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Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) is scheduled to report fourth-quarter and full-year 2016 results on Feb 21, after the market closes. We expect the company to surpass expectations.

Last quarter, Red Robin posted in-line earnings. Moreover, the trailing four-quarter average earnings surprise stands at a positive 4.14%.

Red Robin Gourmet Burgers, Inc. Price and EPS Surprise

Why a Likely Positive Surprise?

Our proven model shows that Red Robin is likely to beat on earnings because it has the perfect combination of the two key ingredients.

Zacks ESP: Earnings ESP for Red Robin is +13.79%, because the Most Accurate estimate stands at 33 cents and the Zacks Consensus Estimate is pegged at 29 cents. This is a meaningful indicator of a likely positive earnings surprise.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Red Robin currently has a Zacks Rank #3. Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings estimates. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, we caution you against the Sell-rated stocks (Zacks Rank #4 or 5), which should never be considered going into an earnings announcement.

The combination of Red Robin’s favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

Red Robin’s brand revitalization initiatives such as menu innovation, operational improvement as well as the introduction of a better customer service platform to enhance guest experience continue to drive revenues. Also, the company’s local marketing initiatives and media campaign are expected to attract customers.

The company has rolled out its Kitchen Display System, which is linked to table management software. This is expected to result in major sales growth as kitchens can handle higher peak volumes. Moreover, in addition to unit expansion, the company is concentrating on its remodeling initiative, which is expected to boost its potential as a brand and improve client experience, thereby escalating traffic.

However, the company has been witnessing rising costs and expenses over the past few quarters due to higher labor costs, expenses related to the initiatives, as well as pre-opening and remodeling costs. Thus, we expect the company’s rising expenses to put pressure on fourth-quarter margins as well. Furthermore, a soft consumer spending environment in the U.S. restaurant space might hurt traffic and thereby comps in the to-be-reported quarter.

Notably, Red Robin recently announced preliminary results for the fourth-quarter, wherein it expects total revenue of roughly $290.8 million. This is lower than the Zacks Consensus Estimate of nearly $297.5 million for the quarter. It also anticipates comps to decrease 4.5% year over year, which is wider than the prior-quarter comps decline of 3.6%. Meanwhile, comparable guest count is also expected to fall 2.9%.

Stocks to Consider

Red Robin is not the only company looking up this earnings season. Here are some other companies in the broader Retail-Wholesale sector to consider, as our model shows they also have the right combination of elements to post an earnings beat this quarter:

Papa John’s International, Inc. (PZZA - Free Report) has an Earnings ESP of +4.55% and a Zacks Rank #2.

SpartanNash Company (SPTN - Free Report) has an Earnings ESP of +2.04% and a Zacks Rank #2.

The Priceline Group, Inc. (PCLN - Free Report) has an Earnings ESP of +0.46% and a Zacks Rank #3.

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