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Red Robin (RRGB) Misses Q2 Earnings, Sales; Cuts Outlook

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Red Robin Gourmet Burgers Inc. (RRGB - Free Report) reported lower-than-expected second-quarter 2016 results with both earnings and sales missing the Zacks Consensus Estimate.

Notably, the burger chain slashed its sales and profit outlook for the full year which resulted in a 5% decline in the company’s share price.

Earnings Missed

Red Robin’s adjusted earnings of 75 cents per share missed the Zacks Consensus Estimate of 79 cents by 5.1%. Further, earnings declined 3.8% year over year owing to weak comps and lower margins.

Red Robin Gourmet Burgers Inc. (RRGB - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Behind the Headline Numbers

Revenues of $305.5 million missed the Zacks Consensus Estimate of $313 million by 2.4%.

Revenues grew 4.3% year over year driven by new restaurant openings.

During the quarter, restaurant revenues went up 4.6% year over year to $302.1 million. Franchise royalties and fee revenues, however, decreased 19.7% to about $3.43 million.

Company-owned restaurants’ comps declined 3.2% (on a constant currency basis), worse than the prior-quarter comps decline of 2.6% due to weak traffic trends. A 3.9% decline in traffic was partially offset by a 0.7% increase in average guest check.

Despite lower cost of goods, restaurant-level operating profit margin decreased 160 basis points (bps) to 20.9% due to higher labor and occupancy costs and other restaurant operating expenses.

Adjusted EBITDA decreased 1.4% to $34.5 million from $35 million in the year-ago quarter.

RED ROBIN GOURM Price, Consensus and EPS Surprise

RED ROBIN GOURM Price, Consensus and EPS Surprise | RED ROBIN GOURM Quote

2016 Revenue Guidance Slashed

Red Robin lowered its total revenue growth guidance for 2016 from 8% to 5%.

The comps guidance was lowered to a decline of almost 2%, which compared unfavorably with the previous expectation of flat to slightly negative growth.

Adjusted EBITDA in 2016 is likely to range between $145 million and $150 million, lower than the previous expected range of $150 million and $155 million.

Restaurant-level operating profit margin is expected to be around 21%.

Capital expenditures are expected to range between $190 million and $195 million, including 13 restaurants acquired in the first-quarter. The company also plans to remodel at least 70 Red Robin restaurants in 2016 as a part of its Brand Transformation Initiative.

The company targets to improve sales and regain market share as the year progresses. Its focus is mainly on increasing speed of service, fostering awareness through local marketing initiatives and opening new restaurants. It is also initiating a new media campaign that will be launched in the fourth-quarter with incremental spending in selected and high penetration markets.

Zacks Rank & Stocks to Consider

Red Robin Gourmet Burgers currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the same sector are Arcos Dorados Holdings Inc. (ARCO - Free Report) , Del Taco Restaurants Inc. and Denny’s Corp. (DENN - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).

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