Consumer Analyst
Contrarian, value, growth, long/short equity

Sell Short Red Robin Gourmet Burgers Ahead Of Profit Declines

Customers turn away from sharply higher menu prices

The recent Q214 guest count decline at Red Robin Gourmet Burgers (NASDAQ:RRGB) of another 250 basis points (bps) should signal the end of solidly higher prices. After compounding annualized price/mix increases from the past 18 months (including the June 2014 hike) of 4-5% year-over-year (yoy), its high average check (currently around $12.70), has now resulted in nearly 20% fewer customers at its restaurants over this current restaurant industry cycle (i.e., since 2007).

Softer menu pricing to impact future profits

Profit margins (operating, 4.5%; net, 3% in 2013) are already easily the lowest of the 12 US restaurant stocks I follow, and less than half the c. 9.5% level of 2004-05,...

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