Friday, February 23, 2007

Color on results: Red Robin Gourmet Burgers (NASDAQ:RRGB)

Couple of firms out with interesting comments on Red Robin Gourmet Burgers (NASDAQ:RRGB) after the co issued surprisingly strong Q4 results last night:

- BofA notes the EPS of $0.53 was above their low-visibility consensus-estimate of $0.35. Results benefited from slightly better than expected sales coming from the extra week, in addition to a lower tax rate and the settlement of a class action suit with Visa and MC. Restaurant-level operating margins improved 90 bps due to an improvement in COGS (stemming from the new menu engineering and margin leverage from menu price increases), and labor (self-insured benefit costs).

For F07 the company expects 24-27 new company stores (seems like a lot, considering challenges with new unit openings and brand awareness in new markets).

RRGB no longer provides quarterly comp guidance, but based on management's statements regarding the challenges experienced so far in 1Q (winter weather, tough comparison and a challenged sales environment for casual dining) the firm has lowered their 1Q comp estimate to flat from +2%. Guidance for the full year of 2.0%-3.5% assumes a big benefit from national cable advertising in 2H; based on how long it took competitors to experience a boost from launching national media, they maintain somewhat conservative estimates for the remainder of '07 (2.0-2.5%)

Firm has lowered their EPS estimates for 1Q and the full year to $0.47 and $1.80, respectively (from $0.49 and $1.81). Tgt goes to $36 from $34. Maintains Neutral.

- CIBC notes that after adjusting for the greater than expected extra week benefit, lower tax rate and litigation settlement RRGB delivered $0.04 per share upside vs consensus. 4Q SSS +0.2% (in line) including a 3% decline in guest counts.

New unit productivity, a focal point in recent qtrs, still challenged with new units delivering just 87% of existing unit volumes--same as 3Q06. No quick answers with development focus still in new markets through '07. April '07 premier of national cable advertising could provide much needed traffic lift.

4Q results & '07 outlook, while likely to appease shareholders in short run, don't address LT issues facing RRGB including flagging new unit productivity stemming from lack of brand awareness. Still, over time, they find concept fixable & shares remain interesting (at 21X '07E) for LT investors. Maintains Sector Performer and $42 tgt.

- Piper Jaffray is clearly the most bullish firm out there this AM saying they reiterate their thesis that they expect Red Robin to be a successful turnaround story during the next 18-24 month period. Firm's model appropriately reflects the anticipated acquisition of 17 restaurants in California (end 2Q07) combined with a projected potential launch of the marketing campaign as early as March. They expect the accretion of the recent franchise acquisition as well as the potential strength of same-store sales in the back half of the year to offset the costs associated with the national advertising campaign.

In an effort to better analyze what the firm believes are a combination of operational, real estate and brand awareness challenges, the company has dramatically reduced company-owned development. They expect the company to launch a new prototype (as early as the first half of this year) as well as increase brand marketing as mentioned above. Finally, given the relevant brand positioning, they expect re-accelerated development (in firm's model accelerating in FY09). As a point of reference, they believe that both CPKI and BWLD, which have experienced issues similar to RRGB, provide a road map in terms of "how to" potentially implement a successful "turnaround" strategy.

Reits Outperform rating and ups tgt to $47 from $40.

Notablecalls: Do check out the short interest in this one as it stands close to 20% of float. That's the main reason why the stock was up 4 bucks in after market action. I find the analyst community to be neutral at best (apart from Piper, of course) following the results. Would not be surprised to see the shorts put up a decent fight around the levels reached in after hrs. Suspect they will prove to be successful in their attempt to shoot it down after the weaker hands have covered their positions.

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