Cost-Cutting Efforts to Drive Red Robin's (RRGB) Q4 Earnings
Red Robin Gourmet Burgers, Inc. RRGB is scheduled to report fourth-quarter 2017 results on Feb 22, after market close.
The company’s sales-building initiatives like brand revitalization, menu innovation, operational improvement and introduction of better customer service platform are expected to drive revenuers in the fourth quarter. Moreover, with an aim to double its EBITDA margin by 2020, the company has undertaken various cost-cutting measures that are likely to favor earnings in the to-be-reported quarter.
Meanwhile, Red Robin’s shares have rallied 12.2% in the past year compared with the industry’s gain of 9.4%.
Let’s find out how the company’s fourth-quarter results will shape up.
Sales-Building Initiatives to Boost Top Line
The restaurant chain has seen an uptick in revenues over the past few years. Despite a sluggish economic environment, the company has been delivering year-over-year revenue growth since 2013. In the third quarter, the company recorded revenues of $304.2 million, up 2.3% year over year. This growth is expected to continue in the fourth quarter as well. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $331 million, reflecting 13.6% year-over-year growth.
The revenue improvement can be attributed to Red Robin’s viable business strategy and customer-friendly services. To boost revenues, the company has undertaken several initiatives such as menu innovation, operational improvement and introduction of a better customer service platform.
Red Robin, as part of sales building, has installed technologies like DineTime platform and ConnectSmart Kitchen — from QSR Automations — at more than 450 restaurants nationally. While DineTime provides seating management and a method for accepting online reservations, ConnectSmart Kitchen helps Red Robin increase table efficiency and service speed.
Through such efforts, the company is moving smartly toward new revenue streams and expects off-premise orders to become catalysts. Red Robin actively promotes new offerings and reaches more guests to drive revenues.
To boost traffic, the company is not only focusing on unit expansion but is also expanding its off-premise online-ordering business via carry-out, delivery and catering. The growing demand for off-premise orders is already beginning to show in its business as they ring in at a higher total check. In the third quarter of 2017, the company delivered a 7.6% mix in off-premise, up 41% year over year.
Per the consensus estimate, comps in the company-owned restaurants is expected to grow 1.2% against a decline of 2.9% in the prior-year quarter.
Initiatives to Lower Expenses Might Favor Earnings
Red Robin’s go-forward plan — RED2 — primarily focuses on doubling EBITDA by 2020, through revenue growth, expense management and efficient capital deployment.
To cut costs, the company introduced a new supply chain management software and replaced its older manual system. This resulted in improved control of waste and cost of goods, while significantly reducing inventory levels at the restaurants. Starting 2017, this is expected to result in 30 basis points (bps) of margin improvement. Management expects to reduce expenses by about 20 bps annually under the five-year strategic plan.
Cost management efforts are expected to favor the company’s bottom line in the to-be-reported quarter. Consequently, the consensus estimate for fourth-quarter earnings is 55 cents, mirroring 57.1% year-over-year growth. The consensus estimate is in line with the company’s expected EPS range of 45-60 cents for the quarter.
Our Quantitative Model Does Not Predict a Beat
Red Robin does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
Zacks ESP: The company has an Earnings ESP of -2.75%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company has a Zacks Rank #2 (Buy).
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is eeing negative estimate revisions.
Red Robin Gourmet Burgers, Inc. Price and EPS Surprise
Red Robin Gourmet Burgers, Inc. Price and EPS Surprise | Red Robin Gourmet Burgers, Inc. Quote
Stocks to Consider
Here are a few stocks from the restaurant space that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Domino’s DPZ has an Earnings ESP of +0.37% and a Zacks Rank #2. The company is slated to report quarterly numbers on Feb 20. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cheesecake Factory CAKE has an Earnings ESP of +0.82% and a Zacks Rank #3. The company is slated to report quarterly results on Feb 21.
Zoe's Kitchen ZOES has an Earnings ESP of +13.16% and a Zacks Rank #3. The company is slated to report quarterly numbers on Feb 22.
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