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Red Robin (RRGB) Down 4.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Red Robin (RRGB - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Red Robin due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Red Robin's  Reports Wider-Than-Expected Q3 Loss

Red Robin Gourmet Burgers, reported mixed fiscal third-quarter 2019 results, wherein the bottom line missed the Zacks Consensus Estimate but the top line surpassed the same.

It reported loss per share of 24 cents, wider than the Zacks Consensus Estimate of a loss of 22 cents. In the year-ago quarter, the company had reported adjusted earnings of 16 cents per share.

Revenue Discussion

Revenues came in at $294.2 million, beating the Zacks Consensus Estimate of $291 million but declining 0.2% from the prior-year quarter. The downside can be primarily attributed to a decline in restaurant as well as franchise royalties, fees, and other revenues.

Comparable restaurant revenues increased 1.6% year over year (on a constant-currency basis), driven by a 4.7% gain in average check, partially offset by a 3.1% decline in guest count. The increase in average guest check was on account of a 3.2% rise in menu mix and 1.5% hike in pricing.

Notably, the increase in menu mix was primarily due to its current menu and promotional strategy.

Operating Results

Restaurant-level operating profit margin contracted 70 basis points (bps) to 16.1%. The decline was due to a 90-bps rise in labor costs and 30-bps increase in other restaurant operating expenses. Cost of sales margin remained flat. Occupancy costs declined 60 bps owing to restaurant closures.

Adjusted earnings before interest, taxes, and amortization decreased to $14.7 million from $24.2 million a year ago.

Financial Highlights

As of Oct 6, 2019, Red Robin had cash and cash equivalents of $20.2 million compared with $18.6 million on Dec 30, 2018. The company’s long-term debt amounted to $188.9 million as of Oct 6, 2019 compared with $193.4 million on Dec 30, 2018.

As of Oct 6, 2019, Red Robin had outstanding borrowings under its credit facility of $188 million, in addition to the amount issued under letters of credit of $7.5 million.

Guidance

For 2019, Red Robin — which currently has a Zacks Rank #4 (Sell) — expects earnings within 64-99 cents compared with 95 cents to $1.20 projected earlier. The company continues to expect comparable restaurant revenue growth of down 1% to flat.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -352.78% due to these changes.

VGM Scores

At this time, Red Robin has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Red Robin has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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