It has been about a month since the last earnings report for Red Robin (RRGB Quick QuoteRRGB - Free Report) . Shares have added about 8.9% 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 Q2 Earnings & Revenues Miss Estimates

Red Robin reported dismal second-quarter fiscal 2021 results, with earnings and revenues missing the Zacks Consensus Estimate. However, the top and the bottom line increased on a year-over-year basis.

Earnings & Revenue Discussion

During fiscal second quarter, the company reported adjusted loss per share of 22 cents, missing the Zacks Consensus Estimate of earnings of 7 cents. In the year-ago quarter, the company had reported adjusted loss of $3.31.
 
Quarterly revenues of $277 million missed the consensus mark of $279 million by 0.8%. However, the top line surged 71.9% year over year. Notably, the company benefitted from increased guest traffic due to continued lifting of jurisdictional indoor dining restrictions.

During the quarter, comparable restaurant revenues increased 66.3% year over year. The upside was primarily driven by 47.7% rise in guest count and 18.6% increase in average guest check. The increase in average guest check can be attributed to a 3% rise in pricing, 14.9% rise in menu mix and 0.7% rise from lower discounts. Menu mix, during the quarter, benefitted from higher sales of beverages and appetizers, partially offset by lower gourmet burger mix.

Moreover, the company benefitted from its Donatos pizza offerings. During fiscal second quarter, Donatos pizza generated sales of $2.9 million dollars. It also outperformed the rest of the system offerings by 550 basis points (bps) compared with 2019 levels. Going forward, the company expects Donatos to be a long-term growth driver with anticipated annual pizza sales of more than $60 million and profitability greater than $25 million by 2023.

Operating Results

Restaurant-level operating profit margin came in at 15.7% for fiscal second quarter compared with 2% reported in the prior-year quarter.

During fiscal second quarter, restaurant labor costs (as a percentage of restaurant revenues) declined 280 bps year over year to 36.4%. The downside was primarily caused by staffing shortages and sales leverage. However, this was partially offset by higher wage rates, staffing costs and increased restaurant management compensation costs. Additionally, the company incurred $1.6 million of incremental labor costs, owing to a rise in hiring and training resources, hiring ads as well as retention and sign-on bonuses to support staffing initiatives.

Meanwhile, other operating costs declined 440 bps year over year to 17.2%. The downside was primarily driven by a fall in third-party delivery fees and supplies owing to lower off-premises sales volume as well as sales leverage.

During the quarter, cost of sales declined 140 bps year over year to 22.8%. Occupancy costs declined 510 bps year over year to 7.9%. The decrease was primarily driven by savings from permanently-closed restaurants, restructuring of lease payments, rent concessions and sales leverage.

Adjusted earnings before interest expenses, income taxes, depreciation and amortization during fiscal second quarter came in at $19 million against a loss of $15.3 million reported in the year-ago quarter.

Other Financial Information

As of Jul 11, 2021, the company had cash and cash equivalents of $25.6 million compared with $22.3 million as of Apr 18, 2021 and $16.1 million as of Dec 27, 2020. Long-term debt as of Jul 11, 2021 stood at $145.1 million compared with $154.5 million as of Apr 18, 2021 and $161 million as of Dec 27, 2020.

Inventories during the quarter came in at $23.9 million compared with $23.8 million as of December-end.

Guidance

For 2021, the company expects capital expenditures in the range of $45-$55 million. This includes investments related to restaurants, infrastructure and systems capital maintenance, digital guest, operational technology solutions as well as off-premises execution enhancements.

The company announced Donatos expansion to approximately 120 restaurants in 2021. It expects to open approximately 80 restaurants in the second half of fiscal 2021.

For 2021, the company expects selling, general and administrative costs in the range of $125-$135 million. Meanwhile, effective tax benefit for 2021 is anticipated between 1% and 5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -2387.5% due to these changes.

VGM Scores

Currently, Red Robin has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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 A. 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. It's no surprise Red Robin has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.