August 20, 2017 | 4:55 PM by Jay Kunstman |

Insider Spotlight – Red Robin Gourmet Burgers (RRGB)

Restaurant operator Red Robin Gourmet Burgers owns, operates, and franchises nearly 550 locations across the United States and Canada, of which over 470 are company-owned and about 90 are operated under franchise agreements.

According to Form 4 filings, Chief Financial Officer Guy Constant bought $147,195 worth of stock at $58.88 on August 15th. This is Guy’s first open market purchase since becoming CFO on December 14th and it is the first open market purchase for Red Robin since March 6th when COO Carin Stutz bought $52,690 worth of stock.

As a quick overview, Guy Constant most recently served as Chief Financial Officer, Executive Vice President of Finance and Treasurer for Rent-A-Center Inc. (RCII). Prior to his role at Rent-A-Center, Mr. Constant was involved in the restaurant industry where he served in various executive roles at Brinker International (EAT), including Executive Vice President and Chief Financial Officer, President of the Chili’s Global Restaurant Division, Senior Vice President and Vice President of Finance and Senior Director of Executive Compensation.

Earlier this month, on August 8th, the company reported their Q2 earnings:

-EPS of $0.61 vs $0.52 estimate – Beat
-Revenue of $315.8M vs $315.6M estimate – Beat
-Total Revenues increased 3.3%
-Comparable Restaurant Revenue increased 0.5%
-Comparable Restaurant Guest Counts increased 1%
-Stock closed higher by 9.02%

On the earnings call, CEO Denny Marie Post would comment on the issues their team has been tackling to improve the business:

• Our operations team dramatically improved their level of service, raising the Net Promoter Score, or NPS, to a consistent 70 or better, in large part by reducing those often vocal detractors to 7% or less. They accomplished this by honing in on those days and shifts where we fell short through our win the weekend tracking and coaching.

• The marketing team tested and thoughtfully rolled out an extended Tavern menu, which now features 8 items, including 6 burgers starting at $6.99. This new product news has us back in the value game with the Tavern menu mixing at 12% to 13% and guests are rewarding us with more visits as they appreciate the consistent value Red Robin delivers every day and in all day parts.

• We have chosen to invest incrementally in select high penetration local markets to complement our national media using spot TV, local radio and/or prints to raise our profile. We have seen higher increases in sales and traffic where we have done so, and we will continue to invest incrementally in future quarters.

• We are continuing to roll out curbside to locations where it is possible and to add call center support. By early Q4, all corporate restaurants will be on the call center and have designated in-store pickup areas and roughly 2/3 of all of our units will have curbside delivery.

• As a result of strong guest demand and higher confidence in our ability to deliver at accurate order, we have decided to expand to a total of 198 unique locations with the 3 services we already use: Amazon (AMZN), DoorDash and GrubHub (GRUB). To qualify, all of the 80 new locations we have added had to have high guest experience scores. These operators have demonstrated that they are ready to capture more sales.

Analyst Commentary

BAML – On August 9th, analyst Gregory Francfort reiterated his Buy rating and $85 price target saying there is significant upside potential for RRGB’s stock if the company can capture the majority of its margins goals while continuing to improve its traffic.

The analyst also said that the Tavern menu is currently mixing at around 12%-13% of sales vs prior rough comments of “about 10%” and now, Red Robin will begin to lap its self-imposed 150-200bps mix declines that began in 3Q last year.

In addition, the company expects its To-Go initiatives to really begin to kick in for the fourth quarter, but BAML believes that just the momentum from value shifts alone should be able to get the company to a roughly 2%-2.5% 2H17 comp. Labor cost efficiency savings also should be more 4Q weighted with plans to remove 12 hours of labor per day out of the stores currently being phased in but not fully implemented until November.

BTIG Research – On August 9th, analyst Peter Saleh upgraded the stock from Neutral to Buy with a price target of $64 saying that the direction change in traffic trends thanks to recent value initiatives has made him incrementally more positive on the stock. The analyst expects traffic trends to remain positive through the second half of 2017 and into 2018 citing the value add of online ordering, refocused advertising and delivery.

Morgan Stanley – On August 9th, analyst John Glass reiterated his Equal-Weight rating and lowered his price target from $70 to $64 saying a Q3 EPS guide that was well below our/Street estimates puts more pressure on 4Q to deliver on its annual guide. While improvement to positive traffic is encouraging, mix likely remains a drag, with the rate of off-premise adoption the 2H wild card.

Canaccord Genuity – On August 9th, analyst Lynne Collier lowered her price target to $80 from $90 following Q2 results. She noted the company beat on the bottom line but expects the stock’s reaction to be muted since guidance was at the low end. The analyst maintained her Buy rating on Red Robin shares as the company’s initiatives are taking hold leading to a further acceleration in comps.


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