Red Robin Gourmet Burgers had a pleasant surprise for investors on Thursday.
The casual-dining chain reported a major swing in profitability in the first quarter, including an eye-popping 108% increase in adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA. They rose to $27.9 million, from $13.4 million a year ago.
Restaurant-level margins likewise jumped 330 basis points, to 14.3%, and the chain generated a profit of $1.2 million, compared to a net loss of $9.5 million a year ago.
It cited better labor efficiency and higher prices for the improvement.
Same-store sales also increased 3.1% in the quarter, exceeding the chain’s expectations.
Red Robin’s stock price surged as much as 53% in after-hours trading, erasing much of its year-to-date losses of 44.8%.
Executives credited the chain’s recent investments in operations, service and food quality for the strong performance. It has also been working to lower its labor costs, and that effort has taken hold faster than expected, executives said, though they did not go into detail.
The performance comes with a few asterisks. The same-store sales growth came almost entirely from a 6.8% increase in menu prices. Traffic was down 3.5% year over year, and that trend is expected to continue for the rest of the year.
For the current quarter, same-store sales will be down an estimated 3% because the chain won’t have the same menu price lift and because it will be lapping a change to its loyalty program that benefited sales a year ago.
Red Robin also lowered its sales outlook for the year slightly due to the “broader macro and consumer environment.”
And it kept its prior profit guidance the same, factoring in negative traffic, the lack of additional pricing and impacts from tariffs.
“I think a prudent haircut on the top line, that's what's driving us to hold the guidance for the year,” said CFO Todd Wilson during an earnings call with analysts Thursday.
Still, the results were a promising sign for a chain in the midst of a three-year turnaround effort and a recent leadership transition. Former CEO G.J. Hart announced in April that he would step down and hand the reins to David Pace, who has been the chain’s chairman since 2019. Hart is staying on as an advisor through September.
Both men participated in the call Thursday. Pace said his plans for the chain are not all that much different from Hart’s. Hart gave Red Robin a reset in a number of areas, he said, and Pace plans to continue those efforts.
“We're going to figure out how to bend the curve on traffic. We're going to hold serve on operations. We're going to look to be the first choice for consumers when they want to go out and have a burger,” he said. “We're going to give ourselves some financial flexibility on the balance sheet and then we're going to use some funds to fix the restaurants.”
“There's some additional focuses that he's going to have,” Hart added, “but I think it's a great place and I think this transition is a pretty special one, and it's worked out really, really well.”
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