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Financing

Service pivot came too late to right Q4 sales, Red Robin says

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Operational improvements didn’t come soon enough to pull Red Robin Gourmet Burgers out of its financial slide during the fourth quarter of 2018, according to CEO Denny Post. The casual chain lost $10.6 million in part because of a 4.5% drop in same-store sales, driven in turn by a 4.4% slide in guest counts.

The year-over-year comparisons also reflect having 13 weeks in the fourth quarter of fiscal 2017, compared with the 12 weeks of the more recent period.

The brand’s average check also declined, by 0.1%, despite an effort to lead steady customers away from bargain-priced items.

Unit-level margins contracted by 1.1 percentage points, to 19.4%, despite a decline in the cost of beef, a key expense for the burger-focused chain. Those savings were offset by increases in the cost of fries, labor and the fees paid to third-party delivery services, according to Post and her team.

One of the bright spots was a 23.2% increase in off-premise sales, including better-than-expected results from catering. Takeout, delivery and catering generated 10.6% of the brand’s sales during the fourth quarter.

Overall, Red Robin’s revenues for 52-week fiscal 2018 fell 3.5% from the 53-week prior fiscal year, to $1.34 billion. The franchisor and operator posted a net loss of $6.4 million for the year, compared with a net profit of $30 million for fiscal 2017. The Q4 loss for last year compares with a profit of $8.8 million. 

“2018 was a very challenging sales year and the fourth quarter continued that trend, buoyed somewhat by better than expected growth in our new catering business, but dragged down by weakness at in-line mall locations,” Post said in a statement. “That said, we made measurable progress on the operations fundamentals we identified last August as critical to gradually regaining our momentum in 2019.”

Red Robin acknowledged last summer that operational changes intended to cut labor costs had backfired and cut deeply into the brands’ top line. Two clean-up-type positions had been eliminated as part of a change to a new system for dispatching orders to the kitchen. Servers were expected to assume the tasks of bussing tables, but that additional function was not readily embraced, leaving dirty tables and increasing the wait times for guests, particularly on weekends. 

Red Robin alerted investors that it would change its training methods to emphasize the new team approach to cleaning tables. It also fired COO Carin Stutz and announced that CFO Guy Constant would assume the operations post as soon as a new finance chief could be hired. The appointment of Lynn Schweinfurth as CFO was announced in January, clearing the way for Constant to change jobs at the end of that month.

During the fourth quarter, “we were more prepared to capture the seasonally higher traffic with improved staffing, scheduling and execution leading to shorter wait times, fewer guests walking away, and improved kitchen time to table by the end of the quarter,” Post said. “Continued focus on these and other fundamentals is essential to delivering sustainable performance to return to positive sales and traffic.”

Other comments indicated the chain plans to continue the marketing efforts started last year to lead customers away from a selection of bargain-priced burgers by spotlighting pricier premium alternatives. 

The chain began and ended the fourth quarter with 573 restaurants, 89 of which are franchised.

 

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