In the burger business, whether you're a heavy hitter like McDonald's
The larger chains generally benefit from international contributions and greater economies of scale, spreading out their costs to ultimately post stronger results. The smaller burger-tossers are in bit more of a pickle, however, as rapidly escalating costs keep earnings in check.
On Thursday, Red Robin reported that first-quarter revenue jumped 24.5% in its latest quarter, to $212.3 million. However, a 25.7% increase in total costs and expenses essentially flattened earnings for the period. The company brought $7.5 million to the bottom line this quarter, compared to $7.4 million last year. Per-share earnings were $0.44 in both periods.
Red Robin Chairman and CEO Dennis B. Mullin noted that the quarter was challenging "as we expected," but nevertheless affirmed his earlier annual earnings guidance of $1.75 to $1.85 a share, versus $1.72 last year. He also said that the company expects to add 24 to 27 new company-owned units this year, along with 15 to 17 franchised restaurants. That's a roughly 10% increase from the 363 it operated at the end of the quarter.
The company's got a lot cooking at the moment, including efforts to curb construction costs, improve new restaurant performance, and build brand awareness where needed. In the latter area, Red Robin launched a national media campaign in April.
Management clearly isn't sitting on its hands. Nonetheless, Red Robin's rising costs and almost negligible change in earnings and share price over the past year, along with the reduced consumer spending I expect in coming months, make me cautious here. Fools should curb their appetites for Red Robin shares, at least until the company's next quarterly results provide a better picture of ongoing expense trends.
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Fool contributor David Lee Smith owns shares in McDonald's and frequents the Golden Arches' drive-through window. He doesn't own shares in the other companies mentioned, but does welcome your questions or comments. The Motley Fool has a disclosure policy.