Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers Incorporated First Quarter 2024 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 reflect management's beliefs and predictions as of today, and therefore, are subject to risks and uncertainties as described in the company's SEC filings. 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 may be 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 first quarter 2024 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 your interest in Red Robin. Almost 18 months ago, we launched our North Star 5-point plan, grounded in a commitment to a great experience through investments in service and food quality. We expect the investments to deliver gains in sales and profits and drive long-term shareholder value. Due to the hard work and dedication of our team members, we are beginning to reap the rewards of the investments by delivering positive comparable restaurant sales in the first 5 weeks of our second quarter. We have achieved this result despite the 200 to 250 basis point headwind from the strategic removal of virtual brands last year that we will experience through the second quarter. As you've heard from others, the consumer environment is becoming more challenging, and our core consumer of hardworking families is looking for value when they choose to eat out. Our menu and our brand are centered around providing everyday value to each and every guest through our 30 bottomless items, our Tavern Burger lineup, our pizza offerings, and throughout our menu. We believe this brand positioning has been beneficial to our top line trends as we continue to create moments of connection over craveable food that only Red Robin can provide. Before I dive into more specifics, I'd like to extend a heartfelt thank you to all of our more than 20,000 team members across the country. The success of Red Robin currently and in the future is due to your efforts and all of us working towards the same goals, all of us in this together. We've come a long way, but we still have more work to do. I am excited for what we can accomplish over the remainder of the year. As a reminder, our North…

Thank you, G.J., and good afternoon, everyone. In the first quarter, total revenues were $388.5 million, a decrease of $29.3 million versus the first quarter of fiscal 2023, primarily due to a decrease in comparable restaurant revenue of 6.5%. The decline was led by the difficult start to 2024 experienced by many in the industry, and that we referenced on our prior earnings call. Additionally, recall, we eliminated our virtual brand offerings in the third quarter of 2023. Eliminating these brands comes with minimal profitability impact and significantly reduces the complexity in our restaurants, but results in a 200 to 250 basis point sales headwind. Restaurant level operating profit as a percentage of restaurant revenue was 11%, a decrease of 370 basis points compared to the first quarter of 2023. The decline was mostly driven by our strategic investments in labor and food quality to support hospitality and the guest experience. This investment is the foundation for improved financial performance, as we expect it to drive guests back into our restaurants and increase profitability. We made the decision to maintain labor levels in the January and February periods, despite adverse weather events that make it difficult to project sales and guest counts, to ensure our guests receive a great experience when they choose to visit our restaurants. While this created near-term margin pressure, we see the benefit of that decision in our guest satisfaction scores and believe all of the investments we have made to date are beginning to pay dividends, as evidenced by our positive comparable restaurant sales increase of 0.3% in the first 5 weeks of the second quarter, as compared to the same weeks in 2023. Inflationary pressures have generally occurred as we expected, with a more normalized level of inflation across all cost categories, as compared…

Thank you, Todd. Our comeback journey has not been easy, but what we've accomplished to date has been substantial. Through the continued execution of our team members in operations, utilization of our new marketing strategy and the relaunch of our loyalty program, we believe we have the levers in place to drive sustainable long-term growth and return this beloved brand to prominence in our industry. We are excited by the progress we've seen so far, but I can assure you that we are only scratching the surface of our potential. I believe in the strategy we have in place, that it's working, and I am thrilled to bring guests back into our restaurants for moments of connection over craveable food that only Red Robin can provide. And with that, we are now happy to open up and take questions. Operator, please open the lines.

[Operator Instructions] Our first question comes from the line of Mark Smith with Lake Street Capital.

First question for me, just wondering if you can give any more breakdown on the comps here in the first couple of weeks in Q2, just traffic, price any additional color you can give us would be great.

Mark, Todd here. The color I think we'd give is we've seen sequential improvement in our same-store sales throughout the entire course of 2024, and that's true of traffic as well. So, the improvement that we've noted, the positive same-store sales to start the quarter is on the back of improved traffic where we reported about 5% price in the first quarter. That has ticked up a bit, and so there's some benefit of price, but I would be clear of there's a benefit from traffic as well that continues to improve sequentially.

Perfect. And then just looking at labor costs, as that came up as a percent of sales here in the quarter, any breakdown that you can give us as how much of that was planned as you guys have been investing and that's bearing fruits here versus any incremental pressures that you maybe saw in the quarter such as minimum wage hikes or pressure in any certain states.

Mark, it's G.J. here. I, too, agree with Todd. A couple things I would call out, and Todd can add color to this as well, but as we stated in the prepared remarks, the investment was at a full run rate after the first quarter of 2023, and so that continued to stay the course. And so, as we mentioned, on all the things with guest satisfaction and performance and sequential improvement with traffic, we believe those benefits will continue to accrue to us over time. But I will call out, there was $1.8 million that were extraordinary expenses that go back for workmen's comp claims back to 2018 and beyond. And then secondarily, we had a pretty high claim rate on our health insurance program. So that $1.8 million we don't plan to have recurring, and so that was a big change in the numbers.

And then last one for me. Just curious, as we look at menu mix and maybe changes sequentially during the quarter, January was obviously really tough. any thoughts on how your consumer is doing today, and especially insights into maybe managing check and how the consumer is maybe doing today versus early in Q1?

Sure, Mark. Let me start by saying that a couple of things that we've noticed, and just as we hear others in the industry and some of the comments that they're making, in our particular case, we are seeing our value-oriented Tavern Burgers click up a bit. So, you can certainly assume that some of the folks are managing their checks. However, our promotional activity around some of our premium burgers have really increased the usage of those as well. And then when you start to look at add-ons and appetizer, sides, et cetera, desserts, they've held steady. So, we're actually feeling pretty good about where our overall consumer is. But again, we're watching it every day to see. But at this point in time, we feel pretty good.

Our next question comes from the line of Alex Slagle with Jefferies.

Congrats on the comp progress here recently. Definitely a nice, notable shift here. And I just wanted to follow up on that a little bit first, just maybe on monthly comparisons, if you could provide any color there through the first quarter and second quarter, just to get a better sense for the 2-year trend. I know there was a lot of variability last year, reducing some of the false waits and other dynamics. But any other color there? And if there's any other things to consider, like calendars or whatnot?

Yes, Alex. This is Todd. We've looked at, I'd say, all of the above. We've looked at the 2-year stack. We've looked at multiyear stacks. And I think you're aware, as I'm sure the group is, the industry broadly had a very strong quarter in the first quarter of 2023. That was certainly true for Red Robin. We posted an 8.6% same-store sales number in Q1 of last year. And so, certainly lapping that, I think, proved to be difficult. But I think most encouraging, as we look at our trends, we do see the sequential improvement. And especially on a multiyear basis, we believe the progress that we're seeing on traffic reflects a true stabilization of the business that hadn't been present for many years. And so, that's only the first step is to stabilize the business. Obviously, the next step is to grow it with things like loyalty and the marketing efforts that G.J. talked about. But that's how we assess the collective is, yes, there were some difficult compares in Q1. But overall, we see much more stabilization in the business, and especially in the traffic line, most importantly, that gives us the confidence that this will continue to build.

That's great. And the new marketing platform, if you could just talk a little bit more about that, what you saw, early feedback, I guess, anything on how this marketing support may be ramped up through the first quarter into second quarter, just a sense of what to look for there.

Alex, as we mentioned, we saw a 200 basis points improvement in the markets that we were very active in. And we're still, as we test and learn and continue to improve, a very targeted message. What we learned is that we need to be a little bit more targeted and go more towards, as I mentioned, the video assets and really learning from our guests. And remember, you tie into that with our ability now to segmentation around our loyalty program -- granted, it just launched, the revamp -- but we're going to be able to be much more targeted. So, while the results of 2% may not be exactly what we wanted, they still were good improvement. And that's why we were very encouraged in terms of going into the future here. Remember, our marketing campaign is 3-pronged approach, right? The first one is more of a brand halo and really that human element of that affection for Red Robin and make room for fun, that whole campaign is getting noticed, and it's different than what's out there. And we feel great about that as an overview. And then underneath of that, we scream value with our 30 bottomless sides. And what we've learned from that, Alex, is that our consumers know us for bottomless, but they know us for bottomless fries. And now that they realize that we have 30 menu items that are bottomless, we are getting great feedback from our guests, both existing and new guests, in terms of that response, and it's very well needed. In fact, we're seeing huge improvements in guest satisfaction once we fulfill that bottomless promise. And so, that's really good. And then the third component is all about the upgraded ingredients and bringing that innovation that Red Robin has been known for, for many years, bringing it to the forefront with great value, great ingredients. So, you take that 3-pronged approach, and we feel really, really good about where we're taking this. And then you layer on the loyalty platform and what we're seeing there. When you start talking about 8% of our new guests that are signed up have been on a third visit within 90 days, that gives you a lot of reason to believe. And so, again, there's lots of other indicators here, but that'd hopefully give you some breakdown of how we're thinking about it.

Our next question comes from the line of Andrew Wolf with CL King.

Congrats on getting the comps positive. I just wanted to ask about the sequential improvement in profitability into the second half and really specifically in the third quarter, which I think seasonally is, I think, the lowest quarter of the year. So, I guess you have a couple things going on. You're going to cycle out of the virtual brands, but they may not have been as profitable as they were accretive to same-store sales. And then obviously your plans are to improve the traffic. So, what is the leverage in the P&L that's going to help the third quarter be sequentially stronger from profitability point of view in the second quarter, despite the seasonality headwind?

Andy, Todd here. The way we're thinking about it, and the reason that we do, as we said on the call, we expect the EBITDA or the adjusted EBITDA in Q3 and Q4 to certainly outpace the first half of the year. And you're correct, the third quarter is typically a more seasonal soft period for us. But the year-over-year growth we still think is very much a realistic expectation. Yes, I think the way I'd think about it is while some of the traffic headwind has been due to the virtual brands that, as you noted, have minimal profit impact. There has been just a legacy traffic headwind that Rob Robin's experienced for many years at this point. And when you value that, that's been a headwind that we've been fighting since G.J. and I and this leadership team joined roughly 18 months ago. And so, as we see a track back to flat traffic, that headwind goes away. And as we said on the call, we actually do expect modestly positive traffic in the second half of the year. And so, you get a combination of a headwind going away and then a little bit actually of a traffic benefit is what we expect. And so, that's really the key lever, if you will, that we see driving the second half of the year.

And just a quick follow-up on your mentioning that there might be a little more menu price increase in the quarter to date. Were the mix and discount factors pretty similar, like if we [ wanted to lower ] our way back to where the guest traffic went to so far this quarter?

Yes, I think I follow you there, Andy. I think what I'd say is we actually expect mix will be less negative as we progress in Q2 and Q3. All the factors that G.J. mentioned, we do anticipate some of that continuing, but many of the changes we lapped from menu changes a year ago. So, I think mix will be a less negative factor in Q2 and Q3. And so, I think that's the headline there.

Our next question comes from the line of C.J. Dipollino with Craig-Hallum Capital Group.

C.J. Dipollino on for Jeremy Hamblin tonight. Just wanted to ask about comps real quick. So, relative to May, do June and July get a little bit easier, a little bit harder? I'm just thinking about the rest of Q2.

Yes, C.J., Todd here. I'd say really, the comparisons in the balance of the year get progressively easier. Now, part of that is the virtual brands that we eliminated in the second half of last year, but we don't foresee any unusual hurdles in the balance of the quarter.

And then if you could just touch on what you're doing to drive membership in the loyalty program, both new members and getting some of those dormant accounts to reactivate.

Sure. It's G.J. here. First of all, what we started doing was actually when a new member signs up, either on a website or in a restaurant, we'll send them a welcome email back to tell them what the program is all about. We were not doing that before, and so that has gotten a great response. The second thing I would tell you is that throughout the organization, this is a huge initiative. And so, all the way down to our team members and servers really talking about and understanding where we're going with our new loyalty platform has been super beneficial as well. And then thirdly, just in, everything that we're doing by all of our communication strategy are coming into play as well. So, I just might add, I think I mentioned it on the prepared remarks, we've seen significant improvement in the numbers, up almost 10% for the year to date. So, our teams are doing a great job bringing people into the program as well as having it on the website and really making it prominent where, as well, it wasn't connecting with our website before. So, all those factors are really helping us.

And then one more, if you don't mind. Could you maybe speak to some of the new menu items you introduced this year and the initial reaction from customers?

Well, we've brought the Mad Love Burger back. We've added shrimp to the menu, both in an appetizer and entree. We brought back -- sorry, put ribs on the menu again in the whole barbell menu strategy that we've had. So, we're not just targeting just burgers. And historically, Red Robin has had a more barbell approach to the menu, and so those things have really gained traction. We've added some other appetizers with Brussels sprouts, have been received incredibly well, with our chips and salsa have been received really well as well. So, the other thing is just by bringing back some of the old burgers and with our new ingredients have been received incredibly well as well.

Our next question comes from the line of Todd Brooks with The Benchmark Company.

Congrats on getting loyalty live early and inflecting the same-store sales back to positive. Can I ask a question on the marketing side and the efficacy and working with the mix going forward, how do you feel like bottomless is resonating in a world where there's so much specific price point advertisement on TV? I know you're pleased with the fun focus campaign grabbing eyeballs and cutting through the clutter, but is bottomless doing the same thing for Red Robin?

Yes. So, let me give you a couple stats here, and some of these are new questions that we're asking, so a lot of this data is relatively new. But I'll tell you this is that in the work that we've done, 79% of our guests really appreciate bottomless and want to utilize bottomless. And of those, if we're executing, call it at an 84%, 85% take level, what we're seeing is our overall value scores go through the roof, I mean, substantially through the roof. And then when you take a look at from a value perception and some of the [ top box ] questions that we made, that we're finding that the satisfaction level when bottomless is executed is at 84%, that we're seeing the 60% value scores, which are really, really high for us. And as value is probably what they rate the toughest on. And so, we've seen really, really good numbers here. So, what it's telling us is our guests want it. They're surprised -- significantly surprised, that there's 30 items that are bottomless, which I don't think we've done a good job in the past communicating. And so, that's being received and the take rate on that is improving all the time.

That's great and good to hear. Switching to loyalty. I know the design of the reward tiers or the reward hurdles is lowered, depending on how much you spend, you could probably get there in 3 visits versus having to visit 10 times before for the reward prior. I'm hearing from others that have lowered reward tiers that it's having an outsized frequency benefit and driving retention, but also driving behaviors that would point to improved frequency from a more attainable reward structure. I know we're a week in, and it sounds like the conversion went well, and you've got people in there. But executing against it now at the store level in the second half, and what type of duration do you need before you know about the frequency benefit of the new structure?

Yes. So, I think, as I stated earlier, 8% of our new members that have signed up, the data tells us -- it's early, granted -- that 8% of those new members are on their third visit within the first 90 days, compared to 8% of our members in the same period last year that were only on their second visit in a year. So, that gives us incredible reason to believe that this program is really going to work. And in terms of execution, as I stated, the numbers just tell us our guests want it. It screams value to them. In fact, in some surveys, it will tell you it's more important than burgers. So, I think that just speaks light years to what it is we're doing here.

And 2 more, if I could slide them in. Todd, you talked about the first half and second half nature of the profitability with -- I can't remember if it was vast majority, I think, of the EBITDA generated in the second half of Q1. The maintenance of the EBITDA guidance and just tying it back to what was generated in the second half as trends normalized, well, we don't know what vast majority necessarily equates to. Where does that get us to fall if we annualize it over the next 3 quarters as far as that $60 million to $70 million range?

Todd, I'm digesting your question a bit. Yes. I think hopefully this, if I don't address it, please let me know. But the way we get comfortable with not only our Q2 commentary, but also the full year is really looking at that run rate in the second half of the first quarter. Really, if you extrapolate that, that gets us to our expectations for Q2 in particular. Now, as you said, we didn't disclose exactly what that was. We don't disclose that level of detail intra-quarter. But that's how we're thinking about the second quarter. If you continue to extrapolate that in addition to what I referenced earlier of traffic trends continuing to improve, that's really what gets us comfortable with that guide of $60 million to $70 million. So, I'll pause there, but that's a headline, at least of how we're thinking about it.

Yes. No, it makes sense. So, it sounds like Q2 isn't a lift from the trends that we saw in second half of Q1, and then we get to the back half of the year, and if we get traffic back to slightly positive, that's where you get the additional lift on top of the trends that you saw in the second half of the quarter then.

Yes. That is a good clarity, and I appreciate that. Q2 is really a continuation of what we saw in the second half of Q1. It is Q3 and Q4 that we expect traffic to continue to make progress, and that is what we expect will drive those periods.

And then the final one, G.J., just the partner program at the general manager level has been rolled out for a little over 5 months now, or about 5 months. What behaviors are you seeing it drive there? Digestion period at the start, but now leaning into it and understanding business owner versus just the manager of a unit and the behaviors that you're getting on the cost and then the revenue lift side, any improvement that you're seeing and when we should be looking for the full benefits of the program implementation would be helpful.

Todd, well, first of all, they're super excited. I just finished a tour around the country and the rallies that we do every year, and I can tell you just from my experience, the morale, the attitude, and the belief in where we're going as a result of us having enough faith to put a partner program in place is huge. That's #1. #2, what we're seeing is just the involvement in terms of their P&Ls, going the extra mile to be there on the shifts that are appropriate. We're seeing huge behavior changes relative to that. We're seeing our turnover numbers go down pretty dramatically. We're seeing the questions into our accounting teams go through the roof. We expected that, but that's exactly what happens. They care about every little thing on that P&L. It's early. As you point out, it's 4 months in, soon to be 5 months into this program, and we are holding up some of those folks on the bottom 25% of our restaurants. But they continue to lean in. We continue to have them share best practices amongst each other to help each other. And so I fully anticipate it will continue to grow, and the results will continue to improve. If you ask me the question a year from now, we will have a measurement in terms of what real impact that it had. So, it's a little early to give you some of those numbers, but I am hugely optimistic about where we're headed with this.

Thank you. And we have reached the end of the question-and-answer session, and therefore, I'll turn the call back over to G.J. Hart for closing remarks.

Thank you very much. Hey, appreciate everybody joining us here today. It's an exciting time here at Red Robin. We look forward to reporting on our results next quarter. Thanks for joining us, and we'll see you or hear from you the next time. Take care.

And this concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.