Red Robin’s Catalysts Aren’t Playing Out As Expected, Canaccord Says In Downgrade

Casual burger chain Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) delivered a disappointing preliminary second-quarter earnings update Wednesday that prompted Canaccord Genuity to downgrade the stock. 

The Analyst

Canaccord’s Lynne Collier downgraded Red Robin from Buy to Hold with a price target lowered from $65 to $42.

The Thesis

Red Robin’s disappointing Q2 update was notable for the following reasons, Collier said. (See the analyst’s track record here.) 

• A $9-million shortfall on the revenue line.
• A comp decline of 2.6 percent versus the analyst’s expectations of negative 0.5 percent.
• A 70-basis point drop in traffic.
• An average check size decline of 190 basis points.
• EPS guided to 46 cents versus the analyst’s estimate of 62 cents.
• Higher food and operating costs more than offset favorable labor costs and lower tax rates.
• An unfavorable higher mix of the $6.99 Tavern Double burger menu.
• Labor cuts may have gone “too deep” in a highly competitive restaurant environment.

Due to the multiple concerning readouts in the announcement, it is now evident that any prior encouraging assumptions aren’t playing out as expected, Collier said. In a research report in May, the analyst had said comps were likely to improve due to the restaurant brand’s strong value and growth in delivery.

Investors should move to the sidelines due to near-to-intermediate-term same-store sales and margin pressures, the analyst said. 

Price Action

Shares of Red Robin Gourmet Burgers hit a new 52-week low of $36.20 on Thursday and were trading down 19.36 percent at $36.98 at the time of publication. 

Related Links:

Red Robin Gourmet Burgers Downgraded After Q1 Print Falls Short Of BTIG’s Expectations

Red Robin Burgers Is ‘Ready To Fly,’ Analyst Says In Upgrade

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