On Friday, Red Robin Gourmet Burgers (NASDAQ: NASDAQ:RRGB) experienced a revision in its stock outlook as a Craig-Hallum analyst adjusted the price target, decreasing it to $11.50 from the previous $15.00, while still maintaining a Buy rating on the stock.
The adjustment comes after the company provided a mixed second-quarter update, which included a same-store sales (SSS) performance that exceeded the analyst's expectations and a positive start to the third quarter. However, the company's profitability forecast was significantly reduced due to increasing food costs and labor expenses, as well as a softening of stacked trends that align with the broader pullback in the industry.
The lowered EBITDA guidance now falls slightly below the analyst's revised forecast but is deemed more reasonable, with the potential for upside if there is a modest improvement in the industry environment. The analyst's previous note from August 14 had already tempered revenue and profitability expectations, considering the management's outlook in the Q1 report to be overly optimistic amidst consumer uncertainty and softer trends in casual dining.
Despite weakening traffic trends that are consistent with the industry, Red Robin has reported improvements in guest satisfaction and loyalty program membership, which could lead to better same-store sales in the future. Management's strategic shift to control selling, general, and administrative (SG&A) costs is also expected to contribute significantly to improved EBITDA by FY25. While the FY24 guidance has been lowered, the analyst believes that the company is now positioned to potentially deliver positive surprises, which could drive a higher stock multiple.
The analyst's reiteration of the Buy rating alongside the reduced price target reflects a cautious optimism about Red Robin's capacity to navigate current industry challenges and emerge with stronger financial performance.
In other recent news, Red Robin Gourmet Burgers reported second-quarter financial results, with revenue reaching $300 million, slightly surpassing expectations. However, the company recorded an adjusted loss per share of $0.47, missing analyst estimates.
Benchmark analyst Todd Brooks maintained a Buy rating on the stock but decreased the price target to $10 from $16, reflecting broader industry pressures. Red Robin's same-store sales showed improvement in August, supported by an additional $6.6 million income from loyalty program breakage.
The company revised its forecast for fiscal year 2024, now expecting adjusted EBITDA to be between $40 million and $45 million, and total revenue of approximately $1.25 billion. Despite the lowered price target, operational improvements from strategic transformation efforts were noted. Red Robin also amended its credit agreement to revise financial covenants and expand revolver capacity, providing additional flexibility for its ongoing turnaround strategy.
InvestingPro Insights
Red Robin Gourmet Burgers (NASDAQ: RRGB) is currently facing a challenging financial landscape, as reflected in the real-time data from InvestingPro. With a market capitalization of just $74.19 million and a negative P/E ratio of -1.81, the company's financial health appears strained. The latest twelve-month data shows a slight decline in revenue growth by -1.36%, and gross profit margins remain weak at 13.45%. Despite these hurdles, the management has been taking proactive steps, such as aggressively buying back shares, which could be a signal of confidence in the company's future.
InvestingPro Tips highlight critical aspects of Red Robin's situation. The company is operating with a significant debt burden and is quickly burning through cash, which is concerning. Additionally, with short-term obligations exceeding liquid assets and analysts not anticipating profitability this year, the financial outlook remains precarious. However, it's worth noting that there are currently 14 additional tips listed on InvestingPro for Red Robin, which could provide investors with a more comprehensive understanding of the stock's prospects.
Investors should also consider that Red Robin's stock has been trading near its 52-week low and has experienced a significant price drop over the last year, which may present a buying opportunity for those who believe in the company's turnaround strategy. The upcoming earnings date on November 6 will be an important event for investors to watch, as it may provide further insights into the company's progress and future direction.
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