, great, great. And then I guess my last one, just on the marketing front, I appreciate the success that you've been seeing in the digital channels, but I'm curious to get your view on what role you think TV and other traditional channels will ultimately play in a post-COVID environment as As you tie it all together, where do you see your advertising or selling costs settling out ultimately versus pre-COVID levels?

Brian, this is Paul. Where we see that going is we obviously, as we stated, very pleased with the results that the digital pivot and Q1 did produce for the company. You know, we believe that there is a role for broadcast, for national broadcast as we go into the future. More specifically, as we bring Donatos into a market that we would introduce it with some broadcast medium. You know, just because we've switched to digital doesn't mean that we're not doing video. We're just doing it on different mediums where we're seeing basically a higher take rate and it's more targeted. The great thing about the digital approach that we take now, that we're able to do it on a quarterly basis. If we need to bring in some national broadcasts, we can make that decision and make it happen. I would say that from a selling expense side, I would see that move forward through the year as capacity increases, especially as the West Coast is able to come online. And we're starting to get... Some real good indications that by mid-June, a lot of the West Coast is going to begin to ease their restrictions. And so, as we mentioned with Donato's, we waited until we could get the capacity. You're going to see the selling costs definitely, you know, move up as we move through the years. But, you know, still be at a reduced level as we end up the year.

Understood. Okay, thank you. I'll pass it along.

Okay.

Our next question comes from John Tower with Wells Fargo.

Great. Thanks. Hopefully you can hear me okay. I was curious, the off-premise sales mix that you had during the period, very strong and looking good, and it seems like you're hitting on all cylinders with respect to the carryout and the third-party delivery and some of the virtual brands. So I was hoping maybe you could break down the mix between those channels, right? The traditional carryout versus third-party delivery of just Red Robin, the legacy brand, versus how much of some of the mix today is from these virtual brands that have just come online?

Well, I'll give you some key categories, and then maybe we can touch on virtual brands in a slightly different manner. So our traditional carryout ran about 21% for the first quarter, Third party, 17.5%. Catering was only 1%, as I think Paul mentioned in his opening remarks. And our last mile category was at about 2%. We are very early on in our virtual brands, and so at this point, we'd like to see a little bit more experience or time before we start to share results and expectations going forward.

Okay. And Oh, sorry, I didn't know if you were going to say anything.

Well, John, I think the thing I would emphasize on the virtual brands is that, as I mentioned, 70% of the orders are coming from people who have not engaged from Red Robin in an online ordering capacity before. So we see that over time being incremental. But as Len mentioned, it's very early. Where we are in the carousel, we'd like to just to see where does that stabilize.

Okay, and just a similar question or line of thinking. In the carryout channel itself, given that you do have, I think it's north of 9 million royalty members in the loyalty program, is there a way to determine how the off-premise customer is switching back and forth to an in-store occasion? Essentially, I'm just trying to understand how... how sticky those customers are in that off-premise channel as these stores reopen? You know, are you seeing greater frequency of use of both channels from these customers, or are they pivoting back to stores as the dining rooms reopen?

Yeah, I mean, something that we find fairly interesting, at least in our data, is that, you know, dine-in guests are actually fairly loyal to dine-in. They don't... don't really cross-pollinate too much to off-premise. However, off-premise guests utilize both dine-in and off-premise, and what we have seen is a higher visitation frequency out of our off-premise guests. So that, at least from my perspective, it indicates that the off-premise occasion is is an incremental occasion to the dine-in visit. And as capacity in the dine-in arena continues to accelerate for Red Robin, we think it just has a multiplier effect for us.

Got it. And just one last on the virtual brands themselves. Does that extend operating hours for the stores at all, or are they still within the same existing operating hours for the stores today?

Presently, they're within the same operating hours. Kind of an interesting fact out of the virtual brands is we see them playing really well, at least two of the three brands, actually playing stronger in the lunchtime slot. So if you look at the Fresh Set and the Chicken Sammies have been more in the lunch, which we are pleased about. The wing department does play a little bit more in the late night. So we haven't had to make our adjustment to the restaurant store hours.

Okay, great. And then just lastly, on the unit growth side of the equation, the unit side of the equation, the 10 stores that are permanently closed, any way to offer insight on how much those stores may have weighed on aggregate store margins or how they performed relative to the system, say, in 2019 from an average weekly sales standpoint? And then, you know, looking at the rest of the system, do you feel like the company side of the portfolio is really optimized for where you want it to be for future growth?

Yeah, the restaurants that we've permanently closed were marginal performers for the company. So you would want to model them, you know, lower than the average in 2019. And then, yes, I think we believe our restaurant portfolio is at a place right now where it's very healthy, and we've got these incremental sales channels that we're generating, and we think that will certainly, you know, the tide will rise for all of the restaurants and, again, a healthier restaurant portfolio as a result.

Yeah, John, I believe that the closures that we did and the work we did on the portfolio as a whole from renegotiating the terms has really set the portfolio up for a strong future and addressed some of the things that we had mentioned back in January of 2020. We just thought it would take much longer, but obviously the pandemic offered us the opportunity to have those discussions and frankly get done in a year that may have taken two or three years.

Great. Thank you very much for taking the questions. I appreciate it.

Thank you, John.

This concludes our question and answer session, and I'd like to turn the call back over to management for any closing remarks.

Well, thanks, everybody, for participating in the first quarter 2021 call. Certainly on our end, we're very pleased with the results. I think it really shows the work that we did in 2020 has set the company up for a strong future. I thought Q1 really has indicated the things we did were the right things for the brand, and the results are showing it. And Linda and I look forward to speaking with you again on the Q2 call. Have a good rest of your day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.