A turnaround effort at Red Robin Gourmet Burgers appears to be working wonders. If only more people were there to see it.
Customer satisfaction scores at the casual-dining burger chain rose 6% in the last quarter, reflecting recent investments in service, speed and food quality under CEO GJ Hart.
But a broader decline in industry traffic muted the impact of those improvements. Red Robin’s same-store sales declined 0.8% year over year in the period, and the company dialed down its outlook for the rest of 2024.
The 500-unit chain is now predicting total revenues of $1.25 billion, down from a range of $1.25 billion to $1.75 billion previously. It also significantly lowered its expectations for adjusted earnings before interest, taxes, depreciation and amortization to $40 million to $45 million, down from $60 million to $70 million previously.
About $15 million of that decrease is due to a drastic change in customer traffic patterns, said CFO Todd Wilson. Red Robin had been expecting traffic to turn positive in the second half of the year, but now foresees traffic declines of 4% and 5% in the third and fourth quarters, respectively, for an annual figure of negative 6%.
Higher costs for beef, chicken and produce as well as higher labor costs are also putting pressure on profits.
“Our results for the second quarter and our reduced outlook for the remainder of the year are not what we expected when we last communicated in May, with the slowdown experienced in the broader restaurant industry, masking the substantial progress we continue to make,” Hart said during an earnings call Thursday.
To appeal to price-sensitive customers, the chain has been promoting its free refill policy on more than 30 menu items, including fries. It has also been pushing its lower-priced Tavern Burger. Hart said both efforts have been getting traction with customers, including 90% uptake on its bottomless items option.
“We think that we are offering quite the value.” he said. “What we don't want to do is go back to the deep, deep discounting.”
Red Robin has also seen positive results from its loyalty program, which it relaunched in May. The new program allows customers to earn rewards faster, and has translated to more frequent visits from new members. The average time between first and second visits was 39 days, down from 51 under the old program. And loyalty members spend more than non-loyalty customers. Red Robin Royalty had 14.2 million members at the end of the second quarter.
The chain plans to use data gathered from the loyalty program to generate more personalized marketing for customers in hopes that it will get them to visit more often.
“We are pleased with the launch and initial traction of this new loyalty program and fully expect it to be a key driver of traffic for our future business,” Hart said.
Still, those initiatives were apparently not enough to move the needle for many consumers in the second quarter. And they come amid a flood of similar offers and promotions from other restaurant brands, all of which are fighting for attention from inflation-weary diners.
The news sent Red Robin’s stock plummeting to a 52-week low of $3.92 Thursday. It rebounded Friday but was still down more than 8% as of midafternoon.
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