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Red Robin (RRGB) Down 9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Red Robin (RRGB - Free Report) . Shares have lost about 9% in that time frame, underperforming the S&P 500.

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

Red Robin Q2 Loss Wider Than Expected

Red Robin posted an adjusted loss of 75 cents per share, wider than the Zacks Consensus Estimate of a loss of 12 cents. In the year-ago quarter, RRGB reported an adjusted loss of 22 cents a share. The sharp increase in the net loss was due to higher commodity and wage rate inflation, other charges, repairs and maintenance, utilities and marketing expenses. These were partly offset by higher restaurant revenues and a decline in management incentive compensations as well as group insurance costs.

Total revenues of $294.1 million increased 6.2% from the year-ago period. However, the top line fell short of the Zacks Consensus Estimate of $299.1 million. Restaurant revenues, which comprise primarily food and beverage sales, grew 6.1% year over year to $288.7 million, while Franchise royalties, fees and other revenues jumped 12.8% to $5.4 million.

Restaurant revenues increased due to a 6.7% rise in comparable restaurant revenues. However, sales at non-comparable restaurants declined $1.6 million.

We note that comparable restaurant revenues grew due to a 9.6% jump in the average Guest check, partially offset by a 2.9% drop in the Guest count. The rise in the average Guest check can be attributed to a 3.7% increase in the menu mix, a 6% improvement in pricing and a 0.1% decline due to higher discounts. The increase in the menu mix stemmed from limited time menu offerings and higher dine-in sales volumes.

Margins & Costs

The restaurant-level operating profit margin shrunk 210 basis points year over year to 13.6% due to commodity and wage rate inflation, partly offset by sales leverage and other labor costs. Restaurant labor costs (as a percentage of restaurant revenues) contracted 120 basis points to 35.2%, driven by sales leverage as well as lower group insurance and management incentive compensation costs, partly offset by a higher wage rate.

During the quarter, the cost of sales rose 17.4% year over year to $72.7 million, while, as a percentage of restaurant revenues, the metric increased 240 basis points to 25.2%. While other operating costs, as a percentage of restaurant revenues, jumped 80 basis points to 18%, occupancy costs increased 10 basis points to 8%.

Adjusted EBITDA declined to $11.9 million from $19 million in the year-ago quarter.

Other Financial Information

Red Robin ended the quarter with cash and cash equivalents of $50.3 million, long-term debt of $189.4 million and total stockholders’ equity of $61.6 million.

2022 Guidance

Red Robin has been strategically increasing prices to mitigate the impact of inflation while maintaining a strong value proposition at the same time. For 2022, the company expects pricing in the mid-single digit. It foresees mid-double digit commodity cost inflation compared with its prior view of the low double digit. It anticipates restaurant labor cost inflation in the mid-to-high single digit.

Management now envisions full-year SG&A costs in the range of $142 million-$147 million compared with its prior view of $145 million to $155 million. It now expects adjusted EBITDA to be at least $65 million, down from its prior forecast range of $80 million-$90 million.

Red Robin projected full-year capital expenditures between $40 million and $45 million compared with its previously guided range of $40 million-$50 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -202.33% due to these changes.

VGM Scores

At this time, 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 A on the value side, putting it in the top quintile 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 this revision indicates a downward shift. It's no surprise Red Robin has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Red Robin is part of the Zacks Retail - Restaurants industry. Over the past month, Cheesecake Factory (CAKE - Free Report) , a stock from the same industry, has gained 0.7%. The company reported its results for the quarter ended June 2022 more than a month ago.

Cheesecake Factory reported revenues of $832.64 million in the last reported quarter, representing a year-over-year change of +8.3%. EPS of $0.52 for the same period compares with $0.80 a year ago.

Cheesecake Factory is expected to post earnings of $0.27 per share for the current quarter, representing a year-over-year change of -58.5%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

Cheesecake Factory has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.


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