First order of business for new CEO: end refranchising program, close 5 units in Canada
Cleaner restaurants. Strategic scheduling of staff. Relevant marketing. Improved customer service.
Red Robin Gourmet Burgers Inc. said operational enhancements and a fresh advertising campaign that resonated with consumers drove a 1.6% increase in same-store sales, ending a six-quarter streak of negative growth for the casual dining chain.
Guest counts, while down 3.1%, also improved compared to the previous quarter when visits plunged 6.4%.
“Red Robin is clearly on the right path,” Paul J.B. Murphy III told investors in his first earnings call as company CEO. “I’m encouraged by the brand’s ongoing traction.”
Murphy, named CEO in September, said he’s spent the first five weeks on the job immersing himself in the brand by visiting restaurants and talking to employees.
While he didn’t lay out a detailed turnaround plan, he did announce plans to suspend the company's refranchising program; instead, he said his priority will be to improve dine-in traffic and sales by focusing on operational fixes. The company also announced plans to close five locations in Alberta, Canada in December. That follows the Aug. 18 closure of a restaurant in Edmonton, Alberta on Aug. 18.
The six closures in Canada are part of a reassessment of Red Robin's real estate portfolio, a strategic priority previously announced before Murphy arrived. After the five Alberta closures on Dec. 8, the 12 in British Columbia will be the only Red Robin restaurants left in Canada.
Murphy told investors that he’ll be revealing his strategic plan for the brand at the ICR shareholder conference in January, an annual industry event the struggling brand skipped in 2019.
“I intend to develop and share a strategic vision and robust transformation plan that will serve as our road map, leveraging the building blocks already in place,” he said.
Some of the brand’s strategic changes have already been working to move the needle.
Customer satisfaction scores, in particular, are on the rise after reaching a low point at the end of fiscal 2018, Guy Constant, chief operating officer, told investors during the conference call.
Changes in-house, including strategic scheduling of staff, are helping to improve Red Robin scores for cleanliness, speed and service.
He said cleaner stores and strategic allocation of staffing during peak and non-peak periods have contributed to improved dine-in traffic. Staff turnover has also improved, especially among managers.
At the start of the year, Constant said Red Robin was down about 100 managers. By the end of the latest quarter, the brand was fully staffed at the manager level.
“Now with more fully staffed management teams, we are also able to reduce the churn of managers between locations and provide a better and more stable experience for our team members,” he said.
Constant said the in-house changes have improved “guest ratings for speed of service, food temperature, the execution of our bottomless promise and restaurant cleanliness."
Peter Saleh, BTIG managing director and restaurants analyst, said in a post-earnings note that the newly installed CEO seems to be employing a standard “restaurant turnaround playbook” with a focus on media investments, a shift in menu strategy and culling of unnecessary efforts like closing Canada units.
“That said, we see an uphill battle for Red Robin to compete for share of voice against its much larger bar and grill and casual dining competitors,” Saleh wrote.
Total revenues for the third quarter ended Oct. 6 decreased 0.2% to $294.2 million. Net loss was $1.8 million, or 14 cents per share, compared to profit of $1.7 million, or 13 cents per share, for the same period a year ago. The Greenwood Village, Colo.-based casual-dining chain ended the quarter with 561 restaurants.
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