Twenty cents never looked this good.
Red Robin reported same-store sales growth of 3.1% last quarter, which on its own was somewhat surprising because most other restaurant chains were reporting negative numbers. And last we checked casual-dining chains like Red Robin were, usually, not exactly swimming in sales right now.
It also reported adjusted net income of 20 cents per share. That is modest on the surface. But for Red Robin it was a shocking performance.
A year earlier, the Englewood, Colorado-based chain reported a 73-cent loss. It reported a 94-cent loss just one quarter earlier. For all of 2024, Red Robin’s adjusted net income per share was a $3.34 loss.
Investors were, uh, not expecting a positive number. Red Robin’s performance represented a 132% beat over consensus Wall Street expectations, according to the website Earnings Whispers. Investors had expected a 57-cent loss.
Nothing quite gets investors as excited as surprise profitability, particularly these days. And more than doubling profitability expectations is almost unheard of in this era of projections, social media and investor conferences.
Red Robin’s stock almost immediately skyrocketed 50% in after-hours trading on Thursday, as my colleague Joe Guszkowski reported. And then on Friday it kept going, rising as much as 75% at one point before closing up 63%. Outside of a sale announcement we do not recall a restaurant stock going up that much over the past 20 years. But we’re old and our memory is bad.
It’s generally a good thing when your public valuation increases by two-thirds. Had you invested $1,000 on Thursday afternoon you’d have been able to sell it all for $600-plus profit by Friday morning.
That said, we’re talking percentages here, and the performance Friday was as much about how low Red Robin’s stock had fallen to as it was about anything else.
When Red Robin closed trading on Thursday, its stock had fallen to $3.13 per share, down 43%. That’s bad, considering that the S&P 500 Index is up 0.71% so far this year.
And yet that doesn’t quite tell the chain’s full story, at least in the eyes of Wall Street. Weak performance coming out of the pandemic had taken what at one point was one of the best performing casual-dining stocks and turned it into a penny stock.
Even after Friday’s performance, Red Robin shares are down by a third over the past year and two-thirds over the past two years.
The company brought in highly respected industry executive G.J. Hart in 2022 to implement a fix-it plan. And he focused on improving operations inside the restaurants. But traffic and profitability challenges created headaches. And then sales turned south in late 2023 and 2024. Late last year the company needed an $8.3 million investment from activist investors JCP Investment Management and Jumana Capital Partners to pay down some debt.
And then Hart stepped down, replaced by Chairman David Pace, which generally is a sign that perhaps all is not well. In other words, investors by this point had come to keep their Red Robin expectations quite low.
They might be wise not to get too excited at this point, either. As Joe pointed out, the chain’s traffic was down 3.5%. Its same-store sales are expected to decline this quarter now that it no longer has the benefit of a 6.8% menu-price increase. The company did not change its earnings outlook for the year and, in fact, it lowered its sales outlook thanks to that ever-present “macro and consumer environment.”
But for one day, at least, Red Robin generated the type of returns most investors only dream of.