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Why is Red Robin (RRGB) Down 9.8% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) . Shares have lost about 9.8% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is RRGB 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.

Recent Earnings

Red Robin reported lower-than-expected results in first-quarter 2018.

Earnings & Revenue Discussion

Red Robin’s adjusted earnings of 69 cents per share missed the Zacks Consensus Estimate of 74 cents by 6.8%. The bottom-line figure also witnessed a sharp decline of 22.5%.

Revenues came in at $421.5 million, which lagged the consensus mark of $431 million by more than 2% but witnessed a meager gain of 0.2% from the prior-year quarter. Marginal gain in revenues was driven by new restaurant openings and favorable impact of foreign currency, which overshadowed decline in comparable restaurant revenues.

Behind the Headline Numbers

Comps at company-owned restaurants were down 0.9% year over year against the prior-quarter comps increase of 2.7%. The downside can be attributed to 1% decline in average guest check, which marginally overshadowed 0.1% rise in guest counts. However, Red Robin outperformed the casual dining industry for the seventh consecutive quarter.

Restaurant-level operating profit margin contracted 130 basis points (bps) to 20%. The downturn was due to a 90-bps increase in cost of sales, 70-bps rise in other restaurant operating expenses and 40-bps surge in occupancy costs. The decline was partly offset by a 70-bps decrease in labor costs.

Adjusted earnings before interest, taxes, and amortization (EBITDA) increased 7.4% to $42.4 million from $45.8 million in the year-ago quarter.

Financial Highlights

Red Robin had cash and cash equivalents of $23.7 million as of Apr 22, 2018, compared with $17.7 million as of Dec 31, 2017. The company’s long-term debt amounted to $231.4 million as of Apr 22, 2018 compared with $266.4 million at the end of 2017.

Second-Quarter 2018 View

For second-quarter 2018, earnings per share are estimated between 55 cents and 75 cents. Meanwhile, the Zacks Consensus Estimate for the quarter is pegged at 74 cents.

2018 View

Red Robin did not provide any update on its 2018 guidance issued earlier. The company anticipates earnings in the band of $2.40-$2.80 per share, reflecting 14-33% year-over-year growth.

Red Robin projects comparable-restaurant sales growth of 50-150 bps. Operating weeks are expected to decline 1% as 2018 will have 52 weeks compared with 53 weeks in 2017. Total revenues are envisioned between a decline of 50 bps and an increase of 50 bps in 2018. Cost of sales, as a percentage of restaurant revenues, is anticipated to be up 50-100 bps. Restaurant labor costs, as a percentage of restaurant revenues, are expected to range between an increase of 25 bps and a decrease of 25 bps.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.

VGM Scores

At this time, RRGB has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was also allocated a grade of A on the value side, putting it in the top 20% 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.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, RRGB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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