NEW DIRECTIONAL PUT PLAYS
Red Robin Gourmet Burgers - RRGB - close: 58.92 change: -1.02
Stop Loss: 62.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 244 thousand
Entry on January -- at $---.--
Listed on January 05, 2016
Time Frame: Exit PRIOR to earnings in mid February
New Positions: Yes, see below
The second half of 2015 had to be frustrating if you were bullish on RRGB. The company has been outperforming many of its peers in the restaurant industry but shares still got crushed. RRGB delivered a -19.7% decline for all of 2015 but fell -33.5% from its 2015 peak near $92.00 a share.
RRGB is in the services sector. According to the company,
"Red Robin Gourmet Burgers, Inc. (www.redrobin.com), a casual dining restaurant chain founded in 1969 that operates through its wholly-owned subsidiary, Red Robin International, Inc., is the Gourmet Burger Authority®, famous for serving more than two dozen craveable, high-quality burgers with Bottomless Steak Fries® in a fun environment welcoming to guests of all ages. In addition to its many burger offerings, Red Robin serves a wide variety of salads, soups, appetizers, entrees, desserts and signature Mad Mixology® Beverages. Red Robin offers a variety of options behind the bar, including its extensive selection of local and regional beers, and innovative adult beer shakes and cocktails, earning the restaurant the 2014 VIBE Vista Award for Best Beer Program in a Multi-Unit Chain Restaurant. There are more than 500 Red Robin restaurants across the United States and Canada, including Red Robin Burger Works® locations and those operating under franchise agreements."
One of the biggest stories last year was the decline in crude oil. Lower crude oil means lower gasoline prices at the pump. Many were expecting lower gas prices to fuel a jump in consumer spending. Unfortunately that increase in spending never really showed up.
The data has shown a slowdown in restaurant sales. Black Box Intelligence, a research firm, publishes monthly statistics on the restaurant industry. Black Box said industry-wide sales growth fell from +1.8% in Q2 2015 to +1.5% in Q3 (no word yet on Q4). Traffic stalled as well. In early November Black Box Intelligence reported that same-store sales growth for the restaurant industry went negative for the first time since July 2014 with a -0.2% drop in October 2015. Traffic plunged -2.8%. There was a bounce in November with comp sales up +0.5% but traffic fell another -1.7%.
That is the environment RRGB has been operating in. They have been beating a lot of their peers with stronger comparable-store sales but RRGB has not been immune to the slow down. Looking at RRGB's last four quarterly reports they have beaten Wall Street's earnings estimate the last three quarters in a row. However, they have missed analysts' revenue estimates three out of the last four quarters. Revenue growth has slowed from +16.6% to +16% to +14.4% and down to +6% in their most recent announcement. Comps started last year at +3.6% and dipped to +2.9% before bouncing back to +3.5%.
Investors don't seem to care that RRGB's comparable store sales are beating the industry. Traders have sold the stock hard following the last two earnings reports and shares have continued to sink under a bearish trend of lower highs. The last three weeks of December saw RRGB consolidating sideways in the $60.00-65.00 range. The recent breakdown below support at $60.00 has produced a new quadruple bottom breakdown sell signal on the point & figure chart, which is currently forecasting a target near $54.00 (and could go lower).
Shares of RRGB displayed relative weakness today. The intraday bounce attempt failed and shares lost -1.7% on the session to close at new 52-week lows. The stock is poised for a drop toward the $50-55 zone. Tonight we are suggesting a trigger to buy puts at $58.40.
Trigger @ $58.40
- Suggested Positions -
Buy the FEB $55 PUT (RRGB160219P55) current ask $2.40
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike