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Red Robin Gourmet Burgers Inc. (RRGB - Free Report) is set to report fourth-quarter and full-year 2015 results on Feb 12.

Last quarter, the company posted a positive earnings surprise of 9.43%. In fact, the Colorado-based casual dining restaurant chain has surpassed the earnings estimates in three out of the trailing four quarters, with an average beat of 8.18%.

Let’s see how things are shaping up for the upcoming announcement.

Factors to Consider

Red Robin has been consistently delivering strong comps growth for the past few quarters and effectively countering competition in the industry, according to Black Box Intelligence. Traffic trends in the fourth quarter are expected to increase driven by the brand transformation initiatives, prudent menu presentation and the rollout of Ziosk tabletop tablets.

We are also encouraged by the success of Red Robin’s loyalty program — Red Robin Royalty — which continues to add members. Moreover, the company’s new service methods, presentation, menu innovation and innovative promotions are likely to boost sales in the to-be-reported quarter.

Nevertheless, we are concerned about Red Robin’s rising costs and expenses. Increased labor costs, mainly due to higher wages and training costs, coupled with commodity inflation is likely to be the headwind. The company’s rising cost structure would put pressure on fourth-quarter margins.

Earnings Whispers

Our proven model does not conclusively show Red Robin that is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Red Robin is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 81 cents.

Zacks Rank: Red Robin’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Jack in the Box Inc. (JACK - Free Report) , with an Earnings ESP of +1.94% and a Zacks Rank #1.

Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) , with an Earnings ESP of +3.16% and a Zacks Rank #1.

Texas Roadhouse, Inc. (TXRH - Free Report) , with an Earnings ESP of +3.33% and a Zacks Rank #3.

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