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Bear of the Day: Red Robin Gourmet Burgers, Inc. (RRGB)

Benjamin Rains

The overall retail-restaurant industry gained 6.23% last year, while the S&P 500 slipped over 4%. Red Robin Gourmet Burgers, Inc. (RRGB), however, was not one of the restaurant industry’s winners as it suffered from subdued comparable sales, poor dine-in traffic, rising costs, and more.

Overview & Outlook

Red Robin is a casual restaurant chain best known for its burgers and fries. The company boasts more than 570 mostly suburban locations across the U.S. and Canada. In 2018, RRGB stock plummeted roughly 53% for the reasons we mentioned at the top.

Red Robin’s revenues fell 3.5% in the third quarter on the back of a 3.4% drop in same-store sales. RRGB’s revenues also fell short of Wall Street Estimates for the third straight quarter. Plus, the firm’s guest count comps slipped 1.9% from the year-ago period. Red Robin’s operating costs also climbed as it spent more on technology updates, repairs and maintenance expenses, third-party delivery fees, and more.

Red Robin hopes its spending will help the company lower wait times. The company also rolled out its new in-restaurant table management software to lower ticket times, improve tableside service, and handle larger volumes during peak hours. On top of that, Red Robin has tried to expand its online-ordering business and ramp up its carry-out, delivery, and catering sales.

Q4 Estimates

Looking ahead, Red Robin’s fourth-quarter revenues are projected to sink 9.83% from $342.35 million in the year-ago period to $308.70 million. Clearly, year over year declines are never good, but we should note that RRGB’s fourth-quarter 2017 revenues soared 17.5%. This growth was, however, driven primarily by new restaurant openings.          

Investors should also note that Red Robin’s Q4 comps are projected to fall 3% based on our current NFM estimates. Jumping ahead to fiscal 2019, Red Robin is expected to see its full-year revenues slip marginally below our 2018 estimate.

Moving on, Red Robin’s adjusted Q4 earnings are expected to plummet 51.28% to touch $0.38 a share. Meanwhile, the company’s full-year earnings are also projected to sink 32.53%. RRGB’s fiscal 2019 EPS figure is expected to climb 2.1% above our 2018 projection, which is hardly impressive considering just how much its bottom-line is expected decline.

Earnings Trends

On top of its expected top and bottom line downturns, Red Robin has also experienced some negative earnings estimate revision activity over the last 90 days. In fact, RRGB has seen its Q4 earnings estimate fall from $0.63 a share to its current $0.38 during this stretch. Investors will also see that Red Robin has earned some negative earnings estimate revisions for fiscal 2018 and 2019 over the 30 days. This means at least some analysts are even more bearish on the burger joint’s bottom-line.           


Bottom Line

Red Robin is a Zacks Rank #5 (Strong Sell) at the moment based, in large part, on the negative earnings revision trends we just touched on. Even though RRGB stock has tumbled over the last 52-weeks, it might have a hard time bouncing back in 2019 based on its top and bottom line projections as it fights to adapt to a quickly changing retail age.  

Investors still interested in the retail-restaurant industry might instead want to check out Bojangles', Inc. (BOJA), Darden Restaurants, Inc. (DRI), and Wingstop Inc. (WING), which are all currently Zacks Rank #2 (Buy) stocks.

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