Can Red Robin (RRGB) Surprise This Earnings Season? - Analyst Blog

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Colorado-based casual dining restaurant chain Red Robin Gourmet Burgers Inc. RRGB is set to report the first-quarter 2014 results on May 20, 2014, before the opening bell.

Last quarter, the company posted a negative earnings surprise of 5.08%, primarily driven by slightly higher revenues and comps growth. Let's see how things are shaping up for the upcoming announcement.

Factors to Consider This Quarter

Red Robin has been delivering continuous comps sales growth even during the harsh winter months, and we expect the trend to continue in this quarter as well. Higher franchise royalties, fees and other revenues boosted the top line in the last quarter, despite a decline in traffic.

In fact, the success of the company's loyalty program – Red Robin Royalty – is very encouraging and continues to add members. Additionally, we are encouraged by the company's new service, presentation and innovative new menu items, which are expected to boost sales in the coming quarters.

Nevertheless, we are concerned about Red Robin's rising costs and expenses. Labor costs and commodity inflation – especially the cost of fresh ground beef – is likely to remain a concern. We believe the company's rising cost structure may hurt margins going forward.

Earnings Whisper?

Our proven model does not conclusively show that Red Robin is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Red Robin is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 73 cents.

Zacks Rank: Red Robin has a Zacks Rank #2 (Buy) which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Tim Hortons Inc. THI, with Earnings ESP of +1.25% and a Zacks Rank #3(Hold).

Famous Dave's of America Inc. DAVE, with Earnings ESP of +13.95% and a Zacks Rank #3.

Texas Roadhouse, Inc. TXRH with Earnings ESP of +3.13% and a Zacks Rank #3.


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FAMOUS DAVES DAVE: Free Stock Analysis Report

RED ROBIN GOURM RRGB: Free Stock Analysis Report

TIM HORTONS INC THI: Free Stock Analysis Report

TEXAS ROADHOUSE TXRH: Free Stock Analysis Report

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