Casual dining restaurant operator Red Robin Gourmet Burgers Inc. (RRGB) posted mixed results for fourth-quarter 2013. The company’s fourth-quarter earnings of 62 cents per share beat both the Zacks Consensus Estimate and year-ago quarter’s earnings of 59 cents by 5.1%. Earnings in the quarter benefited from margin expansion.
Revenues grew 0.5% year over year to $242 million in the quarter, driven by higher franchise royalties, fees and other revenues, partially offset by lower traffic. However, quarterly revenues were in line with the Zacks Consensus Estimate.
Behind the Headline Numbers
During the quarter, restaurant revenues inched up 0.4% year over year to $237.6 million, led by positive comps growth. Franchise royalties and fee revenues increased 9.0% to about $4.4 million.
Company-owned restaurants’ comps grew 3.7% which was lower than the third-quarter comps of 5.7% due to a 1.4% decline in guest count. However, fourth-quarter comps were higher than the year-ago level of 1.4%, driven by a 5.1% rise in average guest check..
Restaurant-level operating profit margin expanded 110 basis points to 21.7% thanks to the decline in local marketing expense and supply costs.
Store Update
During the quarter, 10 company-owned Red Robin restaurants were unveiled. At the end of the fourth quarter, Red Robin had 495 restaurants. Of this, 6 were Red Robin’s Burger Works restaurants, 134 units were franchised and the rest were company owned. As per the company’s brand transformation effort, 19 restaurants underwent a complete makeover in 2013.
Full-Year 2013 Highlights
Adjusted earnings per share in full-year 2013 were up 15.0% year over year to $2.37, beating the Zacks Consensus Estimate of $2.17 by 9.2%. Revenues were $1.02 billion, up 4.1% year over year, but in line with the Zacks Consensus Estimate.
2014 Outlook
Red Robin expects high single-digit sales growth in 2014 mostly gaining from restaurant openings and positive comps growth. For 2014, Red Robin expects comps to increase in a low single-digit range, led by favorable mix and higher promotional efforts. In 2014, restaurant operating margins are estimated to be slightly above 21%. However, the operating margin is expected to decline year over year due to higher labor as well as commodity costs.
The casual dining restaurant operator remains on track to unveil 20 units along with 5 Red Robin’s Burger Works in 2014. Additionally, the restaurateur intends to remodel 50 restaurants this year.
Our Take
Red Robin’s strong earnings growth and margin expansion are quite impressive. Operational strategies such as menu innovation, effective marketing strategy, unit expansion and remodeling programs have been the strength of this Zacks Rank #3 (Hold) stock. Also, its foray into the smaller prototype restaurant concept — Red Robin’s Burger Work — is an added positive.
However, we remain concerned about the incremental labor costs and commodity inflation. A fall in guest count is also concerning.
Other Stocks to Consider
Some better-ranked stocks in the restaurant industry include Fiesta Restaurant Group, Inc. (FRGI), Brinker International, Inc. (EAT) and Buffalo Wild Wings Inc. (BWLD). While Fiesta Restaurant sports a Zacks Rank #1 (Strong Buy), Brinker and Buffalo Wild Wings carry a Zacks Rank #2 (Buy).
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