Red Robin's Delivers Solid Q1, 'Beatable' Earnings Guidance

Reviewing the first-quarter results of Red Robin Gourmet Burgers, Inc. RRGB, Stephens said the quarter was solid and that the earnings guidance was beatable.

Analyst Will Slabaugh noted that Red Robin Gourmet reported better-than-expected results, with a same-store sales drop of 1.2 percent compared to his estimate of a 2.5 percent decline. The same-store sales performance came on the back of a 1.7 percent drop in traffic and a 0.5 percent increase in checks, the analyst added.

The analyst believes the results reflect improving traffic trends and meaningful operation efficiencies achieved on the back of recent value and labor/operational initiatives.

Outlook

The firm noted the company raised its fiscal year 2017 earnings per share guidance by 10 cents to $2.80-$3.10, with 45 percent expected in the first half and 55 percent in the second half.

On new store openings, Stephens noted that the company projects about eight net new restaurants in 2017 after opening four net new restaurants in the quarter.

Stephens raised its 2017 same-store sales growth estimate for 2017 to 0.6 percent from 0.1 percent and adjusted earnings per share estimate to $2.90 from $2.89. The firm also raised its 2018 estimates to 1.3 percent and $3.22 from 1.2 percent and $3.18, respectively.

Stephens attributed the negative sentiment on the stock to the over 30 percent short interest and skepticism concerning the guidance that was upwardly revised in the quarter.

Best Idea in Restaurants

Slabaugh expects the strong fundamentals and improving trend to help positive inflection point in comps in the second half of 2017.

"While we expect the stock to move meaningfully higher on these results, we are keeping RRGB as our best idea in restaurants given our expectation for continued top and bottom line improvement," the firm said.

Stephens rates Red Robin Gourmet at Overweight and has a $75 price target on shares.

In early trading, shares of Red Robin were up 15 percent to $67.

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