Why Red Robin Gourmet Burgers, Inc. Stock Plummeted Today

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What happened

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Shares of Red Robin Gourmet Burgers Inc. (NASDAQ: RRGB) were down 29.6% as of 2 p.m. EST Tuesday after the burger-centric restaurant chain announced disappointing quarterly results.

More specifically, Red Robin's third-quarter revenue climbed a modest 2.3% year over year to $304.2 million. That translated to adjusted net income of $2.7 million, or $0.21 per share, down from just over $5 million, or $0.38 per share in the same year-ago period. Analysts, on average, were expecting significantly higher net income of $0.29 per share on revenue of $309.3 million.

So what

Red Robin's top-line growth came from a combination of new restaurants and a slight favorable contribution from foreign currency exchange. Both were partially offset by a $2.7 million impact from closed restaurants and a 0.1% decline in comparable-restaurant revenue. 

"Despite top-line results that fell short of our expectations, Red Robin significantly outperformed the casual dining industry on traffic for a fifth consecutive quarter," added Red Robin CEO Denny Marie Post. "Our focus on compelling Every Day Value and the progress we have made in growing our off-premise business continued to pull us away from the category and we are now competing favorably with best-in-class casual dining chains."

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Now what

Nonetheless, due to rising labor costs and volatility in the casual dining category, Red Robin opted to issue "cautious" guidance for the remainder of the year. It will also temporarily stop building new units as of year-end 2018 -- a move Post says "will give us needed time to test new approaches to inform future growth."

More specifically on the former, Red Robin now expects fiscal 2017 earnings per share in the range of $2.16 to $2.31 (down from $2.80 to $3.10,  assuming full-year comparable restaurant revenue ranging from flat to up 0.5% from fiscal 2016.

With shares of Red Robin up more than 40% over the past year as of yesterday's close, it's evident that this painful quarter and guidance reduction was more than enough to leave a sour taste in investors' mouths. And our fickle market hates being effectively told to "hurry up and wait." As such, it's no surprise to see the stock pulling back so hard in response today.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.