Red Robin Gourmet Burgers (NASDAQ:RRGB) is a tough company to pin down. Foolish writer Stephen Simpson generally likes the company and its food, fellow Fool Nathan Parmelee does not, and John Bluis thinks that the upscale burger chain has promise. While browsing one of the discussion boards here at the Fool, I ran across some comments from people with unpleasant experiences, while others raved about their local stores. Obviously, this company creates mixed experiences and opinions.
Red Robin released equally mixed second-quarter earnings yesterday. While revenue grew a healthy 19% from last year, operating and net income both dropped. Our old friend, stock-based compensation, shaved $0.05 from per share, thanks to a pre-tax $1.2 million expense.
Same-store sales increased at both company-owned and franchised restaurants, thanks to a menu-price increase and a jump in foot traffic. Long-term debt rose; it's apparently being used to open new locations and repurchase franchised restaurants. This is not a problem, since Red Robin's interest coverage ratio is very healthy. An increase in capital expenditures and a corresponding decrease in free cash flow also tie into growing locations. According to the company's website, there are plans to open several dozen more company-owned and franchised stores nationwide.
I haven't eaten at a Red Robin since moving away from the West Coast, so I cannot comment on the poor experiences some people had. I do remember that its burgers were pretty good back when I visited. However, based on the scuttlebutt I've run across, it seems that the company still has some issues to fix in many of its current stores.
Add in the current spending environment and continuous competition from rivals such as Ruby Tuesday (NYSE:RI) and more upscale eateries such as Cheesecake Factory (NASDAQ:CAKE), and Red Robin has a tough row to hoe. Focusing on gourmet burgers is a good concept, since that meal is one of the most popular for North American consumers. But there's no shortage of competition in this space; for example, the triple prime burger at Ruby Tuesday is awfully tasty as well.
Red Robin might still be an intriguing investment. The stock is trading at two-year lows, but the company still has plenty of room to grow, with only about 325 locations nationwide. If it can fix the isolated local issues and be careful not to expand too rapidly, I have to agree with John Bluis -- Red Robin has promise.
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Fool contributor Jim Mueller wishes there was a location close by so he could perform some "research." He owns shares in Cheesecake Factory, but in no other companies mentioned. The Fool is investors writing for investors.
