Red Robin Gourmet Burgers (RRGB)

We believe shares of Red Robin Gourmet Burgers (RRGB - Analyst Report) will continue to underperform both the larger market and the restaurant industry. Red Robin's traffic began declining long before the onset of rising gas prices in October 2007, which began choking business in the casual dining sector -- a victim of poor site selection in new markets.

In spite of their poor performance, the company has retained and even added to these sites as it repurchased 45 franchises since 2005. Moreover, 2009 consensus EPS estimates are 10% higher than ours, and we think our estimate may prove aggressive if the economic slowdown is deeper or more protracted than we currently anticipate.

Barring a prolonged recession, which is a distinct possibility -- we think RRGB's traffic should stabilize in late 2009 as it laps weak comps and unit growth is rationalized industry-wide. Indeed, industry capacity is currently contracting as unit growth is slowed, underperforming units are closed and more independents close.

Red Robin Gourmet Burgers (RRGB) : FULL ANALYST REPORT

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