Should You Offload Red Robin Gourmet Burgers (RRGB) Stock?

Red Robin Gourmet Burgers (NASDAQ:RRGB) stock has been losing sheen of late. Further, the company carries a Zacks Rank #5 (Strong Sell). Let’s explore some of the reasons that may have resulted in the downside.

Shares Down Year to Date

Red Robin’s shares have lost 2.4% year to date against the industry’s gain of 14.1%. This performance is further aggravated by downward estimate revisions. Over the last 60 days, current quarter and year earnings estimate have moved down 80% and 18.8%, respectively. This reflects analysts’ pessimism on the stock’s prospects, given an uncertain sales environment and rising costs.

Lowered Guidance for the Full Year

Like other industry players, Red Robin’s margins are also being hurt by rising labor costs and costs related to various comps and sales boosting initiatives. The company has lowered its full year EPS guidance from a range of $2.80-$3.10 to $2.16-$2.31. Comparable restaurant sales outlook has also been lowered to flat to up 0.5%.

Reduced Spending Hurts Industry

The restaurant space is currently not much attractive for investors. Consumers increased their spending on dining modestly in the past few quarters. This is because, disposable income is marred by wage growth and inflation is also on the rise. Higher health care costs and tightened credit availability have further worsened the situation.

Moreover, increasing demand for high-quality products at lower prices is forcing grocery stores to lower food prices so as to remain competitive. This is resulting in a bigger gap between food-at-home and food-away-from-home indices.

Thus, same-store sales growth has been dull in a difficult sales environment. Traffic too has been weak. As a result, Red Robin’s sales have come under pressure. In fact, the third quarter of 2017 marked the seventh-consecutive quarter of negative comp sales for the restaurant industry as a whole, thereby continuing the somber mood.

Halted Restaurant Openings to Further Dent Sales Growth

After slowing down its development plan significantly for 2017 and 2018, the company now plans to stall new unit development as of the end of 2018. The company plans to stop unit development for 18 to 24 months as it assesses the shifting desires of customers and determines the most profitable ways to meet them. Though the stoppage may aid the company in better competing in the sector, it is likely to dent sales growth in the near term.

Red Robin Gourmet Burgers, Inc. Revenue (TTM)

Better Picks

Some better-ranked stocks in the same space are Famous Dave's of America, Inc. (NASDAQ:DAVE) , Arcos Dorados Holdings Inc. (NYSE:ARCO) and Good Times Restaurants, Inc. (NASDAQ:GTIM) .

While Famous Dave's of America sports a Zacks Rank #1 (Strong Buy), Arcos Dorados and Good Times Restaurants carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

One estimate for the current year moved north over the past 60 days versus no southward revisions in case of each of the three companies.

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