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Red Robin (RRGB) Down 32.4% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·3 mins read

It has been about a month since the last earnings report for Red Robin (RRGB). Shares have lost about 32.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Red Robin due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Red Robin Posts Wider-than-Expected Q1 Loss

Red Robin reported first-quarter fiscal 2020 results, wherein earnings missed the Zacks Consensus Estimate but revenues matched  the same. 

The company reported adjusted loss per share of $6.66, wider than the Zacks Consensus Estimate of a loss of $1.61. In the year-ago quarter, the company had reported adjusted earnings of 19 cents.

Revenue Discussion

Revenues came in at $306.1 million, which came in line with the Zacks Consensus Estimate.  However, the top line declined 25.3% year over year. The downside can be attributed to shutdown of dining rooms on account of the coronavirus pandemic. 

Comparable restaurant revenues declined 20.8% year over year, owing to 20.9% fall in guest count, which was partially offset by a 0.1% increase in average guest check. The improvement in average guest check can be attributed to a 1.6% increase in pricing and a 0.3% increase from lower discounting, which was marginally negated by a 1.8% decrease in menu mix. Guest count in the quarter was hurt by a decline of 22% owing to the pandemic.

Operating Results

Restaurant-level operating profit margin declined to 8.8% in the quarter, compared with a decline of 18.3% in the year-ago period. Restaurant labor costs as a percentage of restaurant revenue rose 360 basis points primarily due to sales deleverage, higher wage rates, and higher group insurance costs. Other restaurant operating costs increased 340 bps primarily owing to an increase in third-party delivery fees driven by higher off-premise sales volume and increased restaurant technology costs compared with favorable adjustment in the prior-year quarter.

Cost of sales margin remained flat, while occupancy costs contracted 250 bps on account of sales deleverage impacts on rent expense and general liability and other real estate costs.

Adjusted earnings before interest, taxes and amortization was negative $10.7 million. In the prior-year quarter, the company had reported adjusted EBITDA of $34.3 million.

Other Financial Information

As of Apr 19, 2020, the Zacks Rank #3 (Hold) company had cash and cash equivalents of $88.9 million, compared with $30 million at the end of Dec 29, 2019. Inventories in the reported quarter declined 5.7% to $24.9 million. As of Apr 19, 2020, long-term debt increased to $281.2 million from $206.9 million at the end of Dec 29, 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -26.88% due to these changes.

VGM Scores

At this time, Red Robin has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Red Robin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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