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Red Robin gets pounded after airing sales surprise

Casual chain warned investors that Q2 results were weaker than expected
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Red Robin Gourmet Burgers and Brews lost nearly a quarter of its market value yesterday after the casual-dining operator alerted investors that second-quarter sales and traffic would fall below Wall Street’s expectations.

Comparable restaurant revenues fell 2.6% to $315.4 million on a 0.7% slide in guest counts, a steeper decrease than what the sales-tracking Black Box Intelligence service pegged as the decline for all of casual dining, Red Robin said in releasing unaudited, preliminary results for the quarter ending July 15. Final results for the period are scheduled to be issued Aug. 21.

“While we remain confident in the strategy that we have in place to address the shifts going on within casual dining, we simply didn’t execute as well as we should have,” Red Robin CEO Denny Post said in a statement accompanying the release of financial information. “We continue to make progress on driving off-premise traffic growth and differentiation through everyday affordability. However, we have yet to see the needed lift in dine-in traffic to offset the lower check average associated with the higher mix of our Tavern Double Menu.”

The Tavern Double Menu is an array of burgers priced at $6.99 to lure value-conscious customers who may have been turned off by the escalation of casual-dining prices in recent years. Post has asserted that one of the segment’s problems is a perception that visits are too expensive to be regarded as an everyday option.

Red Robin has also contended with the sector’s struggles by experimenting with different ways to meet mounting demand for off-premise sales. It has introduced a burger bar, a mini-buffet of burgers and toppings that customers can set up in their homes or offices, in a bid to capture more catering sales. It has also experimented with delivery- and takeout-only stores, while offering delivery through third parties in conventional units.

“We have opportunities to improve our service execution, which has been impacted by the growing complexity of the multiple revenue streams within our four walls,” Post said. “We must also refresh our marketing message and move quickly on the digital guest experience. We will share more insights about these shortfalls, and our plans to address them, on our upcoming earnings call.”

Release of preliminary sales information, part of what Post termed the company’s efforts to be transparent, sent the Red Robin’s stock into a tailspin. The price of a share dropped by nearly $15 from the 52-week high to $45.85.

The heads-up to Wall Street followed reports from a number of casual-dining brands of strong same-store sales gains for the second quarter. Applebee’s, the segment’s leader in terms of unit counts, posted a 5.7% rise, its strongest rise in same-stores in a decade. Texas Roadhouse also generated a 5.7% gain, and BJ’s pegged its comps at 5.6%.  

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