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Red Robin Issues FY20 Outlook Post Preliminary Q4 Results

Zacks Equity Research

Red Robin Gourmet Burgers, Inc.’s RRGB shares grew 3.7% on Jan 13, 2019, post the announcement of preliminary revenue results for fourth-quarter fiscal 2019 (ended Dec 29, 2019), and guidance for fiscal 2020 and the long term.

Fiscal Fourth-Quarter Revenue Summary

Total revenues during the fiscal fourth quarter were $302.9 million, down 1.2% year over year, primarily due to higher number of restaurant closures, partially offset by increase in comparable restaurant revenues.

Comparable restaurant revenues increased 1.3% year over year, which marked the second straight quarter of positive comparable restaurant revenues. Notably, the growth is higher than the company’s prior expectation of down 1% to flat. The upside was mainly attributable to menu and promotional strategy of featuring innovative burgers and highlighting core brand equities, while offering an attractive guest experience at a compelling value. However, comparable restaurant guest count fell 3.4% from the year-ago period due to significant discounting, which negatively impacted guest traffic but had a positively impact on average guest check and gross margin.

Off-premise sales (including catering), which improved 26.9% on a year-over-year basis, accounted for 13.9% of total food and beverage sales. Notably, fiscal 2019 adjusted EBITDA is expected between $100 million and $102 million.

Investors should note that the results are preliminary and subject to year-end closing adjustments.

Fiscal 2020 and Long-Term Outlook

In fiscal 2020, the company expects low single-digit comparable restaurant revenue growth, with incremental restaurant-level operating profit. However, pre-opening, marketing and project-related expenses associated with growth initiatives are expected to weigh on margins. The company projects flat to slightly positive adjusted EBITDA compared with the fiscal 2019 level. Moreover, it expects to generate more than $35 million in free cash flow, reduce debt and return capital to its shareholders.

In fiscal 2021, the company anticipates mid-single digit comparable restaurant revenue improvement, strong margin expansion, 10-15% adjusted EBITDA growth, more than $45 million in free cash flow, further reduction in debt and additional return of capital to its shareholders.

Will Strategic Initiatives Drive Growth?

Red Robin has been undertaking various initiatives that have improved traffic. The company rolled out the Kitchen Display System that is linked to table management software. Also, it is focusing on prudent pricing strategies to make its menu affordable for a varied range of customers, and drive incremental traffic and sales.

In addition to brand revitalization efforts, the company launched a variety of salads, appetizers, innovative desserts, adult beverages and kids’ menu, as part of its menu innovation strategy. Moreover, a key long-term growth driver is its guest loyalty program — Red Robin Royalty — that was initiated in 2011 with a goal of increasing guest count. The company engages its guests through this program, with offers designed to increase the frequency of their visits.

Red Robin has been investing more in technology and data infrastructure to enhance guest experience. The company is set to grow the off-premise, online-ordering business via carry-out, delivery and catering.

Coming to price performance, shares of this Zacks Rank #4 (Sell) company have underperformed its industry in the past year. The tepid share price performance was mainly due to higher costs and expenses.




During the fiscal third quarter, restaurant labor costs grew 90 basis points (bps) from a year ago, due to higher average wage rates and manager staffing levels within the restaurant. General and administrative expenses increased 80 bps due to interim CEO expenses and lower incentive-based costs in 2018. Selling expenses rose 190 bps due to an increase in national and local media spend to support its new creative campaign launched in July 2019.

Key Picks

Some better-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Dave & Buster's Entertainment, Inc. PLAY, and Chipotle Mexican Grill, Inc. CMG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chuy’s, Dave & Buster's and Chipotle’s long-term earnings are expected to grow 17.5%, 14.8% and 19.7%, respectively.

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