Red Robin on cutting costs and battling burger brandsRed Robin on cutting costs and battling burger brands

Lisa Jennings

Red Robin Gourmet Burgers Inc. addressed recent cost cuts, immigration and the threat posed by fast-casual burger brands after reporting its turnaround efforts were gaining traction.

Though commodity costs could rise as much as 6 percent this year, Red Robin’s April 17-ended first quarter was “a great kick start to 2011,” chief executive Steven Carley told securities analysts in a conference call late Thursday.

Greenwood Village, Colo.-based Red Robin reported a nearly 76 percent increase in net income for the quarter on higher revenue and same-store sales. 

In the call to analysts, Carley said the company has made progress on its turnaround initiative, called Project RED, an acronym that represents the key focus of the changes over the past few months: revenue growth, expense management and deployment of capital.

Project RED initiatives have included the launch of a new loyalty program, a renewed focus on building bar business, and cost-cutting measures that included the elimination in January of 32 positions at the company’s headquarters. The chain also rolled out a new menu in late April that included a 1.5 percent price hike.

Carley addressed several issues facing the company. Highlights of the call:

Cost cutting

Continuing on its goal of trimming up to $18 million in costs by the end of 2012, Red Robin has identified roughly 200 ways to reduce expenses, Carley said. Of those, about 40 were implemented in the first quarter. Those efforts included a switch to more environmentally friendly kids’ cups and brown paper towels.

Labor costs are expected to decrease by about 80 to 100 basis points for the full year, compared with last year, as a result of improved training and improved productivity efforts, the company said.

Commodity costs

Red Robin raised its estimate of commodity inflation to between 5 percent and 6 percent for the year. Previous estimates were between 3 percent and 4 percent.

Carley said the worst offender is the cost of beef, which is expected to increase 20 percent for the year.

Summer LTOs

This summer, Red Robin will roll out a Five Alarm Chicken Sandwich as a limited time offer, as well as a Summer Strawberry Salad.

The chain will support the promotion with television advertising that is expected to cost about $3.8 million in the second quarter.

Red Robin said its advertising spending this year will range from $13 million to $14 million.

Growing competition

Analysts asked Red Robin executives how the chain is responding to the rapid growth of fast-casual better burger concepts, such as Five Guys.

“We can do things those guys can’t,” Carley said.

Red Robin has a full bar, for example, he said, and it offers a full-service experience and restaurants with a better ambiance.

But to compete, Carley said, “We need to hit on all aspects of the value equation.”

Immigration

Carley also was asked how the company is protecting itself from the kind of federal immigration crackdown now being experienced by Chipotle Mexican Grill, which reportedly lost 450 employees in Minnesota after a sweep by Immigration and Customs Enforcement.

Carley said Red Robin has been using the online E-Verify system for the last three years to check the eligibility of new hires to work legally in the U.S.

Sales details

Average sales volumes from newer restaurants are running above the comparable-sales pool, which bodes well for future results, Carley said.

Last week, a new Red Robin location broke opening records with $150,000 in sales the first week, he said.

In the first quarter, average weekly sales from the 301 comparable corporate restaurants were $56,977, compared with $55,896 for the 286 comparable corporate stores the same time last year.

Meanwhile, average weekly sales for the 14 non-comparable corporate locations, open less than a year, were $66,685 in the first quarter, compared with $56,560 for the 22 non-comparable locations in last year’s first quarter.

Among franchise locations, average weekly sales for the 107 comparable stores in the U.S. were $53,403, compared with $51,857 for the 106 comparable franchise locations last year, the company said.

Contact Lisa Jennings at [email protected]
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