In this segment from the MarketFoolery podcast, host Chris Hill and David Kretzmann of Supernova and Rule Breakers take a look at casual-dining burger chain Red Robin Gourmet Burgers (NASDAQ:RRGB), which had a decent quarter overall, but a far better one than it led the markets to believe it was having. But looking ahead, there are reasons for optimism for the company, even considering the troubles of the restaurant industry.
A full transcript follows the video.
This video was recorded on May 17, 2017.
Chris Hill: Red Robin Gourmet Burgers' first quarter, I know they lowered guidance coming into this report. But give them credit for crushing the lower guidance.
David Kretzmann: It worked.
Hill: It did work. Stock up 17% this morning. This is a company you know better than I do. How good was this quarter?
Kretzmann: The quarter itself was OK. Kind of a similar case to Target, where it wasn't as bad as Wall Street was expecting. And their guidance is promising. And I think this is a company that --
Hill: Guidance for the rest of the year?
Kretzmann: Yeah. They raised their guidance a bit with earnings per share. They're expecting earnings per share to come in about $3 this year, which is close to their peak earnings in 2015. So essentially, they're saying things are improving. They especially expect things to improve toward the second half of the year. This is a company that's been proactive despite all the different headlines that have been going on in the restaurant industry over the past couple years. They're really putting a lot of effort into their digital efforts, online ordering, take out, things like that. I think Wall Street recognizes that and is rewarding them for that. A lot of other restaurants, I think, are being left behind.
Selim Bassoul, who is the CEO of Middleby, Tom Gardner, co-founder and CEO of the Fool recently interviewed Selim Bassoul, and Selim Bassoul essentially said the restaurants who are going to stick around are the ones who are going to emulate Domino's, the pizza companies that have mastered and integrated that digital, online ordering into their entire operations. Those are the restaurants that will be able to stick around and thrive. And we've seen that with Panera, and I know we'll talk a bit more about that. But I think Wall Street recognizes that Red Robin is putting out the effort there. One of the interesting initiatives here, one of these things is a centralized call center for to-go orders, which just streamlines that whole to-go ordering process. Ten percent of their corporate-owned stores offer curbside pickup, so essentially, you just drive to the store and they'll bring out your food for you. That will be rolled out in about 25% of their locations this summer. So just, different things like that. They're being more innovative than most casual dining chains.
Hill: Also, one of the things they talked about for the conference call at Red Robin was prices ticking up a little bit, and it was one of those things where I looked at that and thought, I think, if you are a shareholder, and certainly if you're the CEO of the company, you're really looking to do that even a little bit more. They raised prices something like 1.2%. That's the sort of thing where, that's better than lowering prices, it's better than discounting. We'll get to discounting at restaurants in a second. But if you can bump that up a little more, if you can do that a couple quarters a year, then it starts to have a meaningful impact on your gross margins.
Kretzmann: Yeah, and that offsets the traffic losses that a lot of restaurants, especially casual diners, have been seeing. Given the initiatives that they're doing, I think customers right now value convenience almost more than anything else. They like being able to order online or call in a customized order. And when they do that, they typically order more stuff, too. So it brings yourself to the customer. Then, ideally, as you get more people going through those stores, even if it's virtually, the volume of sales that those stores generate goes up, and your margins really improve. So I think Red Robin is positioning itself in a good place if they can keep that traffic going.
Chris Hill has no position in any stocks mentioned. David Kretzmann owns shares of Domino's Pizza, MIDD, and Red Robin Gourmet Burgers. The Motley Fool owns shares of and recommends MIDD. The Motley Fool has a disclosure policy.