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Will Red Robin (RRGB) Earnings Let Down Investors in Q2?

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Red Robin Gourmet Burgers Inc. (RRGB - Free Report) is scheduled to report second-quarter 2016 results on Aug 9, before the opening bell.

Last quarter, Red Robin posted a 15.45% positive earnings surprise. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 8.42%.

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

RED ROBIN GOURM Price and EPS Surprise


Factors Likely to Influence this Quarter

Notably, the company has been witnessing rising costs and expenses since the beginning of 2016, mainly due to higher labor costs. Further, various sales building initiatives coupled with pre-opening and remodeling expenses are adding to the expenses. We thus expect the company’s rising costs to put pressure on second-quarter margins.

Meanwhile, a soft consumer spending environment in the U.S. coupled with Red Robin’s limited international presence are likely to hurt top-line growth in the to-be-reported quarter.

Nonetheless, Red Robin has been consistently delivering strong comps growth over the past few quarters. Traffic trends in the second quarter are also expected to be driven by the brand transformation initiatives, prudent menu presentation and the rollout of Ziosk tabletop tablets.

Earnings Whispers

Our proven model does not conclusively show that Red Robin is likely to beat the Zacks Consensus Estimate this quarter. This 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. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Red Robin has an Earnings ESP of -5.06%. This is because the Most Accurate estimate stands at 75 cents, whereas the Zacks Consensus Estimate is pegged higher at 79 cents.

Zacks Rank: Red Robin has a Zacks Rank #4 (Sell). 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 companies to consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter:

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an earnings ESP of +2.27% and a Zacks Rank #1.

Shake Shack Inc. (SHAK - Free Report) has an earnings ESP of +7.69% and a Zacks Rank #3.

Carrols Restaurant Group, Inc. (TAST - Free Report) has an earnings ESP of +4.35% and a Zacks Rank #3.

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