Stock-Based Compensation

12 Months Ended

Jan. 02, 2024

Share-Based Payment Arrangement [Abstract]

In May of 2023, the Company’s Board of Directors adopted the 2023 Stock Incentive Plan, which was approved at the annual meeting of stockholders on May 16, 2023 (the “2023 Plan”). The 2023 Plan authorizes the grant of non-qualified stock options, incentive stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”) and incentive bonuses to employees, officers, non-employee directors and other service providers, as applicable. The Company’s 2013 Stock Incentive Plan, as amended and restated in May of 2013 was terminated. The 2023 Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Board”) or another committee designated by the Board, or in the absence of any such committee, the Board itself (the “administrator”). Stock options are granted at a price determined by the administrator at an exercise price that is not less than the fair market value of the underlying stock on the date of grant. The administrator may also grant SARs and RSUs with terms determined by the administrator in accordance with the 2023 Plan. All share-based awards (except for RSUs) granted under the 2023 Plan have a life of ten years. Most awards vest ratably over four years; however, some have been granted with different vesting schedules. Of the awards outstanding, none have been granted to non-employees (except those granted to non-employee members of the Board of Directors of the Company) under the 2023 Plan. In 2022, the Company launched the General Manager (“GM”) Equity program which granted RSUs to top performing general managers with a three year cliff vesting. At January 2, 2024, approximately 3.4 million share-based awards were available to be granted under the 2023 Plan.

Stock-based compensation expense is generally recognized on a straight-line basis over the service period of the awards. In 2023, 2022 and 2021, non-cash stock-based compensation expense of $4.3 million, $4.4 million and $4.3 million, respectively, was included in general and administrative expense. As of January 2, 2024, there was $7.2 million of unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over 2.5 years.

The Company has estimated forfeiture rates that average 22% based upon the class of employees receiving stock-based compensation in its calculation of stock-based compensation expense for the year ended January 2, 2024. These estimates are based on historical forfeiture behavior exhibited by employees of the Company.

Stock Options

The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. Expected volatilities are based on the Company’s historical data and implied volatility. The Company uses historical data to estimate expected employee forfeitures of stock options. The expected life of options granted is management’s best estimate using recent and expected transactions. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company did not grant any options in 2023, 2022 or 2021.

A summary of aggregate option award activity under the Plan as of January 2, 2024, and changes during the fiscal year then ended is presented below:


	Awards	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (1) (in thousands)
Outstanding—January 3, 2023	692,605	$	12.36
Granted	—	—
Forfeited or expired	(30,779)	12.72
Exercised	—	—
Outstanding—January 2, 2024	661,826	$	12.36	2.99	$	—
Vested and expected to vest	661,826	$	12.36	2.99	$	—
Exercisable as of January 2, 2024	661,826	$	12.36	2.99	$	—

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(1)Aggregate intrinsic value represents the amount by which fair value of the Company’s stock exceeds the exercise price of the option as of January 2, 2024.

There were no options granted in the years ended January 2, 2024, January 3, 2023 and December 28, 2021. The Company had 34,980, 57,147 and 90,590 options that vested during the years ended January 2, 2024, January 3, 2023 and December 28, 2021, respectively. These awards had a total estimated fair value of $0.1 million, $0.3 million, and $1.1 million at the date of vesting for the years ended January 2, 2024, January 3, 2023 and December 28, 2021, respectively.

Performance Stock Units

The Company grants PSUs to its executive officers under the Plan. These PSU awards are earned over a three-year performance period subject to the achievement of certain target performance conditions. The number of shares eligible to vest ranges from 0% to 200%, however no share shall vest if the defined minimum targets are not met. During fiscal years 2019 to 2022, PSUs were granted based on target performance measures over the Company’s comparable sales growth and Adjusted EBITDA (“Financial PSU”). Additionally, during fiscal years 2021 to 2023, the Company also awarded PSUs based on a total shareholder return based metric (“TSR”), which compares the stock price of the Company’s shares to a group of peer companies.

Each share of the Financial PSUs has a fair value equal to the Company’s stock price at the date of grant while the fair value of each share of TSR is determined using a Monte Carlo valuation model. The Financial PSU stock-based compensation expense is recognized during the three-year period and is adjusted for the number of shares that are expected to vest based on the probability of achieving the targeted performance measures. Stock-based compensation expense for TSR awards is recognized straight-line over the term of the award. PSUs remain unvested until the end of the performance period and through the post-performance holding period of three to six months (“vest date”). For TSR awards, there is a mandatory post-vest holding period of one year. PSUs are forfeited in the event of termination prior to the vest date.

In 2023, the Company recorded a reversal of previously recognized compensation costs due to forfeitures of $0.3 million related to executive officer departures and $0.5 million reversal due to target performance measures not being met. The stock-based compensation expense recognized from the PSUs amounted to $(0.6) million, $0.9 million and $1.5 million during 2023, 2022 and 2021, respectively.

Restricted Stock Units

A summary of the status of the Company’s non-vested restricted stock units as of January 2, 2024 and changes during the year then ended is presented below:


	Awards	Weighted- Average Grant Date Fair Value
Outstanding—January 3, 2023	2,323,674	$	6.45
Granted	2,222,280	4.52
Vested	(793,739)	5.47
Forfeited	(913,450)	6.39
Non-vested at January 2, 2024	2,838,765	$	5.24

The Company had 793,739 restricted stock units that vested during the year ended January 2, 2024. These units had a total estimated fair value of $3.4 million at the date of vesting for the year ended January 2, 2024.