Nine months on the job, and Red Robin Gourmet Burgers’ new chief executive is winning over investors and analysts.
Earnings are up, expenses down, and the 452-store gourmet hamburger chain is beginning to turn around years of lackluster financial performance.
New CEO Steve Carley cuts an imposing figure with a shaved head atop a 6-foot-1, 250-pound frame.
Yet, Carley is achieving results with a mild manner and a back-to- the-basics restructuring plan.
“I’m not an intimidating, mean guy,” the 58-year-old Carley said recently from his second-floor Greenwood Village office at Red Robin headquarters. “I’m just a guy who tells (employees) the score.”
The score was lopsided and unflattering.
Red Robin had posted three consecutive years of declining profits and a precipitous 69 percent plunge in its share price from 2005 through mid-2010.
Former CEO Michael Snyder resigned in 2005 after a Securities and Exchange Commission investigation found he had claimed $1.25 million in improper expense reimbursements.
Snyder was succeeded by Dennis Mullen, whose tenure was marked by declining profits and sagging stock.
Big shareholders were antsy, demanding changes in leadership and corporate governance.
Enter Carley. He was recruited in September after a nine-year stint as CEO of Costa Mesa, Calif.-based grilled chicken chain El Pollo Loco.
In a series of meetings with executives, employees and franchisers, Carley laid out some research he had compiled on Red Robin.
Customer satisfaction levels were lower than some peers in the casual-dining sector. Management and wage-earner turnover was higher than average.
“That sobered our team. It shook them up a little,” he said.
At the same time, Carley implemented a restructuring plan dubbed “Project RED.” The acronym stands for revenue growth, expense management and deployment of capital.
Components included introduction of a customer loyalty program to increase sales, cost-cutting measures designed to save $16 million to $18 million a year, and a capital expenditure plan that cuts back on new-store openings and increases corporate stock buy-backs.
Red Robin will use metro Denver as a testing ground for building smaller restaurants in urban locations — a change from the chain’s primarily suburban presence.
A key proposal for increasing sales includes what Carley calls “taking back the bar” with happy-hour promotions and drink menus.
He noted that the chain’s sales of alcoholic beverages as a percentage of total sales fell from 11 percent to 6 percent over the past decade. The restaurant industry average is 14 percent.
While Red Robin is popular as a destination for families with children, Carley said, “maybe we pushed the pendulum a little too far. We went from adult-friendly and kid-friendly to maybe too kid-friendly.”
Expense reductions in Project RED ranged from easy — $50,000 by switching from white to brown paper towels — to painful. The company in January cut 32 corporate positions representing 17 percent of the headquarters staff.
Red Robin’s first-quarter earnings showed signs of improvement, which analysts attribute to both Project RED and an improving economy.
Among earnings highlights:
• 5.2 percent growth in revenue to $281.5 million, compared with the first quarter of 2010.
• A 1.9 percent increase in company-owned same-store sales.
• A 76 percent surge in net income to $8.7 million.
Following the first-quarter earnings release in May, some equity research firms raised their ratings on Red Robin; others maintained ratings of “hold” or “underweight” — indications that the company may still face challenges.
“We believe the magnitude of improvement will be less significant in the coming quarters,” KeyBanc Capital Markets said in a research note.
“While we are encouraged by recent menu, marketing and cost-reduction efforts, we remain concerned by the challenging sales environment and commodity pressures,” analysts at Wells Fargo Securities said.
Red Robin’s restructuring will need to evolve, said John Gordon, whose San Diego- based Pacific Management Consulting tracks chain restaurants.
“Carley’s program, while it’s a good one and a solid one, is going to take time,” he said.
He said Red Robin will face significant pressure from competitors in the casual-dining sector and especially in the growing “better burger” category, including Denver-based Smashburger.
“Everybody and their brother is coming out with a gourmet, high-end burger,” said David Kincheloe of Denver- based National Restaurant Consultants. “It seems to be the thing these days.”
Steve Raabe: 303-954-1948 or firstname.lastname@example.org
Steve Carley file
What he does: Chief executive, Red Robin Gourmet Burgers
Education: Bachelor’s degree, University of Illinois; master’s, Northwestern
Residence: Pinnacle condos, near City Park
What he eats: Royal Red Robin burger
Home specialty: Pork shoulder barbecued over charcoal
What’s on his iPod: Classic rock, new age, blues
Wheels: Lexus 400 hybrid
What he reads: Stieg Larsson novels on Kindle