Declining Traffic to Hurt Red Robin (RRGB) in Q2 Earnings

Red Robin Gourmet Burgers, Inc. RRGB is scheduled to report second-quarter fiscal 2019 results on Aug 23, before the market opens.

Declining traffic trends are likely to have impacted Red Robin’s revenues in the fiscal second quarter while high expenses may have dented earnings. The company’s earnings have missed the Zacks Consensus Estimate in one of the trailing four quarters, the average miss being 3.5%.

Its earnings and revenues have been declining over the past few quarters as well. Resultantly, shares of Red Robin have declined 20.4% over the past year against the industry’s 35.2% rally.

 

 

Let’s delve deeper to find out how the company’s top and bottom-line results will shape up in the upcoming quarterly release.

Revenues to Suffer From Weak Comps

Red Robin’s top line in the quarter to be reported is likely to be impacted by soft same-store sales and a decline in dine-in traffic. Weakness at in-line mall locations is an added concern, which in turn, might hurt the company’s overall performance.

In the first quarter of fiscal 2019, total revenues declined 2.8% from the prior-year quarter due to soft comps, resulting from a decline in dine-in traffic. We believe that the trend is likely to have continued in the second quarter as well.

Subsequently, the Zacks Consensus Estimate pegs the company’s second-quarter revenues at $307.1 million, suggesting a 2.6% decline from the year-ago quarter’s reported figure. Meanwhile, the consensus estimate pegs decline in comps at 1.7% for the second quarter.

How Will Earnings Shape Up?

Red Robin has been witnessing rising costs and expenses in the recent quarters. The company is investing heavily in several sales-building initiatives like advertising and technical upgrades, which is resulting in elevated costs. Remodeling and restaurant maintenance also add to the already rising expenses.

In the first quarter of fiscal 2019, restaurant-level operating profit margin contracted 170 basis points (bps) to 18.3%, following a decline of 110 bps in the preceding quarter. The decline in the first quarter was due to 60-bps rise in other restaurant operating expenses and 30-bps increase in occupancy costs.

We believe that the trend of rising costs has continued in the second quarter as well, thereby hurting the company’s earnings. The Zacks Consensus Estimate pegs Red Robin’s second-quarter earnings at 35 cents, indicating a 23.9% year-over-year decline.

Red Robin Gourmet Burgers, Inc. Price and EPS Surprise

 

Red Robin Gourmet Burgers, Inc. Price and EPS Surprise

Red Robin Gourmet Burgers, Inc. price-eps-surprise | Red Robin Gourmet Burgers, Inc. Quote

What the Zacks Model Unveils

Our proven model does not conclusively predict that Red Robin is likely to beat earnings estimates in second-quarter fiscal 2019. 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. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Red Robin has an Earnings ESP of 0.00% and a Zacks Rank #1 at present, which makes the surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Peer Releases

Darden DRI reported fourth-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate, whereas revenues lagged the same. Adjusted earnings of $1.76 per share beat the Zacks Consensus Estimate of $1.73. Moreover, the bottom line grew 26.6% year over year on higher revenues.

Domino’s DPZ reported mixed second-quarter 2019 financial numbers, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Its adjusted earnings were $2.19 per share, which outpaced the Zacks Consensus Estimate of $2.00. The metric also grew 19% on a year-over-year basis. The bottom-line improvement was driven by higher net income and lower diluted share count as a result of share repurchases.

Chipotle CMG reported better-than-expected results in the second quarter of 2019. Its adjusted earnings of $3.99 per share surpassed the Zacks Consensus Estimate of $3.69 by 8.1%. The bottom line also grew 39% from the year-ago quarter, backed by rise in revenues and strong operating margins.

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