The Red Robin Royal Burger with fried egg on top
Red Robin saw an earnings decline in the third quarter. 

GREENWOOD VILLAGE, Colo. – Sluggish comparable restaurant sales and declining traffic provided headwinds for Red Robin Gourmet Burgers Inc. during its third quarter.

Comparable restaurant revenue fell 3.6 percent compared to the same period a year ago, driven by a 2.4 percent decline in guest traffic and a 1.2 percent decrease in average guest check.

System-wide restaurant revenue, including franchised units, totaled $355.5 million, compared with $350.6 million for the third quarter in 2015. Franchise and other revenue eased $0.5 million, driven by a decrease in the number of franchisees from the third quarter of 2015, the company reported.

Denny Marie Post, Red Robin Gourmet Burgers
Denny Marie Post, CEO of Red Robin

“While falling short is always disappointing, it is only part of a bigger story,” CEO Denny Marie Post told analysts during an earnings conference call.

Post said the company moved to improve its value proposition by reasserting its value offerings as a trade-off for higher average checks. Additionally, Red Robin increased its Tavern menu offerings to four from one. “This much needed news on our Tavern platform moved us back to beating the competition on traffic as measured by Black Box,” Post said.

In addition of reasserting everyday value, resetting priorities and plans for growth means focusing on fewer, bigger opportunities including improving guest satisfaction and speed of service, piloting carry out, delivery and catering; and streamlining operations while taking a more measured approach to new unit development.

“We are moving quickly on multiple fronts here,” Post said. “We are expanding our online ordering pilot to 36 locations next week. We have two promising tests underway in 20 locations with third-party delivery systems. We have new packaging in tests, we have a large party carry-out and catering menu developed and ready to selectively implement.

“Off-premise is our number one priority and we have committed dedicated resources throughout our organization to bring this opportunity to life, effectively and efficiently,” she added. “We expect these tests to come together in a series of carry-out, delivery and catering rollouts by late 2017.”

CFO Terry Harryman said that the decline in sales volumes at Red Robin restaurants has provided headwinds to returns on new restaurant openings, which have been a core part of Red Robin’s strategy to grow EBITDA over the long-term and provide shareholder value.

Terry Harryman, Red Robin Gourmet Burgers
Terry Harryman, CFO of Red Robin

“As a result, we are slowing down our development plan significantly for 2017 and 2018, while we focus on reducing our per-unit restaurant development costs and improving restaurant-level profitability,” Harryman told analysts.

For the quarter ended Oct. 2, the company reported a net loss of $1.3 million, or $0.10 per diluted share, compared with net income of $8.3 million, or $0.58 per diluted in the third quarter of 2015. Adjusted net income was $5.0 million, or $0.38 per diluted share excluding restaurant impairment and closure costs.

Revenue for the third quarter advanced 4.9 percent to $297.3 million compared with $283.4 million in the year-ago quarter.

Earnings guidance for the year included total revenue growth of about 4 percent with a growth rate of 4 percent to 6 percent in the fourth quarter. The company expects comparable restaurant revenues to slip 1.5 percent to 3.5 percent in the fourth quarter with guest traffic decreasing roughly 1 percent to 3 percent.

“Our industry traffic expectations are a decline of 3.5 percent to 4 percent,” Harryman told analysts.

Earnings transcript provided by Seeking Alpha.