Red Robin's (RRGB) Q2 Earnings: Disappointment In Store?

Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is scheduled to report second-quarter 2017 results on Aug 8, after market close.

Last quarter, Red Robin came up with a positive earnings surprise of 53.45%. In fact, the company’s earnings surpassed/met the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 17.27%.

Let’s see how things are shaping up for this announcement.

Red Robin Gourmet Burgers, Inc. Price and EPS Surprise

Factors Likely to Influence Q2 Results

Red Robin’s brand revitalization initiatives such as menu innovation, operational improvement and the introduction of a better customer service platform to enhance guest experience continue to drive revenues. Also, the company’s local marketing initiatives and media campaign are expected to attract customers.

Notably, the company has rolled out Kitchen Display System, which is linked to table management software. This is expected to result in major sales growth as kitchens can handle higher peak volumes. Moreover, Red Robin’s increased focus on its remodeling initiative is likely to boost its potential as a brand and improve client experience, thereby driving traffic.

Meanwhile, the company is moving smartly on new revenue streams such as its off-premise, online-ordering business via carry-out, delivery and catering. Although these are expected to meaningfully support the top line in the second half of 2017, they might provide marginal additional yields in the to-be-reported as well.

However, as the operating environment has become increasingly challenging, the decline in sales volumes have begun to impact the returns on new restaurant openings. As a result, Red Robin is slowing down its development plan significantly for 2017. This, in turn, may hurt the top line in the quarter.

Moreover, the company has been witnessing rising labor costs, food costs, expenses related to initiatives as well as pre-opening and remodeling costs, which might continue to put pressure on margins in the second quarter. Nevertheless, it remains to be seen if the Red Robin’s new supply chain management software could provide some relief to this end.

Earnings Whispers

Our proven model does not show that Red Robin is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as elaborated below.

Zacks ESP: Red Robin has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 51 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Red Robin currently carries a Zacks Rank #4 (Sell).

As it is we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the broader Retail-Wholesale sector to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Alibaba Group Holding Ltd. (NYSE:BABA) has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dillard's, Inc. (NYSE:DDS) has an Earnings ESP of +30.00% and a Zacks Rank #3.

Nordstrom, Inc. (NYSE:JWN) has an Earnings ESP of +3.28% and a Zacks Rank #3.

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