Red Robin Gourmet Burgers, Inc. (RRGB) reported first quarter 2010 earnings on May 20, 2010 that surpassed the Zacks Consensus Estimate by 4 cents. The recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for both the short-term and the long-term outlook for the stock are covered in depth below.
Earnings Report Review
During the first quarter 2010, Red Robin reported revenues of $275.5 million, up 1.7% year over year. Comparable-restaurant sales declined 2.3% compared with an 8.1% decrease in the year-ago period, positively impacted by the advertising campaign.
Operating profit of Red Robin rose 7.6% year over year to $7.8 million and operating margin spiked up 10 basis points to 2.8% in the reported quarter, as its television advertising initiative lured more guests.
(Read our full coverage on this earnings report: Red Robin Beats, Trims Outlook)
Earnings Estimate Revisions: Overview
The analysts covering the stock seem to have a negative view on the stock. Although the company surpassed the Zacks Estimates, the outlook was disappointing.
Red Robin reduced its revenue forecast for fiscal 2010 in the range of $872 million to $880 million from its previous expectation of $887 million to $895 million. The company also cut down its 2010 earnings estimates to remain in the range $1.10 to $1.30 per share, from its prior view of $1.27 to $1.45 per share. The company expects comparable restaurant sales to rise between 0% and 1% year over year in fiscal 2010 from its previous range of 2.4% to 3.4%.
Agreement of Analysts
In the last seven days, one analyst has reduced his or her earnings estimate for fiscal 2011. Revision trends in the last 30 days drifted toward the negative side with no positive changes. For fiscal 2010, all 13 analysts covering the stock have reduced their estimates and for fiscal 2011, 11 out of 12 analysts have reduced their estimates. Negative revisions by the analysts are based on a weaker sales outlook, given conservative comparable restaurant sales assumption and rising commodity costs.
Magnitude of Estimate Revisions
Earnings estimates have plummeted by 20 cents to $1.12 in fiscal year 2010 and by 23 cents to $1.26 in fiscal year 2011 over the last 30 days. The magnitude of estimate revisions indicates that the analysts were disappointed by management’s outlook and expect earnings to remain under pressure as the company’s advertising campaign is not able to drive traffic as per expectations.
Our Recommendation
Red Robin continues to emphasize more on brand awareness through a national advertising campaign, and focus on cost control initiatives in fiscal 2010. Moreover, to enhance the perception of value and drive traffic, Red Robin is remodeling its restaurants and plans to open 12 to 13 restaurants in fiscal year 2010.
However, we remain skeptical about the company’s near-term prospects due to an unfavorable consumer spending pattern and increased competition from other casual dining operators. In addition, nearly 50.0% of total restaurants are located in areas that have been hard hit by the recent downturn.
Accordingly, we keep our conservative view on Red Robin shares and maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation. Our long-term recommendation for the stock remains in the middle of the road at Neutral.
Apart from Red Robin, another stock that promises long-term growth opportunities is Chipotle Mexican Grill Inc. (CMG), in which we currently have an Outperform recommendation, as it remained largely unruffled by the recent economic slowdown and reported a strong first quarter 2010 earnings of $1.19 per share, outpacing the Zacks Consensus Estimate of 95 cents.
Read the full analyst report on “RRGB”
Read the full analyst report on “CMG”
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