Red Robin Gourmet Burgers Inc. ( RRGB - Analyst Report ) reported earnings of 24 cents per share in the third quarter of 2012, in line with the year-ago quarter adjusted earnings. The result, however, substantially surpassed the Zacks Consensus Estimate of 16 cents. Results in the quarter benefited from top-line growth and margin expansion.

Total revenue of $223.7 million in the reported quarter, climbed up 3.4% year over year and also beat the Zacks Consensus Estimate of $212.0 million.

Quarter Highlights

During the quarter, restaurant sales jumped 3.5% from the year-ago quarter to $209.8 million and franchise royalties and fees revenue were flat year over year at $3.6 million.

Comparable restaurant sales crept up 1.1% year over year at company-owned restaurants, driven by a 0.8% increase in guest count and a 0.3% rise in average guest check.

Restaurant operating margin at company-owned restaurants enhanced 90 basis-points (bps) to 19.7%, benefiting from a drop of 70 bps in cost of sales as food costs plunged and a drop of 90 bps in other operating costs, partially compensated by a 60 bps spike in labor cost and a 20 bps hike in occupancy costs.

Selling, general and administrative expenses in the quarter were up 40 bps to 11.5%, due to higher equity-based compensation costs, new information technology development costs and higher costs related to gift card sales.

Liquidity

Red Robin ended the quarter with cash and cash equivalents of $26.9 million, total outstanding debt of $132.0 million and shareholders’ equity of $307.1 million. During the quarter, the company repurchased 266,000 shares for $7.9 million and currently, has $32.0 million remaining under its share repurchase authorization.

Store Update

During the quarter, Red Robin unveiled four new restaurants, two small prototype restaurants, Red Robin’s Burger Works, and closed one company-owned restaurant. During the quarter, two franchised restaurants closed in the prior-quarter were reopened. Red Robin currently operates 468 restaurants, out of which 331 are company-owned; five are Red Robin’s Burger Works and the rest are franchised.

Outlook

In 2012, Red Robin expects comps growth at or slightly above 0.5% as compared to the prior-year expectation of 0.5%. Restaurant operating margins are estimated to be 20.5%, i.e. the higher end of its prior projection range of 20% to 20.5%, benefiting from lower operating costs and cost of sales.

With three restaurants scheduled to open in the fourth quarter, the casual dining restaurant operator remains on track to unveil 14 new restaurants, including four Red Robin’s Burger Works in 2012.

Our Take

We expect estimates to go up in the coming days based on better-than-expected results and improved outlook. The Zacks Consensus Estimates for 2012 and 2013 stands at $1.85 and $2.05, respectively.

We remain positive on the stock based on continuous focus on revenue growth, expense control, enhancement of shareholders’ value and unit growth. However, lower consumer spending amid uncertain economic environment and stiff competition remain headwinds.

Red Robin Gourmet Burgers Inc. which competes with Brinker International inc. ( EAT - Analyst Report ) currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We also have a long-term ‘Neutral’ recommendation on the stock.