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Here's Why Investors Should Steer Clear of Red Robin Stock

Zacks Equity Research

Red Robin Gourmet Burgers, Inc. RRGB has been losing the sheen of late. A look at the company’s price trend reveals that the stock has had an unimpressive run on the bourses in the past three months. Red Robin has lost 23.6% compared with the industry’s 8.6% decline. Let’s delve deeper and find out the factors hurting the company’s performance.

Key Concerns

The company’s bottom line and the trimmed view have hurt investor sentiment. Red Robin incurred loss of 24 cents per share in third-quarter 2019, wider than the Zacks Consensus Estimate of a loss of 22 cents. In the year-ago quarter, the company had reported adjusted earnings of 16 cents per share.

Following dismal earnings, the company trimmed its 2019 guidance. Red Robin now expects earnings within 64-99 cents compared with 95 cents to $1.20 projected earlier. Notably, estimates for the current year and 2020 have been revised downward, reflecting analysts’ concern surrounding the stock.

For the current quarter and year, earnings estimates have decreased 32 cents and 24 cents, respectively, over the past 30 days.



Moreover, the company has been witnessing rising costs and expenses in recent quarters. Meanwhile, Red Robin is investing heavily in several sales-building initiatives like advertising and technical upgrades, which will result in elevated costs. Remodeling and restaurant maintenance also add to the already rising expenses. In the third quarter of 2019, restaurant-level operating profit margin contracted 70 bps to 16.1%. The decline was due to a 90-bps rise in labor costs and a 30-bps increase in other restaurant operating expenses.

Unlike most of its peers, this Zacks Rank #4 (Sell) company remains focused on the company-owned restaurants that allow it to have total control over operations and also keep generating profits. However, this limited focus on franchising burdens the company with increased costs, which could have been transferred on to franchisees had there been a franchise business model. As of Oct 6, 2019, the company had only 90 franchised full-service restaurants in 16 states.

Stocks to Consider

Better-ranked stocks worth considering in the same space include Brinker International, Inc EAT, Chipotle Mexican Grill, Inc CMG and Cracker Barrel Old Country Store, Inc CBRL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Brinker International have increased 20.4% in the past three months.

Chipotle Mexican Grill reported better-than-expected earnings in each of the trailing four quarters, the average being 16.1%.

Cracker Barrel Old Country Store has an impressive long-term earnings growth rate of 10%.

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Red Robin Gourmet Burgers, Inc. (RRGB) : Free Stock Analysis Report
 
Cracker Barrel Old Country Store, Inc. (CBRL) : Free Stock Analysis Report
 
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
 
Brinker International, Inc. (EAT) : Free Stock Analysis Report
 
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