Red Robin outlines $1.2B revenue target and pivots to data-driven marketing as traffic declines 3%-4%

Earnings Call Insights: Red Robin Gourmet Burgers, Inc. (RRGB) Q2 2025

MANAGEMENT VIEW

* David A. Pace, President and CEO, stated that since stepping in as CEO, "challenges facing our business have come further into focus" and emphasized the rollout of the new "First Choice" Plan, which includes initiatives such as "Hold Serve, Drive Traffic, Find Money, Fix Restaurants, and Win Together." Pace explained, "While our top line performance during the second quarter is not yet reflective of what we believe Red Robin is capable of, we strongly believe the strategy we've put in place will turn the ship around."
* The CEO highlighted that labor efficiency improvements drove "a 270 basis point improvement year-over-year in restaurant level operating profit margin entirely driven by 300 basis points of labor improvements."
* The company launched the "Red Robin Big Yummm Burger Deal" starting at $9.99, aiming to attract traffic with value offerings. Early signs are positive, with Pace noting the deal "has been successful in improving traffic relative to our Q2 exit rate."
* Todd Wilson, CFO, reported, "In the second quarter, total revenues were $283.7 million versus $300.2 million in the second quarter of fiscal 2024." He further stated, "Comparable restaurant revenue decreased 3.2%, including a 4.4% increase in net menu price, offset by a 5.5% decline in guest traffic."
* Wilson commented on the company's financial standing: "Adjusted EBITDA was $22.4 million in the second quarter of 2025 and an increase of $8.8 million versus the second quarter of 2024."

OUTLOOK

* Red Robin projects total revenue of approximately $1.2 billion for 2025, compared to prior guidance of $1.21 billion to $1.23 billion, reflecting expectations that comparable restaurant sales will decline 3% to 4% for the remainder of the year.
* Wilson stated, "We will end 2025 and with 386 company-owned restaurants in operation."
* Restaurant-level operating profit is expected to be 12% to 13%, and adjusted EBITDA is projected at $60 million to $65 million, both in line with prior guidance.
* Capital expenditures are now expected at the higher end of approximately $30 million, reflecting investments in restaurant upgrades and marketing.

FINANCIAL RESULTS

* Total revenues were $283.7 million in Q2 2025, down from $300.2 million in Q2 2024.
* Comparable restaurant revenue decreased 3.2%, with a 4.4% menu price increase offset by a 5.5% decline in guest traffic.
* Restaurant-level operating profit margin was 14.5%, up 270 basis points year-over-year, driven by labor efficiency.
* General and administrative costs were $17.4 million compared to $16.6 million in Q2 2024.
* Selling expenses were $6.4 million, down from $12 million in the prior year period, as marketing activity was intentionally slowed.
* Adjusted EBITDA reached $22.4 million, an $8.8 million increase year-over-year.
* The company ended the quarter with $24.4 million in cash and cash equivalents and $37.5 million in available borrowing capacity.

Q&A

* Todd Morrison Brooks, The Benchmark Company: Asked about progress on labor efficiency and the impact of the new value mix with Big Yummm. Pace responded that operators "have become much more disciplined in managing through a labor matrix" and improvements are ongoing, with no set target to avoid compromising guest experience. Wilson clarified, "we think it's about a 1% drag on restaurant level profitability in the balance of the year" from Big Yummm, with 9% of guests choosing the deal, resulting in a 2%-3% drag on PPA.
* Alexander Russell Slagle, Jefferies: Inquired about near-term guest experience initiatives and marketing spend cadence. Pace described a holistic approach including facility upgrades and technology investments. Wilson detailed that "in the back half of the year, we frankly expect about the same" selling expense as the first half, split evenly between Q3 and Q4, representing an increase year-over-year.
* Jeremy Scott Hamblin, Craig-Hallum Capital: Asked about franchisee margins and sales trends. Pace acknowledged franchisees generally perform better but noted company operations are "closing the gap."
* Mark Eric Smith, Lake Street Capital: Queried about franchisee buy-in and menu pricing. Pace confirmed franchisees are participating in promotions and "a little concern on trade down, but we're with you." Wilson stated, "we didn't expect to take any further price in 2025," expecting Q3 menu price at 4.5%-5% and Q4 at 2%-2.5%.

SENTIMENT ANALYSIS

* Analysts expressed cautious optimism but repeatedly questioned sustainability of traffic growth, margin impacts from value deals, and franchisee engagement, indicating a slightly negative to neutral tone.
* Management maintained a confident and optimistic tone in prepared remarks, emphasizing early positive results from new initiatives. During Q&A, management was pragmatic, acknowledging challenges in traffic and commodity costs but stressing ongoing improvements and discipline. Quotes such as "we're building the foundation for sustainable, profitable growth" and "we're certainly optimistic that we can build up from there" reflect this attitude.
* Compared to the previous quarter, analysts demonstrated heightened concern over traffic declines and the effectiveness of value promotions, while management showed increased confidence in strategic execution despite short-term headwinds.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for total revenue was adjusted downward to approximately $1.2 billion from a prior range up to $1.23 billion, reflecting greater caution due to traffic declines.
* Strategic focus shifted from maintaining operational gains and financial flexibility in Q1 to aggressive marketing, value offerings, and facility upgrades in Q2 through the "First Choice" Plan.
* Both quarters emphasized labor efficiency as a key margin lever, but Q2 highlighted the impact of the Big Yummm promotion and a pivot toward data-driven marketing.
* Q1 analyst questions centered on cost controls and operational execution, while Q2 questions shifted toward traffic trends, marketing ROI, and franchisee alignment.
* Management’s tone grew more proactive and optimistic, underlining early progress in traffic-driving initiatives and refranchising efforts, yet acknowledged increased commodity headwinds and the need for careful reinvestment.

RISKS AND CONCERNS

* Management identified continued guest traffic declines as a core challenge, with comparable restaurant sales projected to fall 3%-4% in the remainder of 2025.
* Commodity cost inflation, especially in ground beef and poultry, is expected to create a $2 million to $3 million headwind in the second half of the year.
* There is risk associated with the success of value offerings possibly creating a drag on profitability, with management estimating a "1% drag on restaurant level profitability" for the balance of the year due to Big Yummm.
* Franchisee concern about potential trade-down effects from new promotions was noted, though participation remains strong.
* The company is closely managing its debt position ahead of a refinancing effort, targeting optimal leverage to secure favorable terms.

FINAL TAKEAWAY

Red Robin’s Q2 2025 earnings call conveyed a renewed strategic focus, with the new "First Choice" Plan driving operational efficiency, enhanced value offerings, and planned investments in restaurant upgrades and data-driven marketing. Management expects near-term headwinds from declining guest traffic and rising commodity costs, but remains confident that recent initiatives—including the Big Yummm deal and upcoming marketing enhancements—will lay the groundwork for sustainable growth and improved profitability in the coming year. Investors are encouraged to watch for further updates on refranchising, continued labor efficiency, and the impact of new marketing strategies as the transformation progresses.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/rrgb/earnings/transcripts]

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