Casual dining restaurant operator Red Robin Gourmet Burgers Inc.’s (RRGB) second-quarter 2013 earnings of 77 cents per share breezed past the Zacks Consensus Estimate of 66 cents by 16.7% and the year-ago quarter’s earnings of 52 cents per share by 48.1%. Earnings got a boost from decent top line growth and margin expansion.
Red Robin recorded a 6.5% year-over-year rise in revenues to $238.3 million in the second quarter. Higher comparable restaurant sales (comps) and various sales-driving initiatives favored the top line during the quarter. However, revenues were below the Zacks Consensus Estimate of $239 million by a slight margin.
Behind the Headline Numbers
During the quarter, company-owned restaurant revenues grew 6.6% year over year to $234.5 million, fueled by both higher operating weeks as well as higher comps. Franchise royalties and fee revenues were up 2.7% to nearly $3.8 million.
Company-owned restaurants’ comps grew 4.3%, benefiting from higher average guest check. However, a 0.7% decline in traffic restricted the expansion in comps to some extent.
Restaurant operating margin expanded 220 basis points (bps) to 23.3% at company-owned restaurants gaining from the decline in food and beverage costs, insurance and other operating costs as well as improved mix.
Store Update
During the quarter, 2 Red Robin restaurants were unveiled. Red Robin currently operates 339 restaurants, out of which 5 are Red Robin’s Burger Works restaurants, 133 units are franchised and the rest are company-owned.
Outlook
For fiscal 2013, Red Robin raised its expectation for comps and restaurant operating margin. The company now expects comps to grow 3% as against its prior expectation of 2.5%–3.0% owing to expected market share gain. Further, potential rise in prices and increased number of items sold per visit aided the company to up the guidance.
Restaurant operating margin is now projected to be 21.3%, up from the previous estimate of 20.9%, thanks to better-than-expected margin performance in the second quarter. In the preceding quarter as well, Red Robin upped its margin guidance from 20.7% range. The margin is expected to gain from moderating commodity costs.
The casual dining restaurant operator remains on track to unveil 20 Red Robin units and is also planning to remodel an equal number of restaurants in fiscal 2013.
Our Take
Red Robin’s continuous top-line growth and margin expansion are quite impressive. Rise in comps and margin guidance were a high-point in the reported quarter. Some of the company’s operational strategies such as cost savings and its guest loyalty program — Red Robin Royalty — have been the strength of this Zacks Rank #2 (Buy) stock.
Some other players in the restaurant industry, which look attractive at current levels, include The Wendy’s Co. (WEN), Domino’s Pizza Inc. (DPZ) and Burger King Worldwide Inc. (BKW), all carrying a Zacks Rank #2.
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