RRGB Red Robin Gourmet Burgers Inc

Casual dining restaurant operator Red Robin Gourmet Burgers Inc. (RRGB) reported first quarter 2011 adjusted earnings of 58 cents per share, comprehensively beating the Zacks Consensus Estimate of 24 cents and the year-ago quarter earnings of 15 cents.

However, including severance expense and initial cumulative gift card breakage income, GAAP net income during the quarter was $8.7 million or 56 cents per share. Results benefited from the upside in revenue, driven by comparable sales growth and margin expansion.

The company reported total revenue of $286.8 million in the first quarter, up 4.1% year over year and ahead of the Zacks Consensus Estimate of $284.0 million.

Performance Highlights

During the quarter, restaurant sales leaped 5.2% from the year-ago quarter to $281.5 million and franchise royalties and fees revenue increased 7.1% to $4.5 million, attributable to higher number of operating weeks and comparable sales growth.

Comparable restaurant sales inched up 1.9% year over year at company-owned restaurants in the reported quarter, driven by a 0.9% increase in guest count and a 1.0% spike in the average guest check. Comparable sales at franchise restaurants in the U.S. climbed 2.5% year over year but plunged 1.2% in Canada.

Restaurant operating margin expanded160 basis points (bps) to 19.8%, due to a 120-bp drop in labor costs, 40-bp decline in occupancy costs and a 60-bp decline in other operating costs, partially offset by a 70-bp increase in food and beverage cost.

Selling, general and administrative expenses in the quarter climbed 3.9% year over year to $32.0 million, due to higher television media campaign and executive transition costs.

Financial Aspects

Red Robin ended the quarter with cash and cash equivalents of $14.6 million, total outstanding debt of $141.8 million and shareholders’ equity of $301.3 million. Total debt includes $94.6 million in borrowings under its $150 million term loan, $36.0 million of borrowings under its $150 million revolving credit facility and $11.2 million outstanding for capital leases.

During the quarter, the company repurchased approximately 0.4 million shares for $9.5 million and also repaid debt of $16.4 million.

Store Update

During the quarter, Red Robin opened one company-owned and one franchised restaurants.

Outlook

For 2011, the company expects to focus on driving revenues, managing expenses and deploying capital.

Additionally, the company foresees cost inflation of 5% to 6% for 2011 due to a spike in ground beef costs. To mitigate the input cost pressure, the company has raised prices and is also making efforts to control cost. Red Robin will mostly use its capital for the development of new restaurants and enhancement of shareholder value through share repurchases. 

Red Robin expects to witness positive comps in the upcoming quarter as it reported a 0.5% comps growth at company-owned restaurants through May 15, 2011. Moreover, the company expects to spend $3.8 million on TV advertising during the quarter.   

Red Robin expects to open 10 new company-owned restaurants and 3 to 4 franchised restaurants in fiscal 2011. Management projects capital expenditure in the range of $39 million to $41 million for fiscal 2011.

Our Take

We expect estimates to remain under pressure in the coming days, as higher input cost continues to negatively impact the profit of the company. However, to drive traffic and improve comps, the company continues to spend on television campaigns and promotions. The Zacks Consensus Estimates for 2011 and 2012 are pegged at $1.00 and $1.33, respectively. 

The company retains a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation also remains Neutral

One of Red Robin’s competitors, Cracker Barrel Old Country Store, Inc (CBRL) will declare its financial results on May 24, 2011.

 
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