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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
_____________________________________________________________
FORM
10-Q
_____________________________________________________________
☒
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended
June 30, 2020
or
☐
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from
to
Commission
File Number: 001-35987
___________________________________________________________
NOODLES &
COMPANY
(Exact name of
registrant as specified in its charter)
_____________________________________________________________
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Delaware
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84-1303469
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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520
Zang Street, Suite D
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Broomfield,
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CO
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80021
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(Address of principal
executive offices)
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(Zip Code)
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(720)
214-1900
(Registrant’s
telephone number, including area code)
(Former name,
former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act.
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|
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|
Title of each
class
|
Trading Symbol
|
Name of each exchange on which
registered
|
Class A Common Stock,
$0.01 par value per share
|
NDLS
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Nasdaq Global Select
Market
|
Indicate by check
mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files).
Yes ☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated
filer
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☐
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Accelerated
Filer
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☒
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|
|
Non-accelerated
filer
|
☐
|
|
Smaller reporting
company
|
☒
|
|
|
|
Emerging growth
company
|
☐
|
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
Indicate the
number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
|
|
|
|
Class
|
|
Outstanding
at August 3, 2020
|
Class A Common Stock, $0.01
par value per share
|
|
44,354,811
shares
|
TABLE OF
CONTENTS
PART
I
Item 1.
Financial Statements
Noodles &
Company
Condensed
Consolidated Balance Sheets
(in
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
62,076
|
|
|
$
|
10,459
|
|
Accounts
receivable
|
|
2,406
|
|
|
3,503
|
|
Inventories
|
|
9,510
|
|
|
9,871
|
|
Prepaid expenses and other
assets
|
|
3,562
|
|
|
5,386
|
|
Income tax
receivable
|
|
180
|
|
|
103
|
|
Total current
assets
|
|
77,734
|
|
|
29,322
|
|
Property and equipment,
net
|
|
124,640
|
|
|
128,867
|
|
Operating lease assets,
net
|
|
209,445
|
|
|
209,717
|
|
Goodwill
|
|
7,154
|
|
|
7,154
|
|
Intangibles, net
|
|
855
|
|
|
883
|
|
Other assets, net
|
|
2,567
|
|
|
2,576
|
|
Total long-term
assets
|
|
344,661
|
|
|
349,197
|
|
Total assets
|
|
$
|
422,395
|
|
|
$
|
378,519
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
11,380
|
|
|
$
|
9,351
|
|
Accrued payroll and
benefits
|
|
10,222
|
|
|
13,479
|
|
Accrued expenses and other
current liabilities
|
|
12,478
|
|
|
11,679
|
|
Current operating lease
liabilities
|
|
26,144
|
|
|
22,775
|
|
Current portion of long-term
debt
|
|
750
|
|
|
750
|
|
Total current
liabilities
|
|
60,974
|
|
|
58,034
|
|
Long-term debt,
net
|
|
93,040
|
|
|
40,497
|
|
Long-term operating lease
liabilities, net
|
|
229,196
|
|
|
225,014
|
|
Deferred tax liabilities,
net
|
|
247
|
|
|
200
|
|
Other long-term
liabilities
|
|
6,662
|
|
|
4,203
|
|
Total liabilities
|
|
390,119
|
|
|
327,948
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
Preferred
stock—$0.01 par value, 1,000,000 shares authorized and undesignated
as of June 30, 2020 and December 31, 2019; no shares issued or
outstanding
|
|
—
|
|
|
—
|
|
Common stock—$0.01
par value, 180,000,000 shares authorized as of June 30, 2020 and
December 31, 2019; 46,778,682 issued and 44,354,811 outstanding as
of June 30, 2020 and 46,557,934 issued and 44,134,063 outstanding
as of December 31, 2019
|
|
468
|
|
|
466
|
|
Treasury stock, at
cost, 2,423,871 shares as of June 30, 2020 and December 31,
2019
|
|
(35,000
|
)
|
|
(35,000
|
)
|
Additional paid-in
capital
|
|
201,601
|
|
|
200,585
|
|
Accumulated
deficit
|
|
(134,793
|
)
|
|
(115,480
|
)
|
Total stockholders’
equity
|
|
32,276
|
|
|
50,571
|
|
Total liabilities and
stockholders’ equity
|
|
$
|
422,395
|
|
|
$
|
378,519
|
|
See
accompanying notes to condensed consolidated financial
statements.
Noodles &
Company
Condensed
Consolidated Statements of Operations
(in
thousands, except share and per share data, unaudited)
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
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|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
Revenue:
|
|
|
|
|
|
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|
|
Restaurant
revenue
|
|
$
|
80,021
|
|
|
$
|
118,858
|
|
|
$
|
178,737
|
|
|
$
|
227,623
|
|
Franchising royalties and
fees, and other
|
|
136
|
|
|
1,332
|
|
|
1,768
|
|
|
2,613
|
|
Total revenue
|
|
80,157
|
|
|
120,190
|
|
|
180,505
|
|
|
230,236
|
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
Restaurant operating costs
(exclusive of depreciation and amortization shown separately
below):
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
20,020
|
|
|
30,448
|
|
|
45,224
|
|
|
59,539
|
|
Labor
|
|
27,137
|
|
|
38,877
|
|
|
61,368
|
|
|
75,969
|
|
Occupancy
|
|
11,676
|
|
|
12,311
|
|
|
23,736
|
|
|
24,741
|
|
Other restaurant operating
costs
|
|
15,789
|
|
|
16,858
|
|
|
32,478
|
|
|
33,314
|
|
General and
administrative
|
|
10,034
|
|
|
11,848
|
|
|
20,588
|
|
|
21,988
|
|
Depreciation and
amortization
|
|
5,397
|
|
|
5,661
|
|
|
10,732
|
|
|
11,168
|
|
Pre-opening
|
|
71
|
|
|
65
|
|
|
144
|
|
|
65
|
|
Restaurant impairments,
closure costs and asset disposals
|
|
2,558
|
|
|
2,884
|
|
|
3,614
|
|
|
3,304
|
|
Total costs and
expenses
|
|
92,682
|
|
|
118,952
|
|
|
197,884
|
|
|
230,088
|
|
(Loss) income from
operations
|
|
(12,525
|
)
|
|
1,238
|
|
|
(17,379
|
)
|
|
148
|
|
Interest expense,
net
|
|
920
|
|
|
800
|
|
|
1,888
|
|
|
1,561
|
|
(Loss) income before
taxes
|
|
(13,445
|
)
|
|
438
|
|
|
(19,267
|
)
|
|
(1,413
|
)
|
Provision for income
taxes
|
|
33
|
|
|
—
|
|
|
46
|
|
|
—
|
|
Net (loss) income and
comprehensive (loss) income
|
|
$
|
(13,478
|
)
|
|
$
|
438
|
|
|
$
|
(19,313
|
)
|
|
$
|
(1,413
|
)
|
(Loss) earnings per
Class A and Class B common stock, combined
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.30
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.44
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
|
$
|
(0.30
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.44
|
)
|
|
$
|
(0.03
|
)
|
Weighted average shares of
Class A and Class B common stock outstanding,
combined:
|
|
|
|
|
|
|
|
|
Basic
|
|
44,212,751
|
|
|
43,964,175
|
|
|
44,177,648
|
|
|
43,955,580
|
|
Diluted
|
|
44,212,751
|
|
|
45,075,888
|
|
|
44,177,648
|
|
|
43,955,580
|
|
See
accompanying notes to condensed consolidated financial
statements.
Noodles &
Company
Condensed
Consolidated Statements of Stockholders’ Equity
(in
thousands, except share data, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
|
Common
Stock(1)
|
|
Treasury
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balance—April 1,
2020
|
|
46,583,879
|
|
|
$
|
466
|
|
|
2,423,871
|
|
|
$
|
(35,000
|
)
|
|
$
|
200,755
|
|
|
$
|
(121,315
|
)
|
|
$
|
44,906
|
|
Stock plan transactions and
other
|
|
194,803
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(273
|
)
|
|
—
|
|
|
(271
|
)
|
Stock-based compensation
expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,119
|
|
|
—
|
|
|
1,119
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,478
|
)
|
|
(13,478
|
)
|
Balance—June 30,
2020
|
|
46,778,682
|
|
|
$
|
468
|
|
|
2,423,871
|
|
|
$
|
(35,000
|
)
|
|
$
|
201,601
|
|
|
$
|
(134,793
|
)
|
|
$
|
32,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—April 2,
2019
|
|
46,370,951
|
|
|
$
|
464
|
|
|
2,423,871
|
|
|
$
|
(35,000
|
)
|
|
$
|
199,110
|
|
|
$
|
(118,978
|
)
|
|
$
|
45,596
|
|
Stock plan transactions and
other
|
|
137,635
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(257
|
)
|
|
—
|
|
|
(256
|
)
|
Stock-based compensation
expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,125
|
|
|
—
|
|
|
1,125
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
438
|
|
|
438
|
|
Balance—July 2,
2019
|
|
46,508,586
|
|
|
$
|
465
|
|
|
2,423,871
|
|
|
$
|
(35,000
|
)
|
|
$
|
199,978
|
|
|
$
|
(118,540
|
)
|
|
$
|
46,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Fiscal
Quarters Ended
|
|
|
Common
Stock(1)
|
|
Treasury
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balance—December 31,
2019
|
|
46,557,934
|
|
|
$
|
466
|
|
|
2,423,871
|
|
|
$
|
(35,000
|
)
|
|
$
|
200,585
|
|
|
$
|
(115,480
|
)
|
|
$
|
50,571
|
|
Stock plan transactions and
other
|
|
220,748
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(274
|
)
|
|
—
|
|
|
(272
|
)
|
Stock-based compensation
expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,290
|
|
|
—
|
|
|
1,290
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,313
|
)
|
|
(19,313
|
)
|
Balance—June 30,
2020
|
|
46,778,682
|
|
|
$
|
468
|
|
|
2,423,871
|
|
|
$
|
(35,000
|
)
|
|
$
|
201,601
|
|
|
$
|
(134,793
|
)
|
|
$
|
32,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—January 1,
2019
|
|
46,353,309
|
|
|
$
|
464
|
|
|
2,423,871
|
|
|
$
|
(35,000
|
)
|
|
$
|
198,352
|
|
|
$
|
(111,135
|
)
|
|
$
|
52,681
|
|
Stock plan transactions and
other
|
|
155,277
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(236
|
)
|
|
—
|
|
|
(235
|
)
|
Stock-based compensation
expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,862
|
|
|
—
|
|
|
1,862
|
|
Adoption of ASU No.
2016-02, Leases (Topic
842)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,992
|
)
|
|
(5,992
|
)
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,413
|
)
|
|
(1,413
|
)
|
Balance—July 2,
2019
|
|
46,508,586
|
|
|
$
|
465
|
|
|
2,423,871
|
|
|
$
|
(35,000
|
)
|
|
$
|
199,978
|
|
|
$
|
(118,540
|
)
|
|
$
|
46,903
|
|
_____________
|
|
(1)
|
Unless otherwise noted,
activity relates to Class A common stock.
|
See
accompanying notes to condensed consolidated financial
statements.
Noodles &
Company
Condensed
Consolidated Statements of Cash Flows
(in
thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Two Fiscal
Quarters Ended
|
|
|
June 30,
2020
|
|
July 2,
2019
|
Operating
activities
|
|
|
|
|
Net loss
|
|
$
|
(19,313
|
)
|
|
$
|
(1,413
|
)
|
Adjustments to reconcile net
loss to net cash provided by operating activities:
|
|
|
|
|
Depreciation and
amortization
|
|
10,732
|
|
|
11,168
|
|
Deferred income
taxes
|
|
47
|
|
|
—
|
|
Restaurant impairments,
closure costs and asset disposals
|
|
3,029
|
|
|
2,784
|
|
Amortization of debt issuance
costs
|
|
149
|
|
|
250
|
|
Stock-based
compensation
|
|
1,253
|
|
|
1,841
|
|
Changes in operating assets
and liabilities:
|
|
|
|
|
Accounts
receivable
|
|
1,190
|
|
|
(143
|
)
|
Inventories
|
|
306
|
|
|
(347
|
)
|
Prepaid expenses and other
assets
|
|
87
|
|
|
(904
|
)
|
Accounts payable
|
|
2,722
|
|
|
(1,332
|
)
|
Income taxes
|
|
(77
|
)
|
|
(6
|
)
|
Operating lease assets and
liabilities
|
|
7,507
|
|
|
(407
|
)
|
Accrued expenses and other
liabilities
|
|
(925
|
)
|
|
(2,483
|
)
|
Net cash provided by
operating activities
|
|
6,707
|
|
|
9,008
|
|
Investing
activities
|
|
|
|
|
Purchases of property and
equipment
|
|
(6,810
|
)
|
|
(8,217
|
)
|
Proceeds from
disposal of property and equipment
|
|
—
|
|
|
352
|
|
Franchise restaurant
acquisition, net of cash acquired
|
|
—
|
|
|
(1,387
|
)
|
Net cash used in investing
activities
|
|
(6,810
|
)
|
|
(9,252
|
)
|
Financing
activities
|
|
|
|
|
Proceeds from issuance of
long-term debt
|
|
55,500
|
|
|
—
|
|
Payments on long-term
debt
|
|
(2,375
|
)
|
|
(500
|
)
|
Payments on finance
leases
|
|
(402
|
)
|
|
(338
|
)
|
Debt issuance
costs
|
|
(731
|
)
|
|
—
|
|
Stock plan transactions and
tax withholding on share-based compensation awards
|
|
(272
|
)
|
|
(235
|
)
|
Net cash provided by (used
in) financing activities
|
|
51,720
|
|
|
(1,073
|
)
|
Net increase (decrease) in
cash and cash equivalents
|
|
51,617
|
|
|
(1,317
|
)
|
Cash and
cash equivalents
|
|
|
|
|
Beginning of
period
|
|
10,459
|
|
|
4,655
|
|
End of period
|
|
$
|
62,076
|
|
|
$
|
3,338
|
|
See
accompanying notes to condensed consolidated financial
statements.
NOODLES &
COMPANY
Notes to
Condensed Consolidated Financial Statements
(unaudited)
1. Business
Summary and Basis of Presentation
Business
Noodles & Company
(the “Company”), a Delaware corporation, develops and operates fast
casual restaurants that serve globally inspired noodle and pasta
dishes, soups, salads and appetizers. As of June 30,
2020, the
Company had 380
company-owned
restaurants and 76 franchise
restaurants in 29
states and the
District of Columbia. The Company operates its business as
one
operating and
reportable segment.
Basis of Presentation
The accompanying
unaudited condensed consolidated financial statements include the
accounts of Noodles & Company and its subsidiaries. All
intercompany accounts and transactions have been eliminated in
consolidation. The accompanying interim unaudited condensed
consolidated financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC”). Accordingly, they do not include
all the information and footnotes required by accounting principles
generally accepted in the United States of America (“GAAP”) for
complete financial statements. In the opinion of the Company, all
adjustments considered necessary for the fair presentation of the
Company’s results of operations, financial position and cash flows
for the periods presented have been included and are of a normal,
recurring nature. The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The results of
operations for any interim period are not necessarily indicative of
results for the full year. Certain information and footnote
disclosures normally included in the Company’s annual consolidated
financial statements on Form 10-K have been condensed or omitted.
The condensed consolidated balance sheet as of December 31, 2019
was derived from
audited financial statements. These financial statements should be
read in conjunction with the audited financial statements and the
related notes included in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31,
2019.
Fiscal Year
The Company
operates on a 52- or 53-week fiscal year ending on the Tuesday
closest to December 31. The Company’s fiscal quarters each
contain 13 operating weeks, with the exception of the fourth
quarter of a 53-week fiscal year, which contains 14 operating
weeks. Fiscal year 2020, which ends on
December 29,
2020, and
fiscal year 2019, which ended on
December 31,
2019, both
contain 52 weeks. The Company’s fiscal quarter that
ended June 30, 2020
is referred to as
the second quarter of
2020,
and the fiscal quarter ended July 2, 2019
is referred to as
the second quarter of
2019.
Risks and Uncertainties
We
are subject to risks and uncertainties as a result of the COVID-19
pandemic. The extent of the impact of the COVID-19 pandemic on the
Company’s business is uncertain and difficult to predict. Our
operational and financial performance will depend on future
developments, including the duration of the outbreak, limitations
imposed by federal, state and local governments with respect to
reduced seating capacity in our restaurants and other social
distancing measures, and our customers’ future willingness to eat
at restaurants. Furthermore, capital and financial markets have
been negatively impacted by the COVID-19 pandemic, and it is
possible that it could cause an extended economic recession. All of
the effects of the COVID-19 pandemic could have a material adverse
effect on our business. Although the ultimate severity of the
COVID-19 pandemic is uncertain at this time, we have implemented
several new initiatives to adapt our operations to the current
environment, including direct delivery and curbside pickup, to
further bolster our existing off premise capabilities.
Recent Accounting Pronouncements
In December 2019,
the FASB issued ASU No. 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income
Taxes (“ASU 2019-12”). ASU
2019-12 was issued as a means to reduce the complexity of
accounting for income taxes for those entities that fall within the
scope of the accounting standard. This guidance is effective
for public companies for annual reporting periods beginning after
December 15, 2020 and interim periods within those reporting
periods. Interim period adoption is permitted. The guidance is to
be applied using a prospective method, excluding amendments related
to franchise taxes, which should be applied
on either a
retrospective basis for all periods presented or a modified
retrospective basis through a cumulative-effect adjustment to
retained earnings as of the beginning of the fiscal year of
adoption. We are currently evaluating the impacts of adoption
of the new guidance to our consolidated financial
statements.
In March 2020,
the FASB issued ASU No. 2020-04, Facilitation
of the Effects of Reference Rate Reform on Financial
Reporting.
The ASU is intended to provide temporary optional expedients and
exceptions to the U.S. GAAP guidance on contract modifications and
hedge accounting to ease the financial reporting burdens related to
the expected market transition from the London Interbank Offered
Rate (LIBOR) and other interbank offered rates to alternative
reference rates. The Company may elect to apply the amendments
prospectively through December 31, 2022. The Company is currently
evaluating the impact this guidance may have on its consolidated
financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In June 2016, the
FASB issued ASU No. 2016-13, Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, followed by other related
ASUs that provided targeted improvements (collectively “ASU
2016-13”). ASU 2016-13 provides financial statement users with more
decision-useful information about the expected credit losses on
financial instruments and other commitments to extend credit held
by a reporting entity at each reporting date. The guidance is to be
applied using a modified retrospective method and is effective for
fiscal years beginning after December 15, 2022 for smaller
reporting companies, with early adoption permitted. The Company
early adopted ASU 2016-13 on January 1, 2020. The adoption of ASU
2016-13 did not result in any impact to the Company’s consolidated
financial statements or disclosures.
2.
Supplemental Financial Information
Accounts
receivable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
Insurance
receivable
|
|
$
|
96
|
|
|
$
|
744
|
|
Vendor rebate
receivables
|
|
281
|
|
|
788
|
|
Franchise and other
receivables
|
|
2,029
|
|
|
1,971
|
|
|
|
$
|
2,406
|
|
|
$
|
3,503
|
|
Prepaid expenses
and other assets consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
Prepaid occupancy related
costs
|
|
$
|
608
|
|
|
$
|
834
|
|
Other prepaid
expenses
|
|
2,948
|
|
|
2,799
|
|
Other current assets
(1)
|
|
6
|
|
|
1,753
|
|
|
|
$
|
3,562
|
|
|
$
|
5,386
|
|
_____________________________
|
|
(1)
|
Other current
assets as of December 31, 2019 included assets held in connection
with the divestiture of nine company-owned restaurants to a
franchisee (“RCRG Sale”) which closed in January 2020.
|
Property and
equipment, net, consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
Leasehold
improvements
|
|
$
|
197,859
|
|
|
$
|
200,580
|
|
Furniture, fixtures and
equipment
|
|
124,587
|
|
|
122,752
|
|
Construction in
progress
|
|
5,899
|
|
|
2,890
|
|
|
|
328,345
|
|
|
326,222
|
|
Accumulated depreciation and
amortization
|
|
(203,705
|
)
|
|
(197,355
|
)
|
Property and equipment,
net
|
|
$
|
124,640
|
|
|
$
|
128,867
|
|
Accrued payroll
and benefits consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
Accrued payroll and related
liabilities
|
|
$
|
5,634
|
|
|
$
|
6,364
|
|
Accrued bonus
|
|
848
|
|
|
3,505
|
|
Insurance
liabilities
|
|
3,740
|
|
|
3,610
|
|
|
|
$
|
10,222
|
|
|
$
|
13,479
|
|
Accrued expenses
and other current liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
Gift card
liability
|
|
$
|
1,900
|
|
|
$
|
2,398
|
|
Occupancy
related
|
|
1,695
|
|
|
1,458
|
|
Utilities
|
|
1,221
|
|
|
1,379
|
|
Deferred revenue
|
|
1,690
|
|
|
555
|
|
Current portion of finance
lease liability
|
|
998
|
|
|
510
|
|
Other accrued
expenses
|
|
4,974
|
|
|
5,379
|
|
Accrued expenses and other
current liabilities
|
|
$
|
12,478
|
|
|
$
|
11,679
|
|
3. Long-Term
Debt
On May 9, 2018,
the Company entered into a credit facility with U.S. Bank National
Association (the “2018 Credit Facility”). The 2018 Credit Facility
consists of a term loan facility in an aggregate principal amount
of $25.0
million and a revolving credit
facility of $65.0
million (which may be increased
to $75.0
million), which includes a letter of
credit subfacility in the amount of $15.0
million and a swingline subfacility
in the amount of $10.0
million. The 2018 Credit Facility
has a four-year term and matures on May 9, 2022.
On November 20,
2019, the Company amended its 2018 Credit Facility by entering into
the First Amendment to the Credit Facility (the “Amendment” or
“First Amended Credit Facility”). Among other things, the
Amendment: (i) extended the maturity date to November 20, 2024;
(ii) increased the revolving credit facility from
$65.0
million to $75.0
million; (iii) delayed step downs of
the Company’s leverage covenant; and (iv) increased the limit on
capital expenditures to $37.0
million in 2020 and to
$45.0
million in 2021 and each fiscal year
thereafter.
Borrowings under
the First Amended Credit Facility, including the term loan
facility, bear interest annually, at the Company’s option, at
either (i) LIBOR plus a margin of 2.00%
to
2.75%
per annum, based
upon the consolidated total lease-adjusted leverage ratio or (ii)
the highest of the following base rates plus a margin of
1.00%
to
1.75%
per annum: (a)
the federal funds rate plus 0.50%;
(b) the U.S. Bank prime rate or (c) the one-month LIBOR plus
1.00%.
The Amendment includes a commitment fee of 0.20%
to
0.35%
per annum, based
upon the consolidated total lease-adjusted leverage ratio, on any
unused portion of the revolving credit facility.
On
June 16,
2020 (the
“Effective Date”), the Company amended its 2018 Credit Facility by
entering into the Second Amendment to the Credit Facility (the
“Second Amendment” or the “Second Amended Credit Facility”).
Beginning on the Effective Date and through the third quarter of
2021 (the “Amendment Period”), borrowings under the Second Amended
Credit Facility, including the term loan facility (“Borrowings”),
will bear interest at LIBOR plus 3.25%
per annum.
Following the Amendment Period, borrowings will bear interest at
LIBOR plus a margin of 2.00%
to
3.00%
per annum, based
upon the consolidated total lease-adjusted leverage ratio. Among
other things, the Second Amendment (i) waives the lease-adjusted
leverage ratio and fixed charge ratio covenants through the first
quarter of 2021; (ii) amends the Company’s lease-adjusted leverage
ratio and fixed coverage ratio covenant thresholds beginning in the
second quarter of 2021 through the third quarter of 2022 and the
first quarter of 2022, respectively and (iii) limits capital
expenditures to $12.0
million in 2020, $12.0
million plus a liquidity-based
performance basket up to an additional $12.0
million in 2021, $34.0
million in 2022, $37.0
million in 2023 and
$45.0
million annually
thereafter.
As of
June 30,
2020, the
Company had $95.7
million of indebtedness
(excluding $2.0
million of unamortized debt issuance
costs) and $3.2
million of letters of credit
outstanding under the Second Amended Credit Facility. As of
June 30,
2020, the
Company had cash on hand of $62.1
million.
The term loan
requires principal payments of $187,500
per quarter
through the third quarter of 2021, $375,000
per quarter
through the third quarter of 2022, and $531,250
per quarter
through the third quarter of 2023 and $625,000
per quarter
thereafter through maturity.
Aggregate
maturities for debt outstanding as of June 30, 2020
are as follows
(in thousands):
|
|
|
|
|
Year 1
|
$
|
750
|
|
Year 2
|
1,313
|
|
Year 3
|
1,969
|
|
Year 4
|
2,406
|
|
Year 5
|
89,305
|
|
Total
|
$
|
95,743
|
|
The Company’s
outstanding indebtedness bore interest at rates between
3.07%
to
6.25%
during the
first two
quarters of 2020.
The Company also
maintains outstanding letters of credit to secure obligations under
its workers’ compensation program and certain lease obligations.
The Company was in compliance with all of its debt covenants as
of June 30,
2020.
4. Fair
Value Measurements
The carrying
amounts of cash and cash equivalents, accounts receivable, accounts
payable and all other current liabilities approximate their fair
values due to their short-term nature. The carrying amounts of
borrowings approximate fair value as the line of credit and term
borrowings vary with market interest rates and negotiated terms and
conditions are consistent with current market rates. The fair value
of the Company’s line of credit and term borrowings are measured
using Level 2 inputs.
Assets and Liabilities Measured at Fair Value on a Nonrecurring
Basis
Assets recognized
or disclosed at fair value in the condensed consolidated financial
statements on a non-recurring basis include items such as leasehold
improvements, property and equipment, operating lease assets,
goodwill and other intangible assets. These assets are measured at
fair value if determined to be impaired or when
acquired.
During the second
quarter of 2020, the Company performed an interim qualitative
impairment assessment of goodwill, due to the impact of the
COVID-19 pandemic on its operating results. Based on the
qualitative assessment performed, management determined that the
Company’s goodwill has not been impaired as of June 30, 2020
and, as a result,
no impairment charge was recorded in the second quarter of
2020
or in the
first two
quarters of 2020.
Adjustments to
the fair value of assets measured at fair value on a non-recurring
basis as of June 30, 2020
and
July 2,
2019 are
discussed in Note 7, Restaurant Impairments, Closure Costs and
Asset Disposals.
5. Income
Taxes
The following
table presents the Company’s provision for income taxes (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
Provision for income
taxes
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
46
|
|
|
$
|
—
|
|
Effective tax
rate
|
|
(0.2
|
)%
|
|
—
|
%
|
|
(0.2
|
)%
|
|
—
|
%
|
The effective tax
rate for the second quarter of
2020
and the second
quarter of 2019 reflect the impact of the previously recorded
valuation allowance. For the remainder of fiscal
2020,
the Company does not anticipate material income tax expense or
benefit
as a result of
the valuation allowance recorded. The Company will maintain the
valuation allowance against deferred tax assets until there is
sufficient evidence to support a full or partial reversal. The
reversal of a previously recorded valuation allowance will
generally result in a benefit from income tax.
On March 27,
2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”), which provides economic relief in response to the COVID-19
pandemic, was signed into law. The CARES Act includes
provisions that permit refunds of alternative minimum tax credits,
temporary modifications to the limitations placed on the tax
deductibility of net interest expenses, and technical amendments
for qualified improvement property (“QIP”). We do not expect that
the provisions in the CARES Act will have a material impact to our
tax rate or expense during 2020.
6.
Stock-Based Compensation
The Company’s
Stock Incentive Plan (the “Plan”), as amended and restated in May
of 2013, authorizes the grant of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted
stock, restricted stock units (“RSUs”), performance share units
(“PSUs”) and incentive bonuses to employees, officers, non-employee
directors and other service providers. As of June 30,
2020,
approximately 2.8
million share-based awards were
available to be granted under the Plan.
The following
table shows total stock-based compensation expense (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
Stock-based compensation
expense
|
$
|
1,094
|
|
|
$
|
1,155
|
|
|
$
|
1,253
|
|
|
$
|
1,881
|
|
Capitalized stock-based
compensation expense
|
$
|
25
|
|
|
$
|
10
|
|
|
$
|
37
|
|
|
$
|
21
|
|
7.
Restaurant Impairments, Closure Costs and Asset
Disposals
The following
table presents restaurant impairments, closure costs and asset
disposals (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
Restaurant impairments
(1)
|
$
|
2,135
|
|
|
$
|
2,276
|
|
|
$
|
2,262
|
|
|
$
|
2,465
|
|
Closure costs
(1)
|
299
|
|
|
173
|
|
|
512
|
|
|
134
|
|
Loss on disposal of assets
and other
|
124
|
|
|
435
|
|
|
840
|
|
|
705
|
|
|
$
|
2,558
|
|
|
$
|
2,884
|
|
|
$
|
3,614
|
|
|
$
|
3,304
|
|
_____________________________
|
|
(1)
|
Restaurant
impairments and closure costs in all periods presented above
include amounts related to restaurants previously impaired or
closed.
|
During the
second
quarter of
2020, five
restaurants were
identified as impaired for which the Company recorded an impairment
charge of $2.1
million. In the second quarter of 2019,
two
restaurants were
impaired for a total impairment charge of $2.2
million. Impairment is based on
management’s current assessment of the expected future cash flows
of a restaurant based on recent results and other specific market
factors. Impairment expense is a Level 3 fair value measure and is
determined by comparing the carrying value of restaurant assets to
the estimated fair market value of the restaurant assets at resale
value and the right-of-use asset based on a discounted cash flow
analysis utilizing market lease rates. The Company will continue to
monitor the impact from the COVID-19 pandemic as it relates to
recoverability of long-lived assets. Although we have seen an
improvement in sales, we are unable to predict how long these
conditions will persist, what additional measures may be introduced
by governments or what effect any such additional measures may have
on restaurants and our business. Any measure that encourages
consumers to stay in their homes, engage in social distancing or
avoid larger gatherings of people for an extended period of time is
highly likely to be harmful to the restaurant industry in
general.
Closure costs in
each of the second quarter and first
two
quarters of 2020 and 2019 include ongoing costs related
to restaurants closed in previous years as well as one
company-owned restaurant closed during the second quarter of 2020
that was near the end of its lease term. In addition, closure costs
in the second quarter and first
two
quarters of 2019 were partially offset by a
gain of $0.1
million and $0.4
million, respectively, from
adjustments to liabilities as lease terminations
occur.
Loss on disposal
of assets and other includes expenses recognized during the
first two
quarters of 2020 related to the divestiture of
company-owned restaurants to a franchisee.
These expenses
are included in the “Restaurant impairments, closure costs and
asset disposals” line in the Condensed Consolidated Statements of
Operations.
8. Earnings
(Loss) Per Share
Basic earnings
(loss) per share (“EPS”) is calculated by dividing net income
(loss) available to common stockholders by the weighted-average
number of shares of common stock outstanding during each period.
Diluted EPS is calculated using net income (loss) available to
common stockholders divided by diluted weighted-average shares of
common stock outstanding during each period. Potentially dilutive
securities include shares of common stock underlying stock options,
warrants and RSUs. Diluted EPS considers the impact of potentially
dilutive securities except in periods in which there is a loss
because the inclusion of the potential common shares would have an
anti-dilutive effect.
The following
table sets forth the computations of basic and diluted EPS (in
thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
Net
(loss) income
|
|
$
|
(13,478
|
)
|
|
$
|
438
|
|
|
$
|
(19,313
|
)
|
|
$
|
(1,413
|
)
|
Shares:
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
44,212,751
|
|
|
43,964,175
|
|
|
44,177,648
|
|
|
43,955,580
|
|
Effect of dilutive
securities
|
|
—
|
|
|
1,111,713
|
|
|
—
|
|
|
—
|
|
Diluted weighted average
shares outstanding
|
|
44,212,751
|
|
|
45,075,888
|
|
|
44,177,648
|
|
|
43,955,580
|
|
(Loss) earnings per
share:
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per
share
|
|
$
|
(0.30
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.44
|
)
|
|
$
|
(0.03
|
)
|
Diluted (loss) earnings per
share
|
|
$
|
(0.30
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.44
|
)
|
|
$
|
(0.03
|
)
|
The Company
computes the effect of dilutive securities using the treasury stock
method and average market prices during the period. Potential
common shares are excluded from the computation of diluted earnings
per share when the effect would be anti-dilutive. The shares
issuable on the vesting or exercise of share-based awards or
exercise of outstanding warrants that were excluded from the
calculation of diluted earnings (loss) per share because the effect
of their inclusion would have been anti-dilutive totaled
4,142,754
and
1,297,255
for the
second
quarter of
2020
and
2019, respectively, and
totaled 3,309,278
and
3,229,030
for the first two
quarters of 2020 and 2019, respectively.
9.
Leases
As discussed in
Note 1, Business Summary and Basis of Presentation, the COVID-19
pandemic impacted us significantly, including causing us to close
all of our dining rooms starting in March 2020. We commenced
reopening a portion of our dining rooms in June of 2020. During the
second quarter of 2020, we were able to negotiate with the majority
of our landlords to obtain rent abatements, defer rent amounts due
during the second quarter, or in some cases, extend the period of
the respective lease term. In the case where the lease term was
extended, we remeasured the remaining consideration in the
contract. The total rent that was deferred for lease amendments
that have been executed through June 30, 2020 was
$4.0
million.
Further, for
certain of our restaurants, the COVID-19 pandemic had a significant
impact to the underlying asset values. Based on an impairment
analysis performed during the quarter ended June 30, 2020, we
recorded asset impairment charges of $0.3
million to reduce the carrying value
of certain operating lease assets to their respective estimated
fair value.
Supplemental
balance sheet information related to leases is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
Classification
|
June 30,
2020
|
|
December 31,
2019
|
Assets
|
|
|
|
|
Operating
|
Operating lease assets,
net
|
$
|
209,445
|
|
|
$
|
209,717
|
|
Finance
|
Finance lease assets,
net (1)
|
3,086
|
|
|
771
|
|
Total leased
assets
|
|
$
|
212,531
|
|
|
$
|
210,488
|
|
Liabilities
|
|
|
|
|
Current lease
liabilities
|
|
|
|
|
Operating
|
Current operating lease
liabilities
|
$
|
26,144
|
|
|
$
|
22,775
|
|
Finance
|
Current finance lease
liabilities (2)
|
998
|
|
|
510
|
|
Long-term lease
liabilities
|
|
|
|
|
Operating
|
Long-term operating lease
liabilities
|
229,196
|
|
|
225,014
|
|
Finance
|
Long-term finance lease
liabilities (2)
|
2,127
|
|
|
281
|
|
Total lease
liabilities
|
|
$
|
258,465
|
|
|
$
|
248,580
|
|
_____________________
|
|
(1)
|
The finance lease
assets are included in property and equipment, net in the Condensed
Consolidated Balance Sheets.
|
|
|
(2)
|
The current
portion of the finance lease liabilities is included in accrued
expenses and other current liabilities, and the long-term portion
was included in other long-term liabilities in the Condensed
Consolidated Balance Sheets.
|
Sublease income
recognized in the Condensed Consolidated Statements of Operations
was $0.1
million and $0.1
million for the for the
second
quarter of
2020
and
2019, and $0.5
million and $0.2
million first two quarters
of
2020
and
2019, respectively.
Supplemental
disclosures of cash flow information related to leases are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
Cash paid for lease
liabilities:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
6,066
|
|
|
$
|
10,813
|
|
|
$
|
13,574
|
|
|
$
|
21,506
|
|
Finance leases
|
|
270
|
|
|
160
|
|
|
452
|
|
|
377
|
|
|
|
$
|
6,336
|
|
|
$
|
10,973
|
|
|
$
|
14,026
|
|
|
$
|
21,883
|
|
Right-of-use assets obtained
in exchange for lease liabilities:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
4,557
|
|
|
$
|
2,049
|
|
|
$
|
10,281
|
|
|
$
|
5,210
|
|
Finance leases
|
|
1,238
|
|
|
179
|
|
|
2,842
|
|
|
229
|
|
|
|
$
|
5,795
|
|
|
$
|
2,228
|
|
|
$
|
13,123
|
|
|
$
|
5,439
|
|
Future minimum
lease payments required under existing leases as of
June 30,
2020 are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Finance
Leases
|
|
Total
|
Remainder of
2020
|
$
|
22,747
|
|
|
$
|
599
|
|
|
$
|
23,346
|
|
2021
|
44,433
|
|
|
978
|
|
|
45,411
|
|
2022
|
43,604
|
|
|
836
|
|
|
44,440
|
|
2023
|
42,514
|
|
|
682
|
|
|
43,196
|
|
2024
|
40,982
|
|
|
218
|
|
|
41,200
|
|
Thereafter
|
170,200
|
|
|
37
|
|
|
170,237
|
|
Total lease
payments
|
364,480
|
|
|
3,350
|
|
|
367,830
|
|
Less: Imputed
interest
|
109,140
|
|
|
225
|
|
|
109,365
|
|
Present value of lease
liabilities
|
$
|
255,340
|
|
|
$
|
3,125
|
|
|
$
|
258,465
|
|
10.
Supplemental Disclosures to Condensed Consolidated Statements of
Cash Flows
The following
table presents the supplemental disclosures to the Condensed
Consolidated Statements of Cash Flows for the two quarters
ended
June 30,
2020 and July 2, 2019
(in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
July 2,
2019
|
Interest paid (net of amounts
capitalized)
|
|
$
|
1,666
|
|
|
$
|
1,382
|
|
Income taxes
paid
|
|
25
|
|
|
6
|
|
Purchases of property and
equipment accrued in accounts payable
|
|
1,793
|
|
|
2,392
|
|
11. Revenue
Recognition
Revenue
Revenue consists
of sales from restaurant operations, franchise royalties and fees,
and sublease income. Revenue from the operation of company-owned
restaurants is recognized when sales occur. The Company reports
revenue net of sales and use taxes collected from customers and
remitted to governmental taxing authorities.
Gift Cards
The Company sells
gift cards which do not have an expiration date, and it does not
deduct non-usage fees from outstanding gift card balances. The
Company recognizes revenue from gift cards when the gift card is
redeemed by the customer or the Company determines the likelihood
of the gift card being redeemed by the customer is remote (“gift
card breakage”). The determination of the gift card breakage rate
is based upon Company-specific historical redemption patterns. The
Company has determined that approximately 9%
of gift cards
will not be redeemed and recognizes gift card breakage ratably over
the estimated redemption period of the gift card, which is
approximately 24
months. Gift card liability
balances are typically highest at the end of each calendar year
following increased gift card purchases during the holiday
season.
As of
June 30,
2020 and December 31,
2019, the
current portion of the gift card liability, $1.9
million and $2.4
million, respectively, was included
in accrued expenses and other current liabilities, and the
long-term portion, $0.6
million and $0.9
million, respectively, was included
in other long-term liabilities in the Condensed Consolidated
Balance Sheets.
Revenue
recognized in the Condensed Consolidated Statements of Operations
for the redemption of gift cards was $2.1
million and $3.2
million for the first
two
quarters of 2020 and 2019, respectively.
Franchise Fees
Royalties from
franchise restaurants are based on a percentage of restaurant
revenues and are recognized in the period the related franchised
restaurants’ sales occur. In the second quarter of 2020, we forgave
the franchise royalties due for the quarter due to the impact of
the COVID-19 pandemic. In the third quarter, we will resume
recognizing franchise royalty revenue and cash collection.
Development fees and franchise fees, portions of which are
collected in advance, are nonrefundable and are recognized in
income ratably over the term of the related franchise agreement or
recognized upon the termination of the agreement between the
Company and the franchisee. The Company has determined that the
initial franchise services are not distinct from the continuing
rights or services offered during the term of the franchise
agreement and should be treated as a single performance obligation;
therefore, initial fees received from franchisees are recognized as
revenue over the term of each respective franchise agreement, which
is typically 20
years.
Loyalty Program
Customers who
register on the Noodles App are automatically enrolled in the
Noodles Rewards program, which is primarily a spend-based loyalty
program. With each purchase, Noodles Rewards members earn loyalty
points that can be redeemed for rewards, including free products.
Using an estimate of the value of reward redemptions, we defer
revenue associated with points earned, net of estimated points that
will not be redeemed. Points generally expire after six months.
Revenue is recognized in a future period when the reward points are
redeemed. As of June 30, 2020
and
December 31,
2019, the
deferred revenue related to the rewards was $1.7
million and $0.6
million, respectively, and was
included in accrued expenses and other current liabilities in the
Condensed Consolidated Balance Sheets.
12.
Commitments and Contingencies
In the normal
course of business, the Company is subject to other proceedings,
lawsuits and claims. Such matters are subject to many
uncertainties, and outcomes are not predictable with assurance.
Consequently, the Company is unable to ascertain the ultimate
aggregate amount of monetary liability or financial impact with
respect to these matters as of June 30,
2020.
These matters could affect the operating results of any one
financial reporting period when resolved in future periods. The
Company believes that an unfavorable outcome with respect to these
matters is remote or a potential range of loss is not material to
its consolidated financial statements. Significant increases in the
number of these claims, or one or more successful claims that
result in greater liabilities than the Company currently
anticipates, could materially and adversely affect its business,
financial condition, results of operations or cash
flows.
NOODLES
& COMPANY
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Noodles
& Company is a Delaware corporation that was organized in 2002.
Noodles & Company and its subsidiaries are sometimes referred
to as “we,” “us,” “our” and the “Company” in this report. The
following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements
and related notes in Item 1 and with the audited consolidated
financial statements and the related notes included in our Annual
Report on Form 10-K for our fiscal year ended December 31,
2019. We
operate on a 52- or 53-week fiscal year ending on the Tuesday
closest to December 31. Our fiscal quarters each contain 13
operating weeks, with the exception of the fourth quarter of a
53-week fiscal year, which contains 14 operating weeks. Fiscal
years 2020
and 2019
each contain 52 weeks.
Cautionary Note Regarding Forward-Looking Statements
In addition
to historical information, this discussion and analysis contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve risks and
uncertainties such as the number of restaurants we intend to open,
projected capital expenditures and estimates of our effective tax
rates. In some cases, you can identify forward-looking statements
by terms such as “may,” “might,” “will,” “objective,” “intend,”
“should,” “could,” “can,” “would,” “expect,” “believe,” “design,”
“estimate,” “predict,” “potential,” “plan” or the negative of these
terms and similar expressions intended to identify forward-looking
statements. These statements reflect our current views with respect
to future events and are based on currently available operating,
financial and competitive information. Examples of forward-looking
statements include all matters that are not historical facts, such
as statements regarding our ability to navigate the COVID-19
pandemic, projected capital expenditures, the revenue and balance
sheet impact of the COVID-19 pandemic, estimated costs associated
with our closure of underperforming restaurants, the implementation
and results of strategic initiatives and our future financial
performance. Our actual results may differ materially from those
anticipated in these forward-looking statements due to reasons
including, but not limited to, the extent, duration and severity of
the COVID-19 pandemic; governmental and customer response to the
COVID-19 pandemic; other conditions beyond our control such as
weather, natural disasters, disease outbreaks, epidemics or
pandemics impacting our customers or food supplies; consumer
reaction to industry related public health issues and health
pandemics and perceptions of food safety, our ability to achieve
and maintain increases in comparable restaurant sales and to
successfully execute our business strategy, including new
restaurant initiatives and operational strategies to improve the
performance of our restaurant portfolio; our ability to maintain
compliance with debt covenants and continue to access financing
necessary to execute our business strategy; the success of our
marketing efforts; our ability to open new restaurants on schedule;
current economic conditions; price and availability of commodities;
our ability to adequately staff our restaurants; changes in labor
costs; consumer confidence and spending patterns; seasonal factors;
and those discussed in “Special Note Regarding Forward-Looking
Statements” and “Risk Factors” as filed in our Annual Report on
Form 10-K for our fiscal year ended December 31,
2019 and in our
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2020..
Impact of
COVID-19 Pandemic on Our Business
The COVID-19
pandemic has resulted, and is likely to continue to result, in
significant economic disruption and has and will likely continue to
adversely affect our business. As of the date of this filing,
significant uncertainty exists concerning the magnitude of the
impact and the duration of the COVID-19 pandemic. As of the date of
this filing, while substantially all of our restaurants continue to
operate, public access to our dining rooms has been restricted in
many of our restaurants, which negatively impacted sales during the
quarter and may negatively impact sales until the COVID-19 pandemic
moderates. While we cannot predict the extent to which the COVID-19
pandemic will impact our business, comparable sales have
meaningfully and progressively improved since the beginning of the
pandemic and recent sales levels have approached the sales levels
for the same periods of the prior year, as our business was
well-positioned for the transition to largely off-premise dining
that has resulted from the outbreak. The shifting demand pattern
towards our off-premise offerings, including delivery, has caused a
reduction in our restaurant level margins due primarily to higher
delivery fees.
We intend to
continue to actively monitor the evolving situation and may take
further actions that alter our business operations as may be
required by federal, state or local authorities or that we
determine are in the best interests of our team members, customers,
suppliers and shareholders. While we are unable to determine or
predict the nature, duration or scope of the impact that the
COVID-19 pandemic will have on our business, results of operations,
liquidity or capital resources, we have sought to describe where
our company stands today, how our response to the COVID-19 pandemic
is progressing and our expectations regarding
how our
operations and financial condition may change as the response and
ultimate recovery against the COVID-19 pandemic
progresses.
Recent
Trends, Risks and Uncertainties
Comparable
Restaurant Sales. In the second quarter of
2020,
system-wide comparable restaurant sales decreased
30.9%, comprised of a
30.1%
decrease for
company-owned restaurants and a 35.4% decrease for franchise
restaurants.
The cadence of
comparable restaurant sales and average unit volumes during the
second quarter and third quarter to-date are as set forth below.
Company-owned restaurants were closed July 4th and 5th 2020 in
appreciation of our teams’ efforts during the pandemic. All
restaurants were open during that time frame in 2019, negatively
impacting comparable restaurant sales during same period in
2020:
|
|
|
|
|
|
|
Comparable
Restaurant Sales
|
4 Weeks Ended
April 28, 2020
|
4 Weeks Ended
May 26, 2020
|
5 Weeks Ended
June 30, 2020
|
2 Weeks Ended
July 14, 2020 (1)
|
2 Weeks Ended
July 28, 2020
|
Company-owned
|
(47.0)%
|
(28.9)%
|
(17.7)%
|
(13.9)%
|
(3.8)%
|
Franchise
|
(55.5)%
|
(37.3)%
|
(18.1)%
|
(7.5)%
|
(7.8)%
|
System-wide
|
(48.2)%
|
(30.1)%
|
(17.8)%
|
(13.0)%
|
(4.4)%
|
Average Unit Volumes
(000’s)
|
$685
|
$901
|
$1,044
|
$1,168
|
$1,181
|
_________________
(1) Company-owned
restaurants were closed July 4 and July 5, 2020.
Our ability to
return to positive comparable restaurant sales depends, among other
reasons, on (i) the duration of the COVID-19 pandemic, (ii)
limitations imposed by federal, state and local governments with
respect to reduced seating capacity in our restaurants and other
social distancing measures, (iii) our customers’ future willingness
to eat at restaurants and (iv) macroeconomic conditions and the
length of time required for the national and local economies to
achieve economic recovery following the crisis.
Cost of
Sales. As
a result of the COVID-19 pandemic, we have and expect to continue
to incur incremental costs of sales, including the use of
additional packaging supplies to support the continued increase in
to go and off premise orders. Despite the increased packaging
costs, we have continued to work with our suppliers for ongoing
supply chain savings resulting in lower cost of sales. To date,
there has been minimal disruption to our supply chain network,
including the supply of our ingredients, packaging or other sourced
materials, though it is possible that more significant disruptions
could occur if the COVID-19 pandemic continues to impact the
markets in which we operate. We are working closely with our
distributors and contract manufacturers as the situation evolves.
We intend to continue to actively monitor the situation, including
the status of our supply chain, to determine the appropriate
actions to minimize any supply chain interruptions.
Labor
Costs. In
the first two quarters of 2020, we were able to mitigate
the impact of increased base labor costs through labor efficiencies
such as our procedures around optimizing food preparation times.
Additionally, during the first two quarters of 2020, we modified
our labor model to reduce the number of staffing hours in our
restaurants. Some jurisdictions in which we operate have recently
increased their minimum wage and other jurisdictions are
considering similar actions. Significant additional
government-imposed increases could materially affect our labor
costs.
Certain
Restaurant Closures. We permanently closed one
company-owned restaurant in the first two quarters
of
2020. From the last half of March
through June 2020, nearly all of our dining rooms were closed due
to the COVID-19 pandemic. We have begun reopening dining rooms in
certain restaurants and will continue to open the remaining dining
rooms as appropriate. We currently do not anticipate a significant
number of permanent restaurant closures in the foreseeable future;
however, we may from time to time permanently close certain
restaurants, including permanent closures at, or near, the
expiration of the leases for these restaurants.
Restaurant
Development. In the first
two
quarters of 2020, we opened one new
company-owned restaurant and sold nine restaurants to a franchisee.
As of June 30,
2020, we
had 380 company-owned restaurants
and 76 franchise restaurants
in 29 states and the District of
Columbia. In response to the onset of the COVID-19 pandemic and to
preserve cash, we substantively halted capital investment in new
unit development during the second quarter. Given the Company’s
sales recovery in recent months, as well as an anticipated increase
in favorable real estate availability, we expect to incorporate
increased unit development into our strategic growth plan for 2021
and beyond.
Key Measures
We Use to Evaluate Our Performance
To evaluate the
performance of our business, we utilize a variety of financial and
performance measures. These key measures include revenue, average
unit volume (“AUV”), comparable restaurant sales, restaurant
contribution, restaurant contribution margin, EBITDA and adjusted
EBITDA.
Revenue
Restaurant
revenue represents sales of food and beverages in company-owned
restaurants. Several factors affect our restaurant revenue in any
period, including the number of restaurants in operation and
per-restaurant sales. Franchise royalties and fees represent
royalty income and initial franchise fees. While we expect that the
majority of our revenue and net income growth will be driven by
company-owned restaurants, our franchise restaurants remain an
important factor impacting our revenue and financial
performance.
Seasonal factors
cause our revenue to fluctuate from quarter to quarter. Our revenue
per restaurant is typically lower in the first and fourth quarters,
due to reduced winter and holiday traffic, and is typically higher
in the second and third quarters. As a result of these factors, as
well as the magnitude of the COVID-19 pandemic on any given
quarter, our quarterly operating results and comparable restaurant
sales may fluctuate significantly.
Average Unit Volume
AUV consists of
the average annualized sales of all restaurants for a given time
period. AUV is calculated by dividing restaurant revenue by the
number of operating days within each time period and multiplying by
the number of operating days we have in a typical year. This
measurement allows management to assess changes in revenue patterns
at our restaurants.
Comparable Restaurant Sales
Comparable
restaurant sales refer to year-over-year sales comparisons for the
comparable restaurant base. We define the comparable restaurant
base to include restaurants open for at least 18 full periods.
This measure highlights performance of existing restaurants, as the
impact of new restaurant openings is excluded. Changes in
comparable restaurant sales are generated by changes in traffic,
which we calculate as the number of entrées sold, or changes in
per-person spend, calculated as sales divided by traffic.
Per-person spend can be influenced by changes in menu prices and
the mix and number of items sold per person.
Measuring our
comparable restaurant sales allows us to evaluate the performance
of our existing restaurant base. Various factors impact comparable
restaurant sales, including:
|
|
•
|
consumer recognition of our
brand and our ability to respond to changing consumer
preferences;
|
|
|
•
|
overall economic trends,
particularly those related to consumer spending;
|
|
|
•
|
our ability to operate
restaurants effectively and efficiently to meet consumer
expectations;
|
|
|
•
|
the number of restaurant
transactions, per-person spend and average check
amount;
|
|
|
•
|
marketing and promotional
efforts;
|
|
|
•
|
abnormal weather
patterns;
|
|
|
•
|
food safety and foodborne
illness concerns;
|
|
|
•
|
the impact of the COVID-19
pandemic;
|
|
|
•
|
introduction of new and
seasonal menu items and limited time offerings; and
|
|
|
•
|
opening new restaurants in
the vicinity of existing locations.
|
Consistent with
common industry practice, we present comparable restaurant sales on
a calendar-adjusted basis that aligns current year sales weeks with
comparable periods in the prior year, regardless of whether they
belong to the same fiscal period or not. Since opening new
company-owned and franchise restaurants is a part of our long-term
growth strategy and we anticipate new restaurants will be a
component of our long-term revenue growth, comparable restaurant
sales is only one measure of how we evaluate our
performance.
Restaurant Contribution and Restaurant Contribution
Margin
Restaurant
contribution represents restaurant revenue less restaurant
operating costs which are cost of sales, labor, occupancy and other
restaurant operating costs. Restaurant contribution margin
represents restaurant contribution as a percentage of restaurant
revenue. We expect restaurant contribution to increase in
proportion to the number of new restaurants we open and our
comparable restaurant sales growth.
We believe that
restaurant contribution and restaurant contribution margin are
important tools for investors and other interested parties because
they are widely-used metrics within the restaurant industry to
evaluate restaurant-level productivity, efficiency and performance.
We also use restaurant contribution and restaurant contribution
margin as metrics to evaluate the profitability of incremental
sales at our restaurants, restaurant performance across periods and
restaurant financial performance compared with competitors.
Restaurant contribution and restaurant contribution margin are
supplemental measures of the operating performance of our
restaurants and are not reflective of the underlying performance of
our business because corporate-level expenses are excluded from
these measures.
EBITDA and Adjusted EBITDA
We define EBITDA
as net income (loss) before interest expense, provision (benefit)
for income taxes and depreciation and amortization. We define
adjusted EBITDA as net income (loss) before interest expense,
provision (benefit) for income taxes, depreciation and
amortization, restaurant impairments, closure costs and asset
disposals, acquisition costs, severance costs and stock-based
compensation expense.
We believe that
EBITDA and adjusted EBITDA provide clear pictures of our operating
results by eliminating certain non-recurring and non-cash expenses
that may vary widely from period to period and are not reflective
of the underlying business performance.
The presentation
of restaurant contribution, restaurant contribution margin, EBITDA
and adjusted EBITDA is not intended to be considered in isolation
or as a substitute for, or to be superior to, the financial
information prepared and presented in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”). We use these non-GAAP financial measures for financial
and operational decision making and as a means to evaluate
period-to-period comparisons. We believe that they provide useful
information to management and investors about operating results,
enhance the overall understanding of past financial performance and
future prospects and allow for greater transparency with respect to
key metrics used by management in its financial and operational
decision making.
Results of
Operations
The following
table presents a reconciliation of net (loss) income to EBITDA and
adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
|
|
(in
thousands, unaudited)
|
Net (loss)
income
|
|
$
|
(13,478
|
)
|
|
$
|
438
|
|
|
$
|
(19,313
|
)
|
|
$
|
(1,413
|
)
|
Depreciation and
amortization
|
|
5,397
|
|
|
5,661
|
|
|
10,732
|
|
|
11,168
|
|
Interest expense,
net
|
|
920
|
|
|
800
|
|
|
1,888
|
|
|
1,561
|
|
Provision for income
taxes
|
|
33
|
|
|
—
|
|
|
46
|
|
|
—
|
|
EBITDA
|
|
$
|
(7,128
|
)
|
|
$
|
6,899
|
|
|
$
|
(6,647
|
)
|
|
$
|
11,316
|
|
Restaurant
impairments, closure costs and asset disposals (1)
|
|
2,558
|
|
|
2,884
|
|
|
3,614
|
|
|
3,304
|
|
Stock-based compensation
expense
|
|
1,094
|
|
|
1,155
|
|
|
1,253
|
|
|
1,881
|
|
Fees and costs
related to transactions and other acquisition/disposition
costs
|
|
73
|
|
|
—
|
|
|
162
|
|
|
36
|
|
Severance costs
|
|
89
|
|
|
—
|
|
|
89
|
|
|
—
|
|
Adjusted EBITDA
|
|
$
|
(3,314
|
)
|
|
$
|
10,938
|
|
|
$
|
(1,529
|
)
|
|
$
|
16,537
|
|
_____________________
|
|
(1)
|
Restaurant
impairments and closure costs in all periods presented above
include amounts related to restaurants previously impaired or
closed. See Note 7, Restaurant Impairments, Closure Costs and Asset
Disposals.
|
Restaurant Openings, Closures and Relocations
The following
table shows restaurants opened or closed during the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
Company-Owned
Restaurant Activity
|
|
|
|
|
|
|
|
|
Beginning of
period
|
|
381
|
|
|
395
|
|
|
389
|
|
|
394
|
|
Openings
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Acquisition
(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Closures
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
Divestitures
(1)
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
Restaurants at end of
period
|
|
380
|
|
|
395
|
|
|
380
|
|
|
395
|
|
Franchise
Restaurant Activity
|
|
|
|
|
|
|
|
|
Beginning of
period
|
|
77
|
|
|
64
|
|
|
68
|
|
|
65
|
|
Openings
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisitions
(1)
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
Closures
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(2
|
)
|
Divestiture
(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Restaurants at end of
period
|
|
76
|
|
|
62
|
|
|
76
|
|
|
62
|
|
Total
restaurants
|
|
456
|
|
|
457
|
|
|
456
|
|
|
457
|
|
_____________________________
|
|
(1)
|
Represents nine
company-owned restaurants sold to a franchisee.
|
|
|
(2)
|
Represents one
franchise restaurant acquired by us.
|
Statement of Operations as a Percentage of Revenue
The following
table summarizes key components of our results of operations for
the periods indicated as a percentage of our total revenue, except
for the components of restaurant operating costs, which are
expressed as a percentage of restaurant revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Two Fiscal
Quarters Ended
|
|
|
June 30,
2020
|
|
July 2,
2019
|
|
June 30,
2020
|
|
July 2,
2019
|
|
|
(unaudited)
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Restaurant
revenue
|
|
99.8
|
%
|
|
98.9
|
%
|
|
99.0
|
%
|
|
98.9
|
%
|
Franchising royalties and
fees, and other
|
|
0.2
|
%
|
|
1.1
|
%
|
|
1.0
|
%
|
|
1.1
|
%
|
Total revenue
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
Restaurant
operating costs (exclusive of depreciation and amortization shown
separately below):
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
25.0
|
%
|
|
25.6
|
%
|
|
25.3
|
%
|
|
26.2
|
%
|
Labor
|
|
33.9
|
%
|
|
32.7
|
%
|
|
34.3
|
%
|
|
33.4
|
%
|
Occupancy
|
|
14.6
|
%
|
|
10.4
|
%
|
|
13.3
|
%
|
|
10.9
|
%
|
Other restaurant operating
costs
|
|
19.7
|
%
|
|
14.2
|
%
|
|
18.2
|
%
|
|
14.6
|
%
|
General and
administrative
|
|
12.5
|
%
|
|
9.9
|
%
|
|
11.4
|
%
|
|
9.6
|
%
|
Depreciation and
amortization
|
|
6.7
|
%
|
|
4.7
|
%
|
|
5.9
|
%
|
|
4.9
|
%
|
Pre-opening
|
|
0.1
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
|
—
|
%
|
Restaurant impairments,
closure costs and asset disposals
|
|
3.2
|
%
|
|
2.4
|
%
|
|
2.0
|
%
|
|
1.4
|
%
|
Total costs and
expenses
|
|
115.6
|
%
|
|
99.0
|
%
|
|
109.6
|
%
|
|
99.9
|
%
|
(Loss)
income from operations
|
|
(15.6
|
)%
|
|
1.0
|
%
|
|
(9.6
|
)%
|
|
0.1
|
%
|
Interest expense,
net
|
|
1.1
|
%
|
|
0.7
|
%
|
|
1.0
|
%
|
|
0.7
|
%
|
(Loss) income before
taxes
|
|
(16.8
|
)%
|
|
0.4
|
%
|
|
(10.7
|
)%
|
|
(0.6
|
)%
|
Provision for income
taxes
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Net (loss)
income
|
|
(16.8
|
)%
|
|
0.4
|
%
|
|
(10.7
|
)%
|
|
(0.6
|
)%
|
Second
Quarter
Ended June 30,
2020 Compared
to Second
Quarter
Ended July 2,
2019
The table below
presents our unaudited operating results for the
second
quarters
of 2020 and 2019, and the related
quarter-over-quarter changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Quarter Ended
|
|
Increase /
(Decrease)
|
|
|
June 30,
2020
|
|
July 2,
2019
|
|
$
|
|
%
|
|
|
|
|
|
|
(in
thousands, unaudited)
|
Revenue:
|
|
|
|
|
|
|
|
|
Restaurant
revenue
|
|
$
|
80,021
|
|
|
$
|
118,858
|
|
|
$
|
(38,837
|
)
|
|
(32.7
|
)%
|
Franchising royalties and
fees, and other
|
|
136
|
|
|
1,332
|
|
|
(1,196
|
)
|
|
(89.8
|
)%
|
Total revenue
|
|
80,157
|
|
|
120,190
|
|
|
(40,033
|
)
|
|
(33.3
|
)%
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
Restaurant
operating costs (exclusive of depreciation and amortization shown
separately below):
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
20,020
|
|
|
30,448
|
|
|
(10,428
|
)
|
|
(34.2
|
)%
|
Labor
|
|
27,137
|
|
|
38,877
|
|
|
(11,740
|
)
|
|
(30.2
|
)%
|
Occupancy
|
|
11,676
|
|
|
12,311
|
|
|
(635
|
)
|
|
(5.2
|
)%
|
Other restaurant operating
costs
|
|
15,789
|
|
|
16,858
|
|
|
(1,069
|
)
|
|
(6.3
|
)%
|
General and
administrative
|
|
10,034
|
|
|
11,848
|
|
|
(1,814
|
)
|
|
(15.3
|
)%
|
Depreciation and
amortization
|
|
5,397
|
|
|
5,661
|
|
|
(264
|
)
|
|
(4.7
|
)%
|
Pre-opening
|
|
71
|
|
|
65
|
|
|
6
|
|
|
9.2
|
%
|
Restaurant impairments,
closure costs and asset disposals
|
|
2,558
|
|
|
2,884
|
|
|
(326
|
)
|
|
(11.3
|
)%
|
Total costs and
expenses
|
|
92,682
|
|
|
118,952
|
|
|
(26,270
|
)
|
|
(22.1
|
)%
|
(Loss) income from
operations
|
|
(12,525
|
)
|
|
1,238
|
|
|
(13,763
|
)
|
|
*
|
|
Interest expense,
net
|
|
920
|
|
|
800
|
|
|
120
|
|
|
15.0
|
%
|
(Loss) income before
taxes
|
|
(13,445
|
)
|
|
438
|
|
|
(13,883
|
)
|
|
*
|
|
Provision for income
taxes
|
|
33
|
|
|
—
|
|
|
33
|
|
|
100.0
|
%
|
Net (loss)
income
|
|
$
|
(13,478
|
)
|
|
$
|
438
|
|
|
$
|
(13,916
|
)
|
|
*
|
|
Company-owned:
|
|
|
|
|
|
|
|
|
Average unit
volume
|
|
$
|
891
|
|
|
$
|
1,201
|
|
|
$
|
(310
|
)
|
|
(25.8
|
)%
|
Comparable restaurant
sales
|
|
(30.1
|
)%
|
|
4.8
|
%
|
|
|
|
|
________________
Revenue
Total
revenue decreased $40.0 million
in the
second
quarter of
2020, or 33.3%, to $80.2
million,
compared to $120.2 million
in the
second
quarter of
2019. This decrease was due to a
decline in traffic related to the impact of the COVID-19 pandemic
during the quarter, as well as a $3.0 million decrease related to
the refranchising of 14 total restaurants since the second quarter
of 2019.
AUV
decreased $310,000 compared to the prior year.
AUV for the second quarter of 2020 was $891,000.
System-wide
comparable restaurant sales were down 30.9% in the second quarter of
2020,
comprised of a 30.1% decrease at company-owned
restaurants and a 35.4% decrease at franchise-owned
restaurants. The comparable restaurant sales decline in the
second
quarter of
2020
was driven
primarily by a decline in traffic related to the impact of the
COVID-19 pandemic, partially offset by increased off-premise sales
and a new menu pricing structure. Comparable restaurant sales
improved throughout the quarter and that improvement has continued
into the third quarter. During the last two weeks of the July
fiscal period, comparable sales declined only 3.8% at company-owned
restaurants.
System-wide
comparable sales were down 48.2% for the four weeks ended
April 28, down 30.1% for the four weeks ended May
26 and down 17.8% for the five weeks ended June
30. Average unit volumes, which normalizes for the impact of
temporary restaurant closures, declined 0.5% during the fiscal period
ending July 28, 2020.
In the second
quarter of 2020, we forgave the franchise royalties due to the
COVID-19 pandemic. In the third quarter, we will resume recognizing
franchise royalty revenue and cash collection.
Cost of Sales
Cost of
sales decreased by $10.4
million,
or 34.2%, in the second quarter of
2020
compared to the
same period of 2019, due primarily to the
reduction in restaurant revenue. As a percentage of restaurant
revenue, cost of sales decreased to 25.0% in the second quarter of
2020
compared
to 25.6% in second quarter of
2019
primarily due to
ongoing supply chain initiatives, increased menu pricing and lower
discounting, partially offset by higher packaging costs associated
with the shift to increased off-premise sales in response to the
COVID-19 pandemic.
Labor Costs
Labor
costs decreased by $11.7
million,
or 30.2%, in the second quarter of
2020
compared to the
same period of 2019. As a percentage of
restaurant revenue, labor costs increased to 33.9% in the second quarter of
2020
from
32.7%
in the
second
quarter of
2019
due to the
decline in restaurant sales associated with the COVID-19 pandemic,
partially offset by labor initiatives.
Occupancy Costs
Occupancy
costs decreased by $0.6
million,
or 5.2%, in the second quarter of
2020
compared to
the second quarter of
2019
primarily due to
restaurants closed or impaired since the beginning of the second
quarter of 2019 as well the impact of rent concessions granted by
certain landlords as a result of the COVID-19 pandemic. As a
percentage of revenue, occupancy costs increased to
14.6%
in the
second
quarter of
2020, compared to
10.4%
in the
second
quarter of
2019
due to reduced
revenue from the impact of the COVID-19 pandemic.
Other Restaurant Operating Costs
Other restaurant
operating costs decreased by $1.1
million,
or 6.3%, in the second quarter of
2020
compared to
the second quarter of
2019
due to cost
savings initiatives related to the COVID-19 pandemic. As a
percentage of restaurant revenue, other restaurant operating costs
increased to 19.7% in the second quarter of
2020
compared
to 14.2% in the second quarter of
2019
due primarily to
increased third-party delivery fees resulting from a significant
expansion of our use of third-party delivery services in the second
quarter of 2020 due to the COVID-19 pandemic.
General and Administrative Expense
General and
administrative expense decreased by $1.8 million
or
15.3%
in the
second
quarter of
2020
compared to
the second quarter of
2019,
due primarily to the cost savings initiatives implemented as a
result of the COVID-19 pandemic including position reductions,
furloughs, temporary salary reductions and reduction in bonus
expense, partially offset by an increase in marketing expense. As a
percentage of revenue, general and administrative expense
increased
to
12.5%
in the
second
quarter of
2020
from
9.9%
in the
second
quarter of
2019
due primarily to
the decline in revenue.
Depreciation and Amortization
Depreciation and
amortization decreased by $0.3
million,
or 4.7%, in the second quarter of
2020
compared to
the second quarter of
2019,
due primarily to restaurants closed or impaired since the beginning
of the second quarter of 2019 and the impact of the nine
restaurants sold to a franchisee, partially offset by new asset
additions. As a percentage of revenue, depreciation and
amortization increased to 6.7% in the second quarter of
2020
from
4.7%
in the