Editors Note:

Hamburger restaurants are popping up in every shopping center as the fast casual burger chains compete for your appetite. Shake Shack, Five Guys, In-N-Out, Smashburger, Fatburger and others are heating up the competition. Unfortunately for the old style family type hamburger restaurants that means falling sales.


No New Bullish Plays


RRGB - Red Robin Gourmet Burger - Company Description

Red Robin Gourmet Burgers, Inc., develops, operates, and franchises casual-dining and fast-casual restaurants in the United States and Canada. As of May 9, 2016, it had approximately 530 Red Robin restaurants, including those operating under franchise agreements. Red Robin Gourmet Burgers, Inc. was founded in 1969.

Lately Red Robin has been trying to rebrand itself as Red Robin Gourmet Burgers and Brews because each store has a sports bar area that is underutilized. The restaurants cater to families with high chairs, booster seats and many still have the arcade to gobble up quarters from children. The bar in the stores I have eaten at was never busy.

Red Robin has a larger footprint for its stores and land is expensive as is the large buildings compared to the smaller stores of its hamburger competitors. Red Robin is on an aggressive growth campaign with a new store and sometimes two opening almost every week somewhere in America. This aggressive expansion requires the outlay of millions of dollars for construction for dozens of stores at the same time. They are also remodeling their existing stores and the capital costs are soaring.

In their Q1 earnings Red Robin lowered guidance for revenue growth from the prior level of 8.5% to 9.5% to just 8%. They also lowered same store sales guidance to flat or slightly negative from the prior guidance of low single digits.

Red Robin has been beating on earnings by an average of 8.4% but analysts have been cutting estimates because of falling guidance. You can always beat estimates if you guide lower every quarter. They also announced the departure of their CFO two weeks ago. That does not normally happen if the company is moving in the right direction. A CFO does not want to have a sinking company on their resume so they tend to exit when the outlook dims.

Earnings August 11th.

Zacks cut RRGB to a sell. Keybanc Capital Markets cut them from buy to hold.

With the market likely to be weak over the next month there is a good possibility RRGB will break below support at $47 and make a new three-year low.

Buy August $45 put, currently $2.10, initial stop loss $51.45.