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BBRG > SEC Filings for BBRG > Form 10-Q on 1-Aug-2014All Recent SEC Filings

Show all filings for BRAVO BRIO RESTAURANT GROUP, INC.

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


1-Aug-2014

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 included herein. 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 2013 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 2013 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 quarter of 2013 and the first two quarters of 2014. 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 June 29, 2014 Compared to the Thirteen Weeks Ended June 30,
2013
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
                               June 29, 2014     Revenues      June 30, 2013     Revenues      Change     % Change
                                                             (dollars in thousands)
Revenues                     $       104,455       100.0 %   $       105,622         100 %   $ (1,167 )     (1.1 )%
Cost and expenses:
Cost of sales                         27,251        26.1 %            27,051        25.6 %        200        0.7  %
Labor                                 36,695        35.1 %            36,882        34.9 %       (187 )     (0.5 )%
Operating                             16,265        15.6 %            16,588        15.7 %       (323 )     (1.9 )%
Occupancy                              7,054         6.8 %             7,171         6.8 %       (117 )     (1.6 )%
General and administrative
expenses                               5,910         5.7 %             5,836         5.5 %         74        1.3  %
Restaurant preopening costs              678         0.6 %               558         0.5 %        120       21.5  %
Depreciation and
amortization                           5,035         4.8 %             4,962         4.7 %         73        1.5  %
Total costs and expenses              98,888        94.7 %            99,048        93.8 %       (160 )     (0.2 )%
Income from operations                 5,567         5.3 %             6,574         6.2 %     (1,007 )    (15.3 )%
Net interest expense                     236         0.2 %               284         0.3 %        (48 )    (16.9 )%
Income before income taxes             5,331         5.1 %             6,290         6.0 %       (959 )    (15.2 )%
Income tax expense                     1,359         1.3 %             1,748         1.7 %       (389 )    (22.3 )%
Net income                   $         3,972         3.8 %   $         4,542         4.3 %   $   (570 )    (12.5 )%

Certain percentage amounts may not sum due to rounding.

Revenues. Revenues decreased $1.1 million, or 1.1%, to $104.5 million for the thirteen weeks ended June 29, 2014, as compared to $105.6 million for the thirteen weeks ended June 30, 2013. The decrease of $1.1 million was primarily due to a decrease in comparable restaurant revenues of 5.1% or $5.0 million, which was driven by a 6.2% decrease in guest counts. Partially offsetting the effect of the decrease in comparable guest counts was a net additional 56 operating weeks provided by six company owned restaurants opened in the last three quarters of 2013 and one restaurant opened in the second quarter of 2014; less the operating weeks of three restaurant closures in 2014; and an increase of 1.1% in comparable 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.
For our BRAVO! brand, restaurant revenues decreased $2.0 million, or 5.0%, to $39.1 million for the thirteen weeks ended June 29, 2014 as compared to $41.1 million for the thirteen weeks ended June 30, 2013. Comparable revenues for the BRAVO! brand restaurants decreased 6.0%, or $2.4 million, to $37.5 million for the thirteen weeks ended June 29, 2014 as compared to $39.9 million for the thirteen weeks ended June 30, 2013. 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 $0.4 million to $1.6 million for the thirteen weeks ended June 29, 2014 as compared to $1.2 million for the thirteen weeks ended June 30, 2013. The increase of $0.4 million was primarily due to the opening of one restaurant in the current year. At June 29, 2014, 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 $0.9 million, or 1.3%, to $65.3 million for the thirteen weeks ended June 29, 2014 as compared to $64.4 million for the thirteen weeks ended June 30, 2013. Comparable revenues for the BRIO brand restaurants decreased 4.5%, or $2.7 million, to $55.5 million for the thirteen weeks ended June 29, 2014 as compared to $58.2 million for the thirteen weeks ended June 30, 2013. This decrease was due to a decrease in guest counts as well as a slight decrease in average check. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $3.6 million to $9.8 million for the thirteen weeks ended June 29, 2014 as compared to $6.2 million for the thirteen weeks ended June 30, 2013. At June 29, 2014, there were 49 BRIO restaurants included in the comparable revenue base and nine BRIO restaurants not included in the comparable revenue base.

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Cost of Sales. Cost of sales increased $0.2 million, or 0.7%, to $27.3 million for the thirteen weeks ended June 29, 2014 as compared to $27.1 million for the thirteen weeks ended June 30, 2013. The increase was primarily due to higher commodity costs, principally seafood, which was partially offset by a menu price increase in 2014 as compared to 2013. As a percentage of revenues, cost of sales increased to 26.1% for the thirteen weeks ended June 29, 2014 as compared to 25.6% for the thirteen weeks ended June 30, 2013. The increase in cost of sales, as a percentage of revenues, was primarily due to higher commodity costs. As a percentage of revenues, food costs increased 0.7% to 21.7% for the thirteen weeks ended June 29, 2014 as compared to 21.0% for the thirteen weeks ended June 30, 2013. Beverage costs decreased 0.2% as a percentage of revenues to 4.4% for the thirteen weeks ended June 29, 2014 as compared to 4.6% for the thirteen weeks ended June 30, 2013.
Labor Costs. Labor costs decreased $0.2 million, or 0.5%, to $36.7 million for the thirteen weeks ended June 29, 2014 as compared to $36.9 million for the thirteen weeks ended June 30, 2013. As a percentage of revenues, labor costs increased to 35.1% for the thirteen weeks ended June 29, 2014, from 34.9% for the thirteen weeks ended June 30, 2013. While manager labor, as a percentage of sales, increased due to the deleveraging resulting from the decrease in our comparable revenues, this increase was partially offset by efficiencies in hourly labor.
Operating Costs. Operating costs decreased $0.3 million, or 1.9%, to $16.3 million for the thirteen weeks ended June 29, 2014 as compared to $16.6 million for the thirteen weeks ended June 30, 2013. This decrease was primarily due to lower advertising and supplies costs compared to the same period in the prior year, partially offset by the impact of a net additional 56 operating weeks in 2014 as compared to 2013. As a percentage of revenues, operating costs decreased to 15.6% for the thirteen weeks ended June 29, 2014 as compared to 15.7% for the thirteen weeks ended June 30, 2013. The decrease as a percentage of revenues was due to lower advertising costs and supplies costs that were only partially offset by the decrease in comparable sales in 2014 as compared to the same period in the prior year.
Occupancy Costs. Occupancy costs decreased approximately $0.1 million, or 1.6%, to $7.1 million for the thirteen weeks ended June 29, 2014, as compared to $7.2 million for the thirteen weeks ended June 30, 2013. The decrease was primarily due to the effect of two company owned restaurant closures in the current quarter, which resulted in the accelerated recognition of deferred lease incentives that were substantially offset by restaurant closure costs. The decrease in occupancy costs was further offset by the impact of a net additional 56 operating weeks in 2014 as compared to 2013. As a percentage of revenues, occupancy costs remained flat at 6.8% for the thirteen weeks ended June 29, 2014 as compared to the thirteen weeks ended June 30, 2013.
General and Administrative. General and administrative expenses increased by $0.1 million, or 1.3%, to $5.9 million for the thirteen weeks ended June 29, 2014, as compared to $5.8 million for the thirteen weeks ended June 30, 2013. The increase in expense was attributable to higher compensation costs partially offset by a decrease in professional fees. As a percentage of revenues, general and administrative expenses increased to 5.7% for the thirteen weeks ended June 29, 2014 as compared to 5.5% for the thirteen weeks ended June 30, 2013 due mainly to the deleveraging resulting from the decrease in comparable sales during the quarter.
Restaurant Pre-opening Costs. Pre-opening costs increased by approximately $0.1 million, to $0.7 million for the thirteen weeks ended June 29, 2014, as compared to $0.6 million for the thirteen weeks ended June 30, 2013. 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 29, 2014, we opened one restaurant and had three additional restaurants under construction. During the thirteen weeks ended June 30, 2013, we opened one restaurant and had five additional restaurants under construction.

Depreciation and Amortization. Depreciation and amortization expenses remained flat at $5.0 million for the thirteen weeks ended June 29, 2014 as compared to the thirteen weeks ended June 30, 2013. As a percentage of revenues, depreciation and amortization expenses increased to 4.8% for the thirteen weeks ended June 29, 2014 as compared to 4.7% for the thirteen weeks ended June 30, 2013. The increase, as a percentage of revenues, was due to the deleveraging resulting from the decrease in comparable sales during the quarter. Net Interest Expense. Net interest expense decreased slightly to $0.2 million for the thirteen weeks ended June 29, 2014. This decrease was due to lower average outstanding debt during the thirteen weeks ended June 29, 2014 as compared to the same period in the prior year.
Income Taxes. Income tax expense was $1.4 million, or 25.5% of income before income taxes, for the thirteen weeks ended June 29, 2014 as compared to $1.7 million, or 27.8% of income before income taxes, for the thirteen weeks ended June 30, 2013. The decrease in tax expense as a percentage of income before income taxes was due to the relative impact of the general business credits on lower income before income taxes for the thirteen weeks ended June 29, 2014 as compared to the thirteen weeks ended June 30, 2013.

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Twenty-Six Weeks Ended June 29, 2014 Compared to the Twenty-Six Weeks Ended
June 30, 2013
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.

                                                        Twenty-Six Weeks Ended
                               June 29,       % of        June 30,       % of
                                 2014       Revenues        2013       Revenues      Change     % Change
                                                        (dollars in thousands)
Revenues                     $  207,103         100 %   $  208,685         100 %   $ (1,582 )     (0.8 )%
Cost and expenses:
Cost of sales                    53,761        26.0 %       54,015        25.9 %       (254 )     (0.5 )%
Labor                            73,259        35.4 %       73,464        35.2 %       (205 )     (0.3 )%
Operating                        33,078        16.0 %       32,708        15.7 %        370        1.1  %
Occupancy                        14,468         7.0 %       14,006         6.7 %        462        3.3  %
General and administrative
expenses                         11,648         5.6 %       11,695         5.6 %        (47 )     (0.4 )%
Restaurant preopening costs       1,026         0.5 %        1,259         0.6 %       (233 )    (18.5 )%
Depreciation and
amortization                     10,045         4.9 %        9,831         4.7 %        214        2.2  %
Total costs and expenses        197,285        95.3 %      196,978        94.4 %        307        0.2  %
Income from operations            9,818         4.7 %       11,707         5.6 %     (1,889 )    (16.1 )%
Net interest expense                492         0.2 %          601         0.3 %       (109 )    (18.1 )%
Income before income taxes        9,326         4.5 %       11,106         5.3 %     (1,780 )    (16.0 )%
Income tax expense                2,477         1.2 %        3,145         1.5 %       (668 )    (21.2 )%
Net income                   $    6,849         3.3 %   $    7,961         3.8 %   $ (1,112 )    (14.0 )%

Certain percentage amounts may not sum due to rounding.

Revenues. Revenues decreased $1.6 million, or 0.8%, to $207.1 million for the twenty-six weeks ended June 29, 2014, as compared to $208.7 million for the twenty-six weeks ended June 30, 2013. Comparable restaurant revenues decreased 5.0%, or $9.6 million, which was driven by a 6.9% decrease in guest counts. Partially offsetting the decrease in comparable restaurant revenues and guest counts was a net additional 105 operating weeks provided by eight company owned restaurants opened in 2013 and one restaurant opened in 2014, less the operating weeks of three restaurant closures in the first twenty-six weeks of both 2014 and 2013. Average check for the first twenty-six weeks of 2014 increased 2.4% as compared to the same period in the prior year. We consider a restaurant to be part of the comparable revenue base in the first full quarter following the eighteenth month of operations.
For our BRAVO! brand, restaurant revenues decreased $5.1 million, or 6.3%, to $76.2 million for the twenty-six weeks ended June 29, 2014 as compared to $81.3 million for the twenty-six weeks ended June 30, 2013. Comparable revenues for the BRAVO! brand restaurants decreased 5.8%, or $4.4 million, to $73.3 million for the twenty-six weeks ended June 29, 2014 as compared to $77.7 million for the twenty-six weeks ended June 30, 2013. 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 decreased $0.7 million to $2.9 million for the twenty-six weeks ended June 29, 2014 as compared to $3.6 million for the twenty-six weeks ended June 30, 2013. At June 29, 2014, 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 $3.6 million, or 2.8%, to $130.8 million for the twenty-six weeks ended June 29, 2014 as compared to $127.2 million for the twenty-six weeks ended June 30, 2013. Comparable revenues for the BRIO brand restaurants decreased 4.5%, or $5.2 million, to $110.3 million for the twenty-six weeks ended June 29, 2014 as compared to $115.5 million for the twenty-six weeks ended June 30, 2013. This decrease was due to a decrease in guest counts and a slight decrease in average check during the first twenty-six weeks of 2014. Revenues for BRIO brand restaurants not included in the comparable revenue base increased $8.8 million to $20.5 million for the twenty-six weeks ended June 29, 2014 as compared to $11.8 million for the twenty-six weeks ended June 30, 2013. At June 29, 2014, there were 49 BRIO restaurants included in the comparable revenue base and nine BRIO restaurants not included in the comparable revenue base.
Cost of Sales. Cost of sales decreased approximately $0.2 million, or 0.5%, to $53.8 million for the twenty-six weeks ended June 29, 2014 as compared to $54.0 million for the twenty-six weeks ended June 30, 2013. The decrease was primarily due to

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the decrease in revenues caused by the decrease in comparable sales and the closure of three company owned restaurants in the first twenty-six weeks of both 2014 and 2013; partially offset by a net additional 105 operating weeks in 2014 as compared to 2013. As a percentage of revenues, cost of sales increased to 26.0% for the twenty-six weeks ended June 29, 2014 as compared to 25.9% for the twenty-six weeks ended June 30, 2013. The percentage increase was primarily due to an increase in commodity costs in 2014 over 2013 which was mostly offset by a menu price increase over the same period. As a percentage of revenues, food costs increased 0.2% to 21.4% for the twenty-six weeks ended June 29, 2014 as compared to 21.2% for the twenty-six weeks ended June 30, 2013. Beverage costs, as a percentage of revenues, decreased 0.2% to 4.5% for the twenty-six weeks ended June 29, 2014 as compared to 4.7% for the twenty-six weeks ended June 30, 2013.
Labor Costs. Labor costs decreased approximately $0.2 million, or 0.3%, to $73.3 million for the twenty-six weeks ended June 29, 2014, as compared to $73.5 million for the twenty-six weeks ended June 30, 2013. As a percentage of revenues, labor costs increased to 35.4% for the twenty-six weeks ended June 29, 2014 as compared to 35.2% for the twenty-six weeks ended June 30, 2013, primarily due to the deleveraging resulting from the decrease in our comparable revenues, offset by efficiencies in hourly labor.
Operating Costs. Operating costs increased $0.4 million, or 1.1%, to $33.1 million for the twenty-six weeks ended June 29, 2014, as compared to $32.7 million for the twenty-six weeks ended June 30, 2013. This increase was primarily due to a net additional 105 operating weeks in 2014 as compared to 2013 and increases in utilities (gas) and insurance expense. As a percentage of revenues, operating costs increased to 16.0% for the twenty-six weeks ended June 29, 2014 as compared to 15.7% for the twenty-six weeks ended June 30, 2013. The increase as a percentage of revenues was primarily related to higher repairs and maintenance and utilities, as well as the deleveraging from the decrease in comparable sales in the first twenty-six weeks of 2014 as compared to the same period in the prior year.
Occupancy Costs. Occupancy costs increased $0.5 million, or 3.3%, to $14.5 million for the twenty-six weeks ended June 29, 2014, as compared to $14.0 million for the twenty-six weeks ended June 30, 2013. This increase was primarily due to a net additional 105 operating weeks in 2014 as compared to 2013, partially offset by the net effect of restaurant closures resulting in the accelerated recognition of deferred lease incentives that exceeded restaurant closure costs. As a percentage of revenues, occupancy costs increased to 7.0% for the twenty-six weeks ended June 29, 2014 as compared to 6.7% for the twenty-six weeks ended June 30, 2013 due to the deleveraging from the decrease in comparable sales in the first twenty-six weeks of 2014 as compared to the same period in the prior year.
General and Administrative. General and administrative expenses decreased by $0.1 million, or 0.4%, to $11.6 million for the twenty-six weeks ended June 29, 2014, as compared to $11.7 million for the twenty-six weeks ended June 30, 2013. The decrease in general and administrative expenses was attributable to lower travel and employee relocation costs as compared to the prior period. As a percentage of revenues, general and administrative expenses remained flat at 5.6% for the twenty-six weeks ended June 29, 2014 as compared to the twenty-six weeks ended June 30, 2013.
Restaurant Pre-opening Costs. Pre-opening costs decreased by approximately $0.3 million, to $1.0 million for the twenty-six weeks ended June 29, 2014 as compared to $1.3 million for the twenty-six weeks ended June 30, 2013. 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 2014, we opened one restaurant and had three additional restaurants under construction. In the first twenty-six weeks of 2013, we opened three restaurants and had five additional restaurants under construction.
Depreciation and Amortization. Depreciation and amortization expenses increased $0.2 million, to $10.0 million for the twenty-six weeks ended June 29, 2014 as compared to $9.8 million for the twenty-six weeks ended June 30, 2013. As a percentage of revenues, depreciation and amortization expenses increased to 4.9% for the twenty-six weeks ended June 29, 2014 as compared to 4.7% for the twenty-six weeks ended June 30, 2013. The increase, as a percentage of revenues, was due to the deleveraging resulting from the decrease in comparable sales during the first twenty-six weeks of 2014, 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 $0.5 million for the twenty-six weeks ended June 29, 2014 as compared to $0.6 million for the twenty-six weeks ended June 30, 2013. This decrease was due to lower average outstanding debt during the first twenty-six weeks of 2014 as compared to the same period in the prior year.
Income Taxes. Income tax expense was $2.5 million, or 26.6% of income before income taxes, for the twenty-six weeks ended June 29, 2014 as compared to $3.1 million, or 28.3% of income before income taxes, for the twenty-six weeks ended June 30, 2013. The decrease in tax expense as a percentage of income before income taxes was due to the relative impact of the general business credits on lower income before income taxes for the twenty-six weeks ended June 29, 2014 compared to the twenty-six weeks ended June 30, 2013.

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Liquidity
Our principal sources of cash have been net cash provided by operating activities and borrowings under our senior credit facilities. As of June 29, 2014, we had approximately $5.8 million in cash and cash equivalents and approximately $37.6 million of availability under our senior credit facilities (after giving effect to $2.4 million of outstanding letters of credit at June 29, 2014). 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 . . .

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