Red Robin Gourmet Burgers, Inc.

Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers Incorporated fourth quarter 2021 earnings call. Please note that today's call is being recorded. During today's conference call, management will be making 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's 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 filing. 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 any alternative measure of the company's operating performance that may be useful. The 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 fourth quarter 2021 earnings release on its website at ir.redrobin.com. Now, I would like to turn the call over to Red Robin CEO, Paul Murphy.

Hello, and thank you for joining us today. I'm here with Lynn Schweinfurth, our Chief Financial Officer, who will review our quarterly results in detail after my opening remarks. Let me begin with our fiscal Q1 2022 sales trends before updating everyone on our business initiatives. Through the first period of our fiscal first quarter, comparable restaurant revenue was down 1.1% compared to the same period in fiscal year 2019. driven by trailing impacts of the surge of the Omicron variant and continued staffing challenges and team member exclusions. During the second period, as Omicron receded, guests started to feel more comfortable dining out, and we experienced fewer team member exclusions. As a result, comparable restaurant revenues increased to 5.3% compared to 2019 levels, and we are pleased with our period two sales trends. and are seeing this momentum carry into the third period. When I joined Red Robin in 2019, one of the attributes that I most admired was the company's unique brand position in the industry. Our guests are everyday people seeking connection with friends and family across a diverse and multi-generational demographic. While the pandemic has certainly brought forth complex challenges, it has enabled us to improve our operating and financial model. I feel more strongly now than even before that our distinct Red Robin brand equities position us well for future growth. To complement the company's strengths in its brand equity and identity, we have aligned our strategic initiatives within the following four pillars. People, to be the employer of choice in the industry. Food, to deliver a variety of gourmet burgers and mainstream favorites that our guests love. guest experience to create relevant, personalized, and memorable guest experiences and foundation to execute profitable growth platforms. On the people front, we champion a culture of diversity and inclusion where our people are developed, recognized, and celebrated. Staffing remains our number one priority, and it goes hand in hand with creating a compelling team member value proposition. Having properly staffed restaurants in turn enables us to deliver a quality guest experience, which leads both to higher sales and supports our team members in a manner that prioritizes their satisfaction and retention. We have worked closely with our operators to determine a par staffing level by individual restaurant staffing requirements. Our staffing focus begins with being properly staffed at the restaurant management level. and we are making meaningful progress in 2022, hiring approximately 15 management team members per week through the end of our second fiscal period. At the end of 2021, we were 93% staffed in salaried manager positions and 96% staffed in the general manager role. Currently, we are staffed at approximately 85% of overall PAR levels. As the company approaches full staffing in our management positions, we expect overall restaurant staffing improvement to accelerate. The ongoing demand for Red Robin is very strong. What we are solving is a staffing issue, which is limiting our throughput, not a brand issue. Our period two sales trends demonstrate that margin will continue to improve as we improve our staffing, and restrictions having receded with the trajectory of Omicron in our most significant markets. enabling us to provide the occasion our guests expect from a visit to our restaurants. We recently hired Wayne Davis as our Chief People Officer, a respected executive who brings robust experience from multiple industries to Red Robin. Wayne is already leading proven initiatives to support individual restaurants in driving applicant flow, including the use of outsourced recruiting assistance to amplify internal resources. Given the competitiveness of the market with respect to compensation, we are constantly monitoring our compensation policies to ensure that we attract and retain talent. We are also engaging with our workforce to understand and improve our team member value proposition because compensation alone is not sufficient to ensure a happy workforce. In fact, we have completed a discovery initiative to better understand what matters to our team members and how we can improve their quality of life and create a sense of belonging. And we will be incorporating these learnings into our culture to further improve these important relationships. Red Robin's food makes no mistake about who we are. We deliver a variety of gourmet burgers and other mainstream favorites that guests love. We have several initiatives underway to further differentiate and elevate our product offerings, including our limited time offer menu items. In Q4, we featured our cheese lovers limited time offer lineup, including a cheesy bacon fondue burger and our mozzarella cheese sticks. The cheesy bacon fondue burger has been among our best performing limited time offers of all time. Because of its popularity, we have continued to offer it as a featured burger on our menu in Q1, which has the added benefit of reducing operational complexity. Donato's Pizza has also proven to be a strong addition to our brand and has more than earned a spot on our menu. In 2021, we rolled out Donato's to 120 restaurants, including 41 in Q4, and ended the year with high-quality pizza available at 198 restaurants. Donato's generated sales of $4.8 million during the quarter, aided by an increase in marketing support at certain restaurants, And Donato's restaurants continue to demonstrate strength relative to the rest of the Red Robin system. For the full year, Donato's generated sales of $14.4 million. Donato's continues to drive meaningful growth for Red Robin. Notably, restaurants that have served Donato's prior to 2021 also continue to grow incremental sales beyond the first year as operations mature and brand affinity grows. For those that did not encounter supply chain impacts, comparable restaurant revenue grew 8.1% in Q4 compared to 2019. Additionally, during 2021, guest checks that included Donato's Pizza were on average over $10 higher than those that did not include pizza. Both of these metrics serve to demonstrate the potential of our partnership with Donato's. We view Donato's as a long-term success vehicle, and nothing is more important than getting it right on day one at every restaurant where it is implemented. As I previously mentioned, as the company works to stabilize operations at restaurants where staffing is considered to be below par levels, we want to enable these restaurants to focus on the hiring and training of new team members before adding incremental menu initiatives. This will ensure our guests receive an outstanding service experience. For these reasons, we have moderated our rollout of Donato's to approximately 50 restaurants in 2022, with the kitchen equipment already secured, and will complete our rollout to the remaining 150 in 2023. Recall that a full implementation of Donato's should generate annual company pizza sales of more than $60 million, and profitability of more than $25 million. This remains our goal, but it will now be a 2024 event, as the rollout will not be completed until sometime in 2023. As we address the trailing impacts of the Omicron variant and the industry staffing headwinds, we are leveraging our total guest experience hospitality program to deliver fun and playful service that is tailored to our guests' time and occasion. and delivers exceptional value to our commitment to bottom with steak, fries, and beverages. Providing outstanding guest experience is as important as it has ever been. During Q4, we sustained an off-premises sales mix of 31.4%, which represents the seventh consecutive quarter of sales that are more than two times pre-pandemic levels of approximately 14%. Because of our value proposition and extensive menu offerings, Red Robin is well positioned to capitalize on shifting customer behaviors to off-premises occasions, which is why we are constantly seeking to elevate the off-premises experience through all possible levers. I will discuss how we are accomplishing this digitally in a moment, but physically, we have increased space for off-premises orders through building modifications to improve efficiency, and accuracy, and we'll be continuing these reconfiguration efforts to benefit both dine-in and off-premises execution. During Q4, we opened a new restaurant which utilizes our new prototype configuration. The design enhancements are geared towards improving dine-in, off-premises, and curbside execution, while the optimized kitchen layout enhances efficiency. We are highly encouraged by the performance of this restaurant. as it has achieved average weekly sales of over $80,000 through the second period and is tracking to be a well over $4 million restaurant in terms of annual sales. We are developing a real estate pipeline for resuming modest new restaurant growth, leveraging our enhanced prototype design and targeting high return markets where we have a combination of strong presence and brand recognition. Turning to our foundation, We have developed several platforms designed to drive consistent and profitable growth. We are investing in these platforms that include our digital ecosystem to support the growth of dine-in, off-premises, and catering channels. Telling our story through compelling messaging has been imperative to Red Robin. Our campaigns showcase the soul of the brand and inform our guests of our enthusiastic dedication to delivering a great guest experience. At the beginning of 2021, we pivoted our marketing efforts to be exclusive to digital media. This pivot has been successful for our brand, enabling us to efficiently and effectively target and engage with existing and new guests. Our messaging is focused on communicating our brand promise of memorable moments of connection. Our digital marketing momentum continued in Q4 with strong digital media returns driving year-over-year traffic growth. Our efforts were targeted at driving traffic and sales to restaurants that were staffed and ready for incremental guest visits. We leveraged new product news and tailored our messaging to highlight dine-in or off-premise occasions, taking into account local conditions. We made further progress in Q4, advancing our digital strategy by soft-launching our iOS and Android mobile apps and integrating them with our newly enhanced loyalty platform. we have vastly improved our Red Robin royalty communication capabilities through segmentation and personalized messaging based upon purchase history, resulting in all-time high levels of engagement. We recently began marketing our new mobile apps to guests, including the more than 10 million members of our royalty program. Our external marketing efforts showcasing the new apps and enhanced digital guest experience will continue to expand in the coming months. We are also launching a new website experience in Q1, building upon the improved online ordering experience that launched in Q4. This new experience will be much more user-friendly and creates a seamless digital ecosystem that can drive incremental frequency, traffic, and guest check. Let me add that we view our digital assets as always ripe for improvement. and intend to make ongoing enhancements subsequent to these launches. These will include jail fencing, which will inform restaurants when the guest is near for pickup, as well as implementing additional payment options to enhance convenience, such as Apple Pay and Google Pay. Our marketing efforts in 2022 will continue to be primarily digitally based, which allows us to target our messaging both by geography and through specific consumer segments. in a cost-effective manner. We will drive awareness and trial of the new app and website ordering experience, which should lead to higher order conversion while offering superior upsell capabilities. We will also utilize traditional local marketing to raise awareness and support the Donato's rollout. Our virtual brands, which are driving incremental digital and off-premises sales, offer distinctive, high-quality products that enable us to fully maximize our kitchen capacity without adding operational complexity. Three virtual brands are available system-wide and across all delivery platforms. We are also in the final phase of launching an additional licensed brand across our system. During Q4, our virtual brands, which each target specific demographics, collectively generated $8.4 million in incremental sales. To conclude, we recognize that we've been hindered in our ability to rebuild sales momentum and maintain or increase profitability as we deal with the ongoing pandemic and staffing challenges and other inflationary pressures affecting our supply chain. Of course, these issues are macroeconomic, not company-specific. We know that the demand for Red Robin experiences, dying in and dying out, persists as strongly as it does because when we empower the people who make Red Robin possible, we create memorable moments connecting family and friends over great food while delivering a fun and playful guest experience. It is through our key strategic initiatives that we are building the foundation to position us to gain market share and increase guest frequency. Let me now turn the call over to Lynn to review our Q4 results.

Thank you, Paul. While our fourth quarter results were impacted by the Omicron variant and continued industry staffing and supply chain challenges, I remain confident in our future. Our improving dine-in sales trajectory, incremental off-premises sales channels, and continued dedicated execution of our business strategy together will drive meaningful long-term shareholder value. Turning to fourth quarter results. The 40.1% increase in fourth quarter comparable restaurant revenues compared to 2020 was primarily driven by operating dining rooms at increasing capacities. Compared to the fourth quarter of 2019, comparable restaurant revenue was down 0.7% with a sales trajectory that faced headwinds through the holiday season with the onset of the Omicron strain. However, we have seen improvement through the second period and into the third period of our first fiscal quarter as Omicron has receded, as Paul mentioned. We delivered our seventh consecutive quarter of off-premises sales mix at more than double pre-pandemic levels of approximately 14%, comprising 31.4% of total food and beverage sales, compared to 43.9% and 14% in 2020 and 2019, respectively. Importantly, we have been able to retain the same level of fourth quarter off-premises sales dollars in 2021 as 2020, or approximately $85 million, demonstrating the lasting improvements made in our off-premises sales channel since 2019. At the percentage of total off-premises sales, third-party delivery represented 54.8%, to-go represented 36.6%, catering represented 4.9%, and Red Robin delivery represented 3.6%. Full year net cash provided by operating activities was $47.3 million, while cash used in investing activities was $42.2 million, and cash provided by financing activities was $1.6 million. Since the end of 2019, we have paid down $29.9 million in debt. We completed our lease renegotiation and restructuring initiative that we began in 2020 as a result of the COVID-19 pandemic, resulting in 3% to 4% occupancy savings over remaining lease terms on restructured leases. We ended the quarter with liquidity of approximately $57.7 million, including cash and cash equivalents and available borrowing capacity under our revolving line of credit. We intend to continue effectively managing our bottom line and dedicate our free cash flow over the next several quarters to reinvesting in our restaurants, infrastructure, and systems while maintaining flexibility to pursue strategic initiatives that will generate profitable sales growth going forward. Now, turning to some of the specifics related to the fourth fiscal quarter, Q4 2021 comparable restaurant revenues increased 40.1%. driven by a 26.6% increase in guest traffic and a 13.5% increase in average guest check. The increase in average guest check resulted from a 7% increase in menu mix, including incremental sales related to checks that include Donato's Pizza, a 4.2% increase in pricing, and a 2.3% decrease in discounts. Fourth quarter, total company revenue increased 41% to $283.4 million, up $82.3 million from a year ago, driven by operating our restaurants at increased capacities in Q4 and lapping prior year sales more aggressively impacted by the COVID-19 pandemic. Total company revenue decreased by 6.4% compared to the same period in 2019, primarily due to closures of unprofitable restaurants. Restaurant-level operating profit as a percentage of restaurant revenue was 13%, an improvement of 6.8 percentage points compared to 2020, primarily due to the following. Restaurant revenue increased $81.1 million, primarily driven by favorable guest counts, menu mix, pricing, and discounting, Cost of goods sold increased by 220 basis points, primarily driven by commodity inflation and timing of certain rebates and substitute products, partially offset by menu pricing and favorable mixed shifts. Labor costs decreased by 350 basis points, primarily driven by sales leverage, partially offset by restaurant labor, cost inflation, staffing, and training costs. Other operating expenses decreased by 170 basis points, primarily driven by sales leverage, partially offset by increased third-party commissions, higher off-premises packaging costs, and increased hiring costs. And occupancy costs decreased by 380 basis points, primarily driven by sales leverage, savings from permanently closed restaurants, and restructured lease payments. $3.2 million of transitory labor and other operating costs were incurred due to staffing challenges, including hiring and training costs, substitute products, temporarily outsourced janitorial costs, one-time bonuses, and overtime pay. For the fourth quarter, hourly wage increases were in the high single digits. Effective pricing was 3.6% for the full year. Given our relatively modest pre-pandemic price increases that have been in line or lagged the industry, we believe we have flexibility to take additional price if needed to mitigate ongoing inflationary commodity and labor pressures. We also expect increased staffing and supply chain transitory costs extending beyond the fourth fiscal quarter. Looking forward, leveraging our digital ordering enhancements We expect to drive higher checks by featuring appetizers, beverages, and other add-on items that appeal to specific guest segments while staying committed to our bottomless promise and core value proposition. Building on our recent success with new products such as our Cheesy Bacon Fondue Burger and Scorpion Gourmet Burger, our menu innovation will focus on driving higher checks and margins. Finally, we expect that channel mix will contribute to higher checks as dine-in sales continue to recover. General and administrative costs were $17.8 million, an increase versus the prior year of $1.3 million, primarily driven by higher manager and training costs and increased travel costs. Selling expenses were $15.7 million, an increase versus the prior year of $7.8 million. During the quarter, we recognized other charges of $6.8 million, primarily triggered by the COVID-19 pandemic. These charges included $5.7 million related to the impairment of the long-lived assets associated with our excess properties, $1 million related to restaurant closures, and $.2 million for COVID-19-related costs including purchasing personal protective equipment and COVID-19-related sick time for our restaurant team members. Fourth quarter adjusted EBITDA was $8.9 million as compared to an adjusted EBITDA loss of $6.4 million in Q4 2020. Q4 adjusted loss per diluted share was $1.03 as compared to adjusted loss per diluted share of $1.79 in Q4 2020. On March 4th, the company replaced its prior credit agreement with a new $225 million five-year credit agreement with Fortress Credit Corp. The new credit agreement provides for a $200 million term loan and a $25 million revolving line of credit and was arranged by JPMorgan Chase as sole lead arranger and sole book runner. The new agreement gives us long-term flexibility to strategically invest in our business and create value for our shareholders. At quarter end, our outstanding debt balance was $177 million, and letters of credit outstanding were $7.9 million. Additionally, please refer to our earnings release that was issued today shortly before this conference call, which introduces our 2022 guidance. Before I conclude, I'd like to thank our entire Red Robin team for the results they are generating despite the significant challenges COVID-19 has brought to our business. We are confident in our ability to meet these challenges and deliver long-term value for all of our stakeholders. With that, I will turn the call back over to Paul.

Thank you, Lynn. We believe that our ability to deliver the highest quality guest experience is key to driving top-line growth profitability, and long-term shareholder value. With this mindset, we are executing our business strategy, overcoming obstacles, and pushing ourselves forward to a bright future for our brand. Our team has been incredible in exhibiting their passion for Red Robin and finding solutions to help us navigate through the operational pressure points as they have arisen. They are why I am so bullish as to our direction, and appreciate all that they do for our company each and every day. And with that, let us now open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Alex Flagel with Jefferies. Please go ahead.

Thank you. Hey, Paul and Lynn. Thanks. Hey, Alex. Hey, Alex. You know, the jump in the February sales was pretty notable relative to, like, the previous levels back in the fall and then broader trends we've seen. But I would have expected more headwinds just given the brand's significant exposure to the Western states that have held on to the mask mandates a bit longer than the rest of the country, California rolling off, but Washington, Oregon, I guess, still to come. I was wondering if you could kind of talk about what you've seen in those states that have rolled off the mandates, if that's a notable impact.

Well, Alex, this is Paul. It is a notable impact as the restrictions begin to roll off, and you're correct. California kind of led the way, and we had restrictions in Washington State, in Oregon, and also in In Illinois, there were some pretty strict restrictions in Cook County and then some smaller markets. But we've seen just a real change in the sales trajectory in those markets as the restrictions fall off. And quite honestly, it's something that is pretty impactful for the whole market and then for the brand itself. So, I mean, we're pleased to see not only the Omicron fading, but some of the other restrictions that kind of came in all around it fading off, and it is having a real positive impact on our business.

And I would just add, Alex, that we're also seeing off-premises remain pretty consistent. But our dine-in sales are incrementally building, and that really helps the trajectory, and it also will help future flow through as well.

Got it. And then just a question on the loyalty program and the digital ordering assets. I mean, Red Royalty is pretty large. I mean, the membership base relative to your size and peer group and everything. kind of interested, you touched on some of that, but if you could expand further on the opportunity to leverage this more meaningfully in 22, and if there's any initial results you've seen from that, the, the new loyalty rollout, I know it's pretty early and the mobile ordering functionality, if there's like changes in average check or frequency or anything else, um, you could comment on.

Um, well the, uh, uh, First of all, we're very pleased to have gotten it out the door, so to speak, in Q4, both the new app and then the improvements to the overall royalty program. But I think that, you know, just a few of the things. The first thing around the new app, it just makes the whole ordering process much smoother, much more intuitive, and so we're very, very pleased with that. Just kind of a couple of stats that during Q4, we had almost a quarter million new registrations in Q4. The royalty percentage of revenue was up about 2.4% over Q4 of 2019, which is at about 41.7. And the average check for royalty is... about $3.90 higher than a non-royalty member. So quite honestly, they're just more profitable than the non-members for us. So we see that the sales per guest for a royalty member is about roughly $134 for the year and about kind of mid-40s for a non-royalty member. So it is a real driver for the brand. And what both, I think, the app and the royalty program do is allow us to better communicate with that royalty member to get to know them better. And in the new app, the royalty program is live on that app, so it just gives them another reason to be a part of the royalty program. And I think, as we mentioned, it was a soft launch. It's really in this month moving forward that we're going to begin to be more aggressive in introducing it to the marketplace. Very happy with the impact, both top line and bottom line so far, but we think that much more to come as we get aggressive about, frankly, marketing it and doing a lot of our initiatives through the app and the loyalty program.

Okay, thank you for that. And just two questions on the 22 outlook and the $80 to $90 million adjusted EBITDA forecast. One, I guess, if you could quantify the impact from Omicron in the first quarter, how that maybe set it back at all, if that was material. And then just assumptions that you have underlying the recovery of the dining room capacity and off-premise stickiness, if you can provide any color on that.

Yeah, you know, I'll start with Omicron. I mean, it's incorporated into the range that we provided as part of guidance. We saw an impact, you know, in December initially that carried forward pretty much through the month of January, and then we started to see trends improve as we've already indicated.

I would say on the dine-in business, Alex, you know, kind of starting mid-January, we've just seen a nice cadence of dine-in improving kind of week over week. And we believe as restrictions continue to recede and, you know, guests, you know, become even more kind of, I think, attuned to the new normal that, you know, that that part of the business is going to continue to grow. And I think, as you know, that's our most profitable part. So we're excited to see the impact that that can have not only on the top line, but also on the bottom line as we move through this year. So to Lynn's point, you know, in the guidance that we gave, that takes into account the impact of Omicron, certainly in P1.

Okay, thank you.

Our next question comes from Todd Brooks with The Benchmark. Please go ahead.

Hey, good evening to you both. Hi, Todd. Hey, Todd. A couple quick questions, if I may. There was a comment that was in the release talking about margin pressures persisting into fiscal 22, but that the trajectory improves year over year. I want to clarify, are you guys talking about margin pressures versus fiscal 19 versus fiscal 21? What should we be thinking about maybe kind of sequentially exiting out of Q4 of 21 and into 22 from a restaurant level margin standpoint?

Yeah, I think what the intention of that language was really to demonstrate that we would see higher inflation in early 2021 and through, or 2022, excuse me, through the mid part of the year. because we had very low costs in 2020 at the same time period. And then as we got to the middle of the year last year, we started to see inflation. So our year-over-year increases will decline through the year. And that was really the intention for some of the language included. I will also say, you know, we believe with an improved sales trajectory, with improved staffing through this year, And with a reduction of transitory costs, that will have a sequential improvement on our margins as we proceed through the year.

Okay, great. Thanks, Lynn. And then maybe to flip it around to the backside of the year, I know there was a comment that you're looking for restaurant-level margins in 2023 to equal what you generated in fiscal 2019. Can we talk about maybe what that implies for an exit rate? I'm just trying to figure out how much of the improvement we see over 22 getting back there or how much of it is hanging on further recovery in 23 to get back to those high 17, 18% levels.

You know, I would say we would be within a percentage point in terms of the fourth quarter exit rate compared to the 2019 full year margins.

That's very helpful. Thank you. And I believe you talked about, and I think, Paul, in your verbal comments, the room to take price. But I think in the release it talked about an actual planned price increase. Can we talk maybe timing and magnitude on that?

Yeah, I'll start and then you can chime in. It's going to be in the mid-single digits based on at least what we expect right now. We typically take pricing two times a year. We're taking it in a little bit more of a blended way in the first half of this year, and then likely in the fourth quarter, we'll take another or we'll have another pricing event.

Okay, great. And then just one final one, and I'll jump back in the queue. The SG&A guidance, the $145 to $155 million versus, I think, $123 million in in 2021, what's driving kind of a little bit of a step function up in spending on those line items?

A few things. One is we are planning to spend more in terms of advertising and selling costs. We really muted some of our marketing efforts in 2021 as we were challenged with staffing and some of our other jurisdictional challenges. So we'll try to get to more of a normalized spending rate in 2022 from a selling perspective. And then on the G&A front, we certainly have some inflationary costs related to G&A. We also have a general manager conference that was virtual only in the prior year. And then actually the design of some of our stock-based compensation is resulting in higher expense recognition in 2022.

Okay, great. Thanks for the detail. I'll jump back in the queue.

Our next question comes from Brian Vaccaro with Raymond James. Please go ahead.

Hi, thanks, and good evening. I wanted to go back to the quarter-to-date improvement that you're seeing on sales, and just to make sure we're all on the same page, could you give us a sense of where average weekly sales are currently running, exiting Omicron, and maybe also remind us what normal seasonality would look like as you move into the spring months?

Okay. Yeah, I'll start with normal seasonality. You know, we see a drop in seasonality in January and February, and then it starts to pick up in March and April as we get to the spring months. And then in terms of average weekly sales, sorry, Brian, I can't remember the number. I have to look at some of our details here.

Yeah, no problem. No problem.

So average weekly sales in P1 were almost 52,000, and then in P2 were almost 54,000. Okay, great.

That's helpful. And I want to ask on the staffing front as well, and specifically your hourly staffing levels. I think you said around 85% of PAR levels exiting 2021. And I just wanted to, if that's right, I just wanted to clarify if that par level, is that the same as in 2019? Or can you frame where your current pars are versus pre-COVID? And then could you give us a sense of to what degree you've seen staffing levels improve further exiting Omicron compared to that 85?

Brian, this is Paul. No, the par levels are depending on the volume of the restaurant, anywhere from 10% to 12% higher than 2019. And that is taking into account the sickiness of the off-premise business. And then, you know, obviously the... trajectory that we're beginning to see in the dine-in businesses. I mentioned a little earlier, we're starting to see a real over-week improvement in dine-in. We're starting to see just, I think, a couple things in the numbers. I'll speak on the management side. We feel that we're just about fully staffed on the management side of the business. and have seen the turnover rate there drop back down to what I would call kind of a more of a normalized range. On the team member side, we're seeing an ability to drive more applicants than maybe we did kind of during the Omicron time, and we've been seeing a nice steady move on that, but it's still a little bit slower. As we mentioned in the call, we have... engage an outside resource to help us with team member recruiting to basically give internally, help our internal teams to help move that along a little bit faster. I feel good about the progress on that. As I said in my prepared remarks, it's a let's get the management stabilized and where it needs to be first. We feel like we're there today and then we feel like that's going to help accelerate the team member part as we have buttress that with the outside resources. And so we feel like we're on a good trajectory, and that's even going to enable us to move quicker in growing our dine-in business, because dine-in is all about capacity, just to be very blunt about it.

Yeah, yeah, understood. Okay, and then just lastly for me on the commodity front, and sorry if I missed it, but what was your year-on-year commodity inflation on the basket in the fourth quarter?

It was roughly 9%.

Okay. And Lynn, as you think about the mid-to-high single-digit guide for the year, what's that cadence look like, first half, second half? And then could you also give us an update on the percent of your basket that you're currently contracted on and any items of significance that you're currently not contracted on?

Okay. Well, as it relates to commodities, we believe we'll be in the low double-digit to mid-double-digit inflationary range. comparison in quarters one and two, and then it drops down to more of a single-digit increase in Q3, and then we think it will be flat to slightly negative in Q4. From a basket perspective, we have the majority of our commodities locked in, but really in the middle part of the year, we do have some contracts we'll be negotiating around bread and fry oil in particular, and then also some of our condiments like dressing.

All right. That's great. I'll pass it along. Thank you.

Our next question is a follow-up from Todd Brooks with the Benchmark. Please go ahead.

Hey, thanks. Just one quick follow-up. obviously real success over kind of the back half of the year with the LTOs. And you talked about continuing Cheesy Bacon Fondue into Q1, which is a plus operationally. Have we juggled the LTO calendar because we're continuing that product? And I guess, Paul, if you were looking and wanted to put some qualitative thoughts about what you've got coming up from a new product standpoint, we'd love to hear about that.

We did juggle the LTO calendar slightly. In fact, in a couple weeks here, we'll be bringing out the next LTO. From a qualitative standpoint, the Q2 and the Q3 LTOs, I'm extremely jazzed about. I think that they're right on the mark and I kind of don't want to quite give it away yet because it's also going to be part of the introduction of a new website that we're rolling out and as we start to push the app. But I think it's a great product and the last two, the Scorpion Burger and the Cheesy fondue burger, I foresee these next two will be in the same category as certainly in the top ten of any LTOs that the brand has ever done. So I think we, you know, Todd, sometimes it's better. I think that with the scaled-down menu, I think the promise that we're getting the LTOs, I think we've hit on a formula that really is helping us to drive not only the top line but the LTO performance. which also is helping us to drive the profit on that. I think that, you know, with the scaled-down menu, quite honestly, they don't get lost. So I'm very pleased with the lineup that we have.

That's great. And can you remind us what we're running for kind of menu item count now versus where the bread was pre-pandemic?

Well, we took it down about 35% pre-pandemic. You know, the one thing, though, that I, you know, you know, certainly be upfront about is that, you know, adding Donato's Pizza into locations as we will through the balance of this year and the next year does add a few, but we have today no intent of driving that number back up because we think the performance of the LTOs is helping to keep the menu fresh and exciting for people and also gives us the ability to react very quickly if there are new trends out there in the marketplace.

That's great. And the final one for me, you talked about the success with the virtual brand as a sales layer, and then I think you mentioned that you're launching a licensed virtual brand also. Any details you can give us on that, either timing-wise or maybe concept or what's going on there?

Well, I think we'll be, you know, certainly by the end of Q2, fully launched with a licensed brand. You know, at that point, we'll be better prepared in a better position to give more detail about it. But overall, obviously, you saw the contribution rate in Q4 at 8.4, so very happy so far with the performance. I think there's more legs there, but You know, Todd, it's still very early in the life cycle of virtual brands. We're just trying to see where does it go. And quite honestly, we always fall back to making sure that it doesn't impact our core business, doesn't get in the way of executing the core Red Robin brand. So always looking at the complexity of it and, you know, So, so far, so good, but would like to see, you know, where does that part of kind of third-party home delivery, where does that really go? You know, I don't think anyone's quite sure as to the long-term future of that.

Okay, great. Thanks for the questions.

Great. And, Todd, I might just end going back to your GNA question. I was remiss in not mentioning variable-based compensation. being higher in 2022 versus 2021. That was another category.

Okay, great. Thanks, Lynn.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Well, thanks, everybody, for attending the Red Robin fourth quarter call and We look forward to speaking again at the end of the first quarter and look forward to a great 2022. Take care.

Thank you.

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