The Unusual Way Red Robin Flew Past Its Guidance in Q1

By Motley Fool Staff Markets Fool.com

In this segment from the MarketFoolery podcast, host Chris Hill and David Kretzmann of Supernova and Rule Breakers take a look at casual-dining burger chain Red Robin Gourmet Burgers(NASDAQ: RRGB), which had a decent quarter overall, but a far better one than it led the markets to believe it was having. But looking ahead, there are reasons for optimism for the company, even considering the troubles of the restaurant industry.

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A full transcript follows the video.

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This video was recorded on May 17, 2017.

Chris Hill: Red Robin Gourmet Burgers' first quarter,I know they loweredguidance coming into this report. But give themcredit for crushing the lower guidance.

David Kretzmann:It worked.

Hill:It did work. Stock up 17% this morning. This is a company you knowbetter than I do. How goodwas this quarter?

Kretzmann:The quarter itself was OK. Kind of a similar case toTarget, where it wasn't as bad as Wall Street was expecting. And their guidance is promising. And I thinkthis is a company that --

Hill:Guidance for the rest of the year?

Kretzmann:Yeah. Theyraised their guidance a bit withearnings per share. They're expecting earnings per share to come in about $3 this year, which is close to their peak earnings in 2015. So essentially, they're saying things are improving. Theyespecially expect things to improvetoward the second half of the year. This is a company that's beenproactive despite all the differentheadlines that have been going on in the restaurant industry over the past couple years. They're reallyputting a lot of effort into their digital efforts,online ordering, take out, things like that. I thinkWall Street recognizes that and is rewarding them for that. A lot of other restaurants, I think, are being left behind.

Selim Bassoul, who is the CEO ofMiddleby, Tom Gardner, co-founder and CEO of the Foolrecently interviewed Selim Bassoul, and Selim Bassoulessentially said the restaurants who are going to stick around arethe ones who are going to emulateDomino's, the pizzacompanies that have mastered andintegrated that digital, online ordering into their entire operations. Those are the restaurants that willbe able to stick around and thrive. And we've seen that with Panera, and I know we'll talka bit more about that. But I think Wall Street recognizes that Red Robin is putting out the effort there. One of the interestinginitiatives here,one of these things is a centralized call center for to-go orders, which juststreamlines that whole to-goordering process. Ten percent of theircorporate-owned stores offercurbside pickup, so essentially, you just drive to the store and they'llbring out your food for you. That will be rolled out in about 25%of their locations this summer. So just,different things like that. They're beingmore innovative than most casual dining chains.

Hill:Also,one of the things they talked about forthe conference call at Red Robin wasprices ticking up a little bit,and it was one of those things where I looked at that and thought,I think, if you are a shareholder, andcertainly if you're the CEO of the company, you're reallylooking to do that even a little bit more. They raisedprices something like 1.2%. That's the sort of thing where, that'sbetter than lowering prices, it's better than discounting. We'll get to discounting atrestaurants in a second. But if you can bump that up a little more,if you can do that a couple quarters a year,then it starts to have a meaningfulimpact on your gross margins.

Kretzmann:Yeah, and that offsets thetraffic losses that a lot of restaurants,especially casual diners,have been seeing. Giventhe initiatives that they're doing, I thinkcustomers right now value conveniencealmost more than anything else. They like being able to order online or call in acustomized order. And when they do that, theytypically order more stuff, too. So it bringsyourself to the customer. Then,ideally, as you get more peoplegoing through those stores,even if it's virtually, the volume of sales that those stores generate goes up,and your margins really improve. So I think Red Robin is positioning itselfin a good place if they can keep that traffic going.

Chris Hill has no position in any stocks mentioned. David Kretzmann owns shares of Domino's Pizza, MIDD, and Red Robin Gourmet Burgers. The Motley Fool owns shares of and recommends MIDD. The Motley Fool has a disclosure policy.