raymond james on red robin

U.S. Research Published by Raymond James & Associates

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Red Robin Gourmet Burgers, Inc. August 14, 2014

(RRGB-NASDAQ) Company Comment Bryan C. Elliott, CFA, (404) 442-5856, [email protected]

Brian M. Vaccaro, CFA, (404) 442-5866, [email protected]

Restaurants _________________________________________________________

Compelling Value on Cash Flow after Drop; Lower EPS; Reiterate Strong Buy

Recommendation: We reiterate our Strong Buy rating despite the ~20% intra-day decline behind a disappointing EPS release. We emphasize that the slow Q2 sales (and attendant margin pressures) is, in our view, a macro issue and not an indicator of a loss of competitive positioning. On our new, lower 2015 numbers, RRGB is now trading near 6.0x on an EV/EBITDA basis. This gives RRGB the lowest EV/EBITDA multiple in our broad restaurant universe, which we believe is a material mispricing given 1) the company continues to grow its market share; 2) the chainwide remodel program has yet to help sales; and 3) significant white space remains for Red Robin to grow into a national chain.

Event: Q2 EPS of $0.68, vs. $0.77 in 2Q13, was well below our $0.93 estimate. Comp sales of +1.2% was below our +3% estimate, causing margins to contract materially.

Analysis: Despite the Q2 comp miss, Red Robin sustained its strong historical pattern of industry outperformance under the current management team (the Knapp-Track casual dining index fell 1% in Q2). Factors include: 1) the “dinner and a movie” promotion (free movie with $25 gift card purchase) in a period of materially weak movie attendance; 2) we believe the July 4 shift cost ~50 bps of sales; and 3) some schools in the Northeast and Midwest added many snow days to their late spring schedule (families come to Red Robin much more frequently when school is out for the summer). This comp disappointment pressured store margins (down 110 bp vs. our estimate of down 5). SG&A rose more than expected on higher ad spending; thus EBITDA of $29.2 million was $5.3 million, or 15%, below our forecast.

Future Comp Sales Drivers: We remain optimistic that RRGB can continue to drive positive comp sales. We expect the marketing focus to return to an emphasis on the low ticket Tavern Double burger (to counter increased competitive discounting) and on the new premium burger line (to re-accelerate mix gains). The remodel program (~5% sales lift in test) is accelerating and should result in close to 25% of the chain by Dec. 31, 2014, vs. a bit over 10% today.

Estimates: We are lowering our 2014 EPS estimate by $0.40 to $2.40 and our 2015 EPS estimate by $0.75 to $2.65.

Valuation: On our new, lower 2015 EBITDA forecast of $132.4 million, RRGB is currently trading at an EV/EBITDA multiple of 6.2x. Note that RRGB depreciates its store assets much faster than most public restaurant companies, understating its EPS relative to cash flow; this makes EBITDA the key valuation metric in our opinion. Our new, lower $65 target price equates to an EV/EBITDA multiple of 8.0x our new (and 11% lower) 2015 EBITDA forecast. This would still leave RRGB near the bottom of our universe as shown on page 2.

Non-GAAP Q1 Q2 Q3 Q4 Full GAAP EPS Revenues EPS Mar Jun Sep Dec Year Full Year (mil.)

2013A $0.66 $0.77 $0.32 $0.62 $2.37 $2.22 $1,017 Old 2014E 0.82A 0.93 0.36 0.70 2.80 2.80 1,158

New 2014E 0.82A 0.68A 0.30 0.61 2.40 2.38 1,133 Old 2015E 0.98 1.08 0.50 0.84 3.40 3.40 1,323

New 2015E 0.86 0.76 0.32 0.71 2.65 2.65 1,279

Rows may not add due to rounding. Non-GAAP EPS excludes one-time items.

Rating _________________________________ Strong Buy 1 Current and Target Price __________________ Current Price (Aug-14-14 12:52 p.m.) $51.17 Target Price: Old: $90.00 New: $65.00 52-Week Range $86.83 - $55.86 Suitability Aggressive Growth Market Data ____________________________ Shares Out. (mil.) 14.5 Market Cap. (mil.) $745 Avg. Daily Vol. (10 day) 176,324 Dividend/Yield $0.00/0.0% Book Value (Jul-14) $25.21 ROE 10% LT Debt (mil.)/% Cap. $137/27% Earnings & Valuation Metrics ______________

2013A 2014E 2015E

P/E Ratios (Non-GAAP) 21.6x 21.3x 19.3x

P/E Ratios (GAAP) 23.0x 21.5x 19.3x

Operating Margins 4.6% 4.5% 4.5%

EBITDA (mil.) Old $109 $127 $148 New $109 $118 $132 Company Description ____________________ Red Robin Gourmet Burgers, Inc., headquartered in Greenwood Village, Colorado, owns, operates, and franchises almost 500 full-service casual dining restaurants that serve a wide selection of gourmet burgers (beef, chicken, fish, and turkey), salads, and appetizers. The company hired a new CEO in the fall of 2010 whose primary initial focus was improving the profitability of the company's existing asset base (2011/2012). In 2012 management's focus shifted toward a multi-faceted brand transformation strategy that includes significant menu innovation, evolving its marketing strategy, and a system-wide remodel program launching in 2014. We believe that the company is still in the early innings of its transformation, which, if successful, should result in meaningful upside to the company's financial results.

Raymond James U.S. Research


International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 2

Raymond James Restaurant Universe - Valuations On Calendar Year Estimates

(8/14/14) Market EPS Estimates P/E Multiples Curr Ent. Value/EBITDA

Ticker Rating Price Cap CY-14 CY-15 CY-14 CY-15 CY-14 CY-15

Mature - Secular Unit Growth < 6%

Darden Restaurants DRI MO-2 $47.04 $5,841 UR 2.62 UR 18.0x UR 8.8x

Brinker Int'l EAT MO-2 46.47 $3,105 2.89 3.29 16.1x 14.1x 8.5x 7.9x

Bloomin' Brands, Inc. BLMN MO-2 16.14 $2,067 1.07 1.20 15.1x 13.4x 7.1x 6.6x

Cheesecake Factory, Inc. CAKE MP-3 44.10 $2,330 2.20 2.57 20.0x 17.2x 8.9x 8.1x

Cracker Barrel OCS, Inc. CBRL MP-3 98.72 $2,367 5.81 6.30 17.0x 15.7x 9.0x 8.5x

Ruby Tuesday Inc. RT MU-4 5.99 $362 -0.39 -0.25 NMF NMF 9.4x 9.5x

Ruth's Hospitality Group, Inc. RUTH MO-2 10.69 $380 0.75 0.85 14.2x 12.6x 7.2x 6.6x

Carrols Restaurant Group, Inc. TAST SB-1 6.86 $305 -0.38 -0.18 NMF NMF 10.9x 9.4x

MEAN 16.5x 15.1x 8.7x 8.2x

MEDIAN 16.1x 14.9x 8.9x 8.3x

Growth Chains - Limited Service

Starbucks Corp. (4) SBUX NR 76.26 $58,430 2.81 3.30 27.2x 23.1x 15.1x 13.1x

Chipotle Mexican Grill CMG MO-2 679.47 $21,386 14.00 18.00 48.5x 37.7x 21.7x 17.4x

Panera Bread PNRA MU-4 147.22 $3,988 6.70 6.90 22.0x 21.3x 9.4x 9.0x

Fiesta Restaurant Group, Inc. FRGI SB-1 49.22 $1,293 1.30 1.55 38.0x 31.7x 15.9x 13.4x

Noodles & Company (4) NDLS NR 20.96 $651 0.43 0.56 48.5x 37.2x 13.2x 11.5x

Zoe's Kitchen, Inc. (4) ZOES NR 31.68 $610 0.02 0.08 2112.0x 386.3x 44.4x 31.3x

Potbelly (4) PBPB NR 12.42 $362 0.20 0.26 62.7x 48.1x 10.7x 8.7x

MEAN (ex ZOES) 41.1x 33.2x 14.3x 12.2x

MEDIAN 48.5x 37.2x 15.1x 13.1x

Growth Chains - Full Service

Buffalo Wild Wings, Inc. BWLD MP-3 142.32 $2,701 5.00 5.90 28.4x 24.1x 10.1x 8.9x

Texas Roadhouse, Inc. TXRH SB-1 25.57 $1,805 1.25 1.45 20.5x 17.6x 8.6x 7.6x

BJ's Restaurants Inc. (4) BJRI NR 35.15 $1,017 0.78 0.97 45.1x 36.2x 12.2x 10.0x

Red Robin Gourmet Burgers, Inc. RRGB SB-1 51.45 $747 2.38 2.65 21.6x 19.4x 7.0x 6.3x

Del Frisco's Restaurant Group, Inc. DFRG MP-3 21.52 $513 0.90 1.08 23.9x 19.9x 10.6x 8.9x

Chuy's Holdings, Inc. CHUY MO-2 28.31 $473 0.76 0.93 37.1x 30.5x 16.2x 13.5x

Kona Grill KONA MO-2 17.42 $199 0.07 -0.07 235.7x -260.8x 17.6x 15.0x

Ignite Restaurant Group, Inc. IRG MP-3 8.03 $207 -0.18 -0.20 NMF NMF 11.4x 10.3x

MEAN (ex-KONA) 29.5x 24.6x 10.9x 9.4x

MEDIAN 28.4x 19.9x 11.0x 9.5x

Franchisors

McDonald's Corporation MCD MP-3 93.46 $92,824 5.50 5.95 17.0x 15.7x 10.3x 9.8x

YUM! Brands, Inc. YUM MP-3 70.85 $32,237 3.38 3.75 21.0x 18.9x 11.4x 10.6x

Burger King Worldwide, Inc. (4) BKW NR 26.40 $9,454 0.98 1.14 27.0x 23.3x 16.1x 15.0x

Dunkin' Brands Group, Inc. DNKN MP-3 43.42 $4,688 1.77 2.05 24.5x 21.2x 16.1x 14.9x

Domino's Pizza Inc. (4) DPZ NR 74.47 $4,271 2.87 3.36 25.9x 22.2x 15.4x 14.0x

Wendy's Company (4) WEN NR 8.16 $3,203 0.35 0.39 23.5x 20.9x 10.7x 10.1x

Papa John's Int'l (4) PZZA NR 40.90 $1,746 1.72 2.06 23.8x 19.9x 12.1x 11.0x

DineEquity, Inc. DIN SB-1 84.41 $1,600 4.63 5.67 18.2x 14.9x 10.3x 10.2x

Sonic Corp. (4) SONC NR 21.55 $1,248 0.87 1.02 24.8x 21.2x 11.3x 10.5x

Papa Murphy's Inc. FRSH MO-2 9.00 $151 0.42 0.44 21.3x 20.6x 9.9x 9.5x

MEAN 22.7x 19.9x 12.4x 11.6x

MEDIAN 23.6x 20.8x 11.3x 10.5x

S&P 500: 1952.78 117.51 127.27 16.6x 15.3x

Notes:

1) EPS, Revenue, & EBITDA estimates are based on calendar year projections. P/E and EBITDA multiples also based on CY estimates.

2) Figures quoted in terms of $ Millions include Market Cap, Revenues, and EBITDA.

3) Bold EPS = Extra Accounting Week

4) Estimates are consensus estimates per Thomson Reuters

Source: Raymond James Estimates and Company Filings

Company




RRGB EPS Reconciliation Q2:14 Q2:14 Q2:13

Reported RJ Est. Actual - RJ Est. Prior Year Actual Current - Prior

Operating Weeks 12 12 16

SSS - Company 1.2% 3.0% -1.8% 4.3%

Restaurant Sales 251,818$ 260,781$ (8,963)$ 234,490$ 17,328$

Franchise Income and Other 4,315 3,954 361 3,809 506

Total Revenues 256,133 7.5% 264,735 (8,602) 238,299 17,834

Cost of Sales 63,689 25.3% 65,573 25.1% (1,884) 58,024 24.7% 5,665

Labor Expenses 82,572 32.8% 84,720 32.5% (2,148) 76,648 32.7% 5,924

Operating Expenses 31,022 12.3% 31,394 12.0% (372) 28,463 12.1% 2,559

Occupancy Expense 18,618 7.4% 18,530 7.1% 88 16,779 7.2% 1,839

Store Level Cash Flow 55,917 22.2% 60,565 23.2% (4,648) 54,576 23.3% 1,341

SG&A (includes advertising) 29,776 11.6% 29,152 11.0% 624 28,386 11.9% 1,390

Stock Based Comp. (15% in Labor, 85% in G&A) (1,021) (1,103) 82 (1,050) 29

Cash G&A 28,755 11.2% 28,050 10.6% 705 27,336 11.5% 1,419

Franchise Development (pre-Q105) - - - - -

Pre-Opening Costs 1,626 1,500 126 1,291 335

Restaurant Closures and Impairments - - - - -

Gain on Lease Buy-Back - - - - -

Impairment of Real Estate Held For Sale - - - - -

Other Significant and Unusual Items 700 500 200 - 700

EBITDA (ex-stock based comp.) 29,151 11.4% 34,469 13.0% (5,318) 29,758 12.5% (607)

Depreciation and Amortization 14,120 5.5% 14,150 5.3% (30) 13,319 5.6% 801

Stock-Based compensation 1,021 1,103 (82) 1,050 (29)

Operating Income 14,010 5.5% 19,216 7.3% (5,206) 15,389 6.5% (1,379)

Interest Expense, Net (Beg. Mid-'05) 475 600 (125) 674 (199)

Interest (Income) - - - - -

Loss on Early Extinguishment of Debt - - - - -

Gain on Sale of Property - - - - -

Other - - - - -

Pre-Tax Income 13,535 18,616 (5,081) 14,715 (1,180)

Income Taxes 3,704 27.4% 5,119 27.5% (1,415) 3,576 24.3% 128

Net Income (Post-Option) 9,831 13,497 (3,666) 11,139 (1,308)

Diluted Shares Outstanding 14,528 14,590 (62) 14,391 137

Operating EPS 0.68$ 0.93$ (0.25)$ 0.77$ (0.10)$




Red Robin Condensed Cash Flow Statement ($000's)

FY-2011 FY-2012 FY-2013 FY-2014(E) FY-2015(E)

Net Income from Operations $20,577 $28,331 $32,239 $35,044 $39,091

Depreciation & Amortization 55,272 55,468 58,200 64,056 71,000

Stock Based Compensation 3,319 3,808 3,823 3,680 3,864

Other Operating Cash Flow (Net) 5,945 4,931 (1,802) (3,334) (3,025)

Gross Cash Flow 85,113 92,538 92,460 99,446 110,930

Net Change In Working Capital 10,584 1,841 21,069 5,000 5,000

Cash Flow from Operations 95,697 94,379 113,529 104,446 115,930

Total Capital Expenditures (44,085) (59,960) (78,876) (102,500) (100,000)

Free Cash Flow 51,612 34,419 34,653 1,946 15,930

Franchise Acquisitions - (3,247) - (47,958) -

Purchase of Treasury Stock (32,964) (24,304) (5,003) (7,500) -

Net Borrowings (Paydowns) (1,525) (22,049) (47,283) 64,000 (20,000)

Other Net Investing/Financing 24 2,585 12,301 6,544 5,195

Net Change In Cash and Investments 17,147 (12,596) (5,332) 17,032 1,125

Ending Cash and Investments 35,035 22,439 17,107 34,139 35,264

EBITDA 92,718 104,485 108,980 118,239 132,364

Ending Borrowings 156,931 134,995 88,714 152,698 132,698

Ending Debt/EBITDA 1.7x 1.3x 0.8x 1.3x 1.0x

Current Enterprise Value 826,110

EV/EBITDA @ per share price of: 51.17$ 7.6x 7.0x 6.2x

Source: Company Filings and RJ Estimates




RED ROBIN GOURMET BURGERS, INC. Bryan C. Elliott, CFA Brian M. Vaccaro, CFA 8/14/2014

Earnings Model - ($ Thousands) (404) 442-5856 (404) 442-5866

Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 (E) Q4-14 (E) Q1-15 (E) Q2-15 (E) Q3-15 (E) Q4-15 (E)

FY-2012 4/21/2013 7/14/2013 10/6/2013 12/29/2013 FY-2013 4/20/2014 7/13/2014 10/5/2014 12/28/2014 FY-2014(E) 4/19/2015 7/12/2015 10/4/2015 12/27/2015 FY-2015(E)

Accounting Weeks in Period 53 16 12 12 12 52 16 12 12 12 52 16 12 12 12 52

Restaurant Sales 960,994 301,313 234,490 226,844 237,551 1,000,198 334,995 251,818 253,823 276,317 1,116,954 388,921 293,743 285,076 297,077 1,264,816

Franchise Royalties and Fees 14,678 5,036 3,809 3,829 4,375 17,049 5,489 4,315 3,323 3,353 16,480 4,440 3,327 3,089 3,524 14,381

Rent and Other Revenue 1,460 - - - - - - - - - - - - - - -

Total Revenues 977,132 306,349 238,299 230,673 241,926 1,017,247 340,484 256,133 257,146 279,670 1,133,433 393,361 297,070 288,164 300,601 1,279,197

Cost of Sales 242,641 74,982 58,024 57,253 59,978 250,237 84,220 63,689 64,951 70,595 283,455 98,944 74,880 73,518 76,493 323,835

Labor Expenses 323,100 101,882 76,648 76,624 79,959 335,113 110,921 82,572 86,752 93,698 373,944 129,943 97,054 97,434 100,738 425,169

Operating Expense (ex-advertising beg '08) 125,471 37,090 28,463 29,463 28,463 123,479 40,597 31,022 33,475 33,384 138,478 47,521 36,187 37,311 35,595 156,614

Occupancy Expense 70,971 22,573 16,779 17,132 17,595 74,079 24,282 18,618 19,677 20,743 83,320 28,580 21,718 22,100 22,301 94,698

Store Level Cash Flow 198,811 64,786 54,576 46,372 51,556 217,290 74,975 55,917 48,968 57,897 237,757 83,933 63,905 54,712 61,950 264,500

Reported SG&A (ex one-timers) 110,798 37,608 28,386 27,481 29,177 122,652 42,423 29,776 28,706 30,233 131,138 47,045 33,198 31,593 32,045 143,880

Selling Costs (included in SG&A) 27,082 8,641 6,518 6,834 8,007 30,000 10,323 9,878 8,122 8,842 37,166 12,445 9,400 9,122 9,506 40,474

Underlying G&A 83,716 28,967 21,868 20,647 21,170 92,652 32,100 19,898 20,584 21,391 93,973 34,599 23,798 22,470 22,539 103,406

Stock Based Comp. (15% in Labor, 85% in G&A) (3,808) (1,192) (1,050) (857) (724) (3,823) (1,009) (1,021) (900) (750) (3,680) (1,059) (1,072) (945) (788) (3,864)

Pre-Opening Costs 3,474 834 1,291 2,482 1,923 6,530 1,513 1,626 1,700 1,700 6,539 1,300 1,500 2,300 1,400 6,500

EBITDA (ex-stock based comp.) 104,485 32,572 29,758 21,095 25,555 108,980 36,937 29,151 22,135 30,017 118,239 41,088 33,606 24,853 32,816 132,364

Depreciation and Amortization 55,468 17,834 13,319 13,436 13,611 58,200 18,886 14,120 15,050 16,000 64,056 21,500 16,250 16,500 16,750 71,000

Stock-Based compensation 3,808 1,192 1,050 857 724 3,823 1,009 1,021 900 750 3,680 1,059 1,072 945 788 3,864

Operating Income 45,209 13,546 15,389 6,802 11,220 46,957 17,042 14,010 6,185 13,267 50,504 18,529 16,284 7,408 15,279 57,500

Interest Expense, Net 5,442 1,089 674 624 178 2,565 674 475 925 950 3,024 1,250 900 900 900 3,950

Pre-Tax Income 39,776 12,457 14,715 6,178 11,042 44,392 16,368 13,535 5,260 12,317 47,480 17,279 15,384 6,508 14,379 53,550

Income Taxes 9,546 2,977 3,576 1,517 1,914 9,984 4,424 3,704 920 3,387 12,435 4,665 4,154 1,757 3,882 14,458

Net Income 30,230$ 9,480$ 11,139$ 4,661$ 9,128$ 34,408$ 11,944$ 9,831$ 4,340$ 8,930$ 35,044$ 12,613$ 11,230$ 4,751$ 10,497$ 39,091$

Diluted Shares Outstanding 14,677 14,341 14,391 14,600 14,607 14,510 14,592 14,528 14,578 14,628 14,582 14,678 14,728 14,778 14,828 14,753

Earnings Per Share 2.06$ 0.66$ 0.77$ 0.32$ 0.62$ 2.37$ 0.82$ 0.68$ 0.30$ 0.61$ 2.40$ 0.86$ 0.76$ 0.32$ 0.71$ 2.65$

GAAP Adjustments (0.1) - - - (0.1) (0.1) - (0.0) - - (0.0) - - - - -

GAAP EPS 1.93$ 0.66$ 0.77$ 0.32$ 0.48$ 2.22$ 0.82$ 0.65$ 0.30$ 0.61$ 2.38$ 0.86$ 0.76$ 0.32$ 0.71$ 2.65$

Operating EPS Growth 16.8% -6.9% 48.4% 31.4% 66.3% 28.2% 23.8% -12.6% -6.8% -2.3% 1.3% 5.0% 12.7% 8.0% 16.0% 10.3%

Margin Analysis

Cost of Sales 25.2% 24.9% 24.7% 25.2% 25.2% 25.0% 25.1% 25.3% 25.6% 25.5% 25.4% 25.4% 25.5% 25.8% 25.7% 25.6%

Labor Expenses 33.6% 33.8% 32.7% 33.8% 33.7% 33.5% 33.1% 32.8% 34.2% 33.9% 33.5% 33.4% 33.0% 34.2% 33.9% 33.6%

Operating Expense (ex-advertising beg '08) 13.1% 12.3% 12.1% 13.0% 12.0% 12.3% 12.1% 12.3% 13.2% 12.1% 12.4% 12.2% 12.3% 13.1% 12.0% 12.4%

Occupancy Expense 7.4% 7.5% 7.2% 7.6% 7.4% 7.4% 7.2% 7.4% 7.8% 7.5% 7.5% 7.3% 7.4% 7.8% 7.5% 7.5%

Restaurant Cash Flow Margin 20.7% 21.5% 23.3% 20.4% 21.7% 21.7% 22.4% 22.2% 19.3% 21.0% 21.3% 21.6% 21.8% 19.2% 20.9% 20.9%

Selling, General & Admin (% of Total Rev.) 11.3% 12.3% 11.9% 11.9% 12.1% 12.1% 12.5% 11.6% 11.2% 10.8% 11.6% 12.0% 11.2% 11.0% 10.7% 11.2%

Selling Costs (% of Total Rev.) 2.8% 2.8% 2.7% 3.0% 3.3% 2.9% 3.0% 3.9% 3.2% 3.2% 3.3% 3.2% 3.2% 3.2% 3.2% 3.2%

Underlying G&A (% of Total Rev.) 8.6% 9.5% 9.2% 9.0% 8.8% 9.1% 9.4% 7.8% 8.0% 7.6% 8.3% 8.8% 8.0% 7.8% 7.5% 8.1%

Pre-Opening Costs (% of Total Rev.) 0.4% 0.3% 0.5% 1.1% 0.8% 0.6% 0.4% 0.6% 0.7% 0.6% 0.6% 0.3% 0.5% 0.8% 0.5% 0.5%

EBITDA Margin 10.7% 10.6% 12.5% 9.1% 10.6% 10.7% 10.8% 11.4% 8.6% 10.7% 10.4% 10.4% 11.3% 8.6% 10.9% 10.3%

Depreciation and Amortization 5.7% 5.8% 5.6% 5.8% 5.6% 5.7% 5.5% 5.5% 5.9% 5.7% 5.7% 5.5% 5.5% 5.7% 5.6% 5.6%

Stock-Based compensation 0.4% 0.4% 0.4% 0.4% 0.3% 0.4% 0.3% 0.4% 0.3% 0.3% 0.3% 0.3% 0.4% 0.3% 0.3% 0.3%

EBIT Margin 4.6% 4.4% 6.5% 2.9% 4.6% 4.6% 5.0% 5.5% 2.4% 4.7% 4.5% 4.7% 5.5% 2.6% 5.1% 4.5%

Pre-Tax Income 4.1% 4.1% 6.2% 2.7% 4.6% 4.4% 4.8% 5.3% 2.0% 4.4% 4.2% 4.4% 5.2% 2.3% 4.8% 4.2%

Effective Tax Rate 24.0% 23.9% 24.3% 24.6% 17.3% 22.5% 27.0% 27.4% 17.5% 27.5% 26.2% 27.0% 27.0% 27.0% 27.0% 27.0%

Net Income (Post-Option) 3.1% 3.1% 4.7% 2.0% 3.8% 3.4% 3.5% 3.8% 1.7% 3.2% 3.1% 3.2% 3.8% 1.6% 3.5% 3.1%

Year/Year Margin Changes (in bps)

Cost of Sales (1) (59) (63) 42 2 (23) 26 55 35 30 36 30 20 20 20 23

Labor Expenses (14) 35 (54) (42) (1) (12) (70) 10 40 25 (3) 30 25 0 0 0

Operating Expense (ex-advertising beg '08) (77) (39) (99) (54) (104) (71) (19) 18 20 10 5 10 0 (10) (10) (2)

Occupancy Expense 7 33 (2) (22) (10) 2 (24) 24 20 10 5 10 0 0 0 3

Restaurant Cash Flow Margin 86 31 218 76 112 104 88 (107) (115) (75) (44) (80) (45) (10) (10) (37)

Selling, General & Admin (% of Total Rev.) 31 96 48 44 89 72 18 (29) (75) (125) (49) (50) (45) (20) (15) (32)

Pre-Opening Costs (% of Total Rev.) (3) (6) 27 49 53 29 17 9 (41) (19) (7) (11) (13) 14 (14) (7)

EBITDA Margin 55 (59) 130 (24) (18) 2 22 (111) (54) 17 (28) (40) (7) 2 18 (8)

Depreciation and Amortization (37) 26 (1) (40) 22 4 (27) (8) 3 9 (7) (8) (4) (13) (15) (10)

Stock-Based compensation 3 (1) (4) (5) 3 (1) (9) (4) (2) (3) (5) (3) (4) (2) (1) (2)

EBIT Margin (Post-Option) 89 (84) 135 21 (43) (1) 58 (99) (54) 11 (16) (29) 1 17 34 4

Pre-Tax Income 99 (58) 163 45 1 29 74 (89) (63) (16) (17) (41) (11) 21 38 (0)

Net Income (Post-Option) 43 (43) 121 36 29 29 41 (84) (33) (58) (29) (30) (6) (4) 30 (4)

Growth Rates:

Restaurant Sales 6.9% 2.3% 6.6% 8.1% 0.4% 4.1% 11.2% 7.4% 11.9% 16.3% 11.7% 16.1% 16.6% 12.3% 7.5% 13.2%

Franchise Royalties and Fees 3.7% 13.1% 12.7% 19.7% 19.9% 16.2% 9.0% 13.3% -13.2% -23.4% -3.3% -19.1% -22.9% -7.0% 5.1% -12.7%

Total Revenues 6.9% 2.3% 6.5% 8.1% 0.5% 4.1% 11.1% 7.5% 11.5% 15.6% 11.4% 15.5% 16.0% 12.1% 7.5% 12.9%

Store Level Cash Flow 11.5% 3.8% 17.7% 12.3% 5.8% 9.3% 15.7% 2.5% 5.6% 12.3% 9.4% 11.9% 14.3% 11.7% 7.0% 11.2%

Reported SG&A (ex one-timers) 9.8% 11.0% 11.0% 12.3% 8.6% 10.7% 12.8% 4.9% 4.5% 3.6% 6.9% 10.9% 11.5% 10.1% 6.0% 9.7%

Pre-Opening Costs -1.5% -15.2% 114.5% 98.6% 200.9% 88.0% 81.4% 25.9% -31.5% -11.6% 0.1% -14.1% -7.7% 35.3% -17.6% -0.6%

EBITDA (ex-stock based comp.) 12.7% -3.1% 18.9% 5.4% -1.1% 4.3% 13.4% -2.0% 4.9% 17.5% 8.5% 11.2% 15.3% 12.3% 9.3% 11.9%

Operating Income 32.5% -14.0% 34.7% 16.6% -8.1% 3.9% 25.8% -9.0% -9.1% 18.2% 7.6% 8.7% 16.2% 19.8% 15.2% 13.9%

Pre-Tax Income 41.0% -10.5% 44.9% 30.3% 0.7% 11.6% 31.4% -8.0% -14.9% 11.5% 7.0% 5.6% 13.7% 23.7% 16.7% 12.8%

Net Income (Post-Option) 24.3% -10.2% 43.8% 31.9% 8.8% 13.8% 26.0% -11.7% -6.9% -2.2% 1.8% 5.6% 14.2% 9.5% 17.5% 11.5%

Store Counts

Red Robin -- Corporate - Full Size 334 337 339 345 355 355 362 365 404 410 410 414 419 426 430 430

Red Robin Burger Works 5 5 5 5 6 6 5 7 8 10 10 10 11 13 15 15

Red Robin -- Franchised 133 133 133 135 134 134 129 130 98 99 99 100 100 101 102 102

Same-Store Sales

Red Robin -- Corporate - Full Size 1.1% 2.2% 4.3% 5.7% 3.7% 4.0% 5.4% 1.2% 0.0% 1.0% 2.2% 1.0% 2.0% 2.0% 2.0% 1.7%




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Ratings and Definitions

Raymond James & Associates (U.S.) definitions

Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold.




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Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold. Raymond James Latin American rating definitions

Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4) Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.

Raymond James Euro Equities, SAS rating definitions

Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and target price are no longer in effect for this security and should not be relied upon. In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments.

Rating Distributions

Coverage Universe Rating Distribution Investment Banking Distribution

RJA RJL RJ LatAm RJEE RJA RJL RJ LatAm RJEE

Strong Buy and Outperform (Buy) 55% 69% 50% 44% 23% 36% 0% 0%

Market Perform (Hold) 40% 28% 50% 40% 10% 22% 0% 0%

Underperform (Sell) 5% 3% 0% 16% 0% 33% 0% 0%

Suitability Categories (SR)

Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.

Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small dividend, and the potential for long-term price appreciation.

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High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and risk of principal.

Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, and a substantial risk of principal.




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Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months.

Company Name Disclosure

Red Robin Gourmet Burgers, Inc.

Raymond James & Associates makes a market in shares of RRGB.

Raymond James & Associates received non-securities-related compensation from RRGB within the past 12 months.

Stock Charts, Target Prices, and Valuation Methodologies

Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences. Only stocks rated Strong Buy (SB1) or Outperform (MO2) have target prices and thus valuation methodologies.

Target Prices: The information below indicates our target price and rating changes for RRGB stock over the past three years.

Valuation Methodology: For Red Robin Gourmet Burgers, our valuation methodology is based on an enterprise value/EBITDA multiple.

Risk Factors

General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.

Specific Investment Risks Related to the Industry or Issuer

Restaurant Industry Risk Factors Risks include 1) a decline in the ability or propensity for consumers to purchase meals outside the home; 2) a jump in raw food prices or energy prices; and 3) a drop in market P/E levels.

Company-Specific Risks for Red Robin Gourmet Burgers, Inc.




Red Robin's company-specific risks include: 1) increased competition from the emerging "better burger" fast casual segment; 2) the potential for sales and profit disappointments at new units once expansion is re-accelerated; 3) the potential for new unit opening initiatives (especially in new markets) to be ineffective; and 4) a high geographic exposure to states in the western U.S.

Macroeconomic Risk Factors Broader macro and industry risk factors affecting Red Robin would include (but are not limited to) a further deterioration in consumer spending and/or dining trends (higher gasoline prices, declining home prices, higher interest rates, absence of real wage growth, etc.) in addition to increasing wage, benefits, and insurance costs.

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