Red Robin Fails to Lure Diners – Analyst Blog

Red Robin Gourmet Burgers Inc. (RRGB), the casual dining restaurant operator, recently reported dismal third-quarter 2009 results. The quarterly earnings of 37 cents per share missed the Zacks Consensus Estimate by a penny and fell 17.8% from 45 cents posted in the prior-year quarter.

Total revenue tumbled 10.4% year-over-year to $187 million, as cash-strapped consumers are either trading down to quick-service restaurants or preferring to eat at home, leading to fall in traffic and same-store sales.

Same-store sales fell 14.9% for company-operated restaurants, driven by a 13.8% decline in guest counts and a 1.1% fall in the average guest check. Management expects guest count to decline in fiscal year 2009. Same-store sales for franchised restaurants in the U.S. dropped 14.4% and franchised restaurants in Canada fell 0.2%.

Other operators in the casual dining segment are Darden Restaurants Inc. (DRI), Brinker International Inc. (EAT) and Cosi Inc. (COSI).

Red Robin's total revenue comprises restaurant sales (down 10.4% to $183.9 million), franchise royalties and fees (down 8% to $3 million) and rent revenue (down 35.8% to $34,000).

Restaurant operating profit margin at company-operated units shrank 200 basis points (bps) to 16.5% in the quarter. The restaurant margin was hurt by a 160 bps rise in labor costs to 34.9% and a 100 bps increase in occupancy costs to 7.8%, partly offset by a 30 bps fall in cost of sales to 23.4% as well as in operating costs to 17.4%.

Management expects restaurant operating profit margin to fall 150 to 160 bps in fiscal year 2009. With every 10 bps change in the restaurant operating profit margin, earnings are expected to be affected by 4 cents a share.

Amid the recession, casual dining operators are either postponing their restaurant openings or slowing restaurant unit growth to reduce costs. Management plans to open 20 restaurants (15 company-operated and 5 franchisees) in 2009 compared to 41 restaurants (31 company-operated and 10 franchisees) opened last year. In fiscal year 2010, management expects to open 15 company-owned restaurants.