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BBRG > SEC Filings for BBRG > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for BRAVO BRIO RESTAURANT GROUP, INC. | Request a Trial to NEW EDGAR Online Pro

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


7-Nov-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 approach to operations continues to focus on core ways to drive and grow our business. We look for new and different ways to increase our comparable sales through various initiatives. We are constantly identifying new potential sites to expand both of our brands by opening new restaurants in the best possible locations within a development and throughout the country. We will continue to evaluate our existing restaurant base to ensure each location is meeting our standards from both an operational and profitability standpoint. Finally, we explore all of our options in deploying our capital in a way that is best for our shareholders and our business.
Our business is highly sensitive to seasonal fluctuations as historically, the percentage of operating income earned during the fourth quarter has been higher due, in part, to higher restaurant sales during the year-end holiday shopping season. Our business is also highly sensitive to changes in guest traffic and the operating environment continues to be difficult with negative comparable store sales, driven by negative guest traffic, in each of the first three quarters of 2013. 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. 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. Additionally, we continue to promote our light menu to attract guests looking for healthier options in their dining experience.

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Results of Operations
Thirteen Weeks Ended September 29, 2013 Compared to the Thirteen Weeks Ended
September 23, 2012
The following table sets forth, for the periods indicated, our consolidated
statements of operations both on an actual basis and expressed as a percentage
of revenues.
                                                                  Thirteen Weeks Ended
                                                        % of                                 % of
                               September 29, 2013     Revenues      September 23, 2012     Revenues     Change     % Change
                                                                 (dollars in thousands)
Revenues                     $             96,290       100.0 %   $             95,921         100 %   $   369        0.4  %
Cost and expenses:
Cost of sales                              24,620        25.6 %                 25,045        26.1 %      (425 )     (1.7 )%
Labor                                      34,027        35.3 %                 33,528        35.0 %       499        1.5  %
Operating                                  15,796        16.4 %                 15,089        15.7 %       707        4.7  %
Occupancy                                   6,977         7.2 %                  6,230         6.5 %       747       12.0  %
General and administrative
expenses                                    5,471         5.7 %                  5,700         5.9 %      (229 )     (4.0 )%
Restaurant preopening costs                 1,249         1.3 %                  1,442         1.5 %      (193 )    (13.4 )%
Depreciation and
amortization                                5,028         5.2 %                  4,689         4.9 %       339        7.2  %
Total costs and expenses                   93,168        96.8 %                 91,723        95.6 %     1,445        1.6  %
Income from operations                      3,122         3.2 %                  4,198         4.4 %    (1,076 )    (25.6 )%
Net interest expense                          269         0.3 %                    322         0.3 %       (53 )    (16.5 )%
Income before income taxes                  2,853         3.0 %                  3,876         4.0 %    (1,023 )    (26.4 )%
Income tax expense                            604         0.6 %                  1,049         1.1 %      (445 )    (42.4 )%
Net income                   $              2,249         2.3 %   $              2,827         2.9 %   $  (578 )    (20.4 )%

Certain percentage amounts may not sum due to rounding.

Revenues. Revenues increased $0.4 million, or 0.4%, to $96.3 million for the thirteen weeks ended September 29, 2013, as compared to $95.9 million for the thirteen weeks ended September 23, 2012. The increase of $0.4 million was primarily due to a net additional 60 operating weeks provided by five company owned restaurants opened in the last two quarters of 2012, and four new restaurants opened in the first thirty-nine weeks 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 4.5% or $4.0 million, which was driven by a 4.7% decrease in guest counts, partially offset by an increase of 0.2% 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 $1.4 million, or 3.5%, to $37.8 million for the thirteen weeks ended September 29, 2013 as compared to $39.2 million for the thirteen weeks ended September 23, 2012. Comparable revenues for the BRAVO! brand restaurants decreased 3.7%, or $1.4 million, to $36.3 million for the thirteen weeks ended September 29, 2013 as compared to $37.7 million for the thirteen weeks ended September 23, 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 were flat at $1.5 million for the thirteen weeks ended September 29, 2013. At September 29, 2013, there were 45 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 $1.4 million, or 2.6%, to $58.1 million for the thirteen weeks ended September 29, 2013 as compared to $56.7 million for the thirteen weeks ended September 23, 2012. Comparable revenues for the BRIO brand restaurants decreased 5.1%, or $2.6 million, to $49.1 million for the thirteen weeks ended September 29, 2013 as compared to $51.7 million for the thirteen weeks ended September 23, 2012. This decrease was due to a decrease in guest counts as well as a decrease in average check. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $4.0 million to $9.0 million for the thirteen weeks ended September 29, 2013. At September 29, 2013, there

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were 45 BRIO restaurants included in the comparable revenue base and 11 BRIO restaurants not included in the comparable revenue base.

Cost of Sales. Cost of sales decreased approximately $0.4 million, or 1.7%, to $24.6 million for the thirteen weeks ended September 29, 2013, as compared to $25.0 million for the thirteen weeks ended September 23, 2012. As a percentage of revenues, cost of sales decreased to 25.6% for the thirteen weeks ended September 29, 2013, from 26.1% for the thirteen weeks ended September 23, 2012. The decrease in cost of sales, as a percentage of revenues, was primarily the result of a favorable change in our menu mix and a menu price increase, which was partially offset by higher commodity costs for our poultry and seafood in 2013 as compared to 2012. As a percentage of revenues, food costs decreased 0.4% to 21.1% and decreased in total dollars by $0.3 million. Beverage costs decreased 0.1% as a percentage of revenues to 4.5% and decreased in total dollars by $0.1 million. The decrease in these costs in total dollars was related to the decrease in comparable sales in 2013 partially offset by the growth in our restaurant base in 2013 due to five company owned restaurants opened in the last two quarters of 2012 and four restaurants opened in 2013. Labor Costs. Labor costs increased $0.5 million, or 1.5%, to $34.0 million for the thirteen weeks ended September 29, 2013, as compared to $33.5 million for the thirteen weeks ended September 23, 2012. As a percentage of revenues, labor costs increased to 35.3% for the thirteen weeks ended September 29, 2013, from 35.0% for the thirteen weeks ended September 23, 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 five company owned restaurants opened in the last two quarters of 2012 and four restaurants opened in 2013.
Operating Costs. Operating costs increased $0.7 million, or 4.7%, to $15.8 million for the thirteen weeks ended September 29, 2013, as compared to $15.1 million for the thirteen weeks ended September 23, 2012. This increase was primarily due to a net additional 60 operating weeks in 2013 as compared to 2012 resulting from the five company owned restaurants opened in the last two quarters of 2012 and four 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 16.4% for the thirteen weeks ended September 29, 2013, compared to 15.7% for the thirteen weeks ended September 23, 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 third quarter of 2013 as compared to the same period in the prior year.
Occupancy Costs. Occupancy costs increased approximately $0.8 million, or 12.0%, to $7.0 million for the thirteen weeks ended September 29, 2013, as compared to $6.2 million for the thirteen weeks ended September 23, 2012. The increase was due to the five company owned restaurants opened in the last two quarters of 2012 and four restaurants opened in 2013. As a percentage of revenues, occupancy costs increased to 7.2% for the thirteen weeks ended September 29, 2013 compared to 6.5% for the thirteen weeks ended September 23, 2012 due to the deleveraging resulting from the decrease in comparable sales in the third quarter of 2013 as compared to the same period in the prior year.
General and Administrative. General and administrative expenses decreased by $0.2 million, or 4.0%, to $5.5 million for the thirteen weeks ended September 29, 2013, as compared to $5.7 million for the thirteen weeks ended September 23, 2012. The decrease in general and administrative expenses was attributable to lower incentive compensation, partially offset by higher professional fees and higher stock compensation costs due to a stock grant in 2013. As a percentage of revenues, general and administrative expenses decreased to 5.7% for the thirteen weeks ended September 29, 2013 compared to 5.9% for the thirteen weeks ended September 23, 2012.
Restaurant Pre-opening Costs. Pre-opening costs decreased by approximately $0.2 million, to $1.2 million for the thirteen weeks ended September 29, 2013, as compared to $1.4 million for the thirteen weeks ended September 23, 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 September 29, 2013, we opened one restaurant and had four additional restaurants under construction. During the thirteen weeks ended September 23, 2012, we opened three restaurants and had three additional restaurants under construction.

Depreciation and Amortization. Depreciation and amortization expenses increased $0.3 million, to $5.0 million for the thirteen weeks ended September 29, 2013 compared to $4.7 million for the thirteen weeks ended September 23, 2012. As a percentage of revenues, depreciation and amortization expenses increased to 5.2% for the thirteen weeks ended September 29, 2013 as compared to 4.9% for the thirteen weeks ended September 23, 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.

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Net Interest Expense. Net interest expense decreased slightly to $0.3 million for the thirteen weeks ended September 29, 2013. This decrease was due to lower average outstanding debt during the thirteen weeks ended September 29, 2013 compared to the same period in the prior year.
Income Taxes. Income tax expense was $0.6 million, or 21.2% of income before income taxes, for the thirteen weeks ended September 29, 2013 as compared to $1.0 million, or 27.1% of income before income taxes, for the thirteen weeks ended September 23, 2012. The decrease in tax expense as a percentage of income before income taxes was due to increased general business credits.

Thirty-Nine Weeks Ended September 29, 2013 Compared to the Thirty-Nine Weeks
Ended September 23, 2012
The following table sets forth, for the periods indicated, our consolidated
statements of operations both on an actual basis and expressed as a percentage
of revenues.

                                                            Thirty-Nine Weeks Ended
                               September 29,       % of        September 23,       % of
                                   2013          Revenues          2012          Revenues      Change     % Change
                                                             (dollars in thousands)
Revenues                     $       304,975         100 %   $       297,105         100 %   $  7,870        2.6  %
Cost and expenses:
Cost of sales                         78,635        25.8 %            77,164        26.0 %      1,471        1.9  %
Labor                                107,491        35.2 %           102,950        34.7 %      4,541        4.4  %
Operating                             48,504        15.9 %            45,752        15.4 %      2,752        6.0  %
Occupancy                             20,983         6.9 %            19,448         6.5 %      1,535        7.9  %
General and administrative
expenses                              17,166         5.6 %            17,085         5.8 %         81        0.5  %
Restaurant preopening costs            2,508         0.8 %             3,615         1.2 %     (1,107 )    (30.6 )%
Depreciation and
amortization                          14,859         4.9 %            13,765         4.6 %      1,094        7.9  %
Total costs and expenses             290,146        95.1 %           279,779        94.2 %     10,367        3.7  %
Income from operations                14,829         4.9 %            17,326         5.8 %     (2,497 )    (14.4 )%
Net interest expense                     870         0.3 %             1,008         0.3 %       (138 )    (13.7 )%
Income before income taxes            13,959         4.6 %            16,318         5.5 %     (2,359 )    (14.5 )%
Income tax expense                     3,749         1.2 %             4,612         1.6 %       (863 )    (18.7 )%
Net income                   $        10,210         3.3 %   $        11,706         3.9 %   $ (1,496 )    (12.8 )%

Certain percentage amounts may not sum due to rounding.

Revenues. Revenues increased $7.9 million, or 2.6%, to $305.0 million for the thirty-nine weeks ended September 29, 2013, as compared to $297.1 million for the thirty-nine weeks ended September 23, 2012. The increase of $7.9 million was primarily due to a net additional 243 operating weeks provided by nine company owned restaurants opened in 2012 and four 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 3.3% that decreased revenues by $9.1 million, which was driven by a 3.4% decrease in guest counts. Average check for the first thirty-nine weeks of 2013 slightly increased 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.
For our BRAVO! brand, restaurant revenues decreased $2.0 million, or 1.6%, to $119.1 million for the thirty-nine weeks ended September 29, 2013 as compared to $121.1 million for the thirty-nine weeks ended September 23, 2012. Comparable revenues for the BRAVO! brand restaurants decreased 2.3%, or $2.7 million, to $113.4 million for the thirty-nine weeks ended September 29, 2013 as compared to $116.1 million for the thirty-nine weeks ended September 23, 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

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included in the comparable revenue base increased $0.7 million to $5.7 million for the thirty-nine weeks ended September 29, 2013. At September 29, 2013, there were 45 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 $9.5 million, or 5.4%, to $185.4 million for the thirty-nine weeks ended September 29, 2013 as compared to $175.9 million for the thirty-nine weeks ended September 23, 2012. Comparable revenues for the BRIO brand restaurants decreased 4.1%, or $6.4 million, to $150.7 million for the thirty-nine weeks ended September 29, 2013 as compared to $157.1 million for the thirty-nine weeks ended September 23, 2012. This decrease was due to a decrease in guest counts and a decrease in average check during the first thirty-nine weeks of 2013. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $15.9 million to $34.7 million for the thirty-nine weeks ended September 29, 2013. At September 29, 2013, there were 45 BRIO restaurants included in the comparable revenue base and 11 BRIO restaurants not included in the comparable revenue base.
Cost of Sales. Cost of sales increased approximately $1.4 million, or 1.9%, to $78.6 million for the thirty-nine weeks ended September 29, 2013, as compared to $77.2 million for the thirty-nine weeks ended September 23, 2012. As a percentage of revenues, cost of sales decreased to 25.8% for the thirty-nine weeks ended September 29, 2013 as compared to 26.0% for the thirty-nine weeks ended September 23, 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 decreased to 21.1% but increased in total dollars by $1.2 million. Beverage costs, as a percentage of revenues, remained flat at 4.7% but increased in total dollars by $0.2 million. The increase in these costs in total dollars was related to growth in our restaurant base in 2013 due to the nine company owned restaurants opened in 2012 and the four restaurants opened in the thirty-nine weeks ended September 29, 2013.
Labor Costs. Labor costs increased approximately $4.5 million, or 4.4%, to $107.5 million for the thirty-nine weeks ended September 29, 2013, as compared to $103.0 million for the thirty-nine weeks ended September 23, 2012. As a percentage of revenues, labor costs increased to 35.2% for the thirty-nine weeks ended September 29, 2013, from 34.7% for the thirty-nine weeks ended September 23, 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 four new restaurants opened in 2013.
Operating Costs. Operating costs increased $2.7 million, or 6.0%, to $48.5 million for the thirty-nine weeks ended September 29, 2013, as compared to $45.8 million for the thirty-nine weeks ended September 23, 2012. This increase was mainly due to a net additional 243 operating weeks in 2013 as compared to 2012 resulting from the nine company owned restaurants opened in 2012 and four restaurants opened in the first thirty-nine 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 15.9% for the thirty-nine weeks ended September 29, 2013, compared to 15.4% for the thirty-nine weeks ended September 23, 2012. The increase as a percentage of revenues was primarily related to higher repairs and maintenance, utilities, advertising costs and janitorial services, as well as the deleveraging from the decrease in comparable sales in the first thirty-nine weeks of 2013 as compared to the same period in the prior year.
Occupancy Costs. Occupancy costs increased $1.6 million, or 7.9%, to $21.0 million for the thirty-nine weeks ended September 29, 2013, as compared to $19.4 million for the thirty-nine weeks ended September 23, 2012. The increase was due to nine company owned restaurants opened in 2012 and four new restaurants opened in the first thirty-nine weeks of 2013. As a percentage of revenues, occupancy costs increased to 6.9% for the thirty-nine weeks ended September 29, 2013 as compared to 6.5% for the thirty-nine weeks ended September 23, 2012 due to the deleveraging from the decrease in comparable sales in the first thirty-nine weeks 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 0.5%, to $17.2 million for the thirty-nine weeks ended September 29, 2013, as compared to $17.1 million for the thirty-nine weeks ended September 23, 2012. The increase in general and administrative expenses was attributable to higher stock compensation costs due to stock grants in 2012 and 2013 as compared to the prior period and higher professional fees, offset by lower incentive compensation. As a percentage of revenues, general and administrative expenses decreased to 5.6% for the thirty-nine weeks ended September 29, 2013, from 5.8% for the thirty-nine weeks ended September 23, 2012.
Restaurant Pre-opening Costs. Pre-opening costs decreased by approximately $1.1 million, to $2.5 million for the thirty-nine weeks ended September 29, 2013, as compared to $3.6 million for the thirty-nine weeks ended September 23, 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 thirty-nine weeks of 2013, we opened four restaurants and had four additional restaurants under construction. In the first thirty-nine weeks of 2012, we opened seven restaurants and had three additional restaurants under construction. Depreciation and Amortization. Depreciation and amortization expenses increased $1.1 million, to $14.9 million for the thirty-nine weeks ended September 29, 2013 compared to $13.8 million for the thirty-nine weeks ended September 23, 2012. As a

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percentage of revenues, depreciation and amortization expenses increased to 4.9% for the thirty-nine weeks ended September 29, 2013 as compared to 4.6% for the thirty-nine weeks ended September 23, 2012. The increase, as a percentage of revenues, was due to the deleveraging resulting from the decrease in comparable sales during the first thirty-nine weeks of 2013, while the increase in dollars . . .

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