Red Robin's Q3 2025 Earnings Call: Contradictions Emerge on Big Yummm's Traffic Impact, Refranchising Progress, and Low-Performing Restaurant Strategy

Date of Call: None provided

Financials Results

• Revenue: $265.1M, versus $274.6M in Q3 FY2024 (down ~3.4% YOY); comparable restaurant revenue down 1.2%
• Operating Margin: Restaurant-level operating profit 9.9% of restaurant revenue, up 90 basis points YOY; company guidance: restaurant-level operating profit of at least 12.5% for 2025 (vs prior 12%–13%)

Guidance:

• Total revenue for 2025 approximately $1.2 billion; comparable restaurant sales expected to decline ~3% in Q4; ending 2025 with 386 company-owned restaurants.
• Restaurant-level operating profit of at least 12.5% (raised vs prior 12%–13%).
• Adjusted EBITDA of at least $65M (raised from prior $60M–$65M).
• Capital expenditures ~ $33M (up from ~$30M).
• Expect Q4 cost of goods similar to Q3; beef inflation ~25% expected to persist in Q4.
• G&A expected to remain similar to Q3; marketing intentionally backloaded to drive traffic later in Q4.

Business Commentary:

* Operational Efficiency and Profitability: - Red Robin reported a 90 basis point improvement in restaurant level operating profit, driven by labor efficiencies, resulting in a 12.5% restaurant-level operating profit margin expected for 2025. - The improvement was due to operational efficiencies achieved through process changes, analytics, and technology combined with an entrepreneurial spirit of operators.

• Traffic Improvement and Value Offering:
• Red Robin's traffic trends improved sequentially through Q3, with a 250 basis point improvement compared to Q2, leading to an exit traffic run rate of approximately -1.4%.

• This was attributed to the launch of the Big Yummm burger deal, which saw a 250 basis point sequential traffic improvement.

• Off-Premise Business Growth:

• The off-premise business accounted for approximately 25% of sales in Q3, with a 2.9% traffic growth.

• This growth was driven by a significantly expanded approach to catering, indicating a strong consumer demand for Red Robin's food across various channels.

• Capital Structure Optimization:

• Red Robin extended its current credit agreement by 6 months to September 2027, providing time to optimize its capital structure.
• This extension, along with plans for refinancing and potential refranchising, aims to strengthen the company's balance sheet and optimize its long-term financing.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "we began to see the early fruit"; "we beat our expectations for both restaurant level and corporate profitability"; restaurant-level operating profit 9.9%, up 90 bps YOY; "Adjusted EBITDA beat our expectations" and guidance raised to at least $65M — all signal improving operational momentum.

Q&A:

• Question from Jeremy Hamblin (Craig-Hallum): Congrats — where is the Big Yummm mixing as a portion of sales; given uptick in food/beverage costs (beef), should we expect cost pressures to persist; what was the financial cost of the 6-month debt extension; status and valuations on refranchising (25–75 locations)?
  Response: Big Yummm is mixing at ~8% of sales; expect beef-driven cost of goods at ~25% into Q4; the credit extension cost was ~50 basis points; refranchising is progressing with interest and proposals in the originally communicated 25–75 range but no firm deals yet.

• Question from Todd Brooks (Benchmark Stern): Given Big Yummm launched late in July, is there more upside to unlock from it; how important is an everyday value platform vs weekend occasions; can you quantify traffic lift from data-driven microtargeting and plans to expand into 2026; impact on store closures and improving the bottom decile of restaurants?
  Response: Management believes there is additional upside from Big Yummm and broader menu work; data-driven microtargeting (now ~100+ stores) is delivering sequential traffic improvements with many stores posting positive YoY traffic, and they plan to expand it systemwide — improving underperforming restaurants and materially reducing the closure pipeline.

• Question from Mark Smith (Lake Street Capital): Can you discuss mix dynamics (beverages, desserts, add-ons) and consumer behavior during and after the quarter; sustainability of G&A savings; and Q4 comp guidance?
  Response: Mix held up with add-ons (toppings, beverages, apps/desserts) mitigating Big Yummm's lower price point; G&A savings are expected to be sustainable with Q4 similar to Q3; Q4 comps are expected to decline ~3% driven by traffic (traffic guidance ~ down 3%) with menu price and mix roughly offsetting on check.

Contradiction Point 1

Impact of Big Yummm Initiative on Traffic

It involves the expected impact of the Big Yummm initiative on traffic, which is a critical metric for the company's performance and growth strategy.

What proportion of total sales is attributed to the Big Yummm deal? Are food and beverage costs expected to increase further? - Jeremy Hamblin (Craig-Hallum)

20251111-2025 Q3: The Big Yummm deal has contributed positively to traffic. It's especially effective in early week and lunch dayparts. - David Pace(CEO)

Could you provide the mix percentage and expected food and beverage costs for the Big Yummm initiative? - Jeremy Hamblin (Craig-Hallum Capital Group LLC)

2025Q3: Big Yummm was launched mid-July and contributed to a 250 basis point traffic improvement. - David Pace(CEO)

Contradiction Point 2

Refranchising Efforts and Financial Impact

It involves the financial impact and progress of refranchising efforts, which are crucial for the company's financial health and strategic direction.

What was the cost of extending the debt agreement, and how is refranchising progressing? - Jeremy Hamblin (Craig-Hallum)

20251111-2025 Q3: The extension cost us 50 basis points. Refranchising is progressing as expected. There's interest in the communicated range of locations, with proposals received. - David Pace(CEO)

What was the cost of the debt extension and the refranchising update? - Jeremy Hamblin (Craig-Hallum Capital Group LLC)

2025Q3: Extension cost was a 50 basis point increase. Refranchising interest is in the range originally communicated. Proposals are being vetted, and it remains an option for strengthening the balance sheet. - David Pace(CEO)

Contradiction Point 3

Impact of Big Yummm on Low-Performing Restaurants

It involves the expected impact of the Big Yummm initiative on low-performing restaurants, which is critical for the company's overall performance and growth strategy.

How do Big Yummm and data-driven marketing initiatives affect the stability of underperforming restaurants? - Todd Brooks (Benchmark Stern)

20251111-2025 Q3: We're focusing on improving these restaurants. The list of closures is shorter than before. We aim to stabilize and improve performance through these initiatives. - David Pace(CEO)

How do you assess the stability of the bottom 10% of stores with the Big Yummm and data-driven marketing initiatives? - Todd Brooks (The Benchmark Company, LLC)

2025Q3: Initiatives are showing positive results, reducing the number of at-risk stores. Some closures may still occur, but the list is shorter than previously expected. - David Pace(CEO)