This "Red" Burger Joint Is Showing Lots of Green

This "Red" Burger Joint Is Showing Lots of Green

Juicy burgers, spicy wings, and thick burritos. Lately, Americans can't get enough of them. For an economy that's supposedly doing poorly, there's been a lot of scarfing down of "man food." With the announcement of its third-quarter earnings, Red Robin Gourmet Burgers joined the ranks of Buffalo Wild Wings and Chipotle Mexican Grill by reporting knock-out results that sent its stock soaring to all-time highs.

Total revenue jumped 8.1% to $230.7 million at Red Robin, and same-store sales hopped up 5.7%. Net income shot up 34% to $4.7 millio,n or $0.32 per share. CEO Steve Carley credited the success to changes in menu, presentation, new marketing approach, and brand focus. It's clearly paying off--guest traffic has never been higher.

During the quarter, Red Robin bought back 36,888 shares, spending $2.5 million. That's over half its net income returned to shareholders through stock buybacks. Red Robin's management must be quite confident about the future and must consider its stock cheap. It ended the quarter with only $18 million in cash compared to $90.9 million in debt, yet it still decided investing in its own stock was a better financial decision than paying down debt. Actions such as that tend to speak louder than any words can about an optimistic future.

The conference call added a bit more color. Red Robin Gourmet Burgers confessed there is "current weakness in the casual-dining sector," but it was able to rise above it. This marked the sixth straight quarter of increased guest count and market share. One of the reasons for its gain was the successful advertising campaign with the slogan "24 Burgers. A Million Reasons." Also, Red Robin bragged a little that most of its direct competitors are "promoting heavily," yet Red Robin is winning.

Not just burgers
As stated in the beginning of this article, there appears to be a trend toward thick and hearty finger foods, also known as "man food." Buffalo Wild Wings and Chipotle Mexican Grill delivered growth and profits almost as big as their portions. Buffalo Wild Wings saw a 67% increase in net earnings coupled with a 28% growth in sales. Same-store sales for company stores jumped 4.8%--not too far from Red Robin's 5.7% jump.

Chipotle Mexican Grill saw similar results. Earnings per share was up 17%, revenue was up 18%, and same-store sales were up 5.9%, beating out Red Robin by a hair. Chipotle Mexican Grill, like Buffalo Wild Wings and Red Robin, is aggressively opening up new restaurants as consumers everywhere appear hungry for more.

Final foolish thoughts
Red Robin Gourmet Burgers has 486 locations and continues to expand by adding 22 total new ones for 2013. This leaves a lot of potential for growth. At 486, that's less than 10 per state. Compare that to Buffalo Wild Wings, which is pushing 1,000 locations, and Chipotle with over 1,500 locations. While there's certainly seemingly endless competition in the burger industry, clearly Red Robin Gourmet Burgers has figured out a formula that works for its 486 locations. I can't see why it can't continue until there's 1,000+ more.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and Chipotle Mexican Grill. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. 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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