Will Elevated Costs Hamper Red Robin's (RRGB) Q3 Earnings?
Zacks Investment Research | Nov 02, 2017 11:01PM ET
Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is scheduled to report third-quarter 2017 results on Nov 6, after market close.
Markedly, the company’s brand revitalization initiatives such as menu innovation, operational improvement and the introduction of a better customer service platform to enhance guest experience continue to drive revenues. Also, Red Robin’s local marketing initiatives and media campaign are expected to attract customers.
In fact, Red Robin has rolled out Kitchen Display System, which is linked to table management software. This is expected to result in major sales growth as kitchens can handle higher peak volumes. Moreover, Red Robin’s increased focus on its remodeling initiative is likely to boost its potential as a brand and improve client experience, thereby driving traffic and comps.
Notably, the Zacks Consensus Estimate is pegged at flat comps in comparison with the prior-year quarter. The same for the quarter’s total revenues is pegged at an increase of 3.6% year over year to $308.1 million.
Meanwhile, the company is moving smartly on new revenue streams such as its off-premise, online-ordering business via carry-out, delivery and catering. However, these are expected to meaningfully support the top line fourth-quarter 2017 onwards and add approximately $0.5 million of training and G&A costs in the third quarter.
In addition to these costs, Red Robin expects elevated labor costs, food costs, expenses related to initiatives as well as pre-opening and remodeling costs to continue to put pressure on margins in the third quarter.
Moreover, as the operating environment has become increasingly challenging, the decline in sales volumes have begun to impact the returns on new restaurant openings. Consequently, Red Robin has slowed down its development plan significantly for 2017. This, in turn, may hurt the top line in the quarter.
Per second-quarter conference call, management expects third-quarter earnings per share to be in the range of 20 cents to 30 cents. The Zacks Consensus Estimate for the quarter’s earnings is pegged at 28 cents.
Our quantitative model also predicts that Red Robin does not have the right combination of two main ingredients — a positive Zacks Investment Research
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