Red Robin is getting an $8.3 million infusion from a pair of activist investors to help the casual-dining burger chain pay down debt.
The investors, JCP Investment Management and Jumana Capital Partners, will also get two seats on the chain’s board as part of a new cooperation agreement with Red Robin. JCP founder James Pappas and Jumana Managing Director Christopher Martin will join the board, expanding it to 10 seats.
The agreement is a sign that Red Robin and the activists share a vision for the 500-unit chain, which has been in the midst of a turnaround for the past two years.
“JCP's and Jumana's additional investments demonstrate their commitment and belief in the future of Red Robin,” said Red Robin Chairman David Pace in a statement. “We are pleased to welcome James and Chris to Red Robin's Board of Directors and look forward to their contributions and expertise as we continue to execute on our strategy for the comeback of this beloved brand.”
Pappas in a statement said that JCP and Jumana are in favor of Red Robin’s strategy, which has included sweeping changes to its menu and operations. The chain has introduced a new cooking process and ingredients for its signature burgers, for instance, and has added more staff to its restaurants, such as bussers and bartenders, that were cut under a prior regime.
JCP and Jumana’s goal, Pappas said, is to support those efforts by helping the chain lower its debt and increase cash flow. That could include potentially franchising some of Red Robin’s company-owned locations. The company currently operates the vast majority of its restaurants.
Pappas is the son of Chris Pappas, the former CEO of Luby’s Cafeteria and current CEO of Texas hospitality powerhouse Pappas Restaurants.
As head of Houston-based JCP, James Pappas has been an aggressive activist at a number of restaurant companies. Over the years, the firm has been involved with Fiesta Restaurant Group, Jamba, and Applebee’s parent Dine Brands, where JCP called for the sale of IHOP in 2020. In October, JCP encouraged The Cheesecake Factory to sell some of its smaller restaurant concepts.
Jumana, also based in Houston, did not appear to have any prior connections to the restaurant industry. It tends to invest in entrepreneurial, middle market companies. Martin has been the firm’s managing director since 2020. Before that, he was VP of Hastings Equity Partners, a private equity firm.
The two investors first took an activist position in Red Robin in October, buying up nearly 15% of the chain's shares. Their stake will increase to 20% after the $8.3 million private placement is complete.
Shares of Englewood, Colorado-based Red Robin are down nearly 53% year to date and are worth far less than other publicly traded casual-dining brands. On Tuesday, its stock was up about 7%, to $5.63. That was below other chains in its class, such as BJ’s Restaurants ($36.66), The Cheesecake Factory ($50.02) and Chili’s parent Brinker International ($130.53).
Management has said the chain’s comeback plan is working, citing higher customer scores and good results from a new loyalty program. But they have also cautioned that it will take some time for the changes to fully set in. Same-store sales rose 0.6% year over year in the third quarter, while traffic fell 4.3%. Red Robin said it planned to invest in more discounts to lure customers.
For the third quarter, the company also reported total liabilities of more than $722 million and assets of more than $669 million.
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