Casual dining restaurateur Red Robin Gourmet Burgers Inc. (RRGB) is set to report its fourth-quarter 2013 results on Feb 14, 2014.
Last quarter, the company posted an 18.52% positive surprise. On an average, the company has posted an average 17.71% positive surprise in the last four quarters. Let’s see how things are shaping up for the fourth quarter.
Factors to Consider
Red Robin’s costs and expenses have been going up for the past three quarters due to increasing labor costs and commodity inflation. The cost of fresh ground beef is likely to remain a concern in the ensuing quarter. We are highly concerned about the company’s rising cost structure which may hurt margins going forward.
Moreover, the company is heavily investing in several sales-building initiatives, such as advertising, technical upgrades and improved supply chain. While the benefits of these initiatives will not be realized before 2014–2015 they have already begun to put pressure on the current bottom line.
Red Robin has been experiencing macroeconomic headwinds for the past few quarters. Government budget cuts, high tax rates and still-tightened credit availability continue to hurt consumer discretionary spending, which in turn may affect restaurant traffic in the coming quarter.
Earnings Whisper?
Our proven model does not conclusively show that Red Robin is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Negative Zacks ESP: The Earnings ESP for Red Robin is -1.70%. That is because the Most Accurate estimate stands at 58 cents while the Zacks Consensus Estimate is higher at 59 cents.
Zacks Rank: Red Robin’s Zacks Rank #3 (Hold) when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies from the restaurant industry you may consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Jack in the Box Inc. (JACK), with Earnings ESP of + 4.62% and a Zacks Rank #2 (Buy).
Texas Roadhouse, Inc. (TXRH), with Earnings ESP of + 4.35% and a Zacks Rank #2.
DineEquity, Inc. (DIN), with Earnings ESP of + 1.04% and a Zacks Rank #3.
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