Casual dining restaurant operator Red Robin Gourmet Burgers Inc. (RRGB) reported its 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. Results benefited from the upside in revenue driven by comparable sales growth.

The company said that total revenues for 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.

Red Robin’s adjusted earnings per share for the full year were 85 cents, down 38.4% year over year. However, on a GAAP basis the company reported earnings of 46 cents in 2010 versus $1.14 in fiscal 2009. Revenues were $864.3 million in fiscal 2010, representing a year-over-year growth of 2.8%.

Performance Highlights

During the quarter, restaurant sales leaped 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 in the reported quarter, 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 in the U.S. spiked up 3.4% year over year and jumped 0.9% in Canada.

Restaurant operating margin contracted 30 basis points (bps) to 17.0%, due to a 60-bp expansion in food and beverage cost and a 20-bp rise in labor costs, partially offset by a 30-bp decline in occupancy costs and 20-bp drop in other operating costs.

Selling, general and administrative expenses in the quarter escalated 12.3% year over year to $19.2 million, due to the company’s television media campaign and executive transition cost.

Financial Aspects

Red Robin ended the year with cash and cash equivalents of $17.9 million, total outstanding debt of $158.5 million and shareholders’ equity of $300.7 million. Total debt includes $104.0 million in borrowings under its $150 million term loan, $43.0 million of borrowings under its $150 million revolving credit facility and $11.6 million outstanding for capital leases.

Outlook

In 2011, the company will focus on growing revenue, managing expenses and deploying capital.

Additionally, the company foresees cost inflation in 2011, and hence will raise prices by 1.5% in April to mitigate the input cost pressure. To control expenses, the company will make efforts to cut down cost. Red Robin will mostly use its capital for the development of new restaurants and enhancement of shareholder value through share repurchases. 

Red Robin has also indicated that through February 14, 2011, company-owned comparable sales growth has dropped 0.4%. However, excluding the impact of bad weather condition and the timing of Valentine’s Day, comparable sales were positive.  

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.

Our Take

We expect estimates to move down in the coming days, as negative same store sales as well as cost pressure will negatively impact the profit of the company. Moreover, estimates have not budged in the last 7 days for 2011, implying that the analysts do not see any meaningful catalyst for the time being. The Zacks Consensus Estimate for earnings is 81 cents per share for 2011. 

The company retains its Zacks #4 Rank on the stock, which translates into a short-term ‘Sell’ recommendation.

One of Red Robin’s competitors, Benihana Inc. (BNHN) reported earnings of 12 cents per share in third quarter 2011, which surpassed the Zacks Consensus Estimate of 3 cents. The better-than-expected results were due to four consecutive quarters of comparable sales growth and cost saving initiatives. 

 
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RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
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