Red Robin Gourmet Remains Sell-Side Darling Despite Miss

Red Robin Gourmet (RRGB) is getting some comments in its defense from a couple of firms:

- Jefferies notes RRGB reported 1Q08 EPS of $0.43, well short of the $0.50 Street estimate – with most sell-siders, including them, being caught off guard by greater than expected food costs and less than expected G&A leverage. Food cost pressures are partially explained by a sales mix shift and low 1Q07 food cost comparison. G&A pressures were the result of advertising expense timing with an equal beneficial offset coming in 2Q08.

With RRGB reiterating its full-year EPS guidance range (net of $0.04 acquisition accretion), Street numbers are likely headed up for the balance of the year, offsetting the 1Q EPS shortfall on a full-year basis. Jeffco is sticking with their 2008 EPS estimate of $2.13 as they raised EPS estimates last week to account for the acquisition accretion.

With shares up almost 20% over the last 4 weeks – the in-line EPS guidance numbers and news of housing market headwinds will likely result in RRGB shares giving back a sizable chunk of that move today. A key tenet of the Firm's Buy thesis remains intact and that is that with recent and expected earnings now among the most stable in the growth sector, they expect RRGB's relative fundamental strength in coming quarters to drive merit-based multiple expansion.

Reiterates Buy and $46 target.

- Morgan Stanley notes 1Q EPS fell well short of the Firm's mark ($0.43 vs $0.51), but the miss was entirely related to costs. Offsetting this, sales exceeded Morgan's expectations with comps up an industry leading 3.9%. RRGB raised annual guidance by $0.04 to account for a franchise acquisition. While this back-end-loads 2008 EPS, the Firm thinks it’s feasible based on current trends and increased pricing. With estimates essentially intact and valuation among lowest of its peers, MSCO remains buyers of RRGB.

Reiterates Overweight and $46 target.

Notablecalls: RRGB continues to be an analyst darling here and I think will provide a bounce opportunity today. The only question here is where to start scaling in. My gut tells me sub-$36 level is where I wanna start with $35 already representing a 'screaming buy' point.

The first miss is almost always forgiven. RRGB has a lot of West Coast exposure, so considering that, the quarter was still fine.

Comments

[R. Richard ...:]

They must have a bit in inventory; right next to the spare bridge parts.

2008 May 21 02:14 PM