ITEM 1A. Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully read and consider the risks described below before making an investment decision. The occurrence of any of the following risks could materially harm our business, financial condition, and results of operations. The trading price or value of our common stock could decline, and you could lose all or part of your investment. We may also be affected by unknown risks or risks that we currently think are immaterial. When making an investment decision with respect to our common stock, you should also refer to the other information contained in this Annual Report on Form 10-K, including our Consolidated Financial Statements and the related notes.
Risks Related to Our Indebtedness and Liquidity
Our ability to extend or refinance maturing indebtedness is uncertain and could materially affect our liquidity, financial condition, and operations.
On November 7, 2025, the Company entered into the fourth amendment to our Credit Agreement (the "Fourth Amendment"). The Fourth Amendment extended the maturity dates for our term loans and revolving credit facility by six months, from March 4, 2027 to September 3, 2027, and we are actively working to secure long-term refinancing for our significant total borrowings, which was approximately $170.2 million as of December 28, 2025. Our ability to meet our liquidity and working capital needs depends on our ability to extend or refinance this maturing indebtedness; however, we may not be able to obtain further extensions or refinancing on acceptable terms, or at all. Our ability to secure additional extensions or to refinance maturing indebtedness depends on our future cash flows, financial performance, compliance with the covenants in our credit facility, lender consent, and prevailing credit market conditions. Turmoil in the financial markets can severely restrict the availability of funds for borrowing and may make it more difficult or costly for us to raise capital. There can be no assurance that financing or refinancings will be available or that, if available, will be on terms acceptable to us. If we cannot extend or refinance the indebtedness when due, our lenders could accelerate repayment, and we may be required to repay the debt, sell assets at unfavorable prices, seek alternative financing on unfavorable terms, reduce or defer strategic initiatives or capital expenditures, or pursue other actions that could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
If we are unable to service our debt or comply with the financial and other covenants in our credit facility, our financial condition could be negatively affected.
A substantial portion of our cash flows are dedicated to debt service payments. Our business may not continue to generate cash flow from operations in the future that is sufficient to meet our debt service, working capital and capital expenditure needs. Additionally, our current credit facility contains financial and other restrictive covenants, including among others, a total net leverage ratio covenant. A breach of these covenants could result in default, and if such default is not cured or waived, our lenders could accelerate our debt and declare it immediately due and payable. If this occurs, we may not be able to repay or borrow sufficient funds to refinance the debt. We routinely seek to refinance and/or extend the maturity of our indebtedness. Financing may not be available to us due to factors beyond our control, and even if financing is available, it may not be on acceptable terms. A default under our credit facility could cause a material adverse effect on our financial condition, including our liquidity and cash flows.
Risks Related to Our Business
Our business strategy may not be successful or achieve the desired results, which may have an adverse impact on our business, financial condition, and results of operations.
The Company is currently undergoing a significant transformation. In fiscal 2025, we appointed David Pace as our President and Chief Executive Officer and subsequently launched our "First Choice" plan, which is intended to drive long-term stockholder value and position Red Robin as the first choice for guests, team members, and investors. The First Choice plan includes initiatives to hold serve, drive traffic, find money, fix restaurants, and win together with a high performance environment.
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These strategies and related initiatives may not result in increased traffic and sustained higher sales or decreased debt and expenses, all of which are important to drive long-term stockholder value. Changes to our operations, capital structure, debt structure, restaurant portfolio, marketing strategies, technology, and restaurants, among other initiatives, may not achieve the business growth and results we expect, which may negatively affect guest satisfaction, guest traffic, sales, profits, or liquidity. Our business and desired results depend upon our ability to continue to grow and evolve through various important strategic initiatives. There can be no assurance we will be able to develop or implement these or other important strategic initiatives in accordance with our expectations or on the expected timeline, or that we have, or will have, sufficient resources to fully and successfully implement, sustain results from, or achieve additional expected benefits from them in accordance with our expectations or on the expected timeline, which could in turn adversely affect our business, financial condition, and results of operations.
The global and domestic economic and geopolitical environment may negatively affect frequency of guest visits and average ticket spend at our restaurants, which would negatively affect our revenues and our results of operations.
The global and domestic economic and geopolitical environment affects the restaurant industry and may negatively affect us directly and indirectly through our customers, distributors, and suppliers. These conditions include unemployment, weakness in the housing markets, an economic recession or slowdown, volatility in the U.S. stock market and in other financial markets, inflationary pressures, wage rates, tariffs imposed on commodities and other trade barriers, global disputes and tensions, interest rate fluctuations and reduced access to credit or other economic or geopolitical factors that may affect consumer confidence. Additionally, periods of federal government shutdown or significant slowdowns in government operations may affect consumer confidence and delay routine government functions on which we and our suppliers rely. As a result of these conditions, our guests may be apprehensive about the economy and reduce their level of discretionary spending or our operations may be affected. This could affect the frequency with which our guests choose to dine-out or the amount they spend on meals, thereby decreasing our revenues and potentially affecting our operating results. We believe there is a risk that uncertain economic conditions might cause consumers to make long-lasting changes to their discretionary spending behavior, including dining out less frequently or at lower priced restaurants on a more permanent basis, which would have a effect on our as we spread fixed costs across a lower level of sales.
Our success depends on our ability to effectively compete in the restaurant industry to attract and retain guests.
Competition in the restaurant industry is intense and barriers to entry are low. Our competitors include a large and diverse group of restaurants in all segments ranging from quick serve and fast casual to polished casual and those verging on fine dining. These competitors range from independent local operators that have opened restaurants in various markets, high growth targeted "better" burger concepts in the quick serve and fast casual space, to the well-capitalized national restaurant companies. Many of these concepts have already captured segments of the market that we are targeting, and are expanding faster than we are, penetrating both desirable geographic and demographic markets. Many of our competitors are well established in the casual dining market segment and in certain geographic locations and some of our competitors have substantially greater financial, marketing, and other resources than we have available. Accordingly, they may be better equipped than us to invest in improving and expanding restaurants and infrastructure, increase marketing, or to take other measures to maintain their competitive position, including the use of significant discount offers to attract guests. Additionally, our guests may choose alternatives to restaurants, including meal kit and food delivery service providers or purchasing meals at supermarkets, delis, or other food retailers.
Decreased cash flow from operations, or an inability to access capital or successfully execute our potential real property sales could negatively affect our business initiatives or may result in our inability to execute our revenue, expense, and capital deployment strategies.
Our ability to fund our operating plans and to implement our capital deployment strategies depends on sufficient cash flow from operations or other financing, including using funding under our revolving credit facility and from potential real property sales. We may also seek access to the debt or equity capital markets. Any additional capital raised through the sale of equity may dilute our stockholders' ownership percentages and could also result in a decrease in the market value of our securities.
Our capital deployment strategies include but are not limited to, improving existing restaurants and infrastructure, investing in new technology, paying down debt, investing in marketing to grow traffic, and executing on our long-term transformation strategy. If we experience decreased cash flow from operations, or an inability to access new capital on acceptable terms with acceptable interest rates if needed, our ability to fund our operations and planned initiatives, and to take advantage of growth opportunities, may be delayed or negatively affected. In addition, these disruptions and any resulting negative effect on our net income, cash flows, or other relevant financial performance metrics under our revolving credit facility could affect our ability to borrow or comply with our covenants under that facility.
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A privacy or security breach involving our information technology systems, or the failure of our data security measures could interrupt our business, damage our reputation, and negatively affect our operations and financial condition.
Protecting guest, team member, and Company data is critical. We are subject to numerous privacy and data protection laws and regulations and the regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements including the California Consumer Privacy Act, the California Privacy Rights Act, and other similar legislative initiatives. Compliance with these requirements may result in cost increases due to necessary system changes and the development of new administrative processes, and if we fail to comply, we could be exposed to risks of fines, investigations, litigation, and disruption of our operations.
Our software and information technology systems, as well as those of third parties on which we rely, may contain material vulnerabilities. In the ordinary course of our business, we collect, store, and process personal and payment information relating to our guests, team members, and vendors. We also collect, store, and process sales data, financial information, human resources information, and other sensitive business data. Despite the cybersecurity measures we have implemented, we have experienced cybersecurity incidents in the past and may experience future incidents, including data breaches, phishing attacks, or other unauthorized access to our systems or those of our third-party service providers. In addition, the rapid evolution and increased adoption of artificial intelligence technologies may intensify cybersecurity risks. Our efforts to identify and remediate system vulnerabilities may not prevent or promptly resolve such incidents, which could result in the theft, loss, or unauthorized disclosure of confidential or proprietary information, of restaurant or corporate operations or our supply chain, of guest confidence, reputational , and significant remediation, legal, regulatory, or other costs.
We maintain a separate insurance policy covering cyber security risks and such insurance coverage may, subject to policy terms and conditions, cover certain aspects of cyber risks, but is subject to a retention amount and may not be applicable to a particular incident or otherwise may be insufficient to cover all our losses beyond any retention.
Because of the number of credit card transactions we process, we are required to maintain PCI Data Security Standard compliance at our Restaurant Support Center and Company-owned restaurants. If we do not maintain the required level of PCI compliance, we could be subject to costly fines or additional fees from the card brands that we accept or lose our ability to accept those payment cards. Our franchisees are separate businesses that have different levels of compliance required depending on the number of credit card transactions processed. If our franchisees fail to maintain the appropriate level of PCI compliance or they experience a security breach, it could negatively impact their business operations, and we could face a loss of royalties or other payments they are required to remit to us, and it could adversely affect our reputation and guest confidence.
If there is a material failure in our information technology systems, our business could be negatively affected, and our systems may be inadequate to support our future growth strategies.
We rely heavily on information technology systems in all aspects of our operations including our restaurant point-of sale systems, financial systems, marketing programs and guest engagement, team member engagement, supply chain management, cybersecurity, and various other processes and transactions. We also use information technology systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Our ability to operate effectively depends on the reliability, capacity, and security of these systems, including systems operated by third parties.
In recent years, we have replaced large portions of our technology hardware. However, some of our information technology systems are aging, and while we continue to invest in upgrades and replacements, these efforts are complex, costly, and time-consuming. In addition, our systems and data may be vulnerable to damage or interruption from power outages, telecommunications failures, natural disasters, terrorism, cyber attacks or other events beyond our control. If these systems suffer severe damage, disruption, or shutdown or if we fail to timely or successfully implement system upgrades, experience difficulties transitioning to new systems, encounter system , , or security , or if our vendors experience similar issues, we could experience operational , in financial reporting, revenues, increased cost, or reputational . This could be further if our business continuity or recovery plans, or those of our vendors, are and we to issues in a timely manner. Any such events could materially affect our business, financial condition, and results of operations.
We have adopted and use artificial intelligence ("AI") and other automated technologies in various aspects of our business, including marketing, guest engagement, labor management, forecasting, and administrative functions. These technologies are complex and rapidly evolving, and their use involves risks and uncertainties. AI-based tools may produce inaccurate, incomplete, or biased outputs, may not perform as intended, or may rely on data that is flawed or outdated, which could result in ineffective decision-making or other harms. The use of AI may increase our exposure to cybersecurity, data privacy, and regulatory risks, particularly as legal standards governing AI continue to develop. If we do not effectively adopt and integrate these emerging technologies as quickly or successfully as our competitors, we may be at a competitive disadvantage, experience higher costs, or be less effective in engaging guests and operating our business.
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Our marketing and branding strategies to attract, engage, and retain our guests, including recent and future changes to our loyalty program, may not be successful, which could negatively affect our business.
We routinely refine our communication, advertising, branding, and other marketing strategies to effectively target and compete for customers, but there is no assurance these strategies will be effective. The Red Robin Royalty™ loyalty program has historically contributed to sales and guest count growth. We continue to evolve this program, including the structure, rewards, and guest participation requirements. These changes may not achieve their intended objectives and could result in reduced guest engagement, lower visit frequency, or decreased brand loyalty.
We increasingly rely on data, analytics, and digital tools to inform our marketing, promotional, and guest engagement strategies, including micro-targeting, personalization, and measurement of marketing effectiveness. These strategies depend on the accuracy, completeness, and timeliness of the data we collect and the assumptions and models we use to analyze that data. If our data is incomplete, inaccurate, or not effectively analyzed, or if our marketing strategies based on such data do not resonate with guests, our marketing investments may not generate the expected levels of guest traffic or sales. In addition, our ability to use guest data is subject to evolving privacy laws, regulatory requirements, platform policies, and consumer preferences, which may limit data collection, sharing, or usage and reduce the effectiveness of targeted marketing initiatives, and any failure to comply could subject us to liability.
Damage to our brand image or reputation, including due to unfavorable social and digital media, could adversely impact our business.
Maintaining and enhancing our brand image and reputation is critical to our success. Unfavorable events or rumors, poorly received advertising, negative publicity, and negative information disseminated through social and digital media could impact our brand image and reputation. As part of our marketing efforts, we use social media platforms to promote our concepts and attract and retain guests. Social media provides consumers, employees, and others with the ability to communicate approval or displeasure with a business, in near real time, and provides any individual with the ability to reach a broad audience and with comments that are often not filtered or checked for accuracy. If we are unable to quickly and effectively respond, any negative publicity could "go viral" causing nearly immediate and potentially significant harm to our brand and reputation, whether or not factually accurate. In addition, social media can facilitate the improper disclosure of proprietary information, exposure of personally identifiable information, , or out-of-date information. The use of social media by our guests or team members could increase our costs, lead to , or result in publicity that could our reputation.
Changes in consumer preferences could negatively affect our results of operations.
The restaurant industry is characterized by the continual introduction of new concepts and is subject to rapidly changing consumer preferences, tastes, and eating and purchasing habits. Our restaurants provide a full-service casual dining experience and offer a varied menu consisting of burgers, salads, appetizers, other entrees, desserts, our signature alcoholic and non-alcoholic beverages, and Donatos® pizza available in a portion of our restaurants. Our success depends, in part, upon the continued popularity of these foods and this style of dining. Shifts in consumer preferences away from this cuisine or dining style could have a material adverse effect on our future profitability. In addition, competitors' use of significant advertising and food discounting could influence our guests' dining choices.
Further, changing health or dietary preferences and current and new medical advancements, such as weight loss medications, may cause consumers to avoid our products in favor of alternative foods or consume less of our products. Consumer preference could be affected by health concerns related to the consumption of beef, chicken, or other food products on our menu, or negative publicity concerning food quality, nutrition, illness, or injury, even if not valid, may negatively affect demand for our food and could result in decreased guest traffic in our restaurants. The food service industry as a whole rests on consumer preferences and demographic trends at the local, regional, and national levels. New information or changes in dietary, nutritional or health guidelines and preferences, among other things, may affect consumer choice and cause consumers to significantly alter their dining choices in ways that adversely affect our sales and profitability.
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We are subject to all of the risks associated with leasing space subject to long-term non-cancelable leases, and risks related to renewal.
As of December 28, 2025, 381 of our 385 Company-owned restaurants are located on leased premises. We have in the past, and may in the future, engage in sale-leaseback transactions, which could further increase the number of our leased properties. Payments under our operating leases account for a significant portion of our operating expenses. We cannot be certain that we will maintain a level of cash flow from operating activities sufficient for us to pay our operating lease expenses. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. We have in the past and may in the future close restaurants, including as we continue to evaluate certain underperforming restaurants. In connection with closing restaurants, we may nonetheless be committed to performing our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term, incurring termination fees, and other significant one-time cash expenditures. Additionally, closing restaurants has in the past and may in the future result in other significant non-cash charges, including impairments. The Company has a potential contingent lease liability for lease payments related to certain franchisees' lease arrangements. This potential contingent lease liability could increase if the Company sells restaurants to franchisees, as we may be required to remain responsible for lease payments for certain restaurants to the extent the purchasing franchisee on the lease. Upon such , we may be required to make lease payments and seek recourse the franchisee or agree to repayment terms.
In addition, as our leases expire, there can be no assurance we will be able to renew our expiring leases after the expiration of renewal options, either on commercially acceptable terms or at all. As a result, we may incur additional costs to operate our restaurants, including increased rent and other costs related to the negotiation of terms of occupancy of an existing leased premise. If we are unable to renew a lease or determine not to renew a lease, there may be costs related to the relocation and development of a replacement restaurant or, if we are unable to relocate, reduced revenue.
Changes in consumer buying patterns, particularly due to declines in traffic near our leased locations, and increases in online sales, may affect our financial condition and results of operations.
The success of our restaurants depends in large part on the performance of our leased locations, which are generally situated in high-traffic retail and entertainment areas such as malls, lifestyle centers, and shopping centers. Our restaurants rely on customer traffic generated by these surrounding locations. Changes in demographic, economic, or consumer behavior patterns, including reduced foot traffic or business closures in these areas, may make certain locations less attractive or profitable. In addition, the continued growth of online shopping has negatively affected traffic at many traditional "brick and mortar" retail centers, which could reduce guest visits to our restaurants. Our ability to relocate underperforming restaurants may also be limited by the availability and cost of suitable alternative sites and by our inability to easily terminate our long-term lease commitments.
We have invested in off-premises sales, including delivery, pickup options, and catering, to attract guests who are looking for convenience or want to enjoy our food off-premises. While we plan to continue to invest in the growth of our off-premises sales, there can be no guarantee we will maintain or increase such sales. Off-premises sales could also cannibalize dine-in sales, or our systems and procedures may require additional investments in technology or people. A significant portion of our delivery orders are fulfilled through third-party delivery providers, which charge commissions and over whom we have limited control. Delivery drivers may make errors, fail to make timely deliveries, damage our food or poorly represent our brand, which may lead to guest disappointment, reputational harm or unmet sales expectations. While we have introduced an alternative to third party delivery by offering an online Company platform to collect orders and outsource the "last mile" of delivery, we may not be able to convert guests to our platform and that model remains subject to some of the same risks.
Our operations are susceptible to the changes in cost and availability of commodities which could negatively affect our results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in commodity costs. Various factors beyond our control, including adverse weather conditions, governmental regulation and monetary policy, new or increased trade barriers and import tariffs (including retaliatory trade actions), product availability, recalls of food products, and seasonality, as well as the effects of the current macroeconomic environment on our suppliers, may affect our commodity costs or cause a disruption in our supply chain. We seek to mitigate commodity price risk through a combination of purchasing strategies, including fixed-price contracts for certain food and beverage items. However, these arrangements may not fully offset future cost increases and typically cover only a portion of our total commodity needs for limited time periods. As contracts expire, we may be unable to renew them on favorable terms, which could result in higher costs, changes in supplier relationships, or the need to source products from alternative suppliers. In addition, we may not be able to fully pass increased commodity costs on to guests through menu pricing or other actions without affecting guest traffic. If we are to effectively manage commodity cost increases or supply , our results of operations and could be affected.
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We may experience interruptions in the delivery of food and other products from third parties.
Our restaurants depend on frequent deliveries of fresh produce, food, beverages, and other products. This subjects us to the risk of interruptions in food and beverage supplies that may result from a variety of causes including, but not limited to, outbreaks of food-borne illness, disruption of operation of production facilities, transportation disruptions or delays, financial difficulties, including bankruptcy of our suppliers or other unforeseen circumstances, especially where a product comes from a single or small number of suppliers. Such shortages could adversely affect our revenue and profits. Our restaurants bear risks associated with the timeliness of deliveries by suppliers and distributors as well as the solvency, reputation, labor relationships, freight rates, and health and safety standards of each supplier and distributor. We strive to have multiple approved suppliers on key items; however, the Company is undertaking initiatives to consolidate suppliers and there are situations where we only have one approved supplier, which increases the risk to our supply chain if something were to happen to the supplier's ability to continue supplying the Company. Other significant risks associated with our suppliers and distributors include handling of food and beverage products, and/or the or contamination of such food and beverage products.
Price increases may negatively affect guest visits.
From time to time, we increase menu prices, primarily to offset increased costs and operating expenses. We cannot provide assurance that any future menu price increases will not deter guests from visiting our restaurants, reduce the frequency of their visits, or affect their purchasing decisions.
New or improved technologies or changes in consumer behavior facilitated by these technologies could negatively affect our business.
Consumer behavior continues to evolve regarding restaurant technology expectations, and we may not be able to meet those changing demands. Our competitors, some with greater resources, may capitalize on emerging technologies or shifts in consumer preferences, potentially weakening our competitive position. Certain technology initiatives require significant capital investment, including addressing aging hardware and software infrastructure and components nearing end-of-life, necessitating careful evaluation against other business priorities. Aging hardware and outdated systems, as well as the process to upgrade or replace hardware and systems, increases the risk of system failures, business disruptions, and degraded guest experiences.
We may expand our restaurant base as a component of our long-term growth, and our ability to open and profitably operate new restaurants is subject to factors beyond our control.
Our resources are currently allocated to increasing performance in our existing base of restaurants, but we may expand our restaurant base as a component of our long-term growth. The expansion of our restaurant base depends upon numerous factors, some of which are out of our control, including the cost and availability of capital, the ability to attract qualified operating team members to staff new restaurants, the ability to secure available and suitable restaurant sites on favorable lease and construction terms, timely adherence to development schedules, and competition that may affect consumer spending. New or less mature restaurants, once opened, may vary in profitability and levels of operating revenue for six months or more, and there are no assurance new restaurants will attain operating results similar to those of existing restaurants. Delays or failures in opening new restaurants, or the inability to profitably operate them once opened, could materially and adversely affect our planned growth.
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The ongoing need for maintenance and improvements at our existing restaurants requires us to spend significant capital and we may not achieve a return on investment.
Many of our existing restaurants are mature and require capital expenditures for maintenance and improvement to remain competitive and maintain our brand standard. Under our First Choice plan, we have begun, and plan to continue, investing in our restaurants by addressing critical deferred maintenance needs, such as flooring updates, internal finishings, furniture repairs, and exterior improvements that directly impact guest perceptions and experience, as well as in new technology. Additionally, we have evaluated and may undertake in the future a more substantial restaurant renovation program. These initiatives involve significant capital expenditures. If we do not make these capital investments or do not achieve a return on the investment, our business, financial condition, and our ability to compete effectively could be harmed.
Our tactical refranchising initiatives may not be completed on favorable terms or completed at all and may not result in the anticipated financial benefits.
As part of our First Choice plan, we are evaluating tactical refranchising opportunities to optimize our overall financing structure and strengthen our balance sheet. Tactical refranchising initiatives require significant management time and resources and may divert attention from day-to-day operations and other strategic priorities. The timing, pricing, and structure of any tactical refranchising transactions depend on market conditions and the availability and interest of qualified franchisees. Delays in execution, unexpected costs, or challenges in integrating franchisees into our system could limit the effectiveness of tactical refranchising efforts. Any such transactions are expected to result in a shift from Company-owned restaurant revenues to franchise royalty income. If our tactical refranchising initiatives are unsuccessful or do not achieve intended objectives, including improvements in liquidity and reductions in general and administrative expenses and long term debt, our business, financial condition, and results of operations could be materially adversely affected.
We are subject to the risks presented by acquisitions or dispositions of restaurants.
In the past, we have acquired franchised restaurants and disposed of restaurants. In the future, we may, from time to time, consider opportunistic acquisitions or dispositions of restaurants beyond the tactical refranchising initiatives described above. Any future acquisitions or dispositions will be accompanied by the risks commonly encountered in such transactions, including difficulty integrating operations and team members, potential disruption to our ongoing business, potential distraction of management, impact on the Company's financial condition, and the impairment of relationships with team members and guests as a result in changes in ownership and management.
The large number of Company-owned restaurants concentrated in the Western United States makes us susceptible to changes in economic and other trends in that region.
As of December 28, 2025, a total of 162 or 42% of our 385 Company-owned restaurants, representing 50% of restaurant revenues, were located in the Western United States (i.e., Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Utah, and Washington). As a result of our geographic concentration, negative publicity regarding any of our restaurants in the Western United States, as well as regional differences in the legal, regulatory, and litigation environment, could have a material adverse effect on our business and operations, as could other regional occurrences such as local strikes, regional cost-of-living increases, energy shortages, or increases in energy prices, droughts, earthquakes, fires, or other natural disasters.
We rely on our management team for the development and execution of our business strategy and the loss of a member of our management team could negatively affect our operating results.
Our success depends in part on the contributions of our management team and other key personnel to develop and execute our business strategy. We recently experienced a transition in leadership, and the effects of this transition, or any future leadership changes, could disrupt our business and adversely affect our performance. Leadership transitions, even when planned, involve inherent risks, including potential disruptions to strategic continuity, loss of institutional knowledge, changes in management priorities, and challenges associated with integrating new leaders into the organization. The process of recruiting leadership is time-consuming and competitive and may divert management’s attention, and there can be no assurance we will be successful in identifying and retaining qualified candidates on acceptable terms or within desired timeframes. Additional turnover on our management team or the to implement an appropriate succession plan could our business and prevent us from our business strategy and initiatives, which could affect our operating results.
If we are unable to successfully attract, retain, and motivate qualified restaurant management and operations team members in a competitive market, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance.
Our ability to attract, retain, and motivate qualified management and operations team members is central to providing the desired guest and team member experience in our restaurants and delivering on our business strategy. The market for qualified talent continues to be competitive, which could increase our labor costs if we need to take additional measures to provide competitive wages, benefits, and workplace conditions. Changes in immigration laws and regulations could decrease the pool of
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candidates with legal work authorizations, causing disruption in the workforce for all companies that rely on hourly workers. If we are unable to recruit, retain and motivate qualified people, our restaurants could be short staffed, we may be forced to incur overtime expenses, hourly team member turnover could increase, and our ability to operate our restaurants effectively could be limited, and the guest experience could be negatively affected, leading to a decline in traffic and sales, which could materially adversely affect our financial performance. Further, an inability to adequately monitor and proactively respond to any potential team member dissatisfaction could lead to poor guest satisfaction, higher turnover, litigation and unionization, which could impact our ability to effectively operate and grow our business and revenues.
Our ability to attract, motivate, and retain our management team and key personnel may be affected by the market price of our common stock and the availability of shares under our equity compensation plan, and we may need to provide alternative compensation incentives.
Equity-based compensation is an important component of our overall compensation strategy for our management team and key personnel. The market price and volatility of our common stock may affect the value or perceived value of equity awards and our ability to effectively use equity compensation to attract, motivate, and retain qualified personnel. Low stock price levels or significant volatility may require us to grant a greater number of shares to achieve intended compensation levels, which could increase dilution to existing stockholders. Our ability to grant equity-based compensation is subject to the availability of shares under our 2024 Performance Incentive Plan. If sufficient shares are not available, or if stockholder approval is required and not obtained to increase the number of authorized shares under such plan, our ability to continue granting equity awards could be limited and we may need to rely on cash compensation or alternative incentives to remain competitive, which could increase our compensation expense and adversely affect our operating results.
Our results of operations may fluctuate significantly due to various risks and unexpected circumstances, including adverse weather conditions, natural disasters, climate change, pandemics, catastrophic events, and other factors outside our control that could increase costs, disrupt our supply change, and impact seasonality, among other things.
We are subject to a number of significant risks that might cause our quarterly and annual results to fluctuate significantly or be negatively affected. Adverse weather conditions, natural disasters (such as earthquakes, hurricanes, and wildfires), climate change, pandemics, or catastrophic events, such as terrorist acts, can adversely impact restaurant sales, as they may keep customers in the affected area from dining out, adversely affect consumer spending and confidence levels. These events may also impact the cost and availability of key commodities such as beef, poultry, potatoes, and other important ingredients in our products; cause material disruptions in our supply chain; impact borrowings and interest rates; cause damage to or closure of restaurants, or result in lost opportunities for our restaurants.
Moreover, our business fluctuates seasonally. Historically, sales in most of our restaurants have been higher during the spring and summer months and winter holiday season due to factors including our retail-oriented location and family appeal. The timing of holidays and school vacations may affect the seasonal operating results in the areas impacted. As a result, our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly as a result of seasonality and the factors outside of our control discussed above. Accordingly, results for any one quarter or year are not necessarily indicative of results to be expected for any other quarter or for any year, and comparable restaurant sales for any particular future period may decrease.
Our franchisees could take actions that could harm our business, expose us to liability, or damage our reputation.
Franchisees are independent entities and are not our employees, partners, or affiliates. If our franchised restaurant base grows due to tactical refranchising initiatives, then we may rely more heavily on franchisees to operate restaurants in compliance with our brand standards, operating procedures, and applicable law. If our franchisees are not successful, then our business, results of operations, and reputation could be disproportionately adversely affected by the relative scale of such franchise operations. We share with our franchisees what we believe to be best practices in the restaurant industry; however, franchisees operate their restaurants as independent businesses. Consequently, the quality of franchised restaurant operations may be diminished by any number of factors beyond our control. Moreover, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements or may not hire and train qualified managers and other restaurant team members. In addition, as independent businesses, franchisees may not be required to comply with the same levels of business or regulatory compliance we are. While we try to ensure the quality of our brand and compliance with our operating standards, and the confidentiality thereof, are maintained by all of our franchisees, we cannot provide assurance our franchisees will avoid actions that affect the reputation of Red Robin or the value of our proprietary information. Our image and reputation and the image and reputation of other franchisees may materially, and system-wide sales could significantly if our franchisees do not operate restaurants according to our standards.
We are subject to federal and state laws that regulate the offer and sale of franchises and aspects of the licensor-licensee relationship. Further, there have been historical actions before the National Labor Relations Board ("NLRB") where it was alleged that a parent company could be held liable for the actions of its franchisees, including potentially jointly liable for labor and wage violations by its franchisees. Failure to comply with the laws and regulations governing our franchisee relationships
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or adverse decisions similar to the above-described NLRB actions could subject us to liability for actions of the franchisees, or expose us to liability to franchisees, or fines and penalties for non-compliance.
Food safety and food-borne illness concerns, and any related unfavorable publicity could have an adverse effect on our business.
We dedicate substantial resources to ensuring our guests enjoy safe, quality food products. Nonetheless, restaurant businesses such as ours can be adversely affected by publicity resulting from complaints or litigation regarding poor food quality, food-borne illness, personal injury, food tampering, communicable disease, adverse health effects of consumption of various food products or high-calorie foods, or other concerns. Food safety issues also could be caused by food suppliers or distributors and, as a result, could be out of our control. Regardless of the source or cause, any report of food-borne illnesses such as E. coli, norovirus, listeria, hepatitis A, salmonella, or trichinosis, as well as other food safety issues including food tampering or contamination, at one of our or a franchisee's restaurants, could adversely affect our reputation and have a negative impact on our sales. Even instances of food-borne illness, food tampering or food contamination occurring solely at our competitors’ restaurants, suppliers or distributors (even if we do not work with them) could result in publicity about the food service industry generally and impact our sales. The occurrence of food safety issues could also affect the price and availability of affected ingredients, resulting in higher costs and lower margins.
Our business could be adversely affected by increased labor costs, including costs related to the increase in minimum wage and new health care laws.
Labor is a primary component in the cost of operating our business. Increased labor costs, whether due to our business model, competition, unionization, increased minimum and tip wage, state unemployment rates, employee benefits costs, or otherwise, may adversely impact our operating expenses. A considerable amount of our restaurant team members is paid at rates related to the federal, state, or local minimum wage. Further, we have a substantial number of restaurants located in states or municipalities where the minimum wage is greater than the current federal minimum wage, including California, Colorado, New York, Oregon, and Washington. Because we employ a large workforce, any wage increase and/or expansion of benefit mandates will have a particularly significant impact on our labor costs. Our vendors, contractors and business partners are similarly impacted by wage and benefit cost inflation, and many have or will increase their price for goods, construction and services in order to offset their increasing labor costs.
In the past, many of our eligible team members chose not to participate in our Company-sponsored health care plans for various reasons, but we may still experience higher health care costs due to increased utilization, medical cost trends, and regulatory or plan design changes. Our distributors and suppliers also may be affected by higher minimum wage or health care costs, which could result in higher costs for goods and services supplied to us. A shortage in the labor pool or other general inflationary pressures or changes could also increase our labor costs.
While we try to offset labor cost increases through price increases, more efficient purchasing practices, productivity improvements, changing staffing models, greater economies of scale and by offering a variety of health plans to our team members, there can be no assurance that these efforts will be successful. If we are unable to anticipate and offset increased labor costs, our financial performance could be materially adversely affected. Further, changes to our staffing models in our restaurants due to labor costs or any labor shortages could negatively impact our ability to provide adequate service levels to our guests, which could result in adverse guest reactions and a possible reduction in guest traffic at our restaurants.
Our failure to remain in compliance with governmental laws and regulations as they continually evolve, and the associated costs of compliance, could cause our business results to suffer.
Our business is subject to extensive and frequently changing government laws and regulations, including, among others, those relating to our employees, public health and safety, food safety, alcoholic beverage control, public accommodations, data privacy and security, securities regulation, and consumer health regulations, including those pertaining to nutritional content and menu labeling. Compliance with these laws and regulations can be complex, costly, and time-consuming, and we may not be able to maintain compliance in all circumstances despite our efforts. Changes in applicable laws or regulatory requirements, or failure to comply with them, could result in increased litigation, governmental investigations or enforcement actions, revocation of required licenses or permits, fines, penalties, or civil or criminal liability, any of which could increase our costs or interfere with our ability to operate our business and execute our strategies.
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Various employment and labor laws govern our relationship with team members and effect operating costs. These laws govern employee classification, wage rates, fair scheduling and payment requirements including tip credit laws and overtime pay, meal and rest breaks, unemployment and other taxes, health care and benefits, workers' compensation rates, labor relations, work authorization regulations, and discriminatory conduct. Changes in these laws, increased enforcement, or failure to comply could require operational changes that harm our operating results, increase labor costs, disrupt our workforce, or result in litigation or penalties. For example, we rely on team members to provide accurate work authorization documentation and to report gratuities received, which we use for payroll and FICA tax reporting purposes. Inaccurate reporting or noncompliance could subject us to monetary or other liabilities. In addition, our operating results could be adversely affected by increases in minimum or tipped wages, overtime requirements, paid leave mandates, health obligations, tax reporting requirements related to gratuities, reductions in the availability of tip credits, or increased employee , including under federal or state wage and hour laws.
In recent years, there has been an evolving public focus on corporate responsibility, including environmental, social, and governance matters. As a result, we have experienced increased expectations and costs to provide expanded disclosure and make commitments, establish goals or set targets with respect to various corporate responsibility issues, such as the reduction of greenhouse gases, and to take the actions necessary to meet those commitments, goals and targets, and these expectations and costs have and may continue to vary across jurisdictions in which we operate. If we are not effective in addressing these matters, consumer trust in our brand may suffer. As public and political sentiment regarding corporate responsibility has evolved, we may now also face the additional risk of reputational harm, litigation, or other challenges from stakeholders opposed to corporate responsibility initiatives. Our results of operation and financial condition could be adversely impacted if we are unable to effectively manage the risks and costs associated with corporate responsibility matters.
We are subject to "dram shop" statutes in some states. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to such intoxicated person. Failure to comply with alcoholic beverage control or dram shop regulations could subject us to liability and could negatively affect our business.
Our future success depends on our ability to protect our intellectual property.
Our business prospects will depend in part on our ability to protect our proprietary information and intellectual property, including the Red Robin, Red Robin Gourmet Burgers®, Red Robin America's Gourmet Burgers & Spirits®, YUMMM®, Red Robin Gourmet Burgers and Brews TM , and Red Robin Royalty TM names and logos. We have registered or filed applications for trademarks for these names and logos, among others, with the United States Patent and Trademark Office and in Canada and we have applied to register various trademarks in certain other international jurisdictions. Our trademarks could be infringed in ways that leave us without redress, such as by imitation or by filings by others in jurisdictions where we are not currently registered. In addition, we rely on trade secrets and proprietary know-how in operating our restaurants, and we employ various methods to protect these trade secrets and proprietary know-how. However, such methods may not afford adequate protection, and others could independently develop similar know-how or obtain access to our know-how, concepts, and recipes. Consequently, our business could be negatively affected and less profitable if we are unable to successfully defend and protect our intellectual property.
Changes in tax laws and unanticipated tax liabilities could adversely affect our financial results.
We are primarily subject to income and other taxes in the United States. Our effective income tax rate and other taxes could be adversely affected by a number of factors, including changes in the valuation of deferred tax assets and liabilities, changes in tax laws, regulations, interpretations, or enforcement practices, and the outcome of income tax or other tax audits. Future change to tax laws could have a negative impact to the Company's effective tax rate and cash tax refunds. Additionally, while we believe our tax estimates are reasonable, the final determination of tax audits and tax litigation could be materially different from our historical income tax provisions and accruals. The results of a tax audit could have a material effect on our results of operations or cash flows in the period which the final determination is made.
A significant increase in litigation could have a material adverse effect on our business, financial condition, and results of operations.
As a member of the restaurant industry, we are sometimes the subject of complaints or litigation, including class action lawsuits, or from guests alleging illness, injury, or other food quality, health, or operational concerns. Negative publicity resulting from these allegations could harm our restaurants, regardless of whether the allegations are valid or whether we are liable. In addition, we are subject to the same risks of negative publicity resulting from these sorts of allegations even if the claim actually involves one of our franchisees.
Any failure by us (or claims of failure) to comply with the various federal and state labor laws governing our relationship with our team members including requirements pertaining to minimum wage, overtime pay, meal and rest breaks, unemployment tax rates, workers' compensation rates, work authorization, and discriminatory conduct, may have a material
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adverse effect on our business or operations. We have been subject to such claims from time to time. The possibility of a material adverse effect on our business relating to employment litigation is even more pronounced given the high concentration of team members employed in the Western United States, as this region, and California in particular, has a substantial amount of legislative and judicial activity pertaining to employment-related issues. Further, employee claims against us based on, among other things, discrimination, harassment, or wrongful termination may divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. Litigation proceedings are subject to inherent uncertainties, and we have in the past received, and may in the future receive, unfavorable rulings.
Labor organizing could adversely affect our operations and harm our competitive position in the restaurant industry, which could harm our financial performance.
Our employees or others may attempt to unionize our workforce, establish boycotts or picket lines or interrupt our supply chains which could increase our labor costs, limit our ability to manage our workforce effectively, and cause disruptions to our operations. A loss of our ability to effectively manage our workforce and the compensation and benefits we offer to our staff members could harm our financial performance.
Our current insurance may not provide adequate levels of coverage against claims.
There are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure against. Such losses could have a material adverse effect on our business and results of operations. In addition, we self-insure a significant portion of expected losses under our employee health, workers' compensation, general liability, property, and cyber insurance programs. Unanticipated changes in the actuarial assumptions and management estimates underlying our reserves for these losses could result in materially different amounts of expense under these programs, which could have a material adverse effect on our financial condition, results of operations, and liquidity. Failure to obtain and maintain adequate directors' and officers' insurance could materially adversely affect our ability to attract and retain qualified officers and directors.
Risks Related to Owning Our Stock
The market price of our common stock is subject to volatility, which has and may continue to attract the interest of activist stockholders or subject us to securities litigation, which could cause us to incur significant expenses, divert management attention, hinder execution of our strategy, and impact our stock price.
The market price of our common stock has experienced volatility and historic lows, and may continue to fluctuate significantly due to a number of factors, including actual or anticipated variations in our operating results or those of our competitors as compared to analyst expectations, changes in financial estimates or recommendations by research analysts, and announcements of significant transactions or strategic initiatives by us or other companies in the restaurant industry. In addition, the equity markets have experienced price and volume fluctuations that affect the stock price of companies in ways unrelated to the operating performance of individual companies.
Such volatility has recently, and may in the future, attract the interest of activist stockholders seeking to influence our strategic direction, governance practices, operations, or capital allocation decisions. In addition, volatility in stock prices could in the future result in securities class action litigation. Responding to activist stockholder activity or securities litigation is costly and time-consuming and diverts management and Board attention from executing our strategy. The uncertainty associated with such matters could further contribute to volatility in the market price of our common stock and adversely affect stockholder value.
We may not repurchase our common stock pursuant to our share repurchase program, and any repurchases may not enhance long-term stockholder value. Share repurchases could also increase the volatility of the price of our common stock and could diminish our cash reserves.
The Company has an authorized share repurchase program. We are not obligated to repurchase shares of common stock under the repurchase program, and the repurchase program may be suspended or terminated at any time. The amount, timing, and execution of repurchases under this repurchase program may fluctuate, and any repurchases by us of our shares of common stock may further reduce cash available for operations and future growth, as well as debt repayment. Our ability to repurchase stock will depend on our ability to generate sufficient cash flows from operations, as supplemented our capacity to borrow funds, which may be subject to economic, financial, competitive and other factors that are beyond our control. Further, our credit facility limits our ability to repurchase shares according to certain conditions set forth by the lenders. Making share repurchases, or alternatively limiting or halting share repurchases under our share repurchase program may negatively impact investor perception of us and may therefore affect the market price and volatility of our stock.
