Shares of Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) fell 28.86% after the burger-centric restaurant chain said it will stop opening new restaurants after the end of 2018. The news coupled with lower than expected third quarter results did not go well with investors.
Red Robin plans to use the 18-24 month pause on unit development to asses’ customer’s desires and the best ways to meet them. According to Chief Executive officer, Denny Marie Post, focus will be on coming up with innovations that have the potential to boost sales.
“We simply can’t be satisfied with this level of performance,” executive vice president and chief financial officer Guy Constant said. “The future will look much different than it does today. And it needs to.”
The restaurant chain operated 479 units as of October 1, 2017. It plans to open nine more units next year before the proposed pause.
Red Robin Gourmet is not the first fast-food chain to embark on an aggressive restructuring plan. Chipotle Mexican Grill, Inc.(NYSE:CMG) has also announced a slowdown in store development as it tries to come up with ways of adjusting to changing customer’s trend.
Fewer people coming into stores has emerged as the biggest problem in the food business. However, Red Robin appears to have found a way of holding on to customers as other restaurant chains continue to feel the effect of slowing customer traffic.
Customer traffic remaining flat year-over-year is a testament that Red Robin’s ‘Tavern’ menu offered at $6.99 has the potential to continue attracting more consumers. The chain also continues to benefit from significant growth in off-premise sales, pick-up, third party delivery and catering service.
Revenue in the third quarter climbed a modest 2.3% year-over-year to $304.2 million, thanks to growth in the emerging trends. In a bid to strengthen the sales growth momentum, all Red Robin restaurants have started to offer online ordering capabilities and third-party delivery services.
The burger chain reported an adjusted net income of $2.7 million or $0.21 a share for the third quarter, down from $5 million reported a year ago.