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Red Robin (RRGB) Up 64.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Red Robin (RRGB - Free Report) . Shares have added about 64.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Red Robin due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Red Robin Q3 Earnings & Revenues Surpass Estimates

Red Robin Gourmet Burgers reported third-quarter fiscal 2020 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Notably, the bottom line beat the consensus mark after missing the same in the preceding four quarters.

The company reported adjusted loss per share of 19 cents, narrower than the Zacks Consensus Estimate of a loss of $1.36. In the year-ago quarter, the company had reported adjusted loss of 24 cents.

Paul J. B. Murphy III, Red Robin’s president and CEO, said, “The third quarter was an inflection point for the brand with robust sequential sales improvement throughout the quarter, closing the traffic gap to our casual dining peers.”

Revenue Discussion

Quarterly revenues of $200.5 million surpassed the consensus mark of $203 million. However, the top line declined 31.9% year over year due to limited dining room capacity operations at re-opened restaurants and operating off-premise only at restaurants with closed dining rooms.

Comparable restaurant revenues slumped 25.1% year over year on account of a decline of 24.6% and 0.5% in guest count and average guest check, respectively. The decline in average guest check can be attributed to a 3.6% fall in menu mix, partially offset by a 2.2% increase in pricing and 0.9% rise on account of lower discounting.

Operating Results

Restaurant-level operating profit margin came in at 8.6% for the fiscal third quarter compared with 16.1% in the year-ago period.

Restaurant labor costs (as a percentage of restaurant revenue) rose 150 basis points (bps) year over year to 37.7% in the fiscal third quarter. The increase was primarily driven by sales deleverage and higher wage rates, partially offset by lower restaurant manager incentive compensation.

Other restaurant operating costs increased 380 bps year over year to 19.1%. The increase was primarily driven by rise in third-party delivery fees and supply costs due to higher off-premise sales volumes and sales deleverage impacts on restaurant utility costs. However, this was partially offset by a decrease in restaurant maintenance costs.

Cost of sales declined 40 bps year over year to 23.4%. The decrease was primarily attributed to decline in promotional discounts and net favorable commodity prices. Occupancy costs increased 260 bps year over year to 11.2% due to sales deleverage.

Adjusted earnings before interest, taxes and amortization came in at ($0.7) million against earnings of $14.7 million reported in the year-ago quarter.

Other Financial Information

As of Oct 4, 2020, the company had cash and cash equivalents of $27.4 million compared with $30 million at the end of Dec 29, 2019. Inventories in the reported quarter declined 7.3% to $24.5 million. As of Oct 4, 2020, its long-term debt was $206.4 million compared with $206.9 million as on Dec 29, 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -17.07% due to these changes.

VGM Scores

Currently, Red Robin has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Red Robin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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