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Casual dining restaurant operator Red Robin Gourmet Burgers Inc.’s (RRGB - Analyst Report) earnings of 66 cents per share in the first quarter of fiscal 2013 (ending Apr 21, 2013) surpassed the Zacks Consensus Estimate by a penny but were 7% lower than the comparable year-ago quarter’s earnings of 71 cents.

Earnings suffered mainly due to the seasonality resulting from the change in the company’s financial calendar. A shift in sales and change in media timing reduced the quarterly earnings by 10 cents per share.

Amid sluggish industry sales, Red Robin has achieved a 2.3% year over year rise in its revenues to $306.3 million in the first quarter. However, the revenues were below the Zacks Consensus Estimate of $310 million by 1.2%. Higher comparable restaurant sales (comps) and various sales-driving initiatives boosted the top line during the quarter, offset by a decline in traffic due to a change in the company’s reporting time.

Behind the Headline Numbers

Red Robin earns revenues from its company-owned as well as franchised restaurants. During the quarter, restaurant revenues jumped 2.3% year over year to $301.3 million, fueled by both unit expansions as well as higher comps. Franchise royalties and fee revenues were up 4.5% year over year to nearly $5.0 million.

Company-owned restaurants’ comps grew 2.2%, benefitting from the better pricing and higher average guest check. However, a 0.6% decline in guest count adversely affected the comps during the quarter. A rise in the sales of beverages and appetizers, and positive pricing have helped the averageguest check to increase 2.8% in the first quarter.

Restaurant operating margin expanded 30 basispoints (bps) to 21.5% at company-owned restaurants benefiting from the decline in food and beverage costs and other operating costs, offsetting the adverse impact from the rise in the labor as well as occupancy costs.

Liquidity

Red Robin ended the quarter with cash and cash equivalents of $17.4 million versus $22.4 million in the previous quarter. Total outstanding debt was $100.2 million as compared with $135.0 million in the fourth quarter.

Cash generated from operations was $40.4 million versus $29.6 million in the year-ago period.

Store Update

During the quarter, three Red Robin restaurants were unveiled. Red Robin currently operates 337 restaurants, out of which five are Red Robin’s Burger Works restaurants, 133units are franchised and the rest are company-owned.

Outlook

For fiscal 2013, Red Robin reiterated its guidance for comps. The company continues to expect comps to grow 2.5% to 3% with the rise in prices, items sold per guest and rise in guest count.

The restaurant operating margin is projected to be 20.9%, up from the previous estimate of 20.7%. The margin is expected to gain from moderated commodity costs. However, a one-time rollout cost resulting from the brand transformation and restaurant innovation would slightly hurt the margin.

The casual dining restaurant operator remains on track to unveil 20 Red Robin units and also planning to remodel an equal number of restaurants in fiscal 2013.

A 1% shift in guest count, a 10 bps increase in margin and a $187,000 change in pre-tax income or expenses are expected to impact earnings by 23 cents, 5 cents and a penny, respectively in fiscal 2013.

Our Take

Seattle, Wash.-based Red Robin struggles in terms of earningsand guest count due to the shift in its fiscal calendar. However, the company’s top-line growth and unit expansion is quite impressive. Some of the company’s operational strategies such as cost savings and guest loyalty program — Red Robin Royalty — brings a ray of hope for this Zacks Rank #2 (Buy) stock.

However, economic uncertainties and continued investments in sales-driving initiatives, which may lower margins are matters of concern.

Some other restaurateurs like McDonald’s Corp. (MCD - Analyst Report) missed our estimates on both lines this season while Yum! Brands Inc. (YUM - Analyst Report) beat earnings but missed out on revenues. Another company, The Cheesecake Factory Inc. (CAKE - Analyst Report) was ahead of the estimates on both counts.

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