Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Red Robin Weathers Turbulence

The restaurant industry, like many other consumer-related industries, has been on fire of late. The share prices of Outback Steakhouse (NYSE: OSI  ) , PaneraBread (Nasdaq: PNRA  ) , and Motley Fool Hidden Gems selection CEC Entertainment (NYSE: CEC  ) have all increased 10% or more since mid-October.

Today, Red Robin Gourmet Burgers (Nasdaq: RRGB  ) is joining the parade, with its shares up more than 9% after it released third-quarter earnings Thursday night.

Earnings per share came in at $0.39, which is down from last year's $0.43 per share. Two unusual items related to the recent departure of the CEO, though, took $0.06 per share off that total. If those items were reversed, the company would have delivered $0.45 per share, which would have been a 4.7% improvement over last year. Let's revisit the one-time items later on, because they are interesting.

Investors are giddy about Red Robin's earnings report for two reasons. First, the results were better than the company's internal guidance of $0.33 to $0.35, though they just matched analyst earnings estimates of $0.39. Second, and more important, the company raised its revenue and earnings guidance for the rest of the year. For full-year 2005, it now expects revenue of $118 million to $119.5 million, which surpasses the analysts' prior consensus estimate of $116.7 million. In addition, the company projects $1.71 to $1.73 in EPS instead of the $1.69 to $1.72 initially expected. The $1.72 midpoint of the new estimate would be a 20.3% improvement over last year's $1.43 in earnings. Compare that growth rate with the company's trailing price-to-earnings ratio of around 30, and the stock's valuation is a little high, but not unreasonable.

Back to the one-time items related to the former CEO. The first is a gain of $0.05 per share that represents money that the CEO inappropriately spent -- the reason he was dismissed -- and has now been paid back. The other item is an $0.11-per-share charge for accounting for stock options that the former CEO and the former chief financial officer exercised. The math definitely adds up to a $0.06-per-share reduction in earnings, and I'm not questioning the accounting for either of the transactions.

However, if I were a shareholder of Red Robin, I'd be a bit burned that the former CEO was allowed to profit from stock options (thus hurting the earnings) despite having committed improprieties. A CEO should be able to benefit from stock option grants only if his actions benefit the company. Red Robin appears to be a great business, and people love the product, but it wouldn't be the first time that a board of directors doesn't scrutinize management's behavior closely enough and allows shareholders to get burned. For that reason, if I held shares, I'd keep a close eye on this bird and especially its board.

For related avian Foolishness:

The Motley Fool has kicked off its ninth annual Foolanthropy campaign! Nominate your favorite charities on ourFoolanthropy discussion boardthrough Nov. 6. For guidelines on what makes a charity Foolish,

Nathan Parmeleeowns shares in Outback Steakhouse but has no financial stake in any of the other companies mentioned. The Motley Fool has an ironcladdisclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 497972, ~/Articles/ArticleHandler.aspx, 10/25/2016 1:25:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
CEC.DL $0.00 Down +0.00 +0.00%
CEC Entertainment CAPS Rating: No stars
PNRA $198.62 Up +1.76 +0.89%
Panera Bread CAPS Rating: ****
RRGB $46.25 Up +0.65 +1.43%
Red Robin Gourmet… CAPS Rating: ***