Good afternoon, everyone. And welcome to the Red Robin Gourmet Burgers Incorporated Second Quarter 2022 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 may 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 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 non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its fiscal second quarter 2022 earnings release on its website at ir.redrobin.com. I would like to turn the call over to Red Robin's CEO, Mr. Paul Murphy. Thank you, sir. Please go ahead.

Hello. Thank you for joining us. With me here today is Lynn Schweinfurth, our Chief Financial Officer. After I provide some general commentary on the business and an update on our initiatives, Lynn will review our fiscal second quarter results in detail, along with some revisions to our financial outlook. As the headlines have become increasingly negative, as it relates to consumer confidence, general inflation and the likelihood of a recession, casual dine-in traffic has been trending downward. Still, when we evaluate our sales and traffic trends relative to our peers in the same markets, we are outperforming the casual dine-in segment. We attribute this outperformance to our high-low strategic approach to value, including higher priced, innovative, limited time offers and more compelling promotions, including our $10 Gourmet Meal Deal, which we launched in late June. These promotions are complemented by everyday value that include affordable prices, generous portions and signature Bottomless sides and drinks. Our guest satisfaction scores for both dine-in and off-premises are improving, which we attribute to our back to basics operational execution, improved staffing and declining turnover, which are enabling us to better serve our guests. Our digital platforms are also helping to support our business in ways that were simply not possible even just a year or two ago. We have increased our marketing versus 2021. However, we still remain below 2019 levels. Our marketing is mainly digital, and therefore, more targeted and cost effective. And it's driving record levels of engagement through guest segmentation, automated offers and push notifications. We are also supporting the current limited time offer and value message, while conveying that Red Robin is all about making moments of connection for friends and family across a diverse and multi-generational demographic. While commodities in general have plateaued, they have done so at…

Thank you, Paul. As Paul outlined, our industry is facing headwinds in a volatile macroeconomic environment. However, given our financial results associated with our strategic initiatives, we believe we are well positioned to create long-term value for our shareholders. Turning to second quarter results. We grew comparable restaurant revenues by 6.7% compared to 2021 in the second quarter, surpassing the casual dine-in segment in both sales and traffic as measured by Black Box Intelligence. Compared to 2019, our second quarter comparable restaurant revenues increased 4.1%, marking the second consecutive full quarter of positive comparable restaurant revenues versus pre-pandemic sales. Versus 2021, we experienced a softening of sales in the last two fiscal periods of our second quarter that ended in mid-July. However, as Paul shared, we have seen our sales increase in our 8th fiscal period that ended August 7th or the first period of our third quarter to approximately 4%. We attribute this improvement to our high-low value strategy that is building traction and outperforming the casual dine-in segment. We delivered our 9th consecutive quarter of off-premises sales dollars at more than double pre-pandemic levels, demonstrating the sustainability of our higher off-premises sales channel since 2019. As a percentage of total off-premises sales, third-party delivery represented 54.3%, to-go represented 35.3%, catering represented 6.3% and Red Robin delivery represented 4.1%. Full year net cash provided by operating activities was $36.4 million, while cash used in investing activities was $15.6 million and cash provided by financing activities was $15.5 million. During the second quarter, we received federal cash tax refunds of approximately $12.7 million, which included $0.5 million of interest. We ended the quarter with liquidity of approximately $75.3 million including cash and cash equivalents and available borrowing capacity under our revolving line of credit. Our ongoing focus includes effectively managing…

Thank you, Lynn, for your kind words. I too have enjoyed working with you. Even as I transition to an advisory role on my path to retirement, my confidence in Red Robin's bright future does not waiver. This is because connecting family, friends and fun through memorable moments over great food, which is our brand promise, is enduring. And this company has strategic initiatives to drive market share, frequency, while adapting to any changes in consumer behavior. We believe we are better positioned to weather an economic downturn than many competitors, due to our value-based propositions, including Bottomless and relatively low average check of approximately $16. This has been in the credible team to work alongside in pursuit of top line growth, profitability, and long-term shareholder value. Their passion for Red Robin and commitment to quality results are something that I'll miss on a daily basis. So let me thank them one last time for all they have done and do on our behalf. And with that, let us now open the call for questions.

Our first question today is coming from Alex Slagle of Jefferies.

Thanks. Hey, Paul, congrats on the upcoming retirement. I know you'll be around for a little bit, so happy about that.

Thanks, Alex. I will be and I think it's going to be a very effective transition with G.J. and look forward to working with him the next couple months and getting us on a strong path forward. So -- but I'm sure I'll see you around somewhere.

For sure. Hope you get some time off. But I guess, with the transition and you hand over the reins to G.J., I mean, what's at the very top of your to-do list that you want to accomplish both just to ensure a smooth transition into 23, but also to finish up or see through specific initiatives that are especially important to you?

Alex, I think it's a couple of things. He's been on -- certainly G.J. is familiar with the company, he's been on the Board the last three years. Obviously, very successful in -- at Texas Roadhouse and at CPK and at Torchy's. We've already been spending time together talking about the business, the impact that Donatos has been having on it, where we sit from a staffing perspective, taking a look at how are we going to manage the capital spend as we get into 2023 versus we do have a lot of levers that can move the business forward, whether it's Donatos, whether it's the digital guest journey in the whole digital ecosystem. So I think it's really the two of us working together on where are his views on the strategic thinking? How does that influence the budget for 2023? And then on our end, are continuing to work hard on 2022. As I look at the second quarter and it was a bit disappointing I won't lie about that, we saw the same softening through the quarter that a lot of other brands did. I think the couple of things that we have done in reaction to that is, commodity certainly plateaued at a higher rate than we had forecasted. So we originally were going to do a pricing move in Q4, we accelerated that and moved it up into very early Q3, but obviously it could not influence the second quarter. We also quickly recognized in P-6 that things were softening in the third week of P-7, we put out the $10 Gourmet Meal Deal to certainly influence the business. And it has worked well for us. Our value perceptions, our value sentiment have really grown over that time. I think it had a nice influence on P-8 getting out of the gate into Q3 and is continuing into P-9. And we're going to roll out Happy Hour here in a couple of weeks across system to further influence that. So, when I look at Q2, the miss was a bit of a softening on the top-line but more importantly at the commodity level. And we've done the things that we need to do to influence really the operating margins as we get into Q3 and more specifically into Q4. So, certainly not backing off 2022 at all. I think we have done the things that address the misses that we had in Q2. But in the meantime, obviously, G.J. starts September 6, we'll work side by side to not only be addressing that, but set him up for success as we go into 2023.

Okay, that's helpful. Could you break down the monthly same-store sales? And if you have it, how the relative gap versus the peer benchmark track through the quarter?

Yes. Alex, in P-5, in comparison to 2021, we generated 11.6% in P-5, 7% in P-6, 1.7% in P-7; and then in P-8, as Paul mentioned, we came in at about 4%. And then in terms of the gap to the competition, it ranged between 3% and 5% during the second quarter. And then from a traffic perspective, we actually had a positive gap to Black Box for the quarter of 1.6%.

And did the gap hold generally through the quarter? Or did you feel more pressure towards the end or any takeaways there?

It went down a little bit, but it held pretty steady for the quarter.

Okay. Do you happen to have those comps by month versus ‘19?

I do. So for P-5 we were up 7.3%, which I believe we shared on the last conference call. And then in P-6 we were up 1% and in P-7, 3.9%. Now between P-6 and P-7, there was some calendar shifts around, I believe Father's Day that negatively impacted P-6 and positively impacted P-7. So there was a little bit of noise there. And then we came in at about 3% in P-8.

Got it. Okay. And on the reduction of the guidance -- the EBITDA guidance, is it -- I guess how much of that is commodities and if there are other pieces? I mean, is it incremental labor pressures or some sales caution baked in there?

Yes. It's primarily commodities and sales caution and the related flow-through associated with that sales caution.

Yes. Alex, we've taken a conservative approach to taking a look at basically using the run rates and that we've seen and trying to take in account that there's still volatility in the macro environment and not trying to get too far over our skis. But I think as Lynn said, we’re pleased to see the rebound that we've been seeing in P-8 from a sales perspective. And the ability to go ahead and take some price and move that up much earlier into Q3 should be a help to us.

Thank you. The next question is coming from Todd Brooks of The Benchmark Company.

Hey, thanks. And Paul, best of luck in your future travels here. Hope you enjoy it, and it's as fulfilling as these last three years. I'm sure it were for you so.

Well, thank you, Todd. Appreciate it.

Few quick questions, just kind of jumping on what Alex was just exploring. If we look at the commodity thinking for the balance of the year, and Lynn, you made a comment at the end of your prepared remarks talking about a distributor shift that kicks-in in Q4, and that you're expecting COGS to be up sequentially. Can you kind of give us a map of how you see COGS tracking kind of Q3 and Q4 so that we can size what that -- whatever the uptick would be to the distributor but if you're expecting any improvement in kind of Q3 from Q2 levels?

Yes. I would say in terms of Q3, we do expect improvement and certainly part of that improvement is the 2 percentage points in price we took at the beginning of the third quarter. And then it will tick-up in the fourth quarter to result in mid double-digit inflation for the full year.

Okay, great. That's helpful. And then you talked about the basket. I think, you said it was up what? Was 19% in the quarter? Do I have that number, right? The commodity basket.

That's correct. 19% for the second quarter. That was up a little bit from the first quarter, and then will sequentially decline in the third quarter, then again decline in the fourth quarter as we start to lap over some of the inflation we experienced last year.

And then, Paul, can you talk to kind of the slowdown that you saw in kind of heading out of P-6 into P-7, was it purely traffic driven customers that were still showing up to the restaurant? Were they still building checks in the same way and behaving the the same way? Where did you see and how was the slowdown manifesting itself?

It was mainly traffic-driven, and Todd, that's why we switched bar a little bit from the QSR playbook. Our LTOs were still performing well, which has been a driver of check, but we thought that as we saw traffic slowing, we needed to. Frankly, address the value part because we thought that consumers were feeling pinched from the inflation. And that's why at the back end of P-7 we rolled out the $10 Gourmet Meal Deal, which so far has performed well for us. And we think it's a strong high-low strategy that showcases the value of Red Robin. And we're certainly seeing it in the numbers in terms of the value perceptions of the Red Robin brand have definitely moved forward versus the industry. And quite honestly, we're outpacing the industry right now. And as I mentioned, it was a little late in Q2, it only was -- it was two weeks left in the quarter. It was really a reaction to kind of mid to mid P-6 into P-7, what we saw as a real softening of sales.

And then the $10 offer, how's it mixing relative to your expectations?

It's actually a little bit higher than expectations, but it's also an offer that still has a strong, gross margin on it. We're not giving away the farm, so we're pleased with what it's doing to that, but also its ability to be a fairly strong gross margin player for us even at a $10 offer.

And then the two potential additional value promotions behind it. It sounds like Happy Hours teed up to come. And then you mentioned something potentially at lunch as well.

Happy Hour will be rolled out this month. And then lunch specials, you'll see a little further into the fall.

And then the same type of margin neutrality type of -- if you're migrating people to more of these value-based platforms, you're still fine with it from a Bottomless standpoint?

I mean, one way to think about it. I mean we don't have certainly the strongest liquor mix out there in the casual dining space. So, even at a Happy Hour increasing the liquor sales should help us overall from a margin standpoint. So we're looking forward to that because we think it can continue to strengthen not only the value perception of the brand, but can strengthen the margin profile of the brand.

And Todd, I would just add, we also have the high end of the high-low strategy where we're giving guests every excuse to order our premium priced products so we can balance the promotions that we're doing.

We do see when people come in and order the $10 Gourmet Meal Deal, that a lot of them they do their own add on. It really is about, as Lynn mentioned, given the consumer choice of how they want to spend their money.

And then just a final, quick one, I know targeting 50 Donatos rolled out this year. Where are we in that process? And is it kind of equally weighted across the year? Or is there back half loaded element to this year's rollouts?

Yes, it's roughly half and half, Q2 and Q3, and we should be primarily or essentially completed by the end of Q3.

Thank you. Ladies and gentlemen, this brings us to the end of the question-and-answer session. We would like to thank everyone for their participation and interest in Red Robin. You may disconnect your lines or walk off the webcast at this time and enjoy the rest of your day.