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Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) is getting hit by the challenging dine-in restaurant environment and higher labor costs. This Zacks Rank #5 (Strong Sell) recently lowered full year EPS guidance.

Red Robin operates a casual dining restaurant chain of more than 560 restaurants in the United States and Canada that specializes in high-quality burgers and Bottomless Steak Fries. It offers a wide variety of salads, soups, appetizers and entrees along with signature beverages including its extensive selection of local and regional beers.

Third Quarter Miss

On Nov 6, Red Robin reported its third quarter results and missed on the Zacks Consensus Estimate. Earnings were $0.21 versus the consensus of $0.27.

Comparable restaurant revenue, a key metric in the industry, fell 0.1% year-over-year due to a 0.1% decrease in the average guest check and flat guest counts.

Like everyone else in the industry, Red Robin is being hit by rising labor costs.

Guided Lower for the Full Year

Given the pressures in the industry, especially in the dine-in category, Red Robin lowered its full year EPS guidance to a range of $2.16-$2.31 from $2.80-$3.10.

It also lowered its comparable restaurant sales outlook to flat to up 0.5%.

Additionally, while it is expected to move forward with its planned 9 store openings in 2018, it's going to pause store openings going forward to reassess its service model.

Trying a New Model

Along those lines, on Nov 13, the company announced it was going to test a first-of-its-kind, delivery-only concept in downtown Chicago on North Michigan Avenue.

It won't have a traditional storefront but it will have the same signature menu and catering services.

All orders placed in downtown Chicago will be self-delivered by Red Robin Express but also will offer third-party delivery through Amazon and Door Dash.

Is delivery the wave of the future, even for the casual dining chains? Stay tuned.

2017 and 2018 Estimates Lowered

For now, the analysts are bearish on the outlook.

Given the guidance cut, it's not surprising that 6 estimates were lowered for 2017 in the last 30 days which pushed the Zacks Consensus down to $2.35 from $2.78.

That's a decline of 15.6% from 2016's earnings of $2.78.

But analysts also cut 2018, with 6 estimates lowered in the last 30 days to $2.71 from $3.28.

Shares Fall But Are They Cheap?

Shares fell on the guidance cut and are now down 11% year-to-date.



But Red Robin shares aren't cheap. They trade with a forward P/E of 20.8.

With the restaurant industry getting socked by high commodity and labor costs, investors should choose wisely. Out of 53 companies in the restaurant industry, only one is currently a Zacks Rank #1 (Strong Buy).

Therefore, why not buy the restaurant chain with the best comparable sales record?

Domino's (DPZ - Free Report) is one of the few that is still seeing strong comparable growth. It's a Zacks Rank #3 (Hold) but is expected to see earnings growth of 34% this year.

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