Red Robin Gourmet Burgers Inc.RRGB recently reported mixed fourth-quarter 2015 results with earnings outperforming the Zacks Consensus Estimate but revenues missing the same.
However, its 2016 guidance was above market expectations. Also, the company announced a new $100 million share repurchase authorization. Share rose more than 7% in response to this news.
Red Robin's adjusted earnings of 86 cents per share beat the Zacks Consensus Estimate of 81 cents by 6.2%. Further, earnings also came above the guided range of 80 cents to 84 cents provided last month.
Further, earnings jumped 30.3% year over year as strong margins and share buybacks offset a weak sales performance
Behind the Headline Numbers
Revenues of $286 million missed the Zacks Consensus Estimate of $292 million by 0.4% but grew 1.5% year over year backed by new restaurant openings. In its preliminary results announced on Jan 12,, the company had expected revenues to be $286.3 million.
During the quarter, restaurant revenues went up 1.3% year over year to $282.2 million led by positive comps growth. Franchise royalties and fee revenues increased 12% to about $4.1 million.
Company-owned restaurants' comps declined 2.1%, weaker than prior-quarter comps growth of 3.5% due to weak traffic trends. A 4.6% decline in guest count offset a 2.6% increase in average guest check.
Restaurant-level operating profit margin increased 60 basis points (bps) to 21.9%. The improvement was driven by decrease in cost of sales which offset higher.
Cost of sales was 23.7%, down 180 bps from the year-ago quarter mainly due to lower ground beef costs.
General and administrative costs were $21.2 million, down 3.82% year over year. Pre-opening and acquisition costs were $2.4 million, up almost 100% year over year.
Adjusted EBITDA rose 12.4% to $35.0 million from $31.1 million in the fourth quarter of 2014 as weak sales were offset by lower costs.
For the full year, total sales amounted to $1.3 billion, an increase of 9.7% over 2014. Adjusted earnings per share were $3.32 compared with $2.66 in 2014, an increase of 24.8%.
2016 Revenue Guidance
Red Robin now expects total revenue growth in 2016 to be around 8.5% to 9.5%. This includes comparable restaurant revenue growth in a low single digit range.
Adjusted EBITDA in 2016 is likely to range between $155 million and $165 million.
Restaurant-level operating profit margins are expected to rise 10 bps as lower cost of goods will be offset by higher labor costs.
Capital expenditures are expected to be roughly between $150 million and $155 million. The company also plans to remodel at least 70 Red Robin restaurants in 2016 as part of its brand transformation initiative and relocate three outlets.
The company is also looking to boost sales in 2016 by improving the menu mix. The focus is mainly on providing different varieties of beer at its restaurants. It is believed that a combination of a burger backed by beer will boost sales. It is also expected that if different varieties of alcohol are served, it would have a positive impact on traffic.
Depreciation is projected to be between $82 million and $84 million.
Red Robin currently carries a Zacks Rank #2 (Buy).
Stocks to Consider
Other well-ranked stocks in the same sector are Darden Restaurants, Inc. DRI , Carrols Restaurant Group, Inc. TAST and Dave & Buster's Entertainment, Inc. PLAY . All these stocks sport a Zacks Rank #1 (Strong Buy).
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