Restaurant stocks are always a hot favorite among investors, especially when the stock is a growth stock. A great player in this industry is Red Robin Gourmet Burgers (RRGB, Financial).
The company has posted mixed quarterly results, including a 1.5% increase in total revenue. During the fourth quarter, the company opened 11 full-size Red Robin restaurants, bringing the total restaurant openings for the year to 24. Further, during fiscal 2015, it completed remodeling of 157 restaurants under the Brand Transformation Initiative.
Founded in 1969, Red Robin Gourmet Burgers is a casual dining restaurant chain and is focused on serving a selection of gourmet burgers. The company operates through its wholly owned subsidiary, Red Robin International Inc., and under the trade name Red Robin Gourmet Burgers and Brews. It is the "Gourmet Burger Authority," famous for serving more than two dozen craveable, high-quality burgers with Bottomless Steak Fries in a fun environment welcoming to guests of all ages. Its other brand names are Red Robin Royalty, Red Robin America's Gourmet Burgers & Spirits, Red Robin Burger Works and YUMMM.
In addition to its many burger offerings, Red Robin serves a wide variety of salads, soups, appetizers, entrees, desserts, signature alcoholic and nonalcoholic specialty beverages and a variety of national and craft beers. As of Dec. 27, 2015, the company had 538 Red Robin restaurants in total across the U.S. and Canada.
Mixed fourth-quarter results
On Feb. 12, the Colorado-based company reported fiscal fourth quarter and full-year 2015 results for the period ended Dec. 27, 2015. The company’s total revenues (includes company-owned restaurant revenue and franchise royalties) increased 1.5% to $286.3 million, compared to $282.11 million for the comparable prior-year period. Further, Red Robin’s systemwide restaurant revenue (including franchised units) increased 1.18% to $352.1 million, compared to $348.0 million for the prior-year period.
Using constant currency rates, Red Robin’s comparable restaurant revenue decreased 2.0% in the fourth quarter of 2015 compared to the same period a year ago, driven by a 4.6% decrease in guest counts offset by a 2.6% increase in the average guest check. The company’s restaurant-level operating profit, as a percentage of restaurant revenue, increased to 21.9% from 21.3% in the year-ago quarter, resulting in an improvement of 60 basis points. The catalyst behind this improvement is a 180 basis point decrease in cost of sales, partially offset by an 80 basis point increase in labor costs, a 30 basis point increase in occupancy costs and 10 basis points increase in other restaurant operating expenses.
Net income for the reported period shot up to $11.7 million, an increase of 200%, compared to $3.9 million for the same period a year ago. Further, adjusted net increased 28.2% to $12 million compared to $9.4 million for the same period a year ago.
Red Robin’s GAAP earnings per diluted share was 84 cents and adjusted earnings per diluted share increased 30.3% to 86 cents, compared to 66 cents for the comparable prior-year period. EBITDA and adjusted EBITDA for the reported quarter increased 54.24% to $34.40 million and 12.35% to $34.98 million compared to the year-ago quarter.
Red Robin ended the quarter with cash and cash equivalents of $22.7 million and total debt of $210.8 million, including $8 million of capital lease liabilities. In addition, since the beginning of fiscal year 2015, it has increased its debt by $63 million.
Share repurchase
Red Robin purchased 419,481 shares of the company’s common stock for $29.4 million during the fourth quarter of 2015 and in 2015 purchased a total of 556,049 shares for $40 million. At the end of the quarter, there was approximately $10 million remaining under the current board authorization for stock repurchases.
Further, on Feb. 11, Red Robin’s board of directors reauthorized the company’s share repurchase program and approved the repurchase of up to a total of $100 million of the company’s common stock.
Fiscal 2015 results
For fiscal 2015, Red Robin’s comparable revenue increased 2.1% compared to 2014, driven by a 2.5% increase in average guest check and offset by a 0.4% decrease in guest counts. Restaurant-level operating profit, as a percentage of restaurant revenue, increased to 22.3% from 21.4% in the prior-year period. GAAP earnings per diluted share and adjusted earnings per diluted share for the reported period was $3.36 and $3.32. Further, a chart has been provided to show Red Robin’s fiscal 2015 metrics compared to fiscal 2014.
Projections for fiscal 2016
Red Robin expects the following for its fiscal 2016:
- Total revenue growth in the range of 8.5% to 9.5%.
- Comparable restaurant revenue growth is expected in low single digits.
- EBITDA is expected between $155 million and $165 million.
- Depreciation and amortization is projected to be between $82 million and $84 million.
- The company expects its interest expense to be approximately $5 million and the annual tax rate to be approximately 25.5%.
- Capital investments in the range of $150 million and $155 million.
- It plans to open approximately 25 new Red Robins and five Burger Works and to remodel around 70 locations as part of its Brand Transformation Initiative.
Growth and management
Red Robin has initiated project RED (Revenue, Expense and Capital Deployment) and has delivered improved margins and guest experience. Under project RED, the company expects to double its EBITDA over five years. From 2010 to 2015, Red Robin’s EBITDA and revenue grew at a CAGR of 14.1% and 7.8%. Further, since 2010, Red Robin has provided improving cash returns.
On Dec. 30, 2015, Red Robin introduced Be Nice Project by partnering with DUDE. In this project, the company has launched a new Wedgie Burger that will give guests an opportunity to support the initiative by sending a "Wedgie" to their friends via an e-gift card.
Recently Red Robin appointed Jonathan Muhtar as senior vice president and chief marketing officer. Muhtar will be responsible for strengthening the company’s position in menu innovation and implementation, customer relationship management, social media, brand positioning, pricing, promotions and field marketing as well as directing media strategy.
A peek into the restaurant industry
Eating out has become a fashion now, and perceptions have changed. There is a constant rise in the disposable income of people around the world, and eating out is comforting, too.
According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this has been the strongest three-month period). Consumer behavior has changed and so the restaurants have come up with different marketing strategies – loyalty programs, ordering, etc.
As per the National Restaurant Association, restaurant industry sales are expected to reach $783 billion in 2016 and will represent the seventh consecutive year of real growth in restaurant sales. Further, the National Restaurant Association has predicted that the restaurant industry will remain the nation’s second-largest private sector employer with a workforce of 14.4 million and will create 1.7 million new restaurant jobs by 2026.
(Source: Company website)
On a concluding note
Red Robin is a rock-solid company with EPS growth, solid revenue growth, increase in net income, reasonable valuation levels, strong management team, good cash flow from operations and considerable white space for development.
Further, the company provided a sixth consecutive year of taking market share from peers in a challenging environment. Additionally, restaurant stocks are booming and with the recent quarterly release, the company is aiming for a better future and is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
