Jefferies Cuts Target On Red Robin From $80 to $72

Red Robin Gourmet Burgers, Inc. RRGB reported low quality EPS for 1Q and weaker-than-expected SSS. Jefferies’ Alexander Slagle maintained a Buy rating for the company, which reducing the price target from $80 to $72. The analyst mentioned that challenging industry conditions had led to Red Robin’s softer-than-anticipated start to the year.

Low Quality EPS

Red Robin reported its quarterly adj. EPS at $1.27, ahead of the Jefferies and consensus estimates of $1.11. Analyst Alexander Slagle mentioned, however, that the beat was poor quality, with sales deleveraging being offset by commodity deflation, cost management and delayed marketing spend.

Weak SSS

The company reported a decline of 2.6 percent for 1Q SSS, which was not only worse than expected, but with a 4.1 percent decline in traffic, which was weaker than peers. “While some of this may be attributable to delayed marketing, a larger contributor to weak traffic trends is increased competition and discounting,” Slagle noted.

Looking Ahead

Red Robin projected SSS to be flat or slightly negative, while reducing adj. EBITDA guidance from $155-$165mm to $150-$155mm, with the negative industry trends expected to continue.

The analyst lowered the EPS estimates for 2016 and 2017 from $3.80 to $3.50 and from $4.30 to $4.00, respectively. He added that while topline visibility was limited, there was opportunity for improvement over the course of the year. The EBITDA outlook seems achievable.

“We believe in long-term SSS drivers, including remodels, growth in online sales and alcohol mix, but believe challenging industry conditions could keep the stock under pressure near-term,” Slagle commented, adding that the company’s shares were trading at a significant discount to peers.