Red Robin Gourmet Burgers, Inc. (RRGB), Buffalo Wild Wings (BWLD): Cloudy With a Chance of Cheeseburgers

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Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) missed analyst expectations on revenue by $0.98 million, but came up aces on EPS beating expectations of $0.66 and earning $0.77 when it reported in August. However, the company also guided for third quarter earnings to be flat, again raining on investors’ parades.

Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)Not that sunny
Three years straight of same store sales growth and comps up 4.3% in the quarter weren’t as sunny upon closer inspection. Most of that comp increase was due to 5% higher ticket totals, because traffic was actually down 0.7%. That said, average check totals have risen 10% over the last two years at Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB). According to Wells Fargo analyst Jeffrey Farmer, this is one of the largest increases in the casual dining industry.

The traffic problem is serious, as the company is painfully aware. CEO Stephen Carley said on the call,” …we see that we once again outperformed our peers, but continue to chase our goal of positive guest traffic. We’re well aware that regardless of everything else, without delivering positive traffic, we can’t achieve positive performance on a long-term sustained basis.”

Restaurant level operating margin rose 220 basis points to 23.3%. Most of that was attributable to lower ground beef cost and sales of higher margin items like appetizers.

The company is hoping its Oktoberfest menu available now will bring up revenues and bring in customers this quarter. Beer-batter brats, beer milkshake, an Oktoberfest pretzelburger, and a pumpkin shake are specialties the company is counting on to bring in customers. Pumpkin, beer, burger, and pretzel are the trendiest flavors out there in the fast casual and fast food world right now.

The basic burger business
Of their 480 restaurants in the US, 341 are company operated. Generally, restaurant investors prefer a much higher ratio of franchisees as franchisees bring in rent and royalties to the company as well as doing the heavy lifting of day-to day operation.

The 5,000 square-foot casual dining restaurants are still their mainstay, but five of their newest concept Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) Works are up and running. These are similar in size to a food court restaurant but with most of the signature Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) menu and alcohol. These should prosper as they open at airports, stadiums, malls, college campuses, etc. nationwide. Burger Works’ prices are only slightly higher than McDonald’s largest burgers at $5-6.00 price points.

The company refreshed 21 restaurants this year and plans to open 20 more company owned restaurants and several more Burger Works locations. The company tested 9 full remodels, finding a full refresh generated an average sales lift of 6% to give a cash payback in 5 years. 

These openings and refreshes are expected to weigh on Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)’s third quarter earnings, according to CFO Stuart Brown, but fourth quarter earnings are expected to show higher growth.

Beef vs chicken
Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) has many privately held gourmet burger competitors, but no burger-to-burger publicly held rivals. Comparable for the experience, however, is Buffalo Wild Wings (NASDAQ:BWLD) which also offers a sit down family friendly experience with full bar offerings and wall to wall TVs for sports viewing.

Buffalo Wild Wings (NASDAQ:BWLD)’ prospects seem sunnier than Red Robin. Buffalo Wild Wings (NASDAQ:BWLD) beat expectations in the second quarter on both the top and bottom lines, and reaffirmed that it should meet its goal of 17% net earnings growth for 2013.

Chicken wing prices, which are a frequent overhang on the stock, have been declining but that could change drastically. McDonald’s is premiering a Mighty Wings offering this week that could raise prices back up to $2.00 a pound by January, according to Stephens analyst Farha Aslam.

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