Good afternoon, everyone and welcome to the Red Robin Gourmet Burger Incorporated Fourth Quarter 2023 Earnings Call. This conference is being recorded. During management’s presentation and in response to your questions, they 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 reflects management’s beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the company’s SEC filing. Management will also discuss non-GAAP financial measures as part of today’s conference call. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate alternative measures of the company’s operating performance that maybe useful. Reconciliations 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 fourth quarter 2023 earnings release on its website at ir.redrobin.com. Now, I would like to turn the call over to Red Robin’s President and Chief Executive Officer, G.J. Hart.

Good afternoon, everyone, and thank you all for joining us today and your interest in Red Robin. 2023 marked the first year of our North Star Plan and was a successful transformational year for our iconic brand. Operationally, we made the necessary investments in what we serve and how we serve it to ensure that every guest experience at Red Robin is a memorable one, and we are seeing early signs of traction from these initiatives. Financially, we made substantial progress by delivering 1.6% increase in comparable restaurant sales, a 33% increase in adjusted EBITDA, and we strengthened our balance sheet supported by two sale-leaseback transactions, ultimately reducing our long-term debt by almost $25 million. I’d like to extend my heartfelt thank you to all of our more than 20,000 team members around the country. The success of Red Robin in 2023 and in the future is due to your efforts and all of us working towards the same goals, all in this together. Before I dive into our plans for 2024, I want to take a look back on what we accomplished in 2023 through the framework of our North Star Plan. First, we transformed into an operations-focused restaurant company. Our achievements rest on the success of our managing partners and restaurant leadership teams. During the second quarter of 2023, we revamped our market partner compensation program for multiunit operators. Through this program, they now see themselves as owners of the restaurants. They oversee and are rewarded based on their profits. Said another way, our restaurant leaders are now incentivized to deliver strong financial results like never before with unlimited upside earnings potential for themselves. We believe this has not only helped to recruit and retain the best talent available but also made the Red Robin experience come to…

Thank you, G.J., and good afternoon, everyone. In the fourth quarter, total revenues were $309 million, an increase of approximately $19 million versus the fourth quarter of fiscal 2022. The increase in revenue was led by an additional operating week in the quarter, the 53rd week of our fiscal year. The additional week added approximately $24.5 million to restaurant revenue and was partially offset by a decrease in comparable restaurant revenue of 2.7%, driven by the removal of our previous deep discounting, marketing promotions and elimination of virtual brands. Restaurant level operating profit as a percentage of restaurant revenue was 12.2%, an increase of approximately 90 basis points compared to the fourth quarter of 2022. The improvement was driven by cost-saving initiatives and cost of goods and other operating expenses, menu price increases and reduced discounting. Additionally, the inflation environment continues to improve. The rate of inflation across all major cost categories, including commodities, wages and operating expenses, was in line with or reduced from levels experienced during the third quarter. General and administrative costs were approximately $22.7 million versus the prior year of $20.2 million. The increase is led by approximately $1.7 million due to a 13-week quarter this year versus a 12-week quarter last year and an increase in incentive compensation expense due to the company’s improved performance in 2023. Selling expenses were approximately $12.1 million, a decrease versus the prior year of approximately $2.1 million, led by a strategic reduction in media spending on social and local channels. Adjusted EBITDA was approximately $10.6 million compared to approximately $8.4 million in the fourth quarter of 2022. For the full 53-week fiscal year, adjusted EBITDA was $68.9 million and approximately $66 million on a 52-week basis. As we have previously discussed, we are taking actions to strengthen our balance…

Thank you, Todd. The comeback journey of Red Robin in building a long-term sustainable and growing business takes some time. We have used the analogy of a baseball game to measure our progress. I believe that we were in the second inning of a 9-inning game. This assessment reflects the fantastic foundational progress we made during 2023 at completion of the first inning, and the remaining 8 innings as the great opportunity we see ahead. Through our operations execution focus, increased marketing communication, the launch of our new loyalty program and continued cost savings, we look forward to demonstrating further step change progress in 2024 as we bring back guests back into our restaurants for moments of connection over craveable food that only Red Robin can provide. With that, we are now happy to open and take questions. Operator?

Thank you. [Operator Instructions] The first question comes from the line of Alex Slagle with Jefferies. Please go ahead.

Alright. Hey, guys. How are you doing?

Doing well. How are you doing?

Doing well. So I’m just trying to think about some of the comments you were making towards the end in 2024, it’s going to be year two on this path. And I guess, initially, we were sort of thinking a 3-year path the doubling EBITDA margin. I mean it’s hard to expect a linear progression towards that target? Obviously, ‘24 seems like an important year for customers to come in and start experiencing the improved food and experience for the first time. So it’s going to take a while to see that translate into traffic gains and flow-through. And not like you’re going to sort of make cuts that reverse the, I guess, experience improvements you’ve made, but does this outlook for ‘24 suggests we should think more like a 4-year plan versus a 3-year plan? Or has the trajectory changed in your mind at all? I mean there’s been a lot of external dynamics as well, but just thoughts on that would be helpful.

Hey, Alex, this is Todd. I’ll start out of – to one of your comments. We’re really pleased with the improvements in the performance and the feedback from our guests. So we feel like those are the right investments. We’re seeing the feedback from guests confirm that. So we feel really comfortable with those investments. To your comments on traffic, I think we would agree. We don’t expect a linear line. We know that, that builds over time. And part of – we’ve talked about this in the past, but part of how we’re thinking about the markers of how do we know we’re on the right track. We’ve said, hey, the first marker was improved guest satisfaction, and we’ve seen that. Now what we’re looking for really is sequential improvements in traffic, especially as we get into the second half of the year. G.J. referenced that in his prepared remarks, but especially with the investments that we’ve made: one, resonating with guests; two, getting the marketing plus up to really get that message out there; and then three, our loyalty program kicking in, in the second half of the year. We are looking for that just sequential improvement. Q2 a little better than Q1, Q3 better than Q2 and so on. And so that’s how we’re thinking about it. I don’t know that I’d tell you, we put a 2, 3, 4, 5-year time line on it. It’s really continuing to build the brand for the long-term. And we know that one step at a time gets us ultimately to where we want to be at the end of the journey.

Yes. And I would just say, Alex, to Todd’s last comment, to try to build this brand, this iconic brand back to a sustainable business, I think we’re doing all the right pieces to make that happen. And so I don’t think I would say that it’s necessarily a longer period of time. It just – it does take some time. It’s just not going to happen overnight. But when I look at the progress our team members have made in 2023, pretty amazing. And so while we referenced kind of the second, third inning in a baseball game, which I do – the point there is that there’s just so much upside for us as we get ourselves totally straightened out from some of the decisions of the past.

That’s helpful. And I mean I guess as you look at the performance, you look at sort of your top quartile or bottom quartile stores, and I mean maybe even just anecdotally, but if you look at some of the key metrics, the comps, the traffic, the customer satisfaction scores, which I think you pointed to and tenure of management and things like that, how do the metrics compare a year ago? Can you sort of point to some things that tell you about the progress?

Yes, Alex, when we – we’ve talked about the quartiles and we look at that routinely. One of the things when we look back at last year, there was progress in same-store sales across all four quartiles, right? All four quartiles posted positive same-store sales as groups. And so that was encouraging to see if not only – it’s easy sometimes to focus on the fourth quartile, but not only were we able to improve those restaurants, but our top performers, which are fantastic financial restaurants, those were able to increase their same-store sales as well. And so the sales performance but also the restaurant profitability, again, that top quartile, increased sales, increased profitability. Part of what we saw, we found this interesting. The fourth quartile increased sales, but we had to spend some money to do that. And that’s not surprising to us, frankly. We knew that would be the case because that we knew they weren’t staffed properly. We knew that, in many cases, the food was not executed to our standards. And so I think I’d say it’s progressing as we would expect. And the encouraging piece to us is as we make the investments, yes, we know there’s investments, but we start to see it pay off in sales even in those most challenged restaurants. And so that’s what gives us confidence going forward.

Okay. And just one quick follow-up on, with all the menu work and the new entrees and apps and beverages, seasonal stuff, I guess I would have thought those would be more accretive to the check, and you would sort of see that, that mix impact start to turn a little bit more positive? And just maybe any thoughts on why that mix is still negative or color on sort of level of trial with new items, anything that surprises you or that you want to share?

Yes. The – it’s just still Todd here, Alex. But the texture I would share there is we have had really nice trial in a lot of our new appetizers as well as some of the new entrees. We added a ribs item at a more premium price point, a shrimp item at a more premium price point. And we have seen really good trial and mix overall in those items. The offsetting factors, it’s interesting to watch the consumer behavior on this of as we have sold more appetizers, we have seen that somewhat offset by reductions in dessert mix. And so you see people just managing their overall check, which is not surprising to us there. And that’s been happening for the past several quarters. So, that’s the dynamic you see in mix. And as we do see some guests gravitating to the more premium-priced option, part of what you have seen through all of 2023 is some guests gravitating more to our Tavern line up or more value price burgers. We think that actually positions us really well. If there is a value, we see a lot of what our competitors are doing with value promotions. And so we actually really like the barbell strategy we have been employing that, hey, if you want a more premium option, we have those options for you. But also if you are looking for a more value option, we have those options for you as well. So, we think it actually positions us really well going into 2024.

The last piece of that, Alex, is that I will just remind you that all of those menu items weren’t put in place until the second week of October. So, it hasn’t been very long at all. And if you think about frequency of the brand, there is just a lot of folks that haven’t had the opportunity yet because they haven’t been in. So, we are still feeling very hopeful and positive about where we position the brand, and as Todd pointed out, the whole barbell menu strategy.

Good point. Thanks. That’s helpful.

Thanks Alex.

Thank you. The next question comes from the line of Todd Brooks with The Benchmark Company. Please go ahead.

Hi. Good evening guys. Thanks for taking my questions.

Hey Todd.

First, I would like to lead off, we have talked in the past with some of the headwinds as far as not lapping the $10 Burger Meal Deal promotion and exiting the virtual brands that you created a headwind that you have been fighting against. So, it’s probably been masking some internal evidence of traffic benefits from all the work that you did over fiscal year ‘23. I know we talked about some of the customer sentiment scores, but are there other examples you can point to that, that give you real confidence that when the customer finally finds a visit to Red Robin and discovers the better service, better environment, better food experience that you are seeing anything from a frequency of visit standpoint or intend to repeat, or anything else you can point to that kind of bolsters the case that the improvements are resonating?

Hey Todd, Todd here again. Yes, a few things come to mind there. One of the pieces that our marketing team has done a great job of this, we were able to track our web traffic pretty well. And this is really about – more about new users. But over the past quarter, through the fourth quarter, especially on the heels of the menu rollout that G.J. just mentioned in October, the number of new guests coming to our website has increased substantially. And so to us, that’s a very encouraging sign of bringing new users back to Red Robin. A lot of our marketing has been focused in new channels. And so that’s one of the markers we have been looking at in terms of data points that tells us we are on the right track beyond to your point, the customer satisfaction.

Yes. And I would just add, Todd, that in addition, what we are seeing is on the sentiment, the scores are actually even higher from new guests coming into the restaurants than what they have been in the past. So, that’s pretty encouraging that we are obviously striking a cord and we have seen them, the repeat visits increased as well.

Excellent. Second question, you talked about the incremental $3 million in selling expenses to really get out there and message the work that you have done on the brand over the course of ‘23. Is there a place knowing that the focus has been repositioned around local store marketing, digital platform marketing? Is there a place at all, especially in denser markets for any more of maybe a mass channel overlay that maybe gets that message out in a way that you hit a broader swath of people and really highlight the improvement in the brand and drive some traffic that way?

Yes. Todd, we are – I think we are thinking very much along similar channels, part of the marketing push. The first stages have just kicked off, and it will really ramp up in Q2. But one of the pieces to the marketing plan is really a – going on TV, we are going to test that in six of our core markets to really very much to your point, get that message out. It’s still targeted, right. We are targeting certain channels, certain times of day, certain events, but it’s much more of a mass media type of approach that we think, obviously, there will be other levers or layers as well. But we think going on TV really does get the word out broadly. And so part of our approach in that is to go to those six markets, measure performance, and that will then inform how we approach the second half of the year. But it’s very much along with the lines of what you are talking about there, really pushing to get the word out and get people to come back in to experience what we know by all the data is going to be a great experience.

Okay. Great. And I have one more and then I will hop back in the queue. If you look at where the Street kind of went to for ‘24 restaurant level margins, we had the improvement north of 14%. My sense is we may have gotten a little bit over our tips relative to the reality of what it takes to improve and inflect margin. But is there anything incremental? I mean the commodity inflation outlook sounded good, I know you have put a lot of labor investment back into the model. Is there anything in ‘24 that’s kind of layered into that guidance that you provided, that 12.5% to 13.5% restaurant level margin? Thanks.

I think we laid out the big pieces, and I think you just mentioned many of them. So, I think we laid out the big pieces. I think the piece that relative to the information that you are or others had out there on us, and I think the piece that we layered in that’s perhaps incremental to that is really just the impact of what we saw to start the year. We were certainly impacted by the weather. We have seen those comments from others in the industry, certainly impacted by the weather to start the year. Quite frankly, when we look back at 2023, we had a great first quarter of 2023. We were up 8.6% comparable restaurant sales last year. And quite frankly, the heaviest hurdles January was the biggest hurdle, February was the second biggest hurdle. And then the hurdle, so to speak, isn’t quite so severe in the rest of the quarter and the rest of the year. But I think when you put those really big hurdles from Q1 or from January and February on top of then the weather events of this year, I think that’s the piece that we are reacting to a little bit real time and that my sense is that the Street numbers probably didn’t have that factor incorporated where we did out of that factor in.

Okay. Do you want to speak to, Todd, I don’t know in this forum, if you either want to talk to quarter-to-date or knowing that you still have – this is a 16-week for you guys, maybe frame up the expectation for the full quarter, so that we are not trying to guess how much you can chase back against some easier comparisons as Q1 progresses?

Yes. It’s a fair question, Todd. And I think as we think about it, I go right where you went off. We do have, right. We are somewhat unique and we have a 16-week first quarter that really we are only halfway through, meaning we still got a really long way to go. I think the – obviously, weeks and months and even quarters can sometimes be volatile. So, I don’t know that we are ready to give you a number for Q1. But I think the way that we are thinking about it is part of the progression that we have seen through the first quarter. When we look at the January results and then the improvement as we get into February, we have seen basically a 600 basis point improvement from January to February. Now, those are still – January was still a decline in same-store sales as was February. But seeing that sequential improvement gives us confidence that it is a year-over-year lap that’s driving our numbers so far this year and seeing them improve gives us confidence in the balance of the quarter. So, I don’t know that we are ready to put out a number yet on Q1, but it is one that, obviously, it’s been a headwind to start the year, but we are seeing the sequential improvement in the right direction.

Okay, perfect. Thanks, Todd.

Thank you. Next question comes from the line of Andrew Wolf with CL King. Please go ahead.

Thank you. Good afternoon. I kind of wanted to piggyback on Todd’s question on the comps kind of the cadence, but not in the quarter. I mean, I think you wouldn’t have called it out as particularly challenging and not alone, if it wasn’t going to be well below – somewhat to well below trend, well below guidance. So I guess what I want to get to is the compares get a lot easier in the second half. And obviously, the first quarter is going to be what it is. But I am certainly – I am going to model it below meaningfully below the guidance you put in have looked down low single-digits. So could you give – I mean, are you guys – is it reasonable to expect your comps to at least flatten out, if not turn positive in the second half when you start to hit the easier comparisons? Is that sort of how you are viewing the year? Like I know the first quarter is not in the books yet, but certainly the first 2 months – first two 4-week periods put in a tough spot?

Yes, Andy, you’re spot on. We do expect with what we’ve seen so far in the first quarter that I just referenced our February period better than the January period. We are looking for that to continue. That is both true for same-store sales as well as the traffic side of things. I referenced that in the prepared remarks that especially on the traffic side, the marker is going to be each quarter better than the last. So you’re thinking about that the right way, and we do see a track that gets us positive as we move through the year.

And kind of related to what I’m asking about, when is your marketing – incremental marketing going to really start to hit the mediums you’re going to use to use...

As we – I think we mentioned it, it will start in March as we begin that and it really goes into the second quarter really full stop.

Alright. And then a housekeeping I think you mentioned you had an extra payroll cycle, we shape your cash. Was that a meaningful number? Did it improve your liquidity position from year end?

Andy, no, it was actually a headwind to our liquidity position, which is part of why I called it out. One pay for us is $17 million or $18 million. Now admittedly, we have an extra week of revenue to help offset that. But it was definitely a headwind to our liquidity. It’s just a point in time headwind, though, right. It quickly balances out. But just because we drew the line of the fiscal year end, a week later, we ended up carrying effectively 7 payroll cycles in the quarter rather than a typical 6.

That’s what I was asking. So your liquidity position is somewhere $17 million plus or minus, better than the end of the year.

Exactly. Yes, it is unusually depressed versus what we feel like it should have been, so to speak, if we were on a net normal 52-week calendar.

Okay. And we’ll look at the cash flow statement, but sort of backing into that, there must be some other things in there either in working capital or that seemed to have hit the cash from operations that might not repeat?

That’s correct. Yes, that was the big headwind that I’d call out on cash. And again, that’s just a timing aspect. But we can certainly talk through the cash flow statement as you are able to digest it.

Okay. Thank you. That’s it from me.

Thank you.

Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to G.J. Hart for closing comments.

Alright. Well, thank you all for joining us today. We look forward to our next report. And again, we are excited about this come back and making it come to reality. So take care. Thank you. We’ll talk soon.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.