Why Red Robin's Shares Plunged


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of burger slinger Red Robin Gourmet Burgers (NAS: RRGB) had a bitter taste for investors today, as they fell as much as 15% in intraday trading after the company reported first-quarter earnings.

So what: There actually was some good news in Red Robin's quarter. On the bottom line, earnings per share grew 22% from the prior year to $0.71, which topped the $0.66 that analysts were estimating. However, the top line was a little more concerning, as revenue increased just 4.4% from a year ago and missed Wall Street's estimates. Comparable-store sales were up 0.5%, but that was driven entirely by a 4.1% increase in average guest check -- meaning that diners were spending more at each visit. Guest count, however, fell 3.6%.

Now what: In the press release, Red Robin CEO Steve Carley noted his concern with the lower customer numbers, saying, "Although we began the year with strong sales, we were disappointed by the extent of guest traffic softening in the second half of the quarter." He continued on to say that the company is still confident about the rest of the year and the longer term. Carley and his team expect a 1% year-over-year increase in same-store sales for all of 2012.

After today's drop, investors are paying roughly 16.5 times expected 2012 earnings for Red Robin's shares. That means shareholders are going to be looking for a relatively healthy level of growth and will want to see more customer growth in coming quarters to augment the nice work that the company has done controlling costs.

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