Why Red Robin Gourmet Burgers Inc. Stock Dropped 22% in May

By Markets Fool.com

Image source: Red Robin.

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What:Shares ofRed Robin Gourmet Burgers tumbled last month, losing 22% according to data from S&P Global Market Intelligence. As the chart below shows, the stock got slammed 18% on May 17 after the company's first-quarter earnings report came out.

RRGB data by YCharts.

So what:The fast-causal burger chain delivered a stinker of an earnings report, which said comparable sales fell 2.6% and overall revenue increased 1.8% to $402.1 million, short of analyst estimates of $415 million. Adjusted earnings per share improved from $1.10 to $1.27 and beat analyst estimates at $1.11, but investors focused on the weak top-line growth.

CEO Steve Carley acknowledged the weak results, saying, "We were disappointed, particularly with guest counts."

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Now what:Shares of the once-high-flying burger chain have fallen by nearly half over the past year as the company's growth has slowed. For the full year, management lowered its revenue growth guidance from 9.5% to 8%, and expects comparable sales to be flat to slightly negative. While it did not provide exact earnings guidance, it did say that a 1% drop in guest counts would lead to a $0.34 decline in earnings per share for the year.

Red Robin isn't the only burger chain that's struggling. Sonic also scaled back its growth forecast last month, indicating that competition from peers like Burger King and Wendy's may be putting a dent in Red Robin's growth. With average weekly unit sales in the $60,000 range and solid restaurant operating margins at 22.5%, Red Robin's business remains strong, but sliding growth is concerning. If the company can reverse the falling sales trend, there should be considerable upside to the stock.

The article Why Red Robin Gourmet Burgers Inc. Stock Dropped 22% in May originally appeared on Fool.com.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.