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Bear of the Day: Red Robin (RRGB)

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Red Robin Gourmet Burgers Inc. (RRGB - Free Report) is a casual dining restaurant chain. Operating more than 500 Red Robin restaurants across the U.S. and Canada, Red Robin’s popular menu items include over two dozen burger options and their signature Bottomless Steak Fries. RRGB is headquartered in Greenwood Village, CO.

Shares of RRGB have experienced a rocky stretch lately, falling almost 27% year-to-date, and mixed results in Red Robin’s second-quarter earnings report didn’t much help the stock.

Looking at Red Robin’s Q2 report a little deeper, the company posted earnings of 46 cents per share, which came in-line with the Zacks Consensus Estimate but declined 24.6% year-over-year. Revenues of $315.4 million, lagging behind our consensus estimate. Both its top and bottom line matched preliminary results it had released a few weeks prior.

Lower revenues were a result of a 2.6% year-over-year decrease in comparable restaurant revenue, while Red Robin’s restaurant guest counts fell 0.7% year-over-year. But, restaurant labor costs as a percentage of restaurant revenue improved 40 basis points.

CEO Denny Marie Post said that "We did not execute as well as we know we are capable of, particularly at critical peak demand hours when we must be prepared to serve dine-in Guests and our rapidly growing off-premise demand."

It didn’t take long for analysts to lower their estimates for 2018, and six have slashed their earnings outlook in the last 60 days; our consensus has fallen 55 cents from $2.54 to $1.99. While the consensus estimate for 2019 has dropped as well, earnings could bounce back and grow about 12.7%.

RRGB is now a #5 (Strong Sell) on the Zacks Rank.

Going forward, Red Robin is taking some strategic steps to improve its business, especially service during peak hours. In the company’s pre-release, Post explained that Red Robin is aiming to transform its marketing message, as well as turn its focus back on service fundamentals and emphasize the chain’s value, affordability, and burger options throughout its marketing. Post expects that “all of these elements to be in place early in Q4.”

As far as guidance, RRGB’s management maintained its recently revised 2018 outlook, and continues to expect revenue between $1.35 billion and $1.365 billion and EPS in the range of $1.80 and $2.20. Guidance for full-year comparable restaurant revenue was also maintained, and Red Robin projects this revenue to decrease 1% to 2% year-over-year.

If you’re an investor looking for a restaurant stock pick to add to your portfolio, you may want to consider BJ’s Restaurants (BJRI - Free Report) . This restaurant and brewery chain is a #1 (Strong Buy) on the Zacks Rank, and currently expects almost 50% earnings growth for the year.

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