In 2018, the retail and foodservice industry grew 6.23%, compared to 4.3% for the S & P 500. However, Red Robin Gourmet Burgers, Inc. (RRGB – Free Report), which belongs to the same industry, had a forgotten year. At the same time, the stock experienced a sharp decline of 52.7%. The disadvantage is mainly due to the low level of comparable sales in restaurants, low traffic and lower profit margins.

The company has also witnessed a downward trend in profits and revenues lately. In the third quarter of 2018, net income declined 23.8% from one year to the next. Subsequently, the company lowered its EPS guidance for 2018. It expects earnings per share of $ 1.60 to $ 1.80, compared to $ 1.80 to $ 2.20 previously. During the quarter, Red Robin's revenues were not estimated for the third consecutive quarter.

The company was the most affected by rising costs, which hurt margins. In the third quarter of 2018, the operating margin at the catering level contracted from 180 basis points (bps) to 16.8%. This decrease is attributable to a 120 basis point increase in other restaurants' operating expenses and a 60 basis point increase in occupancy costs. The increase in other operating costs is due to higher technology costs, repair and maintenance costs, third-party delivery costs, higher utility costs and supplies.

Can the stock come back in 2019?

In order to generate traffic, Red Robin has launched initiatives to improve the seating efficiency of its restaurants and reduce customer wait times. The company has rolled out its kitchen display system (KDS) associated with the table management software.

This should translate into annual sales growth of about $ 50 million, as kitchens can withstand higher peak volumes. It should also significantly improve the customer experience by reducing ticketing times and improving the quality of food served at the tables

The digital wave has hit the fast casual dining space in the United States, as more and more restaurants are deploying technology to enhance the customer experience. With this in mind, Red Robin has also invested more in technology and data infrastructure. The company is in the process of developing its on-line ordering activities on-site, via take-out orders, delivery and catering.

Despite the aforementioned efforts, analysts are still not optimistic about the future earnings growth potential of Zacks Rank # 4 (Sell). Over the past 60 days, Zacks' consensus estimate of earnings in 2019 decreased by 3.8% to $ 1.79. According to the consensus estimate, revenues in 2019 are expected to fall 0.3% to $ 1.34 billion.

Choice of keys

The highest ranked securities that deserve to be considered in the same space are Carrols Restaurant Group, Inc. (TAST Report – Free), Cracker Barrel Old Country Store, Inc. (CBRL – Free Report) and Darden Restaurants, Inc. (DRI – Free report). All of these stocks have a Zacks Rank # 2 (Buy). You can see You will find here the complete list of Zacks actions # 1 of the current rank (strong purchase).

Carrols Restaurant Group has an impressive long-term earnings growth rate of 20%.

Cracker Barrel's Old Country Store has posted earnings above expectations in the past three quarters out of four, averaging 0.7%.

Darden Restaurants' revenues for the current year are expected to grow by 17.9%.

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