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.