Red Robin Gourmet (RRGB 48.88, -18.18, -27.1%) is a full-service restaurant chain that specializes in high-quality gourmet burgers. In other words, it operates in a competitive industry.
For its part, Red Robin said it "significantly outperformed the casual dining industry on traffic for a fifth consecutive quarter" in the third quarter, which is a striking claim considering Red Robin's guest count for its comparable restaurants was flat versus the same period a year ago.
Investors, however, aren't giving Red Robin any credit for outperforming the industry on traffic. What they are giving Red Robin is a thumping, because the company came up short of third quarter expectations and issued fourth quarter EPS guidance that was a far cry from analysts' average expectation.
Red Robin's total revenue increased 2.3% in the third quarter to $304.2 million, its comparable restaurant revenue decreased 0.1%, and its adjusted earnings per diluted share declined 45% year-over-year on a comparable basis to $0.21. The latter was at the low end of the company's guidance range of $0.21 to $0.30.
The restaurant operator's profitability was compressed by higher labor costs, which, along with higher restaurant operating expenses, an increase in cost of sales, and an increase in occupancy costs, contributed to a 120 basis point decline in the restaurant-level operating profit margin of 17.4%.
For the fourth quarter, Red Robin anticipates earnings per diluted share to range from $0.45 to $0.60, which is roughly 40% below analysts' average expectation at the high end of the guidance range.
For full-year 2017, comparable restaurant revenue is expected to be flat to up 0.5% and earnings per diluted share are projected to be between $2.16 and $2.31. Previously, Red Robin had projected full-year 2017 earnings per diluted share to be between $2.80 and $3.10. The downward revision was attributed in part to category volatility.
In addition to its earnings guidance, Red Robin also said it intends to pause unit growth as of year-end 2018 in order to test new approaches to inform future growth.
The disappointing quarter and full-year outlook have prompted several analysts to downgrade the stock, compounding today's selling pressure that has shares of RRGB seeing deep red.