Red Robin Gourmet Burgers Inc. said its first quarter started out strong, but traffic softened toward the latter half because of heavy discounting by competitors and missed opportunities with marketing and menu offerings.
Steve Carley, the company’s chief executive, said Red Robin continues to be hurt by a volatile consumer environment. He blamed the chain’s latest traffic decline in part on promotional activity during the quarter that didn’t achieve hoped-for traction.
Same-store sales for the chain’s corporate units rose 0.5 percent, driven by a 4.1-percent increase in average check that was offset by a 3.6-percent decline in guest counts.
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In a conference call with analysts, Carley said he had warned that the chain might hit “air pockets” as it carried out a turnaround plan dubbed Project RED for its key focus on revenue growth, expense management and deployment of capital. The project's initiatives have included a menu upgrade, the launch of a new loyalty program, a renewed focus on building the bar business and cutting costs.
Carley said about half of the 4.1-percent increase in average check during the quarter came from menu price increases put in place last year. The other half came from guests trading up or adding appetizers and drinks to their selections.
However, he said, “We absolutely need to sell more burgers and entrees.”
The Big Melt Bacon Burger limited-time offer, priced at $6.99, caused existing guests to trade down rather than attracting new traffic, said Denny Marie Post, Red Robin’s chief marketing officer and senior vice president.
The problem was not the burger, she said, but the way it was advertised. The company said it would tweak the message with its newest menu addition, the Tavern Double Burger, introduced in April. Also at $6.99, the Tavern Double is a new everyday-value-positioned menu platform featuring double patties in various styles with the chain’s signature “bottomless” fries.
Post said advertising for the Tavern Double has been more “edgy,” with commercials featuring the Red Robin “triplets,” actually three men in one suit.
Watch the "triplets" commercial; story continues below
For the quarter ended April 15, the casual-dining company posted net income of $10.6 million, or 71 cents per share, compared with $8.7 million, or 56 cents per share, a year ago. Revenue increased 4.4 percent to $299.5 million.
During the quarter, three corporate Red Robin locations opened, as well as a second location of the chain’s new Burger Works, a fast-casual variant the company plans to grow. Four new Burger Works locations are expected to open this year, along with seven to eight full-size Red Robin restaurants, and two to three mid-sized units.
At the end of the quarter, Red Robin operated 330 restaurants and franchised an additional 136 locations.
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