Colorado-based casual-dining restaurants chain Red Robin Gourmet Burgers Inc. ( RRGB ) is set to report second-quarter 2014 results on Aug 14, before the opening bell.
In the last quarter, the company posted a positive earnings surprise of 12.33%, primarily due to better-than-expected revenues. Let's see how things are shaping up for the upcoming announcement.
Factors to Consider this Quarter
Red Robin has been delivering continuous comps growth even during the harsh winter months, and we expect the trend to continue in this quarter as well. Higher average check, despite only a 0.5% increase in traffic, drove comps growth in the prior quarter. Traffic trends are expected to increase during the summer months and the company should continue to deliver robust comps growth.
We are also encouraged by the success of the company's loyalty program - Red Robin Royalty - which continues to add members. Additionally, the company's new service, presentation and innovative new menu items are expected to boost sales in the coming quarters.
Nevertheless, we are concerned about Red Robin's rising costs and expenses. Increased labor costs and commodity inflation - especially the cost of fresh ground beef - is likely to remain a concern. Prolonged drought in the southern U.S. Great Plains has led to the increase in retail beef costs. We believe the company's rising cost structure will hurt margins, going forward.
Our proven model does not conclusively show that Red Robin is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP : The Earnings ESP for Red Robin is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 90 cents.
Zacks Rank : Red Robin has a Zacks Rank #3 (Hold), which when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Marriott Vacations Worldwide Corp. ( VAC ), with an Earnings ESP of +3.66% and a Zacks Rank #2 (Buy).
Wyndham Worldwide Corporation ( WYN ), with an Earnings ESP of +0.62% and a Zacks Rank #2.
Hasbro Inc. ( HAS ), with an Earnings ESP of +0.68% and a Zacks Rank #3.