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BBRG > SEC Filings for BBRG > Form 10-Q on 2-Aug-2013All Recent SEC Filings

Show all filings for BRAVO BRIO RESTAURANT GROUP, INC.

Form 10-Q for BRAVO BRIO RESTAURANT GROUP, INC.


2-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read this discussion together with our unaudited consolidated financial statements and accompanying condensed notes. Unless indicated otherwise, any reference in this report to the "Company," "we," "us," and "our" refer to Bravo Brio Restaurant Group, Inc. together with its subsidiaries.

This discussion contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should" or "will" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors, including those discussed under the heading "Risk Factors" in our 2012 Annual Report on Form 10-K.

Although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current knowledge of our business and operations, we cannot guarantee future results, levels of activity, performance or achievements. We assume no obligation to provide revisions to any forward-looking statements should circumstances change.

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our 2012 Annual Report on Form 10-K and the unaudited consolidated financial statements and the related condensed notes thereto included herein.

Overview

We are a leading owner and operator of two distinct Italian restaurant brands, BRAVO! Cucina Italiana ("BRAVO!") and BRIO Tuscan Grille ("BRIO"), which for purposes of the following discussion includes our one Bon Vie restaurant. We have positioned our brands as multifaceted culinary destinations that deliver the ambiance, design elements and food quality reminiscent of fine dining restaurants at a value typically offered by casual dining establishments, a combination known as the upscale affordable dining segment. Each of our brands provides its guests with a fine dining experience and value by serving affordable cuisine prepared using fresh flavorful ingredients and authentic Italian cooking methods, combined with attentive service in an attractive, lively atmosphere. We strive to be the best Italian restaurant company in America and are focused on providing our guests an excellent dining experience through consistency of execution.

Our business is highly sensitive to changes in guest traffic. Increases and decreases in guest traffic can have a significant impact on our financial results. In recent years, we have faced and we continue to face uncertain economic conditions, which have resulted in changes to our guests' discretionary spending. To adjust to this decrease in guest spending, we have focused on controlling product margins and costs while maintaining our high standards for food quality and service and enhancing our guests' dining experience. We have worked with our distributors and suppliers to control commodity costs, become more efficient with the use of our employee base and found new ways to improve efficiencies across our company. We have increased our electronic advertising, social media communication and public relations activities in order to bring new guests to our restaurants and keep loyal guests coming back to grow our revenues. Additionally, we have focused resources on highlighting our menu items and promoting our non-entrée selections such as appetizers, desserts and beverages as part of our efforts to drive higher sales volumes at our restaurants.

Results of Operations

Thirteen Weeks Ended June 30, 2013 Compared to the Thirteen Weeks Ended June 24, 2012

The following table sets forth, for the periods indicated, our consolidated statements of operations both on an actual basis and expressed as percentages of revenues.

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                                               Thirteen Weeks Ended
                                      June 30,         % of         June 24,         % of
                                        2013         Revenues         2012         Revenues       Change        % Change
                                                                    (dollars in thousands)
Revenues                              $ 105,622            100 %    $ 102,807            100 %    $ 2,815             2.7 %
Cost and expenses:
Cost of sales                            27,051           25.6 %       26,482           25.8 %        569             2.1 %
Labor                                    36,882           34.9 %       35,267           34.3 %      1,615             4.6 %
Operating                                16,588           15.7 %       15,764           15.3 %        824             5.2 %
Occupancy                                 7,171            6.8 %        6,728            6.5 %        443             6.6 %
General and administrative expenses       5,836            5.5 %        5,688            5.5 %        148             2.6 %
Restaurant preopening costs                 558            0.5 %          811            0.8 %       (253 )         (31.2 )%
Depreciation and amortization             4,962            4.7 %        4,663            4.5 %        299             6.4 %

Total costs and expenses                 99,048           93.8 %       95,403           92.8 %      3,645             3.8 %

Income from operations                    6,574            6.2 %        7,404            7.2 %       (830 )         (11.2 )%
Net interest expense                        284            0.3 %          332            0.3 %        (48 )         (14.5 )%

Income before income taxes                6,290            6.0 %        7,072            6.9 %       (782 )         (11.1 )%
Income tax expense                        1,748            1.7 %        1,952            1.9 %       (204 )         (10.5 )%

Net income                            $   4,542            4.3 %    $   5,120            5.0 %    $  (578 )         (11.3 )%

Certain percentage amounts may not sum due to rounding.

Revenues. Revenues increased $2.8 million, or 2.7%, to $105.6 million for the thirteen weeks ended June 30, 2013, as compared to $102.8 million for the thirteen weeks ended June 24, 2012. The increase of $2.8 million was primarily due to a net additional 71 operating weeks provided by six company owned restaurants opened in the last thirty-nine weeks of 2012, and three new restaurants opened in the first two quarters of 2013, less the operating weeks of three restaurant closures in 2013, two in the first quarter and one in the second quarter. Partially offsetting the effect of the net increase in operating weeks was a decrease in comparable restaurant revenues of 3.0% or $2.8 million, which was driven by a 2.1% decrease in guest counts that decreased comparable revenues by $1.9 million, and a decrease of 0.9% in average check. We consider a restaurant to be part of the comparable revenue base in the first full quarter following the eighteenth month of operations. Additionally, during the second quarter of 2012, we opened one BRIO that we do not own but which we operate pursuant to a management agreement under which we receive a management fee. Other than our receipt of this management fee, the operation of this restaurant has no impact on our financial statements.

For our BRAVO! brand, restaurant revenues decreased $0.5 million, or 1.2%, to $41.1 million for the thirteen weeks ended June 30, 2013 as compared to $41.6 million for the thirteen weeks ended June 24, 2012. Comparable revenues for the BRAVO! brand restaurants decreased 1.6%, or $0.7 million, to $38.9 million for the thirteen weeks ended June 30, 2013 as compared to $39.6 million for the thirteen weeks ended June 24, 2012. This decrease was due to a decrease in guest counts partially offset by an increase in average check. Revenues for BRAVO! brand restaurants not included in the comparable revenue base increased $0.2 million to $2.2 million for the thirteen weeks ended June 30, 2013. At June 30, 2013, there were 44 BRAVO! restaurants included in the comparable revenue base and two BRAVO! restaurants not included in the comparable revenue base.

For our BRIO brand, restaurant revenues increased $3.2 million, or 5.3%, to $64.4 million for the thirteen weeks ended June 30, 2013 as compared to $61.2 million for the thirteen weeks ended June 24, 2012. Comparable revenues for the BRIO brand restaurants decreased 4.0%, or $2.1 million, to $51.4 million for the thirteen weeks ended June 30, 2013 as compared to $53.5 million for the thirteen weeks ended June 24, 2012. This decrease was due to a decrease in guest counts as well as in average check. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $5.3 million to $13.0 million for the thirteen weeks ended June 30, 2013. At June 30, 2013, there were 42 BRIO restaurants included in the comparable revenue base and 14 BRIO restaurants not included in the comparable revenue base.

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Cost of Sales. Cost of sales increased approximately $0.6 million, or 2.1%, to $27.1 million for the thirteen weeks ended June 30, 2013, as compared to $26.5 million for the thirteen weeks ended June 24, 2012. As a percentage of revenues, cost of sales decreased to 25.6% for the thirteen weeks ended June 30, 2013, from 25.8% for the thirteen weeks ended June 24, 2012. The decrease in cost of sales, as a percentage of revenues, was primarily the result of a favorable change in our menu mix as well as a menu price increase, which was partially offset by higher commodity costs for our poultry, seafood and grocery products in 2013 as compared to 2012. As a percentage of revenues, food costs decreased 0.1% to 21.0% but increased in total dollars by $0.5 million. Beverage costs decreased 0.1% as a percentage of revenues to 4.6% but increased in total dollars by $0.1 million. The increase in these costs in total dollars was related to the growth in restaurants in 2013 due to six company owned restaurants opened in the last three quarters of 2012 and three restaurants opened in 2013.

Labor Costs. Labor costs increased $1.6 million, or 4.6%, to $36.9 million for the thirteen weeks ended June 30, 2013, as compared to $35.3 million for the thirteen weeks ended June 24, 2012. As a percentage of revenues, labor costs increased to 34.9% for the thirteen weeks ended June 30, 2013, from 34.3% for the thirteen weeks ended June 24, 2012. These increases were primarily due to the deleveraging resulting from the decrease in our comparable revenues as well as labor inefficiencies associated with the six company owned restaurants opened in the last three quarters of 2012 and three restaurants opened in 2013.

Operating Costs. Operating costs increased $0.8 million, or 5.2%, to $16.6 million for the thirteen weeks ended June 30, 2013, as compared to $15.8 million for the thirteen weeks ended June 24, 2012. This increase was primarily due to a net additional 71 operating weeks in 2013 as compared to 2012 resulting from the six company owned restaurants opened in the last three quarters of 2012 and three restaurants opened in 2013, less the operating weeks of three restaurant closures in 2013, two in the first quarter and one in the second quarter. As a percentage of revenues, operating costs increased to 15.7% for the thirteen weeks ended June 30, 2013, compared to 15.3% for the thirteen weeks ended June 24, 2012. The increase as a percentage of revenues was primarily related to higher advertising costs, repair and maintenance costs and janitorial services as well as the deleveraging resulting from the decrease in comparable sales in the second quarter of 2013 as compared to the same period in the prior year.

Occupancy Costs. Occupancy costs increased approximately $0.5 million, or 6.6%, to $7.2 million for the thirteen weeks ended June 30, 2013, as compared to $6.7 million for the thirteen weeks ended June 24, 2012. The increase was due to the six company owned restaurants opened in the last three quarters of 2012 and three restaurants opened in 2013. As a percentage of revenues, occupancy costs increased to 6.8% for the thirteen weeks ended June 30, 2013 compared to 6.5% for the thirteen weeks ended June 24, 2012 due to the deleveraging resulting from the decrease in comparable sales in the second quarter of 2013 as compared to the same period in the prior year.

General and Administrative. General and administrative expenses increased by $0.1 million, or 2.6%, to $5.8 million for the thirteen weeks ended June 30, 2013, as compared to $5.7 million for the thirteen weeks ended June 24, 2012. The increase in expenses was attributable to higher stock compensation costs due to a stock grant in 2013 as well as a slight increase in professional fees. As a percentage of revenues, general and administrative expenses remained flat at 5.5% for the thirteen weeks ended June 30, 2013 and June 24, 2012.

Restaurant Pre-opening Costs. Pre-opening costs decreased by approximately $0.2 million, to $0.6 million for the thirteen weeks ended June 30, 2013, as compared to $0.8 million for the thirteen weeks ended June 24, 2012. Year over year changes in pre-opening costs are driven by the timing and number of restaurant openings in a given period. During the thirteen weeks ended June 30, 2013, we opened one restaurant and had five additional restaurants under construction. During the thirteen weeks ended June 24, 2012, we opened one restaurant and had four additional restaurants under construction.

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Depreciation and Amortization. Depreciation and amortization expenses increased $0.3 million, to $5.0 million for the thirteen weeks ended June 30, 2013 compared to $4.7 million for the thirteen weeks ended June 24, 2012. As a percentage of revenues, depreciation and amortization expenses increased to 4.7% for the thirteen weeks ended June 30, 2013 as compared to 4.5% for the thirteen weeks ended June 24, 2012. The increase, as a percentage of revenues, was due to the deleveraging resulting from the decrease in comparable sales during the quarter, while the increase in dollars was due to the growth in the number of our restaurants.

Net Interest Expense. Net interest expense slightly decreased to $0.3 million for the thirteen weeks ended June 30, 2013. This decrease was due to lower average outstanding debt during the thirteen weeks ended June 30, 2013 compared to the same period in the prior year.

Income Taxes. Income tax expense was $1.7 million, or 27.8% of income before income taxes, for the thirteen weeks ended June 30, 2013 as compared to $2.0 million, or 27.6% of income before income taxes, for the thirteen weeks ended June 24, 2012. The decrease in the tax expense as a percentage of income before income taxes was due to increased general business credits.

Twenty-Six Weeks Ended June 30, 2013 Compared to the Twenty-Six Weeks Ended
June 24, 2012

The following table sets forth, for the periods indicated, our consolidated
statements of operations both on an actual basis and expressed as percentages of
revenues.



                                              Twenty-Six Weeks Ended
                                      June 30,         % of         June 24,         % of
                                        2013         Revenues         2012         Revenues        Change        % Change
                                                                     (dollars in thousands)
Revenues                              $ 208,685            100 %    $ 201,184            100 %    $  7,501             3.7 %
Cost and expenses:
Cost of sales                            54,015           25.9 %       52,119           25.9 %       1,896             3.6 %
Labor                                    73,464           35.2 %       69,422           34.5 %       4,042             5.8 %
Operating                                32,708           15.7 %       30,663           15.2 %       2,045             6.7 %
Occupancy                                14,006            6.7 %       13,218            6.6 %         788             6.0 %
General and administrative expenses      11,695            5.6 %       11,385            5.7 %         310             2.7 %
Restaurant preopening costs               1,259            0.6 %        2,173            1.1 %        (914 )         (42.1 )%
Depreciation and amortization             9,831            4.7 %        9,076            4.5 %         755             8.3 %

Total costs and expenses                196,978           94.4 %      188,056           93.5 %       8,922             4.7 %

Income from operations                   11,707            5.6 %       13,128            6.5 %      (1,421 )         (10.8 )%
Net interest expense                        601            0.3 %          686            0.3 %         (85 )         (12.4 )%

Income before income taxes               11,106            5.3 %       12,442            6.2 %      (1,336 )         (10.7 )%
Income tax expense                        3,145            1.5 %        3,563            1.8 %        (418 )         (11.7 )%

Net income                            $   7,961            3.8 %    $   8,879            4.4 %    $   (918 )         (10.3 )%

Certain percentage amounts may not sum due to rounding.

Revenues. Revenues increased $7.5 million, or 3.7%, to $208.7 million for the twenty-six weeks ended June 30, 2013, as compared to $201.2 million for the twenty-six weeks ended June 24, 2012. The increase of $7.5 million was primarily due to a net additional 183 operating weeks provided by nine company owned restaurants opened in 2012 and three restaurants opened in 2013, less the operating weeks of three restaurant closures in 2013, two in the first quarter and one in the second quarter. Partially offsetting the effect of the net increase in operating weeks was a decrease in comparable restaurant revenues of 2.7% that decreased revenues by $5.0 million, which was driven by a 2.7% decrease in guest counts. Average check for the first twenty-six weeks of 2013 was flat as compared to the same period in the prior year. Our comparable restaurant revenues for 2013 were negatively impacted due to the shift in our operating calendar as a result of the fifty-third week in fiscal 2012. We consider a restaurant to be part of the comparable revenue base in the first full quarter following the eighteenth month of operations. Additionally, during the second quarter of 2012, we opened one BRIO that we do not own but which we operate pursuant to a management agreement under which we receive a management fee. Other than our receipt of this management fee, the operation of this restaurant has no impact on our financial statements.

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For our BRAVO! brand, restaurant revenues decreased $0.6 million, or 0.7%, to $81.3 million for the twenty-six weeks ended June 30, 2013 as compared to $81.9 million for the twenty-six weeks ended June 24, 2012. Comparable revenues for the BRAVO! brand restaurants decreased 1.6%, or $1.2 million, to $77.2 million for the twenty-six weeks ended June 30, 2013 as compared to $78.4 million for the twenty-six weeks ended June 24, 2012. This decrease was due to a decrease in guest counts partially offset by an increase in average check. Revenues for BRAVO! brand restaurants not included in the comparable revenue base increased $0.6 million to $4.1 million for the twenty-six weeks ended June 30, 2013. At June 30, 2013, there were 44 BRAVO! restaurants included in the comparable revenue base and two BRAVO! restaurants not included in the comparable revenue base.

For our BRIO brand, restaurant revenues increased $8.0 million, or 6.7%, to $127.2 million for the twenty-six weeks ended June 30, 2013 as compared to $119.2 million for the twenty-six weeks ended June 24, 2012. Comparable revenues for the BRIO brand restaurants decreased 3.6%, or $3.7 million, to $101.7 million for the twenty-six weeks ended June 30, 2013 as compared to $105.4 million for the twenty-six weeks ended June 24, 2012. This decrease was due to a decrease in both guest counts and average check during the first twenty-six weeks of 2013. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $11.7 million to $25.5 million for the twenty-six weeks ended June 30, 2013. At June 30, 2013, there were 42 BRIO restaurants included in the comparable revenue base and 14 BRIO restaurants not included in the comparable revenue base.

Cost of Sales. Cost of sales increased approximately $1.9 million, or 3.6%, to $54.0 million for the twenty-six weeks ended June 30, 2013, as compared to $52.1 million for the twenty-six weeks ended June 24, 2012. As a percentage of revenues, cost of sales remained flat at 25.9% for the twenty-six weeks ended June 30, 2013 and June 24, 2012. The increase in commodity costs in 2013 over 2012 was offset by a price increase over the same period. As a percentage of revenues, food costs remained flat at 21.2% but increased in total dollars by $1.6 million. Beverage costs remained flat as a percentage of revenues at 4.7% but increased in total dollars by $0.3 million. The increase in these costs in total dollars was related to growth in the number of our restaurants in 2013 due to the nine company owned restaurants opened in 2012 and the three restaurants opened in the twenty-six weeks ended June 30, 2013.

Labor Costs. Labor costs increased approximately $4.1 million, or 5.8%, to $73.5 million for the twenty-six weeks ended June 30, 2013, as compared to $69.4 million for the twenty-six weeks ended June 24, 2012. As a percentage of revenues, labor costs increased to 35.2% for the twenty-six weeks ended June 30, 2013, from 34.5% for the twenty-six weeks ended June 24, 2012. These increases were primarily due to the deleveraging resulting from the decrease in our comparable revenues as well as labor inefficiencies associated with the nine company owned restaurants opened in 2012 and three new restaurants opened in 2013.

Operating Costs. Operating costs increased $2.0 million, or 6.7%, to $32.7 million for the twenty-six weeks ended June 30, 2013, as compared to $30.7 million for the twenty-six weeks ended June 24, 2012. This increase was mainly due to a net additional 183 operating weeks in 2013 as compared to 2012 resulting from the nine company owned restaurants opened in 2012 and three restaurants opened in the first twenty-six weeks of 2013, less the operating weeks of three restaurant closures in 2013, two in the first quarter and one in the second quarter. As a percentage of revenues, operating costs increased to 15.7% for the twenty-six weeks ended June 30, 2013, compared to 15.2% for the twenty-six weeks ended June 24, 2012. The increase as a percentage of revenues was primarily related to higher repairs and maintenance, advertising costs and janitorial services, as well as the deleveraging from the decrease in comparable sales in the first twenty-six weeks of 2013 as compared to the same period in the prior year.

Occupancy Costs. Occupancy costs increased $0.8 million, or 6.0%, to $14.0 million for the twenty-six weeks ended June 30, 2013, as compared to $13.2 million for the twenty-six weeks ended June 24, 2012. The increase was due to nine company owned restaurants opened in 2012 and three new restaurants opened in the first twenty-six weeks of 2013. As a percentage of revenues, occupancy costs increased to 6.7% for the twenty-six weeks ended June 30, 2013 as compared to 6.6% for the twenty-six weeks ended June 24, 2012.

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Table of Contents

General and Administrative. General and administrative expenses increased by $0.3 million, or 2.7%, to $11.7 million for the twenty-six weeks ended June 30, 2013, as compared to $11.4 million for the twenty-six weeks ended June 24, 2012. The increase in expenses was attributable to higher stock compensation costs due to stock grants in 2012 and 2013 as compared to the prior period. As a percentage of revenues, general and administrative expenses decreased to 5.6% for the twenty-six weeks ended June 30, 2013, from 5.7% for the twenty-six weeks ended June 24, 2012.

Restaurant Pre-opening Costs. Pre-opening costs decreased by approximately $0.9 million, to $1.3 million for the twenty-six weeks ended June 30, 2013, as compared to $2.2 million for the twenty-six weeks ended June 24, 2012. Year over year changes in pre-opening costs are driven by the timing and number of restaurant openings in a given period. During the first twenty-six weeks of 2013, we opened three restaurants and had five additional restaurants under construction. In the first twenty-six weeks of 2012, we opened four restaurants and had four additional restaurants under construction.

Depreciation and Amortization. Depreciation and amortization expenses increased $0.7 million, to $9.8 million for the twenty-six weeks ended June 30, 2013 compared to $9.1 million for the twenty-six weeks ended June 24, 2012. As a percentage of revenues, depreciation and amortization expenses increased to 4.7% for the twenty-six weeks ended June 30, 2013 as compared to 4.5% for the twenty-six weeks ended June 24, 2012. The increase, as a percentage of revenues, was due to the deleveraging resulting from the decrease in comparable sales during the first two quarter of 2013, while the increase in dollars was due to the growth in the number of our restaurants.

Net Interest Expense. Net interest expense decreased $0.1 million to $0.6 million for the twenty-six weeks ended June 30, 2013 as compared to $0.7 million for the twenty-six weeks ended June 24, 2012. This decrease was due to lower average outstanding debt during the first twenty-six weeks of 2013 compared to the same period in the prior year.

Income Taxes. Income tax expense was $3.1 million, or 28.3% of income before income taxes, for the twenty-six weeks ended June 30, 2013 as compared to $3.6 million, or 28.6% of income before income taxes, for the twenty-six weeks ended June 24, 2012. The decrease in the tax expense as a percentage of income before income taxes was due to increased general business credits.

Liquidity

Our principal sources of cash have been net cash provided by operating activities and borrowings under our senior credit facilities. As of June 30, 2013, we had approximately $5.9 million in cash and cash equivalents and approximately $37.4 million of availability under our senior credit facilities (after giving effect to $2.6 million of outstanding letters of credit at June 30, 2013). Our need for capital resources is driven by our restaurant expansion plans, on-going maintenance of our restaurants, investment in our corporate infrastructure and information technology infrastructures. Based on our current real estate development plans, we believe our combined expected cash flows from operations, available borrowings under our senior credit facilities and expected landlord lease incentives will be sufficient to finance our planned capital expenditures and other operating activities in fiscal 2013.

Consistent with many other restaurant and retail chain store operations, we use operating lease arrangements for the majority of our restaurant locations. We believe that these operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner. Currently, operating . . .

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