Red Robin Gourmet Burgers Shows 'Significant Upside Potential,' Jefferies Notes

In a report published last Friday, Jefferies analyst Alexander Slagle wrote that Red Robin Gourmet Burgers, Inc. (NASDAQ: RRGB) demonstrated continued same-store sales momentum in the fourth quarter.

Slagle noted that July and August's trends were weak, but same-store sales bounced back in September and continued through the fourth quarter as same-store sales rose 3.6 percent and traffic gained 1.2 percent. The analyst added that the company's traffic gap to peers expanded from 20 basis points in September to 180 basis points in the fourth quarter.

"Although we expect the strong check/mix gains seen in recent quarters to diminish as Red Robin continues to roll over its successful ‘Finest' burger platform launch, we think traffic is setting up to be positive through 2015," Slagle wrote.

Slagle also noted that his 2.8 percent same-store sales growth for 2015 is "conservative" based on 0.6 percent traffic gain – a lowball figure that may ultimately read higher is the company's brand transformation remodels are as impactful as currently expected. The analyst argued that remodels are driving four percent to five percent traffic lift and the company expects to have 229 remodels complete at the end of the year.

Bottom line, Slagle argued that if trends in the casual food segment continue to improve, Red Robin Gourmet Burgers could drive "big" earnings per share upside as one percent of traffic growth translates to 13 percent in earnings per share growth.

Shares remain Buy rated with a price target raised to $94 from a previous $87.