Red Robin Gourmet Burgers, Inc. (RRGB) Earnings

Management highlights

- Strategic Execution: Management confirmed its multi-pillar First Choice Plan is delivering improving operating fundamentals, with two consecutive quarters of stronger traffic performance than the broader industry, and 80 basis point growth in visit share in trade areas with competitor locations. Key pillars include: • Hold-Serve: Labor efficiency initiatives delivered 50 basis points of year-over-year cost savings, enabled by the managing partner model that rewards operational improvements. Savings were achieved while maintaining strong guest satisfaction scores, proving operational discipline and hospitality are complementary. • Drive Traffic: The Big Yum value platform continues to resonate with cost-conscious consumers, driving traffic and trials without broad-based discounting, while retaining Red Robin's signature bottomless sides. Management uses a barbell menu strategy pairing value options with premium, indulgent limited-time offers (LTOs), including the new towering double cheeseburger sliders, expanded bone-in wing portions, and the nationwide launch of Garage Beer, which has received encouraging early reception. Data-driven, locally targeted marketing has improved spend efficiency and brand awareness. • Find Money (Balance Sheet Strengthening): Three re-franchising agreements were announced covering 116 total restaurants with seasoned multi-concept operators, expected to generate $96 million in gross proceeds upon closing in Q3 2026. Proceeds will be used to pay down existing debt and increase long-term financial flexibility. Management is actively progressing refinancing of debt maturing later in 2026 with advisor support. • Fixed Restaurants: The 2026 Light Touch Refresh program is upgrading high-impact guest-facing restaurant amenities with disciplined capital spending, with seven locations completed in the St. Louis market. New server handhelds and upgraded Xeos tabletop devices are being rolled out to improve order accuracy, server efficiency, and speed of service. • Win Together: Employee turnover for hourly and restaurant management roles remains at historically low levels, and employee engagement scores outperform industry benchmarks, reducing recruitment and training costs while improving guest experience consistency. Enterprise ChatGPT tools rolled out in 2025 are widely adopted by managing partners to optimize labor scheduling, control food costs, and improve guest service, supporting ongoing operational efficiency gains. - Operational Highlights: Same-store sales grew 1.3% in Q2, with traffic outperforming the industry by 40 basis points, the best traffic result since Q1 2023. Average check increases have remained below industry levels for four consecutive quarters, consistent with the company's value protection strategy. Re-franchising transactions are on track to close in Q3, with transition planning already underway.

Guidance

- Management maintained its full-year 2026 guidance, with no upward or downward revision, as the outlook excludes any potential impact from the pending re-franchising transactions. - Full-year comparable restaurant revenue (excluding deferred loyalty revenue) is expected to be between 0.5% and 1.5%. - Full-year restaurant-level operating margin is projected to be approximately 13%. - Full-year adjusted EBITDA is expected to range between $70 million and $73 million. - Full-year capital expenditures are projected to range between $25 million and $30 million. - Management expects same-store sales momentum to build in the back half of 2026, with Q4 performance expected to outperform Q3, driven by unwinding mix headwinds from Big Yum and new targeted promotional offerings.

Segment performance

Red Robin reports consolidated results for its single restaurant operating segment. For Q2 2026: total revenue was $278 million, a $6.1 million decrease year-over-year, driven by net restaurant closures that offset positive comparable store sales growth. Comparable restaurant sales grew 1.3% year-over-year (excluding deferred loyalty revenue), with a 1.5% average check increase offsetting a 0.2% traffic decline. Restaurant-level operating margin was 14.7%, a 20 basis point year-over-year increase, marking the highest Q2 margin in four years. General and administrative costs were $17.6 million, a $0.2 million year-over-year increase. Selling expense was $10.4 million, a $4 million year-over-year increase driven by intentional investment in traffic driving platforms. Adjusted EBITDA was $18.9 million, a $3.5 million year-over-year decrease primarily due to higher marketing spend. As of quarter end, the company held $23 million in cash and equivalents, $10 million in restricted cash, and total liquidity of $48 million.

Risks & headwinds

- All forward-looking statements are subject to inherent risks and uncertainties, as detailed in the company's SEC filings. - Completion of the announced re-franchising transactions and subsequent seamless transition of restaurants to new franchise partners requires focused management execution, with near-term focus on closing these deals before pursuing additional re-franchising activity. - Refinancing of existing maturing debt is still in progress, and the final interest rate outcome is uncertain, though management expects a meaningful reduction from current levels. - Commodity price inflation, particularly for beef, continues to pressure margins, though inflation is expected to moderate in the back half of 2026. - Consumer spending remains discerning in the current economic environment, creating uncertainty around sustained traffic growth.

Analyst Q&A

• Q: Ted Brooks (Stonex) asked how same-store sales trended through Q2, how Q3 has started, why guidance was maintained despite upside Q2 results, what to expect for selling costs in H2 2026, and whether further re-franchising will be paused after the three announced deals to digest transitions. /

  A: Management reported traffic built momentum through Q2, ending the final period with positive traffic, and the company likes the current momentum entering Q3. Guidance was maintained to avoid overcommitting ahead of closing the pending re-franchising transactions, not due to weakness in the second half outlook. Selling costs will be relatively consistent in H2; the Q2 2025 selling spend was abnormally low due to a vacant CMO role and paused planned spending during a leadership transition. Management confirmed focus will be on closing and transitioning the three current deals before pursuing additional re-franchising activity to ensure seamless handoffs.

• Q: Jeremy Hambling (Craig Hallam Capital) asked if momentum built through Q2, whether Q4 will outperform Q3 in H2 2026, and what menu pricing is expected for the back half. /

  A: Management confirmed momentum built through Q2, particularly in the back half of the quarter, and expectations are for Q4 to outperform Q3 due to lapping Big Yum's launch which creates a mix headwind in the first half that unwinds in H2. Traffic momentum is expected to be stronger in H2 than in the first half, with menu pricing remaining stable at ~3.2-3.3% year-over-year, consistent with levels seen earlier in 2026.

• Q: Jeremy Hambling asked for an update on commodity inflation expectations for H2, specifically beef prices, and the expected range for interest rates after the planned refinancing. /

  A: Commodity inflation will moderate to a blended ~3% in H2 from ~5% in the first half, with beef and poultry inflation slowing over time. On refinancing, management confirmed that directional expectations of a meaningful reduction from the current mid-teens rate are correct, but declined to provide a specific range as the process is still ongoing and the company aims to close re-franchising transactions before finalizing terms.

• Q: Jeremy Hambling asked for additional color on new menu and promotional innovation, specifically the new dinner double feature offer. /

  A: The dinner double feature is a targeted promotion designed to drive dinner business, as Big Yum has disproportionately accelerated lunch traffic with slower growth in dinner. Management reports recent LTOs like the towering double cheeseburger sliders have successfully captured guest attention, and the product development pipeline for 2027 is well-stocked with new concepts.