BJRI BJs Restaurants Inc

Red Robin Gourmet Burgers Inc. (RRGB) is scheduled to announce its first quarter 2011 results on May 19. The current Zacks Consensus Estimate for the first quarter is 25 cents on revenue of $284.0 million.

Prior Quarter Highlights

Red Robin had posted fourth quarter 2010 adjusted earnings of 12 cents per share, which surpassed the Zacks Consensus Estimate of 5 cents. Earnings were up 20% from 10 cents in the year-ago quarter. However, including the effects of restaurant closure charges and executive transition expenses, GAAP net income during the quarter was $2.2 million or 14 cents per share.

Revenues in the fourth quarter rose 5.7% year over year to $192.6 million and inched up slightly from the Zacks Consensus Estimate of $192.0 million. During the quarter, restaurant sales increased 5.4% from the year-ago quarter to $189.3 million, and franchise royalties and fees revenue surged 21.8% to $3.1 million, attributable to higher operating weeks and comparable sales growth.

Comparable restaurant sales inched up 0.8% year over year for company-owned restaurants, driven by a 1.1% increase in guest count, partially offset by a 0.3% decrease in the average guest check. Comparable sales for franchise restaurants spiked 3.4% in the U.S. and 0.9% in Canada.

Outlook

The company foresees cost inflation in 2011. Commodity cost is expected to increase 3% to 4% this year, mostly due to higher ground beef and cheese prices.

Red Robin will use its capital mostly for the development of new restaurants and enhancement of shareholder value through share repurchases. Red Robin expects to open 10 new company-owned restaurants, and 3 to 4 franchised restaurants in fiscal 2011. Management projects capital expenditure to be in the range of $39 million to $41 million in fiscal 2011.

Estimate Revision Trend

Out of the eleven analysts providing estimates for the upcoming quarter, none made any change in the last thirty days. For fiscal 2011, only one analyst out of eleven covering the stock trimmed the estimate in the last thirty days.

None of the analysts made any revision to forecasts over the seven-day period, thus indicating no directional movement.

Magnitude of Revisions

Estimates for the first quarter of 2011 have remained static at 25 cents over the last 30 days due to the lack of significant estimate revisions by the analysts on the stock. The estimate for 2011 was also unchanged at $1.01 over the last 30 days. Therefore, the analysts expect the company to report in line.

Our Take

We are pleased with Red Robin’s new operating initiatives termed Project RED, which consists of a mix of revenue drivers, cost-cutting initiatives, and plans to enhance capital deployment.  In order to drive revenue, Red Robin focuses on its guest loyalty program called Red Royalty, targets adult guests by improving alcohol beverage sales and extensively uses a Limited Time Offer (LTO) strategy supported with television advertising to drive traffic and create brand recognition.

However, we expect same-store sales growth to suffer in the first quarter due to adverse weather conditions in the early months of 2011. In fact, Red Robin also indicated that through February 14, 2011, company-owned comparable sales growth dropped 0.4%.

Moreover, since management took some pricing action in April to mitigate input cost pressure, Red Robin’s second quarter’s same store sales will benefit from that move. The cost of the TV advertising support is expected to be approximately $4.4 million in the first quarter of 2011.

Additionally, stiff competition from other quick-service restaurant operators, cost escalation as well as pre-opening costs of new restaurants will keep margins under pressure.

One of its peers BJ’s Restaurants Inc. (BJRI) reported first quarter 2011 adjusted earnings of 25 cents per share, which surpassed the Zacks Consensus Estimate of 19 cents. BJ's Restaurants' revenue also came ahead of the Zacks Consensus Estimate.

Red Robin currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
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