Red Robin (RRGB)

Burger restaurant chain Red Robin (NASDAQ:RRGB) beat Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 5.5% year on year to $283.7 million. On the other hand, the company’s full-year revenue guidance of $1.2 billion at the midpoint came in 1% below analysts’ estimates. Its non-GAAP profit of $0.26 per share was significantly above analysts’ consensus estimates.

Company Overview

Known for its bottomless steak fries, Red Robin (NASDAQ:RRGB) is a chain of casual restaurants specializing in burgers and general American fare.

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Competitors offering burgers and American fare in a sit-down restaurant format include Chili’s owner Brinker International (NYSE:EAT), Applebee’s owner Dine Brands (NYSE:DIN), Texas Roadhouse (NASDAQ:TXRH), and The Cheesecake Factory (NASDAQ:CAKE).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $1.24 billion in revenue over the past 12 months, Red Robin is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

This quarter, Red Robin’s revenue fell by 5.5% year on year to $283.7 million but beat Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to decline by 3.6% over the next 12 months, a slight deceleration versus the last six years. This projection doesn't excite us and indicates its menu offerings will face some demand challenges.

Number of Restaurants

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

Over the last two years, Red Robin has generally closed its restaurants, averaging 1.8% annual declines.

When a chain shutters restaurants, it usually means demand for its meals is waning, and it is responding by closing underperforming locations to improve profitability.

Note that Red Robin reports its restaurant count intermittently, so some data points are missing in the chart below.

Same-Store Sales

A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at restaurants open for at least a year.

Red Robin’s demand has been shrinking over the last two years as its same-store sales have averaged 1.2% annual declines. This performance isn’t ideal, and Red Robin is attempting to boost same-store sales by closing restaurants (fewer locations sometimes lead to higher same-store sales).

In the latest quarter, Red Robin’s same-store sales fell by 3.2% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Red Robin has bad unit economics for a restaurant company, signaling it operates in a competitive market and has little room for error if demand unexpectedly falls. As you can see below, it averaged a 13.7% gross margin over the last two years. That means Red Robin paid its suppliers a lot of money ($86.34 for every $100 in revenue) to run its business.

This quarter, Red Robin’s gross profit margin was 15.8%, marking a 2.4 percentage point increase from 13.5% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as ingredients and transportation expenses) have been stable and it isn’t under pressure to lower prices.

Red Robin’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging negative 1.8% over the last two years. Unprofitable restaurant companies that fail to improve their losses or grow sales rapidly deserve extra scrutiny. For the time being, it’s unclear if Red Robin’s business model is sustainable.

Looking at the trend in its profitability, Red Robin’s operating margin might fluctuated slightly but has generally stayed the same over the last year, meaning it will take a fundamental shift in the business model to change.

This quarter, Red Robin generated an operating margin profit margin of 3.5%, up 5 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Red Robin, its EPS declined by 19.4% annually over the last six years, more than its revenue. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

In Q2, Red Robin reported adjusted EPS of $0.26, up from negative $0.48 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Red Robin’s five-year average ROIC was negative 6.2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the restaurant sector.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Red Robin’s $523.2 million of debt exceeds the $24.37 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $65.04 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Red Robin could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Red Robin can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Red Robin beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year EBITDA guidance missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 5.4% to $6.30 immediately after reporting.

Updated: November 8, 2025 at 9:51 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Red Robin, you should also grasp the company’s longer-term business quality and valuation.

We cheer for all companies serving everyday consumers, but in the case of Red Robin, we’ll be cheering from the sidelines. First off, its revenue has declined over the last six years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last six years makes it a less attractive asset to the public markets. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Red Robin’s EV-to-EBITDA ratio based on the next 12 months is 1.5x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $11 on the company (compared to the current share price of $4.75).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.