EAT Brinker International Inc

Casual dining restaurant operator Red Robin Gourmet Burgers Inc. (RRGB) reported adjusted earnings of 28 cents per share in the fourth quarter of 2011, way ahead of the Zacks Consensus Estimate of 20 cents as well as the year-ago quarter earnings of 13 cents per share. In fiscal 2011, adjusted earnings were $1.61 per share versus 71 cents in the prior year.

However, including asset impairment and restaurant closure costs, GAAP net income in the reported quarter came in at $2.9 million or 20 cents per share. Results benefited from the upside in revenue arising from comparable sales growth and margin expansion. In full-fiscal 2011, GAAP earnings of $1.36 per share outpaced the prior-year level of 47 cents per share.

The company reported total revenue of $206.0 million in the fourth quarter, up 7.0% year over year. For full year 2011, revenue increased 5.9% to $914.9 million year over year.

Quarter Highlights

During the quarter, restaurant sales leaped 7.0% from the year-ago quarter to $202.5 million and franchise royalties and fees revenue crept up 1.0% to $3.1 million on comparable sales growth.

Comparable restaurant sales jumped 4.8% year over year at company-owned restaurants in the reported quarter, driven by a 5.6% increase in average guest check, partially offset by a 0.8% dip in guest count.

Restaurant operating margin at company-owned restaurants expanded 290 basis points (bps) to 19.9%, due to a 230-bp drop in labor costs, 150-bp decline in other operating costs and 10-bp fall in occupancy costs, partially compensated by a 100-bp increase in food and beverage cost.

Selling, general and administrative expenses in the quarter surged 21.0% year over year to $23.6 million, due to higher variable compensation costs and increased infrastructure investments.

Financial Aspects

Red Robin ended 2011 with cash and cash equivalents of $35.0 million, total outstanding debt of $156.9 million and shareholders’ equity of $14.8 million. During the quarter, the company repurchased 92,000 shares for $2.3 million.

Store Update

During the quarter, Red Robin opened three full-size prototype restaurants, first small prototype restaurant and one franchised restaurants. The company currently operates 464 restaurants, out of which 327 are company owned and the rest franchised.

Outlook

In 2012, Red Robin expects comps to grow in the low-single-digit range and restaurant operating margin to expand modestly year over year, benefiting from lower operating costs and price increase, partially offset by higher commodity cost.

Additionally, the company expects cost of sale to increase 60 to 80 basis points in 2012 due to a higher ground beef costs. Furthermore, labor expense is estimated to jump 20-30 bps in 2012, riding on a number of accretive initiatives taken in 2011 and a rise in minimum wages across a number of states, particularly in the west.

In 2012, the casual dining restaurant operator expects to open 13 to 15 new restaurants. 

Our Take

We expect estimates to move up in the coming days, as the company’s Project RED initiative has succeeded in generating improved comparable sales and margin outlook. The Zacks Consensus Estimates for 2012 and 2013 stands at $1.81 and $2.12, respectively. 

However, we remain cautious on the stock based on cost inflation, lower consumer spending and intense competition from peers like Brinker International inc. (EAT) and Domino's Pizza Inc. (DPZ) with respect to price, service, location and concept in order to drive traffic.

The company retains a Zacks #2 Rank, which translates into a short-term Buy rating. We also have a long-term Neutral recommendation on the stock.

 
DOMINOS PIZZA (DPZ): Free Stock Analysis Report
 
BRINKER INTL (EAT): Free Stock Analysis Report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
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