Please ensure Javascript is enabled for purposes of website accessibility

Can Red Robin Bounce Back After Last Week's 21% Drop?

By Rick Munarriz - May 24, 2016 at 9:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The casual-dining burger chain tumbles after posting mixed quarterly results last week.

Image source: Red Robin.  

Some of the more popular burger flippers are off to a hot start in 2016, but that doesn't seem to apply to Red Robin Gourmet Burgers (RRGB 1.37%). Shares of the casual-dining chain specializing in gourmet burgers and thick steak-cut fries surrendered 21% of their value last week after posting disappointing financial results.

Red Robin checked in with revenue of $402.1 million for its fiscal quarter ending April 17. That's a mere 1.8% uptick since the prior year, and that's with the addition of several new locations through openings and franchisee acquisitions over the past year. Comparable restaurant sales dipped 2.6% on a constant currency basis, worse than the otherwise flattish casual dining industry and a healthy gain by some of the country's best-known burger chains. 

The news gets better on the bottom line. Adjusted earnings rose 13% to $17.6 million -- or $1.27 a share. Wall Street pros were holding out for more in revenue, but less in profitability.

Mixed results don't normally result in a stock shedding more than a fifth of its value, but that's where Red Robin's guidance comes in. It is lowering its guidance for the entire fiscal year. Red Robin used to see 8.5% to 9.5% in top-line growth on comps growth in the low single digits. Now it's targeting 8% revenue growth on flat to slightly negative comps. Analysts lowered their top- and bottom-line forecasts following the uninspiring outlook.

Barrier beef

Red Robin points to intense discounting in the industry and the challenging landscape as some of the reasons for the negative store trends, but Red Robin is still lagging its peers. It didn't cave in to the discounting. Average guest checks inched higher, but comps were still negative as a result of a 4% slide in guest traffic. 

This might not be a surprise when you think about the explosion of fast casual "better burger" chains, rivaling if not exceeding Red Robin on quality. You also get in and out quicker from the "better burger" concepts, unlike Red Robin and its tip-earning wait staff. 

Red Robin is hoping to improve its efficiency, a move that should speed up table turns but clearing tables doesn't seem to be as big a problem as attracting more patrons. The model doesn't seem to be resonating with consumers that now have plenty of fast casual options when they crave a burger fix. This doesn't mean that Red Robin is going to slam on the brakes until it figures things out. It still expects to open 25 new eateries this fiscal year and another 30 locations next year. 

This doesn't mean that things will end badly for Red Robin investors. The stock hit a three-year low on Friday, but even with Wall Street hosing down its earnings projections it's still growing on both ends of the income statement and trading at an earnings multiple in the low teens. The market may wait until comps turn positive to buy back in, but Red Robin could still get the last laugh here.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Red Robin Gourmet Burgers, Inc. Stock Quote
Red Robin Gourmet Burgers, Inc.
$8.14 (1.37%) $0.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.