Everybody Missed the Real Reason Red Robin Is Delivering Gourmet Results

Hint: Burger King Worldwide explained why in a roundabout way.

Jun 5, 2014 at 6:30PM
Images

Source: Red Robin Gourmet Burgers

While many casual-dining restaurants were buried under the snow this winter, Red Robin Gourmet Burgers (NASDAQ:RRGB) continued its same-store sales blastoff as if it were the only game in town. Well, sort of. Red Robin is doing a plethora of things right, but one primary reason in particular seemed to be what pushed sales into the black and you can find a hint about it from Burger King World (NYSE:BKW) of all chains.

Burger King?
Yes, Burger King. Burger King isn't a casual restaurant chain, of course. In fact, just about the only thing Burger King and Red Robin Gourmet Burgers have in common is that they both sell a lot of hamburgers and French fries, but that's where the similarities end. The clue comes from Burger King's ongoing and apparently successful ad campaign.

Recall that a few months back, Burger King launched the Big King sandwich. It succeeded and helped the fast-food chain achieve domestic same-store sales growth. Burger King then took the success a step further by increasing the size of the beef patties by around 25% in its Big King. It then started airing commercials, which are ongoing, that say "size matters."

So what does this have to do with Red Robin? Bear with me a moment.

The gourmet results
On May 20, Red Robin reported fiscal first-quarter results. Revenue flew 11.1% to $340.5 million. Same-store sales popped 5.4%. Earnings per diluted share jumped 24.2% to $0.82. Steve Carley, CEO of Red Robin, in the release credited the excellent quarter to the company's new line of Black Angus burgers as well as its increased media presence.

The conference call contained far more details and explanations. During the call, Carley gave further credit to "guest engagement initiatives," "new plating and presentation," more weeks of TV advertising, and certain changes in the menu. What the conference call revealed, however, that the press release failed to mention was that of the 5.4% rise in same-store sales, only 0.5% of it came from traffic.

Images

Source: Red Robin Gourmet Burgers

No traffic jam
While 0.5% isn't terrible and it certainly beat much of the competition, you probably would have never suspected it from the way Red Robin was speaking of advertising and media causing the spike in sales. The reality is that over 90% of the growth actually came from a spike in average guest check, rather than more bodies coming in the door.

What caused the spike in guest checks? It probably had a lot to do with its new Half Pound Black Angus burgers, which are the biggest and most expensive items on the menu at $12.99 and up. That is where Burger King comes in. "Size matters" as Burger King says and that apparently applies to Red Robin too.

Some of the guests who normally came in for the cheaper burgers naturally upgraded to the new, more expensive ones. Guest checks jumped. Same-store sales jumped.

No excuses
Traffic, and potentially advertising and marketing, may arguably have even been poor during the quarter. Stuart Brown, CFO of Red Robin, said, "Remember that [we were] off media most of the first quarter of 2013." Red Robin only did around two weeks of advertising in the year-ago period. All of that marketing and advertising this quarter only led to a 0.5% bump in traffic? With all due respect, Red Robin, I'm less than impressed.

I know what you're thinking. Snow storms killed the casual-dining industry so any rise at all in traffic is excellent. The problem with that theory is that Red Robin executives have already gone on record with the statement that any negative effects from weather are typically followed by a spike in sales afterward as many people experience "cabin fever" and crave to get back into the Red Robin restaurants.

Foolish final thoughts
At the risk of contradicting myself, I must say that sometimes marketing initiatives, especially in-house ones such as new menus, have lagging positive effects that may remain to be seen. Burger King's Big King has been picking up momentum, for example, so it's certainly still possible that you'll see a lagging rise in traffic for Red Robin too in the second quarter of this year. The next quarterly result will bring a more even comparison in terms of media and TV advertising time. It will be interesting to see if traffic is down, up, or flat.

Speaking of being trapped indoors, there was still money being made in your living room
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers