Why Red Robin Shares Were Heating Up

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 Red Robin Gourmet Burgers were looking tasty today, gaining as much as 10% after serving up an impressive quarterly earnings report.

So what: The casual-dining chain topped earnings estimates by $0.11, with a profit of $0.77 a share, but revenues came up a bit short in the quarter, as sales grew 6.5%, to $238.3 million, below projections of $239.4 million. Same-store sales ticked up 4.3% on a 5% growth in average ticket, due to a price increase, as guest count decreased 0.7%. Management also said it expects to open 20 restaurants during the rest of the year, increasing its company-owned base by 6%.

Now what: While this was a strong earnings beat, the reason for it was almost entirely the increase in prices, which is not sustainable. The decrease in customer traffic is also concerning, and the company sees a full-year comparable sales increase of just 3%, meaning the second half of the year should be significantly weaker. I'd expect analysts to bump up their estimates after the 44% increase in profits, but I'm not sure if Red Robin will be able to deliver a repeat performance. A P/E ratio of nearly 30 also seems steep for a company with just 6.5% top-line growth.

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The article Why Red Robin Shares Were Heating Up originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Red Robin Gourmet Burgers. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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