Despite a 59-percent surge in second-quarter profit, and stock prices jumps on Thursday and Friday, Red Robin Gourmet Burgers Inc. chief executive Steve Carley remains cautious.
The casual-dining chain’s same-store sales have been steadily positive and improving, but mainly based on average check increases that have overshadowed guest traffic declines. Carley said those traffic declines are continuing into the third quarter and could be the trend for the year as consumers deal with another wave of economic uncertainty.
“While we believe we have strong programs in place to drive revenue, we expect guest traffic to be challenged at least through the balance of the year,” he said.
Red Robin’s same-store sales rose 3.1 percent during the second quarter at corporate locations, based largely on a 4.5-percent increase in average check. Guest counts fell 1.4 percent, the Greenwood Village, Colo.-based company reported.
For the four weeks of the third quarter through Aug. 7, same-store sales rose 0.5 percent on a 5.8 percent increase in average check, offset by a 5.3 percent decline in traffic.
Adding to the economic headwinds for Red Robin is a climate of back-to-back discount-focused promotions in casual dining, behavior much more typical of the quick-service world, noted Carley.
Chili’s, for example, this week, said its value strategies, such as two-for-$20 dinner deals and new lunch combination meals, have become increasingly important to guests. Applebee’s Neighborhood Grill & Bar this week also expanded its two-for-$20 offerings.
Wrestling with the competitive discount climate will be a big part of Red Robin’s strategic planning over the next year, Carley said.
Still, the chain’s turnaround efforts, dubbed Project RED for its key focus on “Revenue growth, Expense management and Deployment of capital,” are paying off, Carley said.
Initiatives have included the launch of a new loyalty program, a menu upgrade, a renewed focus on building bar business, and finding ways to cut costs by an annualized $16 million to $18 million by the end of 2012.
Of the 4.5 percent increase in average check for the second quarter, about 1.2 percent was the result of a 1.5-percent menu price increase in April. The average check was boosted 3.3 percent by menu mix shift as guests added appetizers or beverages, shifted from burgers to higher-priced entrées, and purchased more alcohol, which was the goal of menu and bar upgrades earlier this year.
Additional updates from Red Robin:
--New CFO: Red Robin named Stuart Brown senior vice president and chief financial officer, the latest in a series of management changes. Previously, Brown served as CFO of DCT Industrial Trust Inc., a real estate investment trust.
--New prototype: Red Robin is planning to open the first version of a smaller prototype — for use in non-traditional locations — in Denver in the fourth quarter. The company is planning variants as small as 2,000-square feet, as well as a more mid-sized 4,000-square foot version. Full-size units are typically about 5,600-square feet.
Already, Carley is saying the company may open more of the smaller variants in 2012. Next year, the company is expecting to open 12 to 15 new locations, Carley said, including full-sized and the smaller units.
“We’ll walk before we run,” Carley said, adding that the company will evaluate returns on the smaller units before accelerating growth.
--TV advertising: Carley said the summer limited-time offer of a Five Alarm Chicken Sandwich did not meet expectations. The limited-time offer strategy is still new to Red Robin and the company will continue to tweak that and its TV advertising spending levels and timing, he said.
In the fall, the chain is planning a limited-time offer featuring an innovative beef burger at an attractive price that will be supported by TV ads, the company said.