Red Robin Shares Soar 13% on Activist Investor Offer

After losing more than half its value since 2018, shares of Red Robin Gourmet Burgers (RRGB) are showing signs of life this morning. 

At the moment, the stock is up more than $4, or 13% on the day after a resubmitted bid from Vintage Capital to acquire all outstanding shares at $40 apiece in cash. This is now the second time Vintage has made the offer, having urged the company to pursue strategic alternatives, including a potential sale, with a bid of $40 a share.   

While Red Robin has yet to decide what to do, it did note that, “”Consistent with its fiduciary duties and in consultation with its independent legal and financial advisors, the Red Robin board will carefully review and consider the proposal,” as quoted by Restaurant Business Online. 

Red Robin is No Stranger to Operational Deficiencies

Something has to change at RRGB because investors aren’t happy.

We can clearly see that in a one-year chart of the stock.  Not only did the company just suffer declines in same-store sales for the fifth consecutive quarter, foot traffic to its stores continues to pull back as well. Plus, CEO Denny Marie Post stepped down in April.  

In its last earnings report, RRGB noted that Q1 earnings sank to $639,000, or five cents a share from $4.4 million, or 34 cents year over year.  Adjusted, the company would have earned 19 cents. Revenue also fell to $409.9 million from $421.5 million as same-store sales fell 3.3%. Analysts were looking for 49 cents on revenue of $409 million.

In the previous quarter, the company saw same-stores decline 4.5%, as its guest count fell 4.4%.

“2018 was a very challenging sales year and the fourth quarter continued that trend, buoyed somewhat by better than expected growth in our new catering business, but dragged down by weakness at in-line mall locations. That said, we made measurable progress on the operations fundamentals we identified last August as critical to gradually regaining our momentum in 2019.

“We were more prepared to capture the seasonally higher traffic with improved staffing, scheduling and execution leading to shorter wait times, fewer Guests walking away, and improved kitchen time to table by the end of the quarter,” said Denny Marie Post, Red Robin Gourmet Burgers, Inc. president and CEO at the time. 

In short, RRBG has become a slow-motion train wreck for investors.  And if they fail to take the latest $40/share cash bid, further downside is likely, in our opinion.

No wonder the stock lost more than half its value over the last year.