Red Robin Poised To Disappoint Street In 2020, BofA Says In Downgrade

Street expectations call for hamburger chain Red Robin Gourmet Burgers, Inc. RRGB to modestly grow EBITDA in 2020 — an assumption Bank of America Merrill Lynch said is unlikely to play out.

The Analyst

Gregory Francfort downgraded Red Robin Gourmet Burgers from Neutral to Underperform with an unchanged $30 price target.

The Thesis

Red Robin reported second-quarter results that included an $11.6-million tax benefit which drove all of the EBITDA beat of $25.4 million versus expectations of $25.3 million, Francfort said in a Tuesday downgrade note. (See his track record here.)

Restaurant-level margins were short of expectations, while same-store sales were better than expected, but still negative, falling 1.5% versus expectations of a 2% decrease, the analyst said. 

During the quarter, the company also saw a deceleration in traffic due to a shift away from its value menu offering, Francfort said. While this may have been a prudent strategy years ago, the absence of traffic traction implies the restaurant will struggle to generate long-term traffic — a necessity for the health of the brand, he said.

Analysts continue to expect EBITDA to grow next year, but the only way to do so is through a "very material" comp improvement, which is unreasonable at this point, according to BofA. 

Price Action

Red Robin shares were falling 5.96% to $32.34 at the time of publication Tuesday. 

Related Links:

Red Robin Gourmet Burgers Reports Q2 Earnings Beat

BTIG: Vintage Capital's Offer To Red Robin Undercooked

Photo via Wikimedia

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorDowngradesPrice TargetRestaurantsAnalyst RatingsGeneralBank of America Merrill LynchGregory Francfort
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!