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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 4, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission file number: 1-37473

 

J. Alexander’s Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Tennessee

 

47-1608715

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

3401 West End Avenue, Suite 260

P.O. Box 24300

 

 

Nashville, Tennessee

 

37202

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (615) 269-1900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, par value $0.001 per share

JAX

New York Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No

As of May 17, 2021, 15,090,077 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.  

 

 


 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

3

 

 

 

Item 1. Financial Statements (Unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

 

4

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

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

 

16

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

Item 4. Controls and Procedures

 

30

 

 

 

PART II. OTHER INFORMATION

 

31

 

 

 

Item 1. Legal Proceedings

 

31

 

 

 

Item 1A. Risk Factors

 

31

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

Item 3. Defaults Upon Senior Securities

 

31

 

 

 

Item 4. Mine Safety Disclosures

 

31

 

 

 

Item 5. Other Information

 

31

 

 

 

Item 6. Exhibits

 

32

 

 

 

SIGNATURES

 

33

 

 

 

 

 

 


 

PART I.  FINANCIAL INFORMATION

 

 

Item 1.  Financial Statements

J. Alexander’s Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited in thousands, except share and per share amounts)

 

 

 

April 4,

 

 

January 3,

 

 

 

2021

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,250

 

 

$

12,363

 

Accounts and other receivables

 

 

8,270

 

 

 

8,756

 

Inventories

 

 

2,800

 

 

 

2,538

 

Prepaid expenses and other current assets

 

 

3,498

 

 

 

2,105

 

Total current assets

 

 

29,818

 

 

 

25,762

 

Other assets

 

 

6,215

 

 

 

6,195

 

Property and equipment, at cost, less accumulated depreciation and amortization of $78,141 and $75,327 as of April 4, 2021 and January 3, 2021, respectively

 

 

100,494

 

 

 

102,188

 

Right-of-use lease assets, net

 

 

74,030

 

 

 

72,515

 

Tradename and other indefinite-lived assets

 

 

25,648

 

 

 

25,648

 

Deferred income taxes, net

 

 

4,846

 

 

 

4,627

 

Deferred charges, less accumulated amortization of $403 and $392 as of April 4, 2021 and January 3, 2021, respectively

 

 

173

 

 

 

184

 

Total assets

 

$

241,224

 

 

$

237,119

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,987

 

 

$

5,147

 

Accrued expenses and other current liabilities

 

 

10,281

 

 

 

9,422

 

Unearned revenue

 

 

3,026

 

 

 

3,761

 

Current portion of long-term debt

 

 

7,667

 

 

 

1,667

 

Current portion of lease liabilities

 

 

4,975

 

 

 

5,428

 

Total current liabilities

 

 

30,936

 

 

 

25,425

 

Long-term debt, net of portion classified as current and deferred loan costs

 

 

6,375

 

 

 

12,746

 

Long-term lease liabilities

 

 

80,005

 

 

 

78,968

 

Deferred compensation obligations

 

 

8,113

 

 

 

7,973

 

Other long-term liabilities

 

 

1,888

 

 

 

1,902

 

Total liabilities

 

 

127,317

 

 

 

127,014

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.001 per share: authorized 30,000,000 shares; issued and outstanding of 15,090,077 and 15,070,077 shares as of April 4, 2021 and January 3, 2021, respectively

 

 

15

 

 

 

15

 

Preferred stock, par value $0.001 per share: authorized 10,000,000 shares; no shares issued and outstanding as of April 4, 2021 or January 3, 2021

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

106,327

 

 

 

105,915

 

Retained earnings

 

 

6,007

 

 

 

2,617

 

Total stockholders' equity attributable to J. Alexander's Holdings, Inc.

 

 

112,349

 

 

 

108,547

 

Non-controlling interests

 

 

1,558

 

 

 

1,558

 

Total stockholders' equity

 

 

113,907

 

 

 

110,105

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

241,224

 

 

$

237,119

 

See accompanying Notes to Condensed Consolidated Financial Statements.

3

 


J. Alexander’s Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited in thousands, except per share amounts)

 

 

 

 

Quarter Ended

 

 

 

 

April 4,

 

 

March 29,

 

 

 

 

2021

 

 

2020

 

 

Net sales

 

$

57,375

 

 

$

56,972

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

17,087

 

 

 

18,567

 

 

Restaurant labor and related costs

 

 

16,675

 

 

 

20,338

 

 

Depreciation and amortization of restaurant property and equipment

 

 

2,883

 

 

 

3,094

 

 

Other operating expenses

 

 

11,722

 

 

 

11,954

 

 

Total restaurant operating expenses

 

 

48,367

 

 

 

53,953

 

 

Transaction and other related expenses

 

 

46

 

 

 

689

 

 

General and administrative expenses

 

 

5,153

 

 

 

4,740

 

 

Goodwill impairment

 

 

-

 

 

 

15,737

 

 

Long-lived asset impairment charges and restaurant closing costs

 

 

3

 

 

 

689

 

 

Pre-opening expenses

 

 

445

 

 

 

19

 

 

Total operating expenses

 

 

54,014

 

 

 

75,827

 

 

Operating income (loss)

 

 

3,361

 

 

 

(18,855

)

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(153

)

 

 

(116

)

 

Other, net

 

 

(46

)

 

 

(8

)

 

Total other expense

 

 

(199

)

 

 

(124

)

 

Income (loss) from continuing operations before income taxes

 

 

3,162

 

 

 

(18,979

)

 

Income tax (expense) benefit

 

 

(367

)

 

 

1,387

 

 

Income (loss) from discontinued operations, net

 

 

595

 

 

 

(52

)

 

Net income (loss)

 

$

3,390

 

 

$

(17,644

)

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations, net of tax

 

$

0.19

 

 

$

(1.20

)

 

Income (loss) from discontinued operations, net

 

 

0.04

 

 

 

(0.00

)

 

Basic earnings (loss) per share

 

$

0.23

 

 

$

(1.20

)

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations, net of tax

 

$

0.19

 

 

$

(1.20

)

 

Income (loss) from discontinued operations, net

 

 

0.04

 

 

 

(0.00

)

 

Diluted earnings (loss) per share

 

$

0.23

 

 

$

(1.20

)

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

14,757

 

 

 

14,695

 

 

Diluted

 

 

14,860

 

 

 

14,695

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

3,390

 

 

$

(17,644

)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

Per share amounts may not sum due to rounding.

 

4

 


 

J. Alexander’s Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited in thousands, except share amounts)

 

 

Outstanding

shares

 

 

Common

stock

 

 

Additional

paid-in capital

 

 

Retained

earnings

 

 

Non-controlling

interests

 

 

Total

 

Balances at January 3, 2021

 

 

15,070,077

 

 

$

15

 

 

$

105,915

 

 

$

2,617

 

 

$

1,558

 

 

$

110,105

 

Issuance of restricted stock awards

 

 

20,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

412

 

 

 

-

 

 

 

-

 

 

 

412

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,390

 

 

 

-

 

 

 

3,390

 

Balances at April 4, 2021

 

 

15,090,077

 

 

$

15

 

 

$

106,327

 

 

$

6,007

 

 

$

1,558

 

 

$

113,907

 

 

 

 

Outstanding

shares

 

 

Common

stock

 

 

Additional

paid-in capital

 

 

 

 

Retained

earnings

 

 

Non-controlling

interests

 

 

Total

 

Balances at December 29, 2019

 

 

15,011,676

 

 

$

15

 

 

$

104,056

 

 

 

 

$

25,088

 

 

$

1,558

 

 

$

130,717

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

455

 

 

 

 

 

-

 

 

 

-

 

 

 

455

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

(17,644

)

 

 

-

 

 

 

(17,644

)

Balances at March 29, 2020

 

 

15,011,676

 

 

$

15

 

 

$

104,511

 

 

 

 

$

7,444

 

 

$

1,558

 

 

$

113,528

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

5

 


 

J. Alexander’s Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited in thousands)

 

 

 

Quarter Ended

 

 

 

April 4,

 

 

March 29,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,390

 

 

$

(17,644

)

Adjustments to reconcile net income (loss) to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

2,920

 

 

 

3,146

 

Share-based compensation expense

 

 

412

 

 

 

455

 

Asset impairment charges

 

 

-

 

 

 

16,426

 

Deferred income taxes

 

 

(219

)

 

 

(1,312

)

Other, net

 

 

68

 

 

 

71

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts and other receivables

 

 

486

 

 

 

505

 

Prepaid expenses and other current assets

 

 

(1,393

)

 

 

2,562

 

Accounts payable

 

 

101

 

 

 

(1,685

)

Accrued expenses and other current liabilities

 

 

859

 

 

 

(558

)

Lease right-of-use assets and liabilities

 

 

(931

)

 

 

564

 

Other assets and liabilities, net

 

 

(884

)

 

 

(700

)

Net cash provided by operating activities

 

 

4,809

 

 

 

1,830

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,496

)

 

 

(1,416

)

Other investing activities

 

 

(9

)

 

 

(149

)

Net cash used in investing activities

 

 

(1,505

)

 

 

(1,565

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing under debt agreement

 

 

-

 

 

 

17,000

 

Payments on long-term debt

 

 

(417

)

 

 

(1,250

)

Net cash (used in) provided by financing activities

 

 

(417

)

 

 

15,750

 

Increase in cash and cash equivalents

 

 

2,887

 

 

 

16,015

 

Cash and cash equivalents at beginning of period

 

 

12,363

 

 

 

8,803

 

Cash and cash equivalents at end of period

 

$

15,250

 

 

$

24,818

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Property and equipment obligations accrued at beginning of period

 

$

879

 

 

$

1,116

 

Property and equipment obligations accrued at end of period

 

 

618

 

 

 

1,145

 

Cash paid for interest

 

 

152

 

 

 

93

 

Cash (refunded) paid for income taxes

 

 

(76

)

 

 

30

 

See accompanying Notes to Condensed Consolidated Financial Statements.

6

 


J. Alexander’s Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited, dollars in thousands except per share data)

 

Note 1 – Organization and Business

J. Alexander’s Holdings, Inc. (the “Company”) was incorporated on August 15, 2014 in the state of Tennessee and is a holding company which is the sole managing member of and owns all of the outstanding Class A Units of J. Alexander’s Holdings, LLC, the parent company of all of the Company’s operating subsidiaries. The Company is a publicly-traded company, with its stock listed on the New York Stock Exchange under the symbol “JAX.”

The Company, through J. Alexander’s Holdings, LLC and its subsidiaries, owns and operates full service, upscale restaurants including J. Alexander’s, Redlands Grill, Overland Park Grill, Merus Grill and Stoney River Steakhouse and Grill (“Stoney River”).  At April 4, 2021 and January 3, 2021, the Company operated 47 and 46 restaurants, respectively, in 16 states. The Company’s restaurants are concentrated primarily in the East, Southeast, and Midwest regions of the United States. The Company does not have any restaurants operating under franchise agreements.

Note 2 – Basis of Presentation

 

(a)

Interim Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and the rules and regulations of the United States Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the quarter ended April 4, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2022.  For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2021, filed with the SEC on March 18, 2021, and amended on April 29, 2021 (the “2020 Annual Report”).

Total comprehensive income (loss) is comprised solely of net income (loss) for all periods presented.  There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s 2020 Annual Report.

 

(b)

Effects of COVID-19

The onset of the novel coronavirus (“COVID-19”) pandemic in the first quarter of 2020 resulted in significant disruption to the restaurant industry and adversely affected the Company’s business. In response to the pandemic, many states and local jurisdictions in which the Company operates restaurants issued stay-at-home orders and other measures, including the closure of all in-restaurant dining, aimed at slowing the spread of the virus beginning in March 2020. These measures resulted in the closure of the Company’s dining rooms beginning in mid-March 2020 and a shift to an entirely off-premise operations platform until late April 2020 when certain states began to allow for partial reopening of dining rooms. As a result of the government-mandated restrictions and related public health concerns, the Company’s net sales, results of operations and cash flows were negatively impacted in fiscal 2020, and the impact continued throughout the first quarter of 2021 due to significant reductions in guest counts from capacity restrictions, particularly during January and early February of 2021.  Capacity restrictions averaged approximately 60% of the Company’s total occupancy in its dining rooms and pub area during the first quarter of 2021. While each of the Company’s 47 locations are open for in-restaurant dining as of the date of this report, dining room capacity restrictions remain in place at varying degrees at approximately 40% of the Company’s restaurants, and the remaining locations are operating at full capacity in accordance with their state’s or local government’s guidelines.

 

During the first quarter of 2020, the Company incurred approximately $2,175 of additional costs related primarily to the continuing benefits and payments to furloughed restaurant employees under the Company’s Emergency Sick Leave Policy (“ESLP”) and related payroll taxes. In the first quarter of 2021, the Company incurred approximately $82 related to payments made to employees pursuant to the ESLP and other sick leave benefits and related payroll taxes. Additionally, during the first quarter of 2020 the Company recorded certain impairment charges which are discussed Note 2(k) below.  

7

 


 

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. While optimism is growing with the increasing availability of vaccine options and current positive case trends in the United States, there can be no assurance that state or local authorities will allow dining rooms to remain open even at reduced capacity if there is a surge in cases or variants of COVID-19 in their respective areas.  The extent of the impact of the COVID-19 pandemic on our operations and financial results depends on future developments, and the Company cannot reasonably predict when all of its restaurants will be able to return to normal dining room operations. Due to the rapid development and fluidity of this situation, the Company cannot determine the ultimate impact that the COVID-19 pandemic will have on its consolidated financial condition, liquidity and future results of operations, and therefore, any prediction as to the ultimate material adverse impact on these performance measures is uncertain. The Company does expect that its results of operations, cash flows and liquidity will continue to be negatively affected to some extent by the pandemic, either by ongoing governmental restrictions or lingering impacts on the economy and the labor market, during at least a portion of the remainder of fiscal 2021.

 

(c)

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company as well as the accounts of its subsidiaries.  All intercompany profits, transactions, and balances between the Company and its subsidiaries have been eliminated.  It is the Company’s policy to reclassify prior year amounts to conform to the current year’s presentation for comparative purposes, if such a reclassification is warranted.

The Company is a holding company with no direct operations and that holds as its sole asset an equity interest in J. Alexander’s Holdings, LLC and, as a result, relies on J. Alexander’s Holdings, LLC to provide it with funds necessary to meet its financial obligations.

 

(d)

Fiscal Year

The Company’s fiscal year ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks.  The quarters ended April 4, 2021 and March 29, 2020 each included 13 weeks of operations.  Fiscal year 2021 will include 52 weeks of operations while fiscal year 2020 included 53 weeks of operations.

 

(e)

Discontinued Operations and Restaurant Closures

Income and loss from discontinued operations totaled $595 and $52 for the quarters ended April 4, 2021 and March 29, 2020, respectively. During the first quarter of 2021, the Company entered into a termination agreement related to a lease agreement for a location that was closed in 2013, which has been accounted for as a discontinued operation since that time. As a result of the termination agreement, the Company recorded a gain of approximately $630, representing the difference between recorded lease liabilities and the termination fee paid to the landlord by the Company during the first quarter of 2021. The gain was partially offset by ongoing lease and other exit costs incurred during the first quarter of 2021 prior to the date of the termination agreement. The loss from discontinued operations recorded in the first quarter of 2020 consisted solely of exit and disposal costs related to the Company’s obligations under this same lease agreement.

 

(f)

Transaction and other Related Expenses

Transaction and other related expenses totaled $46 and $689 for the quarters ended April 4, 2021 and March 29, 2020, respectively. During the first quarter of 2021, the Company incurred legal fees related to the Company’s ongoing evaluation of strategic alternatives. Transaction and other related expenses in the first quarter of 2020 included legal fees, other professional fees and consulting fees and were incurred for the same reason.

 

(g)

Earnings (loss) per Share

Basic earnings (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of shares outstanding for the reporting period.  Diluted earnings (loss) per share of common stock is computed similarly to basic earnings (loss) per share except the weighted average shares outstanding are increased to include potential shares outstanding resulting from share-based compensation awards and additional shares from the assumed exercise of any common stock equivalents, if dilutive. In periods of net loss, no potential common shares are included in the diluted shares outstanding as the effect is anti-dilutive. J. Alexander’s Holdings, LLC Class B Units are considered common stock equivalents for this purpose. The number of additional shares of common stock related to these common stock equivalents is

8

 


calculated using the if-converted method, if dilutive. The number of additional shares of common stock related to stock option awards and unvested restricted share awards subject to only a service condition is calculated using the treasury stock method, if dilutive. Unvested restricted share awards that are subject to a performance condition are regarded as contingently issuable common shares and are included in the denominator of the diluted earnings per share calculation using the treasury stock method as of the beginning of the period in which the performance condition has been satisfied, if dilutive.  Refer to Note 3 – Earnings (Loss) per Share for the basic and diluted earnings (loss) per share calculations and additional discussion.

 

(h)

Non-controlling Interests

Non-controlling interests presented on the Condensed Consolidated Balance Sheets represent the portion of net assets of the Company attributable to the non-controlling J. Alexander’s Holdings, LLC Class B Unit holders. As of each of April 4, 2021 and January 3, 2021, the non-controlling interests presented on the Condensed Consolidated Balance Sheets were $1,558 and consist of the previously recognized non-cash compensation expense relative to the Class B Units held by management. The Hypothetical Liquidation at Book Value method was used as of each of April 4, 2021 and March 29, 2020 to determine allocations of non-controlling interests in respect of vested grants consistent with the terms of the Second Amended and Restated LLC Agreement of J. Alexander’s Holdings, LLC, and pursuant to those calculations, no allocation of net income (loss) was made to non-controlling interests for either of the quarters ended April 4, 2021 or March 29, 2020.

 

(i)

Use of Estimates

Management has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods presented to prepare these unaudited Condensed Consolidated Financial Statements in conformity with GAAP.  Significant items subject to such estimates and assumptions include those related to the accounting for gift card breakage, determination of uncertain tax positions and the valuation allowance relative to deferred tax assets, if any, estimates of useful lives of property and equipment and leasehold improvements, the carrying amount of intangible assets, fair market valuations, determination of lease terms, and accounting for impairment losses, contingencies, and litigation. Actual results could differ from these estimates.

 

(j)

Share Repurchase Program

On November 1, 2018, the Company’s Board of Directors authorized a share repurchase program which replaced the previous share repurchase program that expired on October 29, 2018, and allows for the repurchase of shares up to an aggregate purchase price of $15,000 over the three-year period ending November 1, 2021.  Any share repurchases under the current program are expected to be made solely from cash on hand and available operating cash flow.  Repurchases will be made in accordance with applicable securities laws and may be made from time to time in the open market.  The timing, prices and amount of repurchases will depend upon prevailing market prices, general economic and market conditions and other considerations.  The repurchase program does not obligate the Company to acquire any particular amount of stock.  There was no common stock repurchase activity under the program during the first quarters of 2021 or 2020.

 

(k)

Goodwill Impairment and Long-lived Asset Impairment Charges

 

As a result of the decline in the market price of the Company’s common stock that occurred during the first quarter of 2020, the impact of mandated dining room closures on financial results last year, the severe reduction in economic activity that followed, and the general economic and market volatility at the time, the Company determined that these factors constituted an interim triggering event as of the end of the Company’s first quarter of 2020, and performed impairment analyses with regard to its indefinite-lived intangible assets, property and equipment (including its right-of-use assets for operating leases) and goodwill. As a result, the Company recorded asset impairment charges totaling $16,426 in the first quarter of 2020, which included $15,737 related to the full impairment of the carrying amount of goodwill. The goodwill impairment charge is presented as a separate line on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

 

Additionally, during the first quarter of 2020, the Company recorded a long-lived asset impairment charge of $689 related to one location which was subsequently closed and sold during fiscal 2020.  This impairment charge is presented as “Long-lived asset impairment charges and restaurant closing costs” on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

 

9

 


 

The Company assessed its remaining intangible and fixed assets for indicators of impairment as of quarter-end, for both April 4, 2021 and March 29, 2020, and assessed recoverability of certain fixed assets as warranted. No impairment was recorded for the quarter ended April 4, 2021.

Note 3 – Earnings (Loss) per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share:

 

 

Quarter Ended

 

(Dollars and shares in thousands, except per share amounts)

 

April 4,

 

 

March 29,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Income (loss) from continuing operations, net of tax

 

$

2,795

 

 

$

(17,592

)

Income (loss) from discontinued operations, net

 

 

595

 

 

 

(52

)

Net income (loss)

 

$

3,390

 

 

$

(17,644

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares (denominator for basic earnings (loss) per share)

 

 

14,757

 

 

 

14,695

 

Effect of dilutive securities

 

 

103

 

 

 

-

 

Adjusted weighted average shares and assumed conversions

     (denominator for diluted earnings (loss) per share)

 

 

14,860

 

 

 

14,695

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

Income (loss) from continuing operations, net of tax

 

$

0.19

 

 

$

(1.20

)

Income (loss) from discontinued operations, net

 

 

0.04

 

 

 

(0.00

)

Basic earnings (loss) per share

 

$

0.23

 

 

$

(1.20

)

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

Income (loss) from continuing operations, net of tax

 

$

0.19

 

 

$

(1.20

)

Income (loss) from discontinued operations, net

 

 

0.04

 

 

 

(0.00

)

Diluted earnings (loss) per share

 

$

0.23

 

 

$

(1.20

)

 

 

 

 

 

 

 

 

 

Note:  Per share amounts may not sum due to rounding.

 

 

 

 

 

 

 

 

Basic earnings (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of shares outstanding for the reporting period.  Diluted earnings (loss) per share of common stock gives effect during the reporting period to all dilutive potential shares outstanding resulting from share-based compensation awards and additional shares from the assumed exercise of any common stock equivalents, if dilutive. The Company incurred a net loss for the quarter ended March 29, 2020, and therefore, diluted shares outstanding equaled basic shares outstanding.

The J. Alexander’s Holdings, LLC Class B Units are considered common stock equivalents, and the number of additional shares of common stock related to these Class B Units is calculated using the if-converted method.  The 833,346 Class B Units associated with management’s profits interest awards are considered to be antidilutive for the quarter ended April 4, 2021 and, therefore, have been excluded from the diluted earnings per share calculation.

The number of additional shares of common stock related to stock option awards is calculated using the treasury stock method, if dilutive.  There were 1,739,250 and 1,495,750 stock option awards outstanding as of April 4, 2021 and March 29, 2020, respectively. The dilutive impact of the awards outstanding as of April 4, 2021 on the number of weighted average shares in the diluted earnings per share calculation was 56,129.

As of April 4, 2021 and March 29, 2020, there were 281,003 and 264,000 unvested restricted share awards outstanding, respectively, which were subject to only a service condition. The unvested restricted share awards outstanding as of April 4, 2021 include 20,000 awards which were granted by the Company to management on March 3, 2021 at $8.89, the Company’s stock price on the date of grant.  Certain grants of unvested restricted share awards outstanding as of April 4, 2021 were considered dilutive for the quarter, and the impact on the number of weighted average shares in the diluted earnings per share calculation was 47,475.

10

 


As of April 4, 2021 and March 29, 2020, there were 52,500 performance share awards outstanding. The performance condition associated with such awards had not been met at either April 4, 2021 or March 29, 2020, and, therefore, the portion of the awards that had satisfied the applicable service condition as of these dates was excluded from the weighted average shares outstanding for basic earnings (loss) per share calculations.  These awards also did not impact the diluted earnings per share calculation since the performance condition has not yet been satisfied.

Note 4 – Income Taxes

The interim tax provision for the quarter ended April 4, 2021 was prepared on an estimated annual effective rate basis while the interim tax provision for the quarter ended March 29, 2020 was prepared on an actual effective tax rate basis. The Company recognized income tax expense of $367 and income tax benefit of $1,387 for the quarters ended April 4, 2021 and March 29, 2020, respectively.  The net effective tax rate (including the impact of discrete items) for the first quarter of 2021 was 9.8% compared to (7.3)% for the same period in 2020. The factors that caused the net effective tax rate to vary from the federal statutory rate of 21% for the three-month period ended April 4, 2021 primarily related to the impact of the Federal Insurance Contribution Act (“FICA”) tip credit and other miscellaneous items offset by state income taxes and other items. For the three-month period ended March 29, 2020, the factors that caused the net effective tax rate to vary from the federal statutory rate primarily related to the impact of the nondeductible book goodwill impairment charge recorded during the quarter, partially offset by the FICA tip credit, state income taxes, the anticipated carryback of the net operating losses generated during the quarter to prior years, including the impact of the correction of the qualified improvement property regulations on the anticipated carryback, and other items.

Note 5 – Commitments and Contingencies

 

(a)

Contingent Leases

As a result of the disposition of the Company’s predecessor’s Wendy’s operations in 1996, subsidiaries of the Company may remain secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these four leases at April 4, 2021 was approximately $923. In connection with the sale of the Company’s predecessor’s Mrs. Winner’s Chicken & Biscuit restaurant operations in 1989 and certain previous dispositions, subsidiaries of the Company also may remain secondarily liable for one real property lease. The total estimated amount of lease payments remaining on this lease at April 4, 2021 was approximately $237. There have been no payments by subsidiaries of the Company of such contingent liabilities in the history of the Company. Management believes the likelihood of any significant loss is remote.

 

(b)

Tax Contingencies

The Company and its subsidiaries are subject to real property, personal property, business, franchise, income, withholding, unemployment, unclaimed property, sales and use taxes in various jurisdictions within the United States and are regularly under audit by tax authorities.  This is believed to be common for the restaurant industry.  Management believes the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

 

(c)

Litigation Contingencies

The Company and its subsidiaries are defendants from time to time in various claims or legal proceedings arising in the ordinary course of business, including claims relating to workers’ compensation matters, labor-related claims, discrimination and similar matters, claims resulting from guest accidents while visiting a restaurant, claims relating to lease and contractual obligations, federal and state tax matters, and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns, and injury or wrongful death under “dram shop” laws that allow a person to sue the Company and its subsidiaries based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of the Company’s restaurants.

Management does not believe that any of the legal proceedings pending against the Company and its subsidiaries as of the date of this report will have a material adverse effect on the Company’s liquidity, consolidated results of operations or financial condition.  The Company may incur liabilities, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal year, which may adversely affect its consolidated results of operations, or on occasion, receive settlements that favorably affect its consolidated results of operations.

11

 


Note 6 – Fair Value Measurements

As of April 4, 2021 and January 3, 2021, the fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximated their carrying value due to their short-term nature. The carrying amounts of long‑term debt approximate fair value as interest rates and negotiated terms and conditions are consistent with current market rates because of the close proximity of recent refinancing transactions to the dates of these unaudited Condensed Consolidated Financial Statements (Level 2).

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

As discussed in Note 2(k) above, during the first quarter of fiscal year 2020, primarily due to the impacts of the COVID-19 pandemic, the Company determined that a triggering event had occurred requiring an impairment evaluation of its long-lived assets, indefinite‑lived intangible assets and goodwill. As a result of these analyses, the Company recorded a $689 impairment charge related to the long-lived assets at one restaurant location that management determined would be permanently closed and a $15,737 impairment charge related to the Company’s recorded goodwill. The impairment charges were measured based on the amounts by which the carrying values of the assets exceeded their relative fair values. No impairment was recorded for indefinite‑lived intangible assets as their fair values were determined to substantially exceed their carrying values. Fair values for goodwill and long-lived assets that were impaired during the first quarter of 2020 were estimated utilizing a market approach, and fair value estimates for indefinite-lived intangibles were determined based on an income approach. Fair value estimates utilized market participant assumptions reflecting all available information as of the impairment date. The fair value of goodwill was $0 (Level 3) and the impaired restaurant location was sold during the third quarter of 2020. There were no non-financial assets measured at fair value on a non‑recurring basis as of April 4, 2021 or January 3, 2021.

The ultimate severity and longevity of the COVID-19 pandemic is unknown, and, therefore, it is possible that additional impairments could be identified in future periods, and such amounts could be material.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the Company’s financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:

 

 

April 4, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash and cash equivalents *

 

$

112

 

 

$

-

 

 

$

-

 

U.S. government obligations *

 

 

198

 

 

 

-

 

 

 

-

 

Corporate bonds *

 

 

2,227

 

 

 

-

 

 

 

-

 

Mutual and money market funds **

 

 

1,291

 

 

 

-

 

 

 

-

 

Total

 

$

3,828

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 3, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash and cash equivalents *

 

$

81

 

 

$

-

 

 

$

-

 

U.S. government obligations *

 

 

276

 

 

 

-

 

 

 

-

 

Corporate bonds *

 

 

2,241

 

 

 

-

 

 

 

-

 

Mutual and money market funds **

 

 

1,222

 

 

 

-

 

 

 

-

 

Total

 

$

3,820

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* - As held in the Trust (as defined below).

 

 

 

 

 

 

 

 

 

 

 

 

** - As held in the 409a Trust (as defined below).

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents are classified as Level 1 of the fair value hierarchy as they represent cash held in a rabbi trust established under a retirement benefit arrangement with certain of the Company’s current and former officers (the “Trust”).  Cash held in the Trust is invested through an overnight repurchase agreement the investments of which may include U.S. Treasury securities, such as bonds or Treasury bills, and other agencies of the U.S. government.  Such investments are valued using quoted market prices in active markets.

12

 


U.S. government obligations held in the Trust include U.S. Treasury Bonds.  These bonds as well as the corporate bonds listed above are considered to be trading securities and are classified as Level 1 of the fair value hierarchy given their readily available quoted prices in active markets.

At April 4, 2021 and January 3, 2021, the Company held investments in mutual and money market funds classified as trading securities that were also held in a rabbi trust (the “409a Trust”) to support its future obligations to participants of its nonqualified deferred compensation plan, which are carried at fair value based on quoted market prices in active markets for identical assets (Level 1).

There were no transfers between the levels listed above during either of the reporting periods.

Unrealized gains or losses on investments held in either the Trust or the 409a Trust are presented as a component of “Other, net” on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  The assets of both the Trust and the 409a Trust disclosed above are presented as a component of “Other assets” on the Condensed Consolidated Balance Sheets.

Note 7 – Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”).  ASU No. 2016-13 was issued to update the methodology used to measure current expected credit losses (“CECL”). The update applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates.  ASU No. 2016-13 must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The effective date relative to smaller reporting companies is for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU No. 2016-13 to have a material impact on its unaudited Condensed Consolidated Financial Statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). ASU No. 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, amending the interim-period accounting for enacted changes in tax law and amending the requirements related to the accounting for “hybrid” tax regimes. This standard is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. The Company adopted this guidance at the beginning of fiscal year 2021, and it did not have a significant impact on its unaudited Condensed Consolidated Financial Statements and related disclosures.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarified the guidance issued in March 2020, ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.  These updates provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.  The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.  An entity may elect to apply the amendments for contract modifications by the impacted ASC topic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued through December 31, 2022. Once elected for an ASC topic, the amendments must be applied prospectively for all eligible contract modifications for that ASC topic. The Company continues to assess the potential impact of the amendments on its unaudited Condensed Consolidated Financial Statements and related disclosures and has not adopted any of the transition relief available under the new guidance as of April 4, 2021.

13

 


Note 8 – Net Sales

The following table presents the Company’s net sales disaggregated by source for the periods presented:

 

Quarter Ended

 

 

April 4,

 

 

March 29,

 

 

2021

 

 

2020

 

Restaurant

$

57,128

 

 

$

56,744

 

Gift card breakage

 

247

 

 

 

228

 

Net sales

$

57,375

 

 

$

56,972

 

 

The Company recognized revenue associated with gift cards redeemed by guests of $1,059 and $1,434 during the quarters ended April 4, 2021 and March 29, 2020, respectively. Further, of the amounts that were redeemed during the quarters ended April 4, 2021 and March 29, 2020, $876 and $1,263, respectively, were recorded within unearned revenue at the beginning of each respective fiscal year.  Unearned revenue increased by $571 and $541 during the quarters ended April 4, 2021 and March 29, 2020, respectively, as a result of gift cards sold.

Note 9 – Leases

As of April 4, 2021, the Company was party to 30 separate operating leases for real estate under which it currently operates its restaurants and has its corporate office space. The Company commenced operations at its new Redlands Grill location in San Antonio, Texas, on March 29, 2021. Additionally, the Company took possession of a new restaurant property during the quarter, which is currently under construction in Madison, Alabama, and the J. Alexander’s location is slated to open during the fourth quarter of 2021. As a result, the Company recorded a ROU asset in exchange for a new lease liability of $2,683. Further, in the first quarter of 2021, the Company entered into a termination agreement for a lease to which it remained a party for a previously closed location. This lease was originally set to expire in August 2023, and, as a result of the termination agreement, the Company derecognized the remaining liability associated with this lease totaling $1,196. The Company is also party to one equipment operating lease.

The Company modified certain of its leases during fiscal year 2020 for matters unrelated to the COVID-19 pandemic and updated the ROU assets, lease liabilities and related incremental borrowing rates as required.

During fiscal year 2020, the Company was granted COVID-19 related rent concessions for certain of its restaurant locations and for its corporate office. The Company elected to account for lease concessions resulting directly from COVID-19 as though the enforceable rights and obligations to the concessions existed in the respective agreements at lease inception and did not account for the concessions as lease modifications, unless the concession resulted in a substantial increase in the Company’s obligations, taking into consideration the guidance issued by the FASB in its Staff question-and-answer document regarding rent concessions related to the effects of the COVID-19 pandemic.

The cash paid during the first quarter of 2021 for amounts included in the measurement of lease liabilities totaled $3,048.

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows:

 

 

April 4,

 

 

 

2021

 

2021  (1)

 

$

7,253

 

2022

 

 

9,381

 

2023

 

 

9,557

 

2024

 

 

9,547

 

2025

 

 

8,863

 

2026 and thereafter

 

 

92,927

 

Total minimum lease payments

 

 

137,528

 

Less: Imputed interest  (2)

 

 

52,548

 

Present value of lease liabilities

 

$

84,980

 

(1)  Excluding the 13 weeks ended April 4, 2021

14

 


 

(2) Amount necessary to reduce net minimum lease payments to present value calculated using the Company’s incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of Topic 842) or lease inception or modification date (for those leases entered into or modified after the adoption date).

Note 10 – Subsequent Events

In April 2021, the Company voluntarily repaid a total of $6,000 outstanding on its lines of credit, which is presented as a component of the current portion of long-term debt balance on the Condensed Consolidated Balance Sheet as of April 4, 2021. All of the repaid amounts may be borrowed again. After the repayment, the Company has access to available lines of credit totaling $31,000.

15

 


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

Cautionary Statement Regarding Forward-Looking Statements

J. Alexander’s Holdings, Inc. (also referred to herein as the “Company”, “we”, “us” or “our”) cautions that certain information contained or incorporated by reference in this report and our other filings with the United States Securities and Exchange Commission (the “SEC”), in our press releases and in statements made by or with the approval of authorized personnel is forward-looking information that involves risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements contained herein. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business.  Forward-looking statements are typically identified by words or phrases such as “may,” “will,” “would,” “can,” “should,” “likely,” “anticipate,” “potential,” “estimate,” “pro forma,” “continue,” “expect,” “project,” “intend,” “seek,” “plan,” “believe,” “target,” “outlook,” “forecast,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.  Forward-looking statements include all statements that do not relate solely to historical or current facts, including statements regarding our expectations, intentions or strategies and regarding the future, including the impact of the novel coronavirus (“COVID-19”) pandemic on our operations, operating the Company’s restaurants at increased capacities, consumer demand, the Company’s sales, off-premise sales, cash position, cost containment efforts, liquidity, input costs, results of operations, new restaurant openings and the Company’s plans to continue its review of strategic alternatives.  We expressly disclaim any intent or obligation to update these forward-looking statements.  Other risks, uncertainties and factors which could affect actual results include, but are not limited to:

 

the health and financial effects of the COVID-19 pandemic;

 

our ability to keep our restaurants open for in-person dining, and to reestablish and maintain satisfactory guest count levels and maintain or increase sales and operating margins in our restaurants under varying economic conditions;

 

the impact of surges in positive COVID-19 cases and new variant strains of COVID-19 on our operations, including potential future governmental mandates that could result in restaurant closures or suspension of or capacity restrictions on dine-in services and our ability to staff our restaurants while adhering to quarantine guidelines;

 

the effect of higher commodity prices, unemployment and other economic factors on consumer demand as a result of COVID-19 or otherwise;

 

increases in food input costs or product/supply shortages and our response to them, including those related to COVID-19;

 

the impact of shortages, interruptions and price fluctuations on our ability to obtain ingredients from our limited number of suppliers;

 

our ability to comply with financial covenants under our loan agreement and to borrow available amounts under our lines of credit; 

 

the impact of, and our ability to pursue, any potential strategic alternatives in light of the impact of the COVID-19 pandemic;

 

the impact of pandemics, such as outbreaks of viruses, foodborne illnesses or other diseases;

 

the impact of, and our ability to adjust to, general economic conditions and changes in consumer preferences;

 

our ability to open new restaurants and operate them profitably, including our ability to locate and secure appropriate sites for restaurant locations, obtain favorable lease terms, attract guests to our restaurants or hire and retain personnel;

 

our ability to obtain financing on favorable terms, or at all;

 

the significant competition we face for guests, real estate and employees;

 

our ability to increase sales and improve operating margins at our existing restaurants;

 

the strain on our infrastructure caused by the implementation of our growth strategy;

 

our ability to successfully transition certain of our existing J. Alexander’s locations to Redlands Grill locations and any other future concept locations;

 

the impact of economic downturns, volatile retail area traffic patterns or other disruptions in markets in which we have revenue or geographic concentrations within our restaurant base;

 

our expectations regarding the seasonality of our business;

 

the impact of adverse weather conditions, including hurricanes, winter weather storms and other weather-related disturbances;

 

our inability to cancel and/or renew leases and the availability of credit to our landlords and other retail center tenants;

 

the impact of negative publicity or damage to our reputation, which could arise from concerns regarding food safety and foodborne illnesses or other matters;

 

the impact of changes in new information and attitudes regarding health and diets;

 

the impact of increases in the price of, and/or reductions in the availability of, commodities, particularly beef and other supply chain items such as carry-out packaging;

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the impact of the loss of key executives and management-level employees;

 

our ability to utilize and manage social media;

 

the impact of proposed and future government regulation and changes in healthcare, labor, including minimum wage rates, leave benefits and other laws;

 

our expectations regarding litigation or other legal proceedings or claims;

 

our ability to enforce our intellectual property rights;

 

the impact of information technology system failures or breaches of our network security;

 

operating and financial restrictions and borrowing available under our loan agreement, our level of indebtedness and any future indebtedness;

 

the impact of any future impairment of our long-lived assets, including tradenames;

 

the impact of any future acquisitions, joint ventures or other initiatives;

 

the impact of store closures, decreased business levels and property damage related to civil disturbances;

 

factors that are under the control of third parties, including governmental agencies; and

 

the other matters found under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” discussed in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021 filed with the SEC on March 18, 2021, as amended on April 29, 2021 (the “2020 Annual Report”) and in subsequent filings.  

These factors should not be construed as exhaustive and should be read with the other cautionary statements in the 2020 Annual Report and this report.  While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results including the economic impact of the ongoing COVID-19 pandemic. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in the 2020 Annual Report and in subsequent filings. All forward-looking statements are expressly qualified in their entirety by these cautionary statements.  You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties.  Forward-looking information provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. We expressly disclaim any intent or obligation to update these forward-looking statements.

Dollar amounts within this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in thousands except for average weekly sales per restaurant, average weekly same store sales per restaurant and average check per guest.

Overview

The Company, as the sole managing member of its subsidiary J. Alexander’s Holdings, LLC, owns and operates complementary upscale dining restaurants including: J. Alexander’s, Redlands Grill, Overland Park Grill, Merus Grill and Stoney River Steakhouse and Grill (“Stoney River”).  For 30 years, J. Alexander’s guests have enjoyed a contemporary American menu, polished service and an attractive ambiance. In February 2013, our team brought our quality and professionalism to the steakhouse category with the addition of the Stoney River concept.  Stoney River provides “white tablecloth” service and food quality in a casual atmosphere at a competitive price. Our Redlands Grill concept offers guests a different version of our contemporary American menu and a distinct architectural design and feel. In 2018, we successfully converted one of our previous J. Alexander’s locations in Kansas to the Overland Park Grill.  In 2019, we opened Merus Grill in Houston, Texas, and, in March 2021, we opened a second location in San Antonio, Texas, under the Redlands Grill concept. Each of these locations offers a contemporary American menu. As of May 17, 2021, we operate 47 restaurants across 16 states. Additionally, we plan to open a J. Alexander’s restaurant in Madison, Alabama, in the fourth quarter of 2021, which is currently under construction.

During the second quarter of 2020, the Company made the decision not to reopen the Lyndhurst Grill location in Cleveland, Ohio, after a review of its projected and historical financial performance. This location was required to be closed in mid-March 2020 due to COVID-19 related traffic limitations unique to that specific restaurant and remained closed. The Company completed the sale of the remaining long-lived assets at this location, including the land and building, during the third quarter of 2020.

Our business plan has evolved over time to include a collection of restaurants dedicated to providing guests with what we believe to be high quality food and beverages, high levels of professional service and a comfortable ambiance. By offering multiple restaurant concepts and utilizing unique non-standardized architecture and specialized menus, we believe we are positioned to continue to scale and grow our overall restaurant business in an efficient manner in urban and affluent suburban areas. We want each of our restaurants to be perceived by our guests as a locally managed, stand-alone dining experience. This differentiation permits us to successfully operate multiple restaurants in the same geographic market.  If this strategy continues to prove successful, we may

17

 


expand beyond our currently existing concepts in the future. Additionally, by further developing our carry-out program in each of our restaurant locations with the same attention to detail taken in our dining rooms, we believe we can both increase frequency of usage by our existing loyal guests and reach a wider array of guests who may prefer this level of service when selecting their dining options. While each restaurant concept operates under a unique trade name, each of our restaurants is identified as a “J. Alexander’s Holdings Restaurant.”

We believe our restaurants deliver on our guests’ desire for freshly-prepared, high-quality food and exemplary service in a restaurant with architecture and design that varies from location to location.  Our financial performance has allowed us to invest significant amounts of capital to drive growth through the continuous improvement of existing locations, the development of plans to open new restaurants, and the hiring of personnel to support our growth plans.  

We plan to execute the following strategies to continue to enhance the awareness of our restaurants, grow our sales and improve our profitability by:

 

leveraging our new carry-out platform to drive off-premise sales both while restrictions in response to the COVID-19 pandemic are in effect and on a long‑term incremental basis;

 

pursuing new restaurant development;

 

increasing our average weekly same store sales through providing high-quality food and service;

 

potentially expanding beyond our current existing restaurant concepts; and

 

improving our margins and leveraging infrastructure.

Our restaurants often have a slower ramp up than many other restaurant groups due to our reliance on repeat business from a relatively small group of guests within each market. Having opened seven restaurants since the beginning of 2016, all of which are at different stages of maturity, our near-term focus will be on building guest traffic and sales at certain of the newer locations while we continue to evaluate promising opportunities for new restaurant development as well as react to the impact of the COVID-19 pandemic on our liquidity and restaurant performance in the near‑term.

The locations operating as a Redlands Grill, Lyndhurst Grill (now closed), Overland Park Grill or Merus Grill restaurant have been included with the J. Alexander’s restaurants’ results of operations, average weekly same store sales calculations and all other applicable disclosures, and, with the J. Alexander’s restaurants, are collectively referred to herein as “J. Alexander’s / Grill” restaurants.

Recent Developments and Trends Impacting our Business

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the United States declared it a national public health emergency.  Since March 2020, we have experienced substantial disruptions in our operations including, but not limited to, temporary restaurant closings, reopening of restaurants at limited capacity, suggested and mandated social distancing and stay-at-home orders, limited staffing and to-go only service in our restaurants. Despite the fact that all of our locations’ dining rooms were allowed to reopen by the end of the second quarter of 2020, the Company continues to be impacted by governmental orders that restrict capacity for several of its restaurants. Throughout the first quarter of 2021, we continued to be impacted by capacity restrictions at varying levels ending the quarter at approximately 75% capacity company-wide. As of the date of this report, approximately 60% of our 47 locations are operating at full capacity. While the population of individuals who have been fully vaccinated against the virus continues to grow, there can be no assurance that state or local authorities will allow dining rooms to operate at full capacity in the near-term. Each of these factors has limited our ability to generate revenue impacting results from operations and cash flows during fiscal 2020 and into the first quarter of 2021 and may continue to do so for an extended period of time depending on the length of the pandemic and how significantly it affects the economy. There is significant uncertainty concerning consumer behavior, including guests’ propensity to spend disposable income or changes in consumer habits due to fear of contracting the virus in public or as a result of unemployment or reduced income. We expect that most of our restaurants will operate on a limited-capacity basis for at least some remaining portion of fiscal 2021. The Company is also closely monitoring the impact of the pandemic on all aspects of its business, including on guests, employees, suppliers, vendors, landlords, distribution channels and other business partners.

As a result of factors noted above, the Company has taken steps to modify its operations, where necessary, including implementing a carry-out program and online ordering platform and reopening dining rooms at a limited capacity in compliance with state and local government guidelines. We have made employee and guest health and safety our first priority as we serve our guests during these uncertain times. The Company intends to continue to actively monitor the evolving situation and may take further actions that alter its business operations that may be required by federal, state or local authorities or that it determines are in the best interests

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of its employees, guests and shareholders.  While we do not know the full future impact COVID-19 will have on our business, we expect to see a continued impact on our results of operations, cash flows and liquidity during at least a portion of the rest of 2021. The remainder of Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses a number of ways our business has been impacted by COVID-19.

Performance Indicators

We use the following key metrics in evaluating our performance:

Same Store Sales.  We include a restaurant in the same store restaurant group starting in the first full accounting period following the 18th month of operations.  Our same store restaurant base consisted of 45 restaurants at April 4, 2021.  Changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time.  This measure highlights the performance of existing restaurants, as the impact of new restaurant openings and closed locations is excluded.

Measuring our same store restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact same store sales including:

 

COVID-19-related capacity restrictions and other effects of the COVID-19 pandemic;

 

consumer recognition of our restaurants and our ability to respond to changing consumer preferences;

 

overall economic trends, particularly those related to consumer spending;

 

our ability to operate restaurants effectively and efficiently to meet guest expectations;

 

off-premise sales volume;

 

pricing;

 

guest traffic;

 

spending per guest and average check amounts;

 

local competition;

 

trade area dynamics; and

 

introduction of new menu items.

Average Weekly Sales.  Average weekly sales per restaurant is computed by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average.  The daily sales average is then multiplied by seven to arrive at average weekly sales per restaurant.  Days on which restaurants are closed for business for any reason other than scheduled closures on Thanksgiving and Christmas are excluded from this calculation. Revenue associated with reduction in liabilities for gift cards which are not redeemed, commonly referred to as gift card breakage, is not included in the calculation of average weekly sales per restaurant.

Average Weekly Same Store Sales.  Average weekly same store sales per restaurant is computed by dividing total restaurant same store sales for the period by the total number of days all same store restaurants were open for the period to obtain a daily sales average.  The daily same store sales average is then multiplied by seven to arrive at average weekly same store sales per restaurant.  Days on which restaurants are closed for business for any reason other than scheduled closures on Thanksgiving and Christmas are excluded from this calculation.  Sales and sales days used in this calculation include only those for restaurants in operation at the end of the period which have been open for more than 18 months.  Gift card breakage is not included in the calculation of average weekly same store sales per restaurant.

Average Check.  Average check is calculated by dividing total restaurant sales by guest counts for a given time period.  Total restaurant sales include food, alcohol and beverage sales. Average check is influenced by menu prices and menu mix.  Management uses this indicator to analyze trends in guests’ preferences, the effectiveness of menu changes and price increases on per guest expenditures.

Average Unit Volume.  Average unit volume consists of the average sales of our restaurants over a certain period of time.  This measure is calculated by multiplying average weekly sales by the relevant number of weeks for the period presented.  This indicator assists management in measuring changes in guest traffic, guest spending patterns, pricing and development of our concepts.

Guest Counts.  Guest counts are measured by the number of entrees sold either for in-restaurant dining or for off-premise dining over a given time period. For purposes of guest count calculations, family pack meals sales are counted as an average of three guests.

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Key Financial Definitions

Net Sales.  Net sales consist primarily of food and beverage sales at our restaurants, net of any discounts, such as management meals and employee meals, associated with each sale.  Net sales are directly influenced by the number of operating weeks in the relevant period, the number of restaurants we operate and same store sales growth.  Gift card breakage is also included in net sales.

Food and beverage costs.  Food and beverage costs is presented net of earned vendor rebates.  Food and beverage costs are generally influenced by the input cost of food and beverage items, distribution costs and menu mix.  The components of food and beverage costs are variable in nature, increase with sales, are subject to increases or decreases based on fluctuations in commodity costs, including beef prices, and depend in part on the controls we have in place to manage costs at our restaurants.

Restaurant Labor and Related Costs.  Restaurant labor and related costs includes restaurant management salaries, hourly staff payroll and other payroll-related expenses, including management bonus expenses, vacation pay, payroll taxes, emergency sick leave pay, fringe benefits and health insurance expenses.

Depreciation and Amortization.  Depreciation and amortization principally includes depreciation on restaurant fixed assets, including equipment and leasehold improvements, and amortization of certain intangible assets for restaurants.  We depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life.  As we open additional restaurants, depreciation and amortization is expected to increase as a result of our increased capital expenditures.

Other Operating Expenses.  Other operating expenses includes china and supplies, laundry and linens, repairs and maintenance, credit card fees, rent, property taxes, insurance, utilities, operating supplies and other restaurant-level related operating expenses.

Pre-opening Expense.  Pre-opening expense consists of expenses incurred prior to opening a new restaurant and include principally manager salaries and relocation costs, payroll and related costs for training new employees, travel and lodging expenses for employees who assist with training new employees, and the cost of food and other expenses associated with practice of food preparation and service activities.  Pre-opening expense also includes rent expense for leased properties for the period of time between taking control of the property and the opening of the restaurant.  

General and Administrative Expenses.  General and administrative expenses consist of costs related to certain corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company growth.  These expenses reflect management, supervisory and staff salaries and employee benefits, non-cash share-based compensation, travel, information systems, training, corporate rent, depreciation of corporate assets, professional and consulting fees, technology and market research.  These expenses include costs associated with being a public company, and we believe such expenses will increase over time in response to our anticipated growth. However, as we are able to leverage these investments made in our people and systems, we expect these expenses to decrease as a percentage of net sales over time.

Interest Expense.  Interest expense consists primarily of interest on our outstanding indebtedness. During periods of restaurant construction, interest expense is capitalized at a rate commensurate with the cost incurred to construct the restaurant. Our debt issuance costs are recorded at cost and are amortized over the lives of the related debt.

Income Tax (Expense) Benefit.  This represents tax expense or benefit related to the taxable income (loss) at the federal, state and local level.

Discontinued Operations.  During a portion of fiscal 2021, we remained a party to a lease for a restaurant that closed in 2013 which we determined met the criteria for classification as discontinued operations.  Expenses related to continuing obligations under this lease agreement are recognized as discontinued operations, net. In March 2021, a termination agreement related to this lease was executed resulting in the recognition of a gain for the first quarter of 2021. The Company does not expect to incur any expense related to this lease going forward.

Seasonality

Our business is subject to seasonal fluctuations.  Historically, the percentage of our annual revenues earned during the first and fourth quarters has been higher due, in part, to increased gift card redemptions, guest traffic and private dining during the year-end holiday season.  In addition, we operate on a 52-week or 53-week fiscal year that ends on the Sunday closest to December 31st. Each quarterly period includes 13 weeks of operations, except for a 53-week year when the fourth quarter has 14 weeks of operations.  

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Fiscal year 2021 is a 52-week year. As many of our operating expenses have a fixed component, our operating income and operating income margins have historically varied from quarter to quarter. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, or for the full fiscal year.

Results of Operations

The following tables set forth, for the periods indicated, (i) the items in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), including our results expressed as a percentage of net sales, and (ii) other selected operating data:

 

 

Quarter Ended

 

 

 

April 4,

 

 

March 29,

 

 

Percent Change

 

(Unaudited, dollars in thousands)

 

2021

 

 

2020

 

 

2021 vs. 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

57,375

 

 

$

56,972

 

 

 

0.7

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

17,087

 

 

 

18,567

 

 

 

(8.0

)

Restaurant labor and related costs

 

 

16,675

 

 

 

20,338

 

 

 

(18.0

)

Depreciation and amortization of restaurant property and equipment

 

 

2,883

 

 

 

3,094

 

 

 

(6.8

)

Other operating expenses

 

 

11,722

 

 

 

11,954

 

 

 

(1.9

)

Total restaurant operating expenses

 

 

48,367

 

 

 

53,953

 

 

 

(10.4

)

Transaction and other related expenses

 

 

46

 

 

 

689

 

 

 

(93.3

)

General and administrative expenses

 

 

5,153

 

 

 

4,740

 

 

 

8.7

 

Goodwill impairment

 

 

-

 

 

 

15,737

 

 

 

(100.0

)

Long-lived asset impairment charges and restaurant closing costs

 

 

3

 

 

 

689

 

 

 

(99.6

)

Pre-opening expenses

 

 

445

 

 

 

19

 

 

 

NCM

 

Total operating expenses

 

 

54,014

 

 

 

75,827

 

 

 

(28.8

)

Operating income (loss)

 

 

3,361

 

 

 

(18,855

)

 

 

NCM

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(153

)

 

 

(116

)

 

 

31.9

 

Other, net

 

 

(46

)

 

 

(8

)

 

 

NCM

 

Total other expense

 

 

(199

)

 

 

(124

)

 

 

60.5

 

Income (loss) from continuing operations before income taxes

 

 

3,162

 

 

 

(18,979

)

 

 

NCM

 

Income tax (expense) benefit

 

 

(367

)

 

 

1,387

 

 

 

NCM

 

Income (loss) from discontinued operations, net

 

 

595

 

 

 

(52

)

 

 

NCM

 

Net income (loss)

 

$

3,390

 

 

$

(17,644

)

 

 

NCM

 

Note:  NCM means not considered meaningful

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As a Percentage of Net Sales

 

Quarter Ended

 

 

 

April 4,

 

 

March 29,

 

 

 

2021

 

 

2020

 

Net sales

 

 

100.0

%

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

29.8

 

 

 

32.6

 

Restaurant labor and related costs

 

 

29.1

 

 

 

35.7

 

Depreciation and amortization of restaurant property and equipment

 

 

5.0

 

 

 

5.4

 

Other operating expenses

 

 

20.4

 

 

 

21.0

 

Total restaurant operating expenses

 

 

84.3

 

 

 

94.7

 

Transaction and other related expenses

 

 

0.1

 

 

 

1.2

 

General and administrative expenses

 

 

9.0

 

 

 

8.3

 

Goodwill impairment

 

 

-

 

 

 

27.6

 

Long-lived asset impairment charges and restaurant closing costs

 

 

0.0

 

 

 

1.2

 

Pre-opening expenses

 

 

0.8

 

 

 

0.0

 

Total operating expenses

 

 

94.1

 

 

 

133.1

 

Operating income (loss)

 

 

5.9

 

 

 

(33.1

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(0.3

)

 

 

(0.2

)

Other, net

 

 

(0.1

)

 

 

(0.0

)

Total other expense

 

 

(0.3

)

 

 

(0.2

)

Income (loss) from continuing operations before income taxes

 

 

5.5

 

 

 

(33.3

)

Income tax (expense) benefit

 

 

(0.6

)

 

 

2.4

 

Income (loss) from discontinued operations, net

 

 

1.0

 

 

 

(0.1

)

Net income (loss)

 

 

5.9

%

 

 

(31.0)

%

 

 

 

 

 

 

 

 

 

Note:  Certain percentage totals do not sum due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurants open at end of period:

 

 

 

 

 

 

 

 

J. Alexander's / Grill Restaurants

 

 

34

 

 

 

33

 

Stoney River Steakhouse and Grill

 

 

13

 

 

 

13

 

 

 

 

 

 

 

 

 

 

Average weekly sales per restaurant:

 

 

 

 

 

 

 

 

J. Alexander's / Grill Restaurants

 

$

105,100

 

 

$

101,500

 

Percent change

 

 

3.5

%

 

 

 

 

Stoney River Steakhouse and Grill

 

$

75,300

 

 

$

72,400

 

Percent change

 

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Average weekly same store sales per restaurant:

 

 

 

 

 

 

 

 

J. Alexander's / Grill Restaurants

 

$

106,600

 

 

$

103,400

 

Percent change

 

 

3.1

%

 

 

 

 

Stoney River Steakhouse and Grill

 

$

75,300

 

 

$

72,400

 

Percent change

 

 

4.0

%

 

 

 

 

Net Sales

Net sales increased by $403, or 0.7%, in the first quarter of 2021 compared to the first quarter of 2020.  The Company’s first quarter 2021 sales were impacted for a variety of reasons including the effects of COVID-19 on our operations, holiday timing and weather-related closures. During March 2020, the Company was forced to close its dining rooms due to state and local mandates in order to mitigate the effect of COVID-19 on the population which led the Company to operate on a carry‑out only model during the last two weeks of the first quarter in 2020. During that time, the Company’s sales were approximately 15% of sales for the same weeks in 2019. During the first quarter of 2021, the Company’s sales continued to be impacted by dining room capacity restrictions at varying levels, and the Company ended the quarter operating at approximately 75% capacity on a company‑wide basis. Additionally, because fiscal 2020 contained 53 weeks of operations, it received the benefit of the Company’s typically higher New Year’s Eve

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holiday sales at the end of the fiscal year as it ended on January 3, 2021. The first quarter of 2021 did not receive that benefit, and management estimates that net sales in the first quarter of 2021 would have been approximately $650 higher if it had included the benefit of the New Year’s Eve week. Further, during February 2021 beginning on Valentine’s Day, the Company closed restaurants in several markets due to severe winter weather conditions, the impact of which totaled to 54 closed days. Management estimates that the net sales lost due to these closures totaled $500 during the first quarter of 2021.

Average weekly same store sales at J. Alexander’s / Grill restaurants for the first quarter of 2021 increased by 3.1% to $106,600, compared to $103,400 in the first quarter of 2020. Average weekly same store sales at Stoney River restaurants for the first quarter of 2021 increased by 4.0% to $75,300 compared to $72,400 in the first quarter of 2020. During the first quarter of 2021, off‑premise sales were approximately 16% of total sales, which represented approximately $720 on average in weekly off-premise sales.

At J. Alexander’s / Grill restaurants, the average check per guest, including alcoholic beverage sales, increased by 10.0% to $36.30 in the first quarter of 2021 from $32.99 in the first quarter of 2020. For the 32 locations in the same store base of restaurants, the average check per guest increased by 10.1% for the first quarter of 2021 relative to the same period of 2020. This increase is primarily due to the price increase implemented during the second half of 2020 discussed below as well as a shift in product mix and new menu offerings. Management estimates that weekly average guest counts decreased by approximately 6.3% in the first quarter of 2021 compared to the same period of 2020, within the same store base of restaurants. On a consolidated basis, management estimates that weekly average guest counts decreased by approximately 6.7% in the first quarter of 2021 compared to the corresponding period of 2020. Each of the guest count decreases noted above can be primarily attributed to limited restaurant operations during the entirety of the first quarter of 2021 compared to only a two-week period in March 2020 caused by the COVID-19 pandemic.

At Stoney River, the average check per guest, including alcoholic beverage sales, increased by 7.7% to $44.97 in the first quarter of 2021 from $41.77 in the first quarter of 2020. This increase is primarily due to the price increase implemented during the second half of 2020 discussed below as well as a shift in product mix and new menu offerings. Management estimates that weekly average guest counts decreased by approximately 3.5% during the first quarter of 2021, compared to the same period of 2020. Similar to the J. Alexander’s / Grill restaurants, the guest count decreases for Stoney River can be primarily attributed to limited restaurant operations during the entirety of the first quarter of 2021 compared to only a two-week period in March 2020 caused by the COVID-19 pandemic.

Restaurant Costs and Expenses

Total restaurant operating expenses decreased to 84.3% of net sales in the first quarter of 2021 from 94.7% of net sales in the first quarter of 2020The decrease in the first quarter of 2021 compared to the corresponding period of 2020 was partially due to higher average weekly same store sales as well as lower food and beverage costs and restaurant labor and related costs and small decreases in other expense categories.

Food and beverage costs decreased to 29.8% of net sales in the first quarter of 2021 from 32.6% of net sales in the first quarter of 2020. In March 2020, selected offerings under the Company’s carry-out program were marketed at a price point intended to quickly move product and, as such, did not reflect margins typical of the Company’s historical menu offerings, thus, driving up food and beverage costs as a percent of net sales. Additionally, during the second half of 2020, the Company took a price increase of 4.1% in August 2020 and implemented a packaging fee of 6% on carry-out sales in October 2020. These price increases helped increase same store sales in the first quarter of 2021 and contributed to the lower food and beverage costs as a percentage of net sales as compared to the prior year. Management estimates that inflation in total food costs was approximately 6.1% in the first quarter of 2021 for J. Alexander’s / Grill restaurants while management estimates that Stoney River restaurants experienced inflation in total food costs of approximately 2.2% in the first quarter of 2021 compared to the same quarter in 2020.

Beef purchases represent the largest component of consolidated food and beverage costs and generally comprise approximately 30% of this expense category. However, during the first three months of 2021, beef costs represented 34% of consolidated food and beverage costs partially due to inflation discussed above and partially due to a product mix shift in our food categories as well as a reduction of alcohol sales and related costs from restrictions on indoor dining and pub capacity. We purchase beef at weekly market prices. Prices paid for beef within the J. Alexander’s / Grill restaurants were higher in the first quarter compared to the same period of 2020 by approximately 11.2%. At Stoney River, prices paid for beef were higher by approximately 5.3% in the first quarter compared to the same period of 2020. Our beef purchases currently remain subject to variable market conditions which the Company closely follows to identify trending pressure on such costs. Should these or other input costs become too impactful on its margins, the Company believes there is currently room to take price increases, if necessary, and will continue to manage rising input costs through its feature program and active menu and recipe management.

23

 


Restaurant labor and related costs totaled 29.1% and 35.7% of net sales in the first quarters of 2021 and 2020, respectively. The decrease noted during the first quarter of 2021 was partially due to the effect of higher same store sales during the first quarter of 2021 compared to the same period in 2020.  Additionally, restaurant labor decreased due to the dining room capacity restrictions that impacted the entirety of the first quarter of 2021 while such restrictions were in place for two weeks during the same period of 2020. Further, in March 2020, the Company incurred additional labor costs associated with the Emergency Sick Leave Policy (“ESLP”), which provided for up to two weeks of paid leave for team members who were either infected by COVID-19 or employed at a restaurant that closed its dining room in response to the COVID-19 pandemic. Under the terms of the ESLP, hourly employees were paid the higher of their normal hourly rate or the federal minimum wage for the average hours worked over the previous eight-week period. This resulted in certain employees receiving the higher federal minimum wage rate who otherwise would have been paid at the tipped minimum wage rate effective within their respective state. During the first quarter of 2020, the Company incurred approximately $2,050 in costs related to continuing benefits, ESLP payments, vacation and other sick leave payments made to its staff members as a result of the COVID-19 pandemic.

Depreciation and amortization of restaurant property and equipment decreased by $211, or 6.8%, for the first quarter of 2021 compared to the corresponding period of 2020. The decrease noted during the first quarter of 2021 relative to the same period in 2020 was partially due to the Lyndhurst Grill restaurant that closed in Cleveland, Ohio, during the second quarter of 2020 resulting in no such expense related to this location in 2021. Further, the Company selectively replaced restaurant equipment during fiscal 2020 as needed in an effort to conserve cash flow. This approach resulted in decreased depreciation being recorded as certain fixed assets remaining in service during the first quarter of 2021 became fully depreciated during fiscal 2020.

Other operating expenses, which include restaurant level expenses such as china and supplies, laundry and linen costs, repairs and maintenance, utilities, credit card fees, rent, property taxes and insurance, totaled 20.4% and 21.0% of net sales in the first quarter of 2021 and 2020, respectively. The decreased expense as a percentage of net sales was a result of higher same store sales compared to the same quarter of 2020. Additionally, we recorded decreased expense associated with utilities, laundry and linens, credit card fees, repairs and maintenance and various other restaurant supplies used in the ordinary course of operations which were largely driven by cost cutting measures previously implemented to conserve cash as well as decreased guest traffic resulting from capacity restrictions in our restaurants. These decreases were partially offset by increases in packaging costs for our carry-out program and personal protective equipment costs for our restaurant employees as well as rent and insurance.

Transaction and Other Related Expenses

Transaction and other related expenses totaled $46 and $689 for the quarters ended April 4, 2021 and March 29, 2020, respectively. During the first quarter of 2021, the Company incurred legal fees related to the ongoing evaluation of strategic alternatives. Transaction and other related expenses in 2020 include legal fees, other professional fees and consulting fees that were incurred for the same reason.

General and Administrative Expenses

Total general and administrative expenses, which include all supervisory costs and expenses, management training and relocation costs, equity compensation expenses and other costs incurred above the restaurant level, increased by $413, or 8.7%, in the first quarter of 2021 compared to the first quarter of 2020. During the first quarter of 2021, the Company recorded increased expense related to incentive compensation, accounting and auditing fees and insurance costs. These increases were partially offset by decreased expense for restaurant management training and corporate salaries along with the associated payroll taxes, travel and employee relocation costs, expenses related to the implementation of human resource information system software that was completed in the prior year and various other miscellaneous costs.

Goodwill Impairment and Long-lived Asset Impairment Charges and Restaurant Closing Costs

During the first quarter of 2020, the Company assessed its recorded goodwill for impairment and determined that the J. Alexander’s / Grill reporting unit’s carrying value exceeded its fair value to such an extent that the full write-off of goodwill in the first quarter of 2020 in the amount of $15,737 was appropriate. The impairment test was performed in response to certain triggering events that occurred during the quarter including a decline in the market price of the Company’s common stock in March 2020, the impact of mandated dining room closures on financial results, the expected reduction in economic activity in the near term, and the general economic and market volatility. The full write-off is presented as a separate line titled “Goodwill impairment charge” on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Additionally, we recorded a long-lived asset impairment charge of $689 to state the assets formerly at the Lyndhurst Grill location in Cleveland, Ohio, at their fair value as of March 29, 2020, which is presented as a component of “Long-lived asset

24

 


impairment charges and restaurant closing costs” on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). During the second quarter of 2020, management made the decision to permanently close this location after a review of its projected and historical financial performance. This location was also required to be temporarily closed in mid-March due to COVID-19-related traffic limitations unique to that specific restaurant which further impacted operating results. The remaining assets at this location were sold during the third quarter of 2020. The Company assessed its remaining intangibles and fixed assets for indicators of impairment as of quarter-end and assessed recoverability of certain fixed assets as warranted. No impairment was recorded for the quarter ended April 4, 2021.

Pre-opening Expenses

For the quarters ended April 4, 2021 and March 29, 2020, pre-opening expenses of $445 and $19, respectively, were recorded. During the first quarter of 2021, the Company recorded pre-opening expenses associated with the new Redlands Grill in San Antonio, Texas. This location commenced operations at the end of March 2021. Similarly, pre-opening expense recorded during the first quarter of 2020 included rent expense associated with this same location, for which we began incurring rent expense after taking possession of the property in March 2020.

Other Income (Expense)

Interest expense increased by $37, or 31.9%, in the first quarter of 2021 compared to the first quarter of 2020 due to an increased debt balance relative to 2020 as a portion of the amount drawn on the Company’s lines of credit in March 2020 remained outstanding throughout the first quarter of 2021.  During March 2020, the Company drew down the remaining $17,000 of available capacity (at the time of the draw) under its credit facilities. In addition, the Company’s interest rate was higher in 2021 relative to the prior year’s first quarter.

Other, net increased by $38 in the first quarter of 2021 compared to the same period in 2020. The increase was primarily related to the market performance of the underlying trading securities held in the “rabbi trust” pursuant to the Salary Continuation Agreements discussed in greater detail below.

Income Taxes

We reported income tax expense of $367 and income tax benefit of $1,387 for the quarters ended April 4, 2021 and March 29, 2020, respectively, reflecting the Company’s federal, state and local income tax liability or benefit, as applicable, for its allocable share of income (loss) of J. Alexander’s Holdings, LLC. The change in recorded income taxes of $1,754 in the first three months of 2021 compared to the same period of 2020 was due, in part, to improved results over the prior year’s first quarter as income from continuing operations before income taxes totaled $3,162 compared to a loss from continuing operations before taxes of $18,979 during the first three months of 2020.  The net effective tax rate (including the impact of discrete items) for the first quarter of 2021 was 9.8% compared to (7.3)% for the same period in 2020. The factors that caused the net effective tax rate to vary from the federal statutory rate of 21% for the three-month period ended April 4, 2021 primarily related to the impact of the Federal Insurance Contribution Act (“FICA”) tip credit and other miscellaneous items offset by state income taxes and other items. For the three-month period ended March 29, 2020, the factors that caused the net effective tax rate to vary from the federal statutory rate primarily related to the impact of the nondeductible book goodwill impairment charge recorded during the quarter, partially offset by the FICA tip credit, state income taxes, the anticipated carryback of the net operating losses generated during the quarter to prior years, including the impact of the correction of the qualified improvement property regulations on the anticipated carryback, and other items.

Discontinued Operations

Income and losses from discontinued operations totaled $595 and $52 for the quarters ended April 4, 2021 and March 29, 2020, respectively. During the first quarter of 2021, the Company entered into a termination agreement related to a lease agreement for a location that was closed in 2013, which has been accounted for as a discontinued operation since that time. As a result of the termination agreement, we recorded a gain of approximately $630, representing the difference between recorded lease liabilities and the lease termination fee paid to the landlord by the Company during the first quarter of 2021. The gain was partially offset by ongoing lease and other exit costs incurred during the first quarter of 2021 prior to the date of the termination agreement. The loss from discontinued operations recorded in the first quarter of 2020 consisted solely of exit and disposal costs related to the Company’s obligations under this same lease agreement.

25

 


LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Company is a holding company and the sole managing member of J. Alexander’s Holdings, LLC.  As such, we control the business and affairs of J. Alexander’s Holdings, LLC and its subsidiaries and consolidate J. Alexander’s Holdings, LLC and subsidiaries into our consolidated financial statements. Our principal sources of cash are cash and cash equivalents on hand, cash flow from operations and available borrowings under our credit facility. As of April 4, 2021, cash and cash equivalents totaled $15,250.

During the first quarter of 2021, our liquidity has been impacted by the government mandated closure of dining rooms in certain states as well as limits on dining capacity in all other states where our restaurants are located in response to the COVID-19 pandemic. Cash flows from operations were significantly reduced at the onset of the dining room closures in March 2020 and throughout the following months until capacity restrictions began to ease. By February 5, 2021, all of our restaurants were permitted to resume in-person dining after a period of time where certain states reverted back to dining room closures in response to a surge in COVID-19 during the fourth quarter of 2020. Certain of our restaurants continue to be subject to varying capacity restrictions depending on their state, and a number of those restrictions remain in place as of May 17, 2021. There can be no assurance that state or local authorities will allow dining rooms to remain open even at reduced capacity if there is a surge in cases of COVID‑19 in those locations. We have continued carry-out services in all of our restaurants. While the Company quickly pivoted to a carry-out model to generate sales when dining room closures began in 2020, this approach inherently limits our guest traffic relative to historical levels. The Company made targeted reductions in spending at its restaurants and within its corporate office to conserve cash, particularly during the early stages of the pandemic. Based on actions taken to date and projected future cash flows, we believe our cash on hand, expected cash flows from operations and available borrowings under the credit facility with our lender will be sufficient to finance our capital expenditures and other operating activities for the next 12 months.

As of May 16, 2021, the Company has cash on hand of approximately $13,400. The Company estimates that it will have adequate liquidity for the next 12 months. Consistent with many other restaurant companies, we use operating lease arrangements for many of our restaurants. We believe that these operating lease arrangements provide appropriate leverage for our capital structure in a financially efficient manner.

Our liquidity may also be adversely affected by a number of factors not specifically addressed above, but are described in detail in the 2020 Annual Report, under the heading “Risk Factors.”

Cash Flows

The table below shows our net cash flows from operating, investing and financing activities for the three-month periods ended April 4, 2021 and March 29, 2020:

 

 

Quarter Ended

 

 

 

April 4,

 

 

March 29,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

Operating activities

 

$

4,809

 

 

$

1,830

 

Investing activities

 

 

(1,505

)

 

 

(1,565

)

Financing activities

 

 

(417

)

 

 

15,750

 

Net increase in cash and cash equivalents

 

$

2,887

 

 

$

16,015

 

Operating Activities.  Net cash flows provided by operating activities totaled $4,809 for the first three months of 2021 compared to $1,830 for the corresponding period of 2020, an increase of $2,979. Our operations generate receipts from customers in the form of cash and cash equivalents, with receivables related to credit card payments considered cash equivalents due to their relatively short settlement period, and the majority of our expenses are paid within a 30-day pay period.  During the first three months of 2021, net sales increased by $384, which excludes the impact of the comparative increase in gift card breakage of $19, relative to the corresponding period of 2020, and total restaurant operating expenses decreased by $5,586 compared to the first three months of 2020, resulting in a net increase to cash flow from operations of approximately $5,970. This increase was offset by the lease termination fee paid during the first quarter of 2021 discussed above in the amount of $565. Further, the Company funded payroll taxes prior to the quarter’s end in 2021 that totaled $949 with no comparable payment occurring in the first quarter of 2020. Lastly, in the first quarter of 2020, the Company received a tenant improvement allowance of $790, and no such payments were received in the first quarter of 2021.

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Investing Activities. Net cash used in investing activities for the first three months of 2021 totaled $1,505 compared to $1,565 in the corresponding period of 2020, with the 2021 use of cash being attributed primarily to the completed construction of one Redlands Grill location that opened in San Antonio, Texas, during the quarter as well as routine additions at other locations. Cash used in investing activities in the first three months of 2020 was attributed primarily to a restaurant remodel as well as routine additions at other locations.  

Financing Activities. Net cash used in financing activities for the first three months of 2021 totaled $417 compared to net cash provided by financing activities of $15,750 in the corresponding period of 2020.  Net cash used in financing activities in the first three months of 2021 included routine debt service payments made during the quarter.  Net cash provided by financing activities in the first three months of 2020 included a $17,000 draw down of the Company’s lines of credit which represented all remaining available balances at the time.  The circumstances surrounding this draw down are discussed in detail below. This amount was partially offset by routine debt payments made during the quarter.

Capital Resources

Long-term Capital Requirements

Our capital requirements are primarily dependent upon the pace of our growth plan and resulting new restaurants. Our growth plan is dependent on many factors, including economic conditions, availability of capital resources, real estate markets, restaurant locations and the nature of lease agreements. Our capital expenditure outlays are also dependent on costs for maintenance in our existing restaurants as well as information technology and other general corporate capital expenditures.

The capital resources required for a new restaurant depend on the concept, the size of the building, the day parts the restaurant will offer and whether the restaurant is a ground-up build-out or a conversion. We estimate development costs, net of landlord contributions and excluding pre-opening costs, will range from $5,000 to $6,000 for a new J. Alexander’s / Grill restaurant or Stoney River location, and anticipate that all new Stoney River restaurants will serve both lunch and dinner. In addition, we expect to spend approximately $700 per restaurant for pre-opening expense including pre-opening rent expense, and expect that such expenses will approximate $1,020 in fiscal year 2021 related to the new locations in San Antonio, Texas, and Madison, Alabama, with $575 expected to be spent in the remainder of 2021.

In addition to new store development, we plan to perform remodels of one J. Alexander’s / Grill restaurant and two Stoney River restaurant during fiscal year 2021 at an average cost of $350.

For 2021, we currently estimate capital expenditure outlays will range between $10,000 and $12,000, net of any tenant incentives and excluding pre-opening costs.  These estimates include the planned opening of two J. Alexander’s / Grill restaurants during 2021 (with the majority of the capital expenditures related to the new San Antonio location already incurred during fiscal 2020, which are not included in the 2021 estimate) as well as capital expenditures incurred in connection with the remodels discussed above, those expenditures necessary to maintain our existing restaurants and outlays for general corporate purposes.

We believe that we can fund such expenditures with cash on hand, cash flows from operations and by the use of our lines of credit as necessary, depending upon the timing of expenditures.

Additional long-term capital requirements include the funding of the Amended and Restated Salary Continuation Agreements (the “Salary Continuation Agreements”) in place with certain current and former officers of the Company.  J. Alexander’s, LLC, the operating subsidiary of J. Alexander’s Holdings, LLC, is obligated to continue funding a “rabbi trust” (previously defined as the “Trust”) under the Salary Continuation Agreements. As of April 4, 2021, the Trust holds $112, $2,425 and $2,333 in cash and cash equivalents, trading securities and aggregate cash surrender value of whole life insurance policies, respectively.  These assets are classified as noncurrent within the Company’s condensed consolidated financial statements. The Company made additional contributions of $75 and $95 to the Trust in fiscal years 2019 and 2018, respectively, and will continue to make additional contributions to the Trust in the future in order to maintain the level of funding required by the Salary Continuation Agreements.

On November 1, 2018, our Board of Directors authorized a share repurchase program which replaced the previous share repurchase program that expired on October 29, 2018 and allows for the repurchase of shares up to an aggregate purchase price of $15,000 over the three-year period ending November 1, 2021. Any share repurchases under the program are expected to be made solely from cash on hand and available operating cash flow. Repurchases will be made in accordance with applicable securities laws and may be made from time to time in the open market.  The timing, prices and amount of repurchases will depend upon prevailing market prices, general economic and market conditions and other considerations.  The repurchase program does not obligate the

27

 


Company to acquire any particular amount of stock. There was no common stock repurchase activity under the program during the first quarter of 2021.

As of April 4, 2021, we have deferred the payment of $3,593 in employer-related social security taxes as permitted by a provision in the Coronavirus Aid, Relief, and Economic Security Act. Employers taking advantage of this provision are required to pay 50% of these funds by December 31, 2021 with the remaining portion payable by December 31, 2022. We intend to fund the first half of this liability by the end of the third quarter of 2021.

Short-term Capital Requirements

Our operations have not historically required significant working capital.  Many companies in the restaurant industry operate with a working capital deficit. Guests pay for their purchases with cash or by credit card at the time of the sale while restaurant operations do not require significant inventories or receivables.  In addition, trade payables for food and beverage purchases and other obligations related to restaurant operations are not typically due for approximately 30 days after the sale takes place. Since requirements for funding accounts receivable and inventories are relatively insignificant, virtually all cash generated by operations is available to meet current obligations. As noted previously, COVID-19 has negatively affected our ability to generate cash flow from operations due to government mandated dining room closures and subsequent seating capacity restrictions and the resulting impact on guest traffic. While the Company has taken, and will continue to take, measures to curtail its spending in step with the reduced cash flow, uncertainty remains as to how long and to what extent dining room capacity in our restaurants will be limited going forward and the level of guest traffic the restaurants will be able to generate once government mandated restrictions are fully lifted. These factors may negatively impact the Company’s working capital for an extended period of time. Our current obligations are to fund purchases of inventory and to make required payroll payments, tax payments, rental payments and to fund other required operating payments such as for insurance, building maintenance, utilities and other items necessary to operate our restaurants. Our working capital deficit totaled $1,118 and $337 as of April 4, 2021 and January 3, 2021, respectively.

Credit Facility

The Company is party to the Fourth Amended and Restated Loan Agreement (the “Fourth Loan Agreement”) with Pinnacle Bank, dated October 28, 2020. The borrower under the Fourth Loan Agreement is J. Alexander’s, LLC, and it is guaranteed by J. Alexander’s Holdings, LLC and all of its significant subsidiaries. The indebtedness outstanding under this Fourth Loan Agreement is secured by liens on certain personal property of the Company and its subsidiaries, subsidiary guarantees, and a mortgage lien on certain real property. The Fourth Loan Agreement, among other things, permits payments of tax dividends to members, restricts liens and encumbrances, restricts dividends, and contains certain other provisions customarily included in such agreements. The Fourth Loan Agreement consists of the following:

 

A $16,000 revolving line of credit, (“Revolving Line of Credit”) that matures on January 1, 2023;

 

A $4,028 term loan (“Mortgage Loan”) that matures on January 1, 2023;

 

A $20,000 development line of credit (“Development Line of Credit”) that matures on January 1, 2023; and

 

A $556 term loan (“Term Loan”) which matured on December 10, 2020.

The current balance of each of these credit facilities is set forth below under “Debt Status and Related Information.”

Interest Rates

Under the Fourth Loan Agreement, each of the Company’s notes bear interest at a rate of 30-day LIBOR plus 2.5%, with a floor for LIBOR of 1.5%, which was set at 4.0% as of April 4, 2021.

Financial Covenants

The financial covenants under the Fourth Loan Agreement require (i) minimum revenue of (a) at least $99,800 for the Company’s fiscal year ended January 3, 2021, (b) at least $118,400 on a four quarter trailing basis by April 4, 2021, and (c) at least $166,800 on a four quarter trailing basis by July 4, 2021 through the maturity date, and (ii) a maximum adjusted debt to tangible net worth ratio of 0.80 or less, measured quarterly beginning September 27, 2020, and (iii) a fixed coverage charge of not less than 1.00 to 1.00 for the period commencing July 5, 2021 through January 2, 2022, and not less than 1.05 to 1.00 beginning on January 3, 2022 through January 1, 2023, or the maturity date.  The fixed charge coverage ratio is defined in the Fourth Loan Agreement as the ratio of (a) the sum of net income (loss) for the applicable period (excluding the effect on such period of any extraordinary or nonrecurring gains or losses, including any asset impairment charges, restaurant closing expenses, changes in valuation allowance for deferred tax

28

 


assets, and non-cash deferred income tax benefits and expenses and up to $1,000 (in the aggregate for the remaining term of the loans) in uninsured losses) plus depreciation and amortization plus interest expense plus rent payments plus non-cash share-based compensation expense plus other non-cash expenses or charges plus expenses associated with a public offering, spin-off, strategic evaluation, or acquisition/merger process regardless of whether such events occur or are delayed minus the greater of either actual store maintenance capital expenditures (excluding major remodeling or image enhancements) or the total number of stores in operation for at least 18 months multiplied by $40 to (b) the sum of interest expense during such period plus rent payments made during such period plus payments of long-term debt and finance lease obligations made during such period, all determined in accordance with U.S. GAAP. Additionally, the Fourth Loan Agreement specifically states that for purposes of the financial covenant calculations, operating leases are not considered indebtedness.

If an event of default shall occur and be continuing under the Fourth Loan Agreement, the commitment under the Fourth Loan Agreement may be terminated and any principal amount outstanding, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable. J. Alexander’s, LLC was in compliance with the applicable financial covenants as of January 3, 2021 and the reporting period subsequent to that date as of April 4, 2021.

The Company projects to be in compliance with each of these financial covenants through the next 12 months.

Debt Status and Related Information

On April 4, 2021, the amounts outstanding under the Development Line of Credit and Revolving Line of Credit were $10,000 and $1,000, respectively, and a total of $25,000 was available to us for borrowing under these lines of credit on this date. As previously noted above, subsequent to quarter-end, the Company voluntarily repaid $5,000 and $1,000 on the outstanding balances of the Development Line of Credit and Revolving Line of Credit, respectively. After the repayment, the Company has access to available lines of credit totaling $31,000. As of April 4, 2021, $3,333 was outstanding under the Mortgage Loan. The Loan Agreement is secured by the real estate, equipment and other personal property of 17 restaurant locations with an aggregate net book value of $37,690 as of April 4, 2021. The Company also capitalizes lender and legal fees as deferred loan costs and amortizes such costs over the respective lives of the loans under the Loan Agreement.  A total of $291 is currently classified as a reduction of long-term debt on the Company’s Condensed Consolidated Balance Sheet as of April 4, 2021.

OFF-BALANCE SHEET ARRANGEMENTS

As of April 4, 2021, we had no financing transactions, arrangements or other relationships with any unconsolidated affiliated entities.  Additionally, we are not a party to any financing arrangements involving synthetic leases or trading activities involving commodity contracts.

CONTINGENT OBLIGATIONS

From 1975 through 1996, the Company’s predecessor operated restaurants in the quick-service restaurant industry.  The discontinuation of these quick-service restaurant operations included disposals of restaurants that were subject to lease agreements which typically contained initial lease terms of 20 years plus two additional option periods of five years each.  In connection with certain of these dispositions, the Company through its subsidiaries may remain secondarily liable for ensuring financial performance as set forth in the original lease agreements.  We can only estimate our contingent liability relative to these leases, as any changes to the contractual arrangements between the current tenant and the landlord subsequent to the assignment are not required to be disclosed to us.  A summary of our estimated contingent liability as of April 4, 2021 is as follows:

Wendy's restaurants (five leases)

 

$

923

 

Mrs. Winner's Chicken & Biscuits restaurants (one lease)

 

 

237

 

Total contingent liability related to assigned leases

 

$

1,160

 

The Company has never been required to pay any such contingent liabilities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those that management believes to be the most significant judgments and estimates used in the preparation of the Company’s Condensed Consolidated Financial Statements.  Judgments or uncertainties regarding the application of these policies could potentially result in materially different amounts being reported under different assumptions and conditions.  

29

 


There have been no material changes to the critical accounting policies previously reported in the Consolidated Financial Statements and footnotes thereto for the fiscal year ended January 3, 2021 included in the 2020 Annual Report.

RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding recent accounting pronouncements may be found in Part I, Financial Information, Item 1. Financial Statements, Notes to Condensed Consolidated Financial Statements, Note 7 – Recent Accounting Pronouncements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

This Item is not applicable to smaller reporting companies.

Item 4.  Controls and Procedures

 

(a)

Evaluation of disclosure controls and procedures. The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this quarterly report, the Company’s disclosure controls and procedures were effective. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

(b)

Changes in internal controls. There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

30

 


 

PART II.  OTHER INFORMATION

The information required by this Item is incorporated by reference from Part I, Financial Information, Item 1. Financial Statements, Notes to Condensed Consolidated Financial Statements, Note 5 (c) Commitments and Contingencies – Litigation Contingencies.

Item 1A. Risk Factors

There have been no material changes with respect to the risk factors disclosed in our 2020 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.


31

 


 

Item 6. Exhibits

Exhibit No.

 

Exhibit Description

 

 

 

3.1

 

Amended and Restated Charter of J. Alexander’s Holdings, Inc., dated September 14, 2015 (Exhibit 3.1 of Current Report on Form 8-K filed September 17, 2015 (File No. 1-37473), is incorporated herein by reference).

 

 

 

3.2

 

Articles of Correction to Amended and Restated Charter of J. Alexander’s Holdings, Inc., dated September 22, 2015 (Exhibit 3.2 of Form S-8 filed November 3, 2015 (File No. 333-207780), is incorporated herein by reference).

 

 

 

3.3

 

Amended and Restated Bylaws of J. Alexander’s Holdings, Inc., dated September 14, 2015 (Exhibit 3.2 of Current Report on Form 8-K filed September 17, 2015 (File No. 1-37473), is incorporated herein by reference).

 

 

 

3.4

 

Amendment No. 1 to Amended and Restated Bylaws of J. Alexander’s Holdings, Inc., dated March 12, 2020 (Exhibit 3.1 of Current Report on Form 8-K filed March 13, 2020 (File No. 1-37473), is incorporated herein by reference).

 

 

 

3.5

 

Second Amended and Restated LLC Agreement of J. Alexander’s Holdings, LLC, dated September 28, 2015 (Exhibit 3.4 of Quarterly Report on Form 10-Q filed November 9, 2015 (File No. 1-37473), is incorporated herein by reference).

 

 

 

31.1

 

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101

  

The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended April 4, 2021, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

 

 

 

104

  

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 4, 2021, formatted in Inline XBRL (included in Exhibit 101).

 

32

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

J. ALEXANDER’S HOLDINGS, INC.

 

 

 

Date: May 18, 2021

 

/s/ Mark A. Parkey

 

 

Mark A. Parkey

 

 

President and Chief Executive Officer
(Principal Executive Officer)

 

 

 

Date: May 18, 2021

 

/s/ Jessica L. Hagler

 

 

Jessica L. Hagler

 

 

Vice President, Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer)

 

 

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