Market Overview

Was Red Robin's Quarter As Bad As It Seems?

Was Red Robin's Quarter As Bad As It Seems?

Casual dining restaurant chain Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) reported third-quarter results Monday, showing a decline in adjusted earnings per share from 38 cents to 21 cents — despite 2.3 percent revenue growth to $304.2 million.

Red Robin expects earnings per share of 45-60 cents in the fourth quarter. It lowered expectations for 2017 as a whole to $2.16-$2.31, with the comps guidance for the full year also reduced to flat-to-0.5 percent.

The results missed the consensus estimates and the guidance falls below forecasts.

Shares of the company are in turn being slaughtered. At last check, Red Robin  shares were down 28.93 percent at $47.65.

Jefferies: Progress on Traffic Initiatives Not Enough

Red Robin Gourmet is making solid progress on traffic-driving initiatives, but it was not enough to offset other headwinds, Jefferies' analyst Alexander Slagle said in a Tuesday note. The analyst attributed the Q3 earnings miss partly to hurricanes, and also to weaker-than-expected trends in dine-in sales.

Red Robin Gourmet may not be alone in experiencing deterioration in dine-in same store sales, Slagle said. (See Slagle's track record here.)

Slagle said he expects a 1 percent comp for the fourth quarter, below the 2.1 percent consensus for Red Robin.

Citing a more cautious top-line outlook and inflationary headwinds, as well as ongoing cost-saving initiatives, Jefferies lowered its 2017 and 2018 earnings per share and EBITDA estimates.

Jefferies maintained its Hold rating on the shares of Red Robin Gourmet and it lowered its price target from $61 to $58.

An Unchanged Story 

Notwithstanding the miss and guide-down quarter, Stephens analyst Will Slabaugh said he does not believe Red Robin's long-term story has changed. The quarter was softer-than-expected despite the company making meaningful progress with guests, thanks to its $6.99 Tavern Burger platform and growing off-premise presence, Slabaugh said. (See Slabaugh's track record here.) 

On a positive note, the company guided to positive sales and traffic in the fourth quarter, the analyst said. The trend has already inflected in the quarter-to-date period, according to Stephens. 

"Should trends continue over an easier Dec. lap (broader retail trends not withstanding), we would anticipate a return to the beat/raises of prior quarters," Slabaugh said.

Stephens maintained its Overweight rating and lowered its price target for the shares from $85 to $80.

Cost-Cutting, Margin Improvement 'Largely Intact'

Though expecting the shares to trade down on the negative headlines, CANACCORD Genuity said Red Robin's cost-cutting and margin improvement story is largely intact.

Analyst Lynne Collier maintained a Buy rating and lowered the price target from $80 to $70.

The huge miss suggested by the fourth-quarter guidance is the handiwork of a shift in timing with respect to the second phase of the company's labor savings initiatives, Collier said. 

Related Links: 

Whet Your Restaurant Sector Appetite: A 2017 Outlook

3 Reasons Red Robin Is One Of The Best Ideas In Restaurant Sector

Photo courtesy of Red Robin. 

Latest Ratings for RRGB

Nov 2019MaintainsHold
Aug 2019DowngradesNeutralUnderperform
Aug 2019MaintainsEqual-Weight

View More Analyst Ratings for RRGB
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Posted-In: Alexander Slagle Canaccord GenuityAnalyst Color Price Target Reiteration Restaurants Analyst Ratings General Best of Benzinga


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