Sterne Agee on Red Robin

8/11/2019 Sterne Agee on Red Robin

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Company ReportAugust 14, 2014

Red Robin Gourmet Burgers Inc.EPS Miss on Weaker-Than-Expected Traffic; Management

"Cautious" on Near Term; Reducing Estimates; Maintaining

Neutral

Our Call

This morning, RRGB reported adjusted EPS ~24% below Street estimates as

revenues/SSS fell short. Management attributed most of the miss to an ineffective

marketing message that failed to drive traffic during the quarter. While valuation is

becoming more attractive, we are concerned that the average check could continue

to contract as the Company laps successful burger promotions in 2H14. We are

maintaining Neutral as we believe the risk/reward is balanced at current levels.

Revenues/EPS Fall Short as Advertising Fails to Resonate:RRGB reportedadjusted diluted EPS of $0.68 vs. consensus of $0.90 and our estimate of $0.91.

Management attributed part of the miss to an ineffective marketing message

surrounding a free movie ticket promotion during the worst summer box office

in eight years. While marketing failed to drive positive traffic, average checkalso fell sequentially as the Company lapped the successful rollout of price-tiered

appetizers in 2Q13. Revenues of $256.1mm came up shy of our projection of

$264.9mm as same-store sales grew at a slower-than-expected pace. Company-

owned same-store sales increased 1.2% (vs. our estimate/consensus of 3.0%),

composed of a traffic decline of -2.5% and a check increase of 3.7%. RRGB's

restaurant-level margin of 22.1% declined ~110 bps y/y as COGS, labor, and

operating expenses all came in above our expectations. Adjusted earnings

include a $0.03 benefit from the exclusion of executive transition costs. Overall,

results were disappointing on the back of a very strong 1Q. Expectations going

into the announcement were quite high, but we now believe the bar has not been

reset to a more reasonable level.

Guidance Tweaked Given Cautious Outlook on 3Q: Management's tone

was cautious on 3Q and implied that flattish SSS/EPS were likely. However,management was more optimistic on 4Q and maintained its full-year SSS

guidance (low single digits). CapEx guidance was increased to $100 million

from $85-$90 million previously to reflect a greater number of remodels. Also,

management tweaked guidance to include higher depreciation, G&A and a 10

bps lower restaurant-level margin (21.3%). See guidance details on Page 4.

Reducing Estimates:We are reducing our 3Q EPS estimate from $0.36 to $0.32based primarily on a lower SSS estimate for company stores of 0.5% vs. our

previous estimate of 2.0%. For FY14, we are reducing our estimate from $2.80 to

$2.53, to mostly reflect the 2Q miss and lowered 3Q projections. For FY15, we

are reducing our estimate from $3.42 to $2.91. Additionally, we are initiating an

FY16 EPS estimate of $3.28, reflecting ~13% growth over our FY15 estimate.

NeutralRRGBPrice: Close $52.63

Price Target NA

Restaurants

Lynne Collier(214) [email protected]

Wesley Carmichael(214) [email protected]

Company DataRating Neu

Price: Close $52Price Target N

52-Week Range $50.50 - $86

Market Capitalization (M) $92

Shares Outstanding (M) 1

Avg. Daily Vol. (000) 18

Dividend $0

Dividend Yield 0.

Assets (M) $63

Total EV 8

EBITDA (M) 2014E 2015E 2016FY 116.9 132.9 145.

(Prev) 122.1 144.4

EV/EBITDA 7.0x 6.2x 5.7x

Revenue ($M) 2014E 2015E 2016FY 1,154.5 1,310.6 1,421

(Prev) 1,153.7 1,297.6

FYE Dec 2014E 2014E 2015E 2015E 2016E

(Prev) (Curr) (Prev) (Curr) (Curr)EPS ($)

Q1 (Mar) 0.82A 1.05 0.94 1.03

Q2 (Jun) 0.91 0.68A 1.07 0.91 0.99

Q3 (Sept) 0.36 0.32 0.51 0.34 0.45

Q4 (Dec) 0.72 0.71 0.79 0.71 0.81

FY EPS 2.80 2.53 3.42 2.91 3.28

P/E 20.8x 18.1x 16.0x

Source: Sterne Agee and FactSet

Price Performance

Aug-13 Nov-13 Feb-14 May-14 Aug-

90

85

80

75

70

65

60

55

Red Robin Gourmet Burgers Inc. ($)BATS 1000 Consumer Services (BATS100

Source: FactSet

Any Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst CertificatiInvestment Banking, Ratings Definitions, and any potential conflicts of interest begin on Page I of the Appendix

Section. Past performance is no guarantee of future results.

800 Shades Creek ParkwaySuite 700Birmingham, AL 35209205-949-3500Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC


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Figure 1: 2Q14 Earnings Variance

Source:Company reports, Sterne Agee estimates, and FactSet; Dollars in millions, except per share

Red Robin Gourmet Burgers (RRGB) Actual 2Q14 SALI 2Q14 Variance Consensus

REVENUE $256.1 $264.9 (3.3%) $263.5

Same-Store Sales (Company) +1.2% +3.0% (180) bps +3.0%

EBITDA $28.1 $32.7 (14.0%) $33.0

EPS $0.68 $0.91 $0.90

MARGINS

Restaurant-Level Margin 22.2% 23.1% (92) bpsEBITDA Margin 11.0% 12.4% (137) bpsNet Income Margin 3.9% 5.1% (121) bps

COMMON-SIZE P&L

Cost of Sales 25.3% 24.9% 35 bps

Labor 32.8% 32.5% 30 bpsOperating 12.3% 12.1% 23 bpsOccupancy 7.4% 7.4% 4 bpsSG&A 11.6% 11.0% 60 bpsDepreciation 5.5% 5.2% 31 bpsInterest, Net 0.2% 0.2% (2) bpsTaxes 1.5% 1.9% (47) bps

OTHER FACTORS

Effective Tax Rate 27.4% 27.5% (13) bps

Share Count 14.5 14.7 -0.1 shares

($0.23)

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Figure 2: FY14 Guidance Details

Source:Company reports

Current As of 1Q14* As of 4Q13*

Comparable Sales Unchanged Low Single Digits Low Single Digits

CapEx Exceed $100mm (ex-acquisitions) $85-$90mm $85-$90mm

Restaurant Openings 20 Red Robins; 4-5 Burger Works 20 Red Robins; 5 Burger Works 20 Red Robins; 5 Burger Works

Remodel Remodel At Least 65 Restaurants Remodel 50 Restaurants Remodel 50 Restaurants

Restaurant-Level Margin Approx. 21.3% Approx. 21.4% Slightly Higher Than 21%

SG&A Approx. $94mm; Selling Expenses of 3.2% of

sales

Approx. $93mm; Selling Expenses of

3.2% of sales

Approx. $93mm; Selling Expenses of

3.1% of sales

Pre-Opening Approx. $9mm ($2.5mm related to acqusition) N/A N/ADepreciation Approx. $64mm Approx. $62mm $59-$60mm

Interest Expense Approx. $3mm N/A N/A

Tax Rate Approx. 26% Approx. 27.5% Approx. 26.5%

EPS Sensitivity 1% traffic = $0.30 in EPS; 10 bps in

Restaurant Margin = $0.07 in EPS

1% traffic = $0.30 in EPS; 10 bps in


1% traffic = $0.30 in EPS; 10 bps in


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Projected Income Statement for Red Robin Gourmet Burgers (RRGB)

Source:Company reports and Sterne Agee estimates; Dollars in millions, except per share

2013A

1Q: 13A 2Q: 13A 3Q: 13A 4Q: 13A 2013A 1Q: 14A 2Q: 14A 3Q: 14E 4Q: 14E 2014E 1Q: 15E 2Q: 15E 3Q: 15E 4Q: 15E 2015E 2016

(16 weeks) (12 weeks) (12 weeks) (12 weeks) (52 weeks) (16 weeks) (12 weeks) (12 weeks) (12 weeks) (52 weeks) (16 weeks) (12 weeks) (12 weeks) (12 weeks) (52 weeks) (52 we

Restaurant Sales $301.313 $234.490 $226.844 $237.551 $1,000.198 $334.995 $251.818 $269.272 $282.023 $1,138.108 $397.574 $300.948 $292.789 $305.066 $1,296.377 $1,406

Franchise Fees & Other 5.036 3.809 3.829 4.375 17.049 5.489 4.315 3.354 3.281 16.438 4.239 3.436 3.062 3.481 14.218 15

Total Revenues $306.349 $238.299 $230.673 $241.926 $1,017.247 $340.484 $256.133 $272.626 $285.304 $1,154.547 $401.813 $304.384 $295.851 $308.547 $1,310.595 $1,421

Cost of Sales 74.982 58.024 57.253 59.978 250.237 84.220 63.689 69.577 72.335 289.821 100.549 76.566 75.946 7 8.550 331.612 359

Gros s P rofit 226. 331 1 76. 466 169. 591 177. 573 749. 961 2 50. 775 1 88. 129 1 99. 695 2 09. 689 848. 288 2 97. 025 2 24. 381 2 16. 843 226. 516 964. 765 1, 047

Labor 101.882 76.648 76.624 79.959 335.113 110.921 82.572 91.763 95.774 381.031 132.835 99.434 100.070 103.905 436.244 474

Operating 37.090 28.463 29.463 28.463 123.479 40.597 31.022 35.243 34.074 140.936 48.777 37.074 38.321 36.858 161.030 173

Occupancy 22.573 1 6.779 17.132 17.595 74.079 2 4.282 18.618 2 0.740 2 1.171 84.811 2 9.812 2 2.250 2 2.552 22.901 97.515 105

Res taurant Operat ing Inc ome 64. 786 54. 576 46. 372 51. 556 217. 290 74. 975 55. 917 51. 949 58. 670 241. 510 85. 601 65. 623 55. 900 62. 853 269. 977 293

S ell ing, General & A dminis trat ive 37. 608 28. 386 27. 481 30. 803 124. 278 42. 423 29. 776 29. 724 30. 130 132. 053 46. 755 32. 679 32. 398 32. 817 144. 648 156

Pre-Opening Expenses, Net of Closures 0.834 1.291 2.482 1.923 6.530 2.113 2.326 2.650 1.950 9.039 1.200 1.200 2.400 1.800 6.600 7

EBITDA 31.380 28.708 20.238 23.205 103.531 35.928 28.130 22.928 29.871 1 16.857 41.885 35.180 24.165 31.718 1 32.947 1 45

Depreciation 17.834 13.319 13.436 13.611 58.200 18.886 14.120 15.471 15.624 64.100 22.087 16.171 16.493 16.588 71.339 76

EBIT 13.546 15.389 6.802 9.594 45.331 17.042 14.010 7.458 14.247 52.757 19.798 19.009 7.672 15.130 61.609 68

Interest Expense (Income), Net 1.089 0.674 0.624 0.178 2.565 0.674 0.475 1.000 1.000 3.149 1.221 0.916 0.916 0.916 3.968 3

Other Expense (Income) 0.000 0.000 0.000 (1.626) (1.626) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0

Pretax Income 12.457 14.715 6.178 11.042 44.392 16.368 13.535 6.458 13.247 49.608 18.577 18.093 6.756 14.214 57.641 64

Income Taxes 2.977 3.576 1.517 1.914 9.984 4.424 3.704 1.769 2.941 12.838 4.830 4.704 1.757 3.696 14.987 16

P ro forma Ne t Income $9.480 $11.139 $4.661 $9.128 $34.408 $11.944 $9.831 $4.688 $10.306 $36.770 $13.747 $13.389 $4.999 $10.518 $42.654 $47

Add: Gains/(Losses) on Special Items 0.000 0.000 0.000 (2.169) (2.169) 0.000 (0.361) 0.000 0.000 (0.361) 0.000 0.000 0.000 0.000 0.000 0

Report ed Net Inc ome $9. 480 $11. 139 $4. 661 $6. 959 $32. 239 $11. 944 $9. 470 $4. 688 $10. 306 $36. 409 $13. 747 $13. 389 $4. 999 $10. 518 $42. 654 $47

Di lu ted W eigh ted Average Shares i n Mi ll ions 14.341 14.475 14 .600 14.607 14.506 14.592 14 .528 14 .538 14.578 14.559 14.618 14.658 14 .698 14 .738 14 .678 14

Proforma Earni ngs Per Di luted Share $0.66 $0.77 $0.32 $0.62 $2.37 $0.82 $0.68 $0.32 $0.71 $2.53 $0.94 $0.91 $0.34 $0.71 $2.91 $

Margins Cost of Sales 24.9% 24.7% 25.2% 25.2% 25.0% 25.1% 25.3% 25.8% 25.6% 25.5% 25.3% 25.4% 25.9% 25.7% 25.6% 25

Labor 33.8% 32.7% 33.8% 33.7% 33.5% 33.1% 32.8% 34.1% 34.0% 33.5% 33.4% 33.0% 34.2% 34.1% 33.7% 33

Operating 12.3% 12.1% 13.0% 12.0% 12.3% 12.1% 12.3% 13.1% 12.1% 12.4% 12.3% 12.3% 13.1% 12.1% 12.4% 12

Occupancy 7.5% 7.2% 7.6% 7.4% 7.4% 7.2% 7.4% 7.7% 7.5% 7.5% 7.5% 7.4% 7.7% 7.5% 7.5% 7

Restaurant Operating Margin 21.5% 23.3% 20.4% 21.7% 21.7% 22.4% 22.2% 19.3% 20.8% 21.2% 21.5% 21.8% 19.1% 20.6% 20.8%

Selling, General & Administrative 12.3% 11.9% 11.9% 12.7% 12.2% 12.5% 11.6% 10.9% 10.6% 11.4% 11.6% 10.7% 11.0% 10.6% 11.0% 11

Pre-Opening Expenses, Net of Closures 0.3% 0.5% 1.1% 0.8% 0.6% 0.6% 0.9% 1.0% 0.7% 0.8% 0.3% 0.4% 0.8% 0.6% 0.5% 0

EBITDA Margin 10.2% 12.0% 8.8% 9.6% 10.2% 10.6% 11.0% 8.4% 10.5% 10.1% 10.4% 11.6% 8.2% 10.3% 10.1% 10

Depreciation 5.8% 5.6% 5.8% 5.6% 5.7% 5.5% 5.5% 5.7% 5.5% 5.6% 5.5% 5.3% 5.6% 5.4% 5.4% 5

EBIT Margin 4.4% 6.5% 2.9% 4.0% 4.5% 5.0% 5.5% 2.7% 5.0% 4.6% 4.9% 6.2% 2.6% 4.9% 4.7% 4

Proforma Net Income Margin 3.1% 4.7% 2.0% 3.8% 3.4% 3.5% 3.8% 1.7% 3.6% 3.2% 3.4% 4.4% 1.7% 3.4% 3.3% 3

20162014E 2015E

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Projected Unit Statistics for Red Robin Gourmet Burgers (RRGB)

Source:Company reports and Sterne Agee estimates

2013A

1Q: 13A 2Q: 13A 3Q: 13A 4Q: 13A 2013A 1Q: 14A 2Q: 14A 3Q: 14E 4Q: 14E 2014E 1Q: 15E 2Q: 15E 3Q: 15E 4Q: 15E 2015E 2016

(16 weeks) (12 weeks) (12 weeks) (12 weeks) (52 weeks) (16 weeks) (12 weeks) (12 weeks) (12 weeks) (52 weeks) (16 weeks) (12 weeks) (12 weeks) (12 weeks) (52 weeks) (52 we

Growth Rate Analysis

Restaurant Sales Growth Rate 2.3% 6.6% 8.1% 0.4% 4.1% 11.2% 7.4% 18.7% 18.7% 13.8% 18.7% 19.5% 8.7% 8.2% 13.9% 8

Franchise Fees & Other 4.5% 1.7% 7.5% 9.0% 5.6% 9.0% 13.3% (12.4%) (25.0%) (3.6%) (22.8%) (20.4%) (8.7%) 6.1% (13.5%) 6

Total Revenues Growth Rate 2.3% 6.5% 8.1% 0.5% 4.1% 11.1% 7.5% 18.2% 17.9% 13.5% 18.0% 18.8% 8.5% 8.1% 13.5%

Restaurant Operating Income Growth Rate 3.8% 17.7% 12.3% 5.8% 9.3% 15.7% 2.5% 12.0% 13.8% 11.1% 14.2% 17.4% 7.6% 7.1% 11.8% 8

EBITDA Growth Rate (3.1%) 19.8% 5.8% (7.9%) 2.8% 14.5% (2.0%) 13.3% 28.7% 12.9% 16.6% 25.1% 5.4% 6.2% 13.8% 9

EBIT Growth Rate (14.0%) 34.7% 16.6% (21.4%) 0.3% 25.8% (9.0%) 9.6% 48.5% 16.4% 16.2% 35.7% 2.9% 6.2% 16.8% 11

Proforma Net Income Growth Rate (10.2%) 43.8% 31.9% 8.8% 13.8% 26.0% (11.7%) 0.6% 12.9% 6.9% 15.1% 36.2% 6.6% 2.1% 16.0% 12

P roforma E arni ngs P er Di lut ed S hare Growt h Rat e (6. 9% ) 47. 6% 31. 4% 6. 7% 15. 2% 23. 8% (12. 1%) 1. 0% 13. 1% 6. 5% 14. 9% 35. 0% 5. 5% 0. 9% 15. 1% 13

Effective Tax Rate 23.9% 24.3% 24.6% 17.3% 22.5% 27.0% 27.4% 27.4% 22.2% 26.0% 26.0% 26.0% 26.0% 2 6.0% 26.0% 26

Store Count

Red Robin

Company Stores at Beginning of Period 335 338 340 346 335 356 362 365 405 356 412 416 420 428 412

Openings 3 2 6 10 21 2 3 8 7 20 4 4 8 6 22

Acquired from Franchisees 0 0 0 0 0 4 0 32 0 36 0 0 0 0 0

(Closings) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Company Stores at End of Period 338 340 346 356 356 362 365 405 412 412 416 420 428 434 434

Average Number of Company Red Robins 336.5 339.0 343.0 351.0 345.5 359.0 363.5 401.0 408.5 384.0 414.0 418.0 424.0 431.0 423.0

Burger Works

Company Stores at Beginning of Period 5 5 5 5 5 6 5 7 9 6 9 10 11 13 9

Openings 0 0 0 1 1 0 2 2 0 4 1 1 2 1 5

Acquired from Franchisees 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

(Closings) 0 0 0 0 0 (1) 0 0 0 (1) 0 0 0 0 0

Company Stores at End of Period 5 5 5 6 6 5 7 9 9 9 10 11 13 14 14

Average Number of Company Burger Works 5.0 5.0 5.0 5.5 5.5 5.5 6.0 8.0 9.0 7.5 9.5 10.5 12.0 13.5 11.5

Franchise Stores at Beginning of Period 133 133 133 135 133 134 129 130 99 134 100 101 102 103 100 Openings 0 0 2 0 2 0 1 1 1 3 1 1 1 1 4

(Sold to Company) 0 0 0 0 0 (4) 0 (32) 0 (36) 0 0 0 0 0

(Closings) 0 0 0 (1) (1) (1) 0 0 0 (1) 0 0 0 0 0

Franchise Stores at End of Period 133 133 135 134 134 129 130 99 100 100 101 102 103 104 104 Average Number of Franchise Stores in Period 133.0 133.0 134.0 134.5 133.5 131.5 129.5 114.5 99.5 117.0 100.5 101.5 102.5 103.5 102.0

Sales Analysis (AWS i n actual $)

Weeks in Quarter 16 12 12 12 52 16 12 12 12 52 16 12 12 12 52

Operating Weeks (Company) 5,444 4,111 4,108 4,227 17,890 5,718 4,360 4,908 5,010 19,996 6,776 5,142 5,232 5,334 22,484 23

Operating Weeks Growth (Company) 3.8% 4.6% 3.8% (3.8%) 2.1% 5.0% 6.1% 19.5% 18.5% 11.8% 18.5% 17.9% 6.6% 6.5% 12.4% 6

Average Weekly Sales (Company) $55,978 $57,699 $55,029 $56,012 $56,180 $58,382 $57,549 $54,864 $56,292 $56,772 $58,674 $58,527 $55,961 $57,193 $57,589 $58

Average Weekly Sales Growth (Company) (0.6%) 3.5% 4.3% 2.9% 2.5% 4.3% (0.3%) (0.3%) 0.5% 1.1% 0.5% 1.7% 2.0% 1.6% 1.4% 2

Same-Store Sales (Company) 2.2% 4.3% 5.7% 3.7% 4.0% 5.4% 1.2% 0.5% 1.3% 2.1% 1.0% 2.2% 2.5% 2.1% 2.0% 2

Operating Weeks (Franchise) 2,128 1,596 1,608 1,632 6,964 2,124 1,560 1,374 1,194 6,252 1,608 1,218 1,230 1,242 5,298 5

Operat ing W eek s Growt h (Franc his e) (2. 7% ) 0. 1% 1. 0% (5. 4% ) (1. 9% ) (0. 2%) (2. 3%) (14. 6%) (26. 8% ) (10. 2% ) (24. 3% ) (21. 9%) (10. 5%) 4. 0% (15. 3%) 4

Average Weekly Franchise Revenue $2,367 $2,387 $2,381 $2,681 $2,454 $2,584 $2,766 $2,441 $2,748 $2,635 $2,636 $2,821 $2,490 $2,803 $2,687 $2

Average Weekly Franchise Revenue Growth 7.4% 1.6% 6.4% 15.3% 7.7% 9.2% 15.9% 2.5% 2.5% 7.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2

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APPENDIX SECTION

Company Description:Red Robin Gourmet Burgers develops, operates, and franchises a casual dining restaurant chain in the United States and Canada. Th

company's approximate 502 restaurants feature gourmet burgers and fries, as well as a variety of other menu items. The Company wa

founded in 1969 and is headquartered in Greenwood Village, Colorado.

IMPORTANT DISCLOSURES:

Regulation Analyst Certification:I, Lynne Collier and Wesley Carmichael, hereby certify the views expressed in this research report accurately reflect my personal views

about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly,

related to the specific recommendations or views expressed by me in this report.

Price Target Risks & Related Risk Factors:

Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieve Sterne

Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect demand for a

company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or industry; intense

and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability to recruit and retain

competent personnel; and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of

a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities Exchange Commission.

Company Specific Risks:Investment risks include: slowing domestic economic growth; pressures on consumer spending and sentiment; increased competition,

particularly in the bar & grill segment of casual dining; and commodity and labor inflation.

Valuation Methodology:

Methodology for assigning ratings and target prices includes 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. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earnings

multiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflect

the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors.

Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc.

Definition of Investment Ratings:

BUY:We expect this stock to outperform the industry over the next 12 months.

NEUTRAL:We expect this stock to perform in line with the industry over the next 12 months.

UNDERPERFORM:We expect this stock to underperform the industry over the next 12 months.

RESTRICTED:Restricted list requirements preclude comment.

Ratings Distribution:

IB Serv./ Past 12Mos.

Rating Category Count Percent Count Percent

Buy 263 50.19% 36 13.69%

Neutral 247 47.14% 25 10.12%Underperform 14 2.67% 0 0.00%

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST:Contact Robert Hoehn at 1-212-338-4731.

Other Disclosures:

Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not

represent that it is accurate or complete, and it should not be relied upon as such. Past performance is no guarantee of future results.

For UK Professional Clients

Appendix Section, Page

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This research report is disseminated in the UK by Sterne Agee UK LLP which is authorized and regulated by the Financial Conduct

Authority. This research report is intended for distribution in the UK only to, and should be relied upon only by, persons who or may be

classified as eligible counterparties or professional clients pursuant to the FCA's rules or who are investment professionals as defined in

Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.

Copyright 2014 Sterne, Agee & Leach, Inc. All Rights Reserved.

To receive price charts or other disclosures on the companies mentioned in this report that are not the subject of this reportwhich Sterne Agee continues to cover, please visit our website at https://sterneagee.bluematrix.com/sellside/Disclosures.action

or contact Sterne, Agee & Leach, Inc. toll-free at (800) 240-1438 or (205) 949-3689.

Appendix Section, Page I

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Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During the early years, our founders

prominently established themselves in the financial securities industry in the southeastern United States. Today, we have expanded to serve all regions of the country. SterneAgee is headquartered in Birmingham, Alabama. Sterne Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne AgeeGroup, Inc., which also includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee

Financial Services, Inc.www.sterneagee.com

EQUITYCAPITAL MARKETS

Ryan Medo Managing Dir., Eq. Cap. Mkts. (205) 949-3623

INSTITUTIONAL SALES

William Jump Director of Institutional Sales (404) 814-3960

Jon Schenk Assoc. Director of Inst. Sales (212) 763-8221

INSTITUTIONAL TRADING

JT Cacciabaudo Head of Trading (212) 763-82

EQUITYRESEARCHRobert Hoehn Director of Research (212) 338-4731

CHIEF ECONOMIST

Lindsey M. Piegza (312) 924-0607

TECHNICALANALYSIS &RESEARCH

Carter Braxton Worth (212) 338-4765

CONSUMER

Broadlines / Health & Wellness Retailing

Charles Grom, CFA (646) 376-5373

Renato Basanta, CFA (646) 376-5317

John Parke (646) 376-5315

Footwear & Apparel

Sam Poser (212) 763-8226

Ben Shamsian (212) 338-4721

Leisure & Entertainment

David Bain (949) 721-6651

Media & Entertainment

Vasily Karasyov (646) 376-5362

Restaurants

Lynne Collier (214) 702-4045

Wes Carmichael (214) 702-4004

Specialty Retail

Ike Boruchow, Jr. (212) 338-4756

Tom Nikic, CFA (212) 338-4784

ENERGY

Exploration & Production

Tim Rezvan, CFA (212) 338-4736

Truman Hobbs (212) 338-4767

Oilfield Services & Equipment

Stephen D. Gengaro (646) 376-5331

Ivan Suleiman (212) 338-4723

FINANCIAL SERVICES

Asset Management

Jason Weyeneth, CFA (212) 763-8293

Banks & Thrifts

Terry McEvoy, CFA (207) 775-4926

Erik Zwick, CFA (610) 260-9551

Austin Nicholas (207) 775-4394

Matthew Kelley (207) 699-5800

Matthew Breese (207) 699-5800

Brett Rabatin, CFA (615) 760-1466

Nathan Race (615) 760-1477

Peyton Green (615) 760-1464

Kenneth James (615) 760-1474

Maxwell Neely (615) 760-1468

Life Insurance

John M. Nadel (212) 338-4717

Specialty/Real Estate Finance

Henry J. Coffey, Jr., CFA (615) 760-1472

Jason P. Weaver, CFA (615) 760-1479

Calvin Hotrum (615) 760-1476

Property/Casualty Insurance

Dan Farrell (212) 338-4782

Nitin Chhabra, FCAS (212) 338-4779

HEALTHCARE

Health Insurance

Brian Wright (646) 376-5350

Medical Technology

Gregory P. Chodaczek (610) 260-9560

Pharmaceutical Services

Gregory Bolan (615) 760-1469

Michael A. Ward (646) 218-4829

Specialty and Generic Pharmaceuticals

Shibani Malhotra (646) 376-5396

Austin Nelson (646) 218-4839

INDUSTRIALS

Aerospace & Defense

Peter Arment (646) 376-5336

Josh W. Sullivan (646) 376-5337

Asher Carey (646) 218-4825

Aut o, Auto Par ts and Au to Retailers

Michael P. Ward, CFA (646) 376-5375

Ali Faghri (646) 376-5304

Coal, Metals & Mining , Engineering &Construction

Michael S. Dudas, CFA (646) 376-5329

Satyadeep Jain, CFA (646) 376-5357

Patrick Uotila, CPA (646) 376-5358

Construction Materials & DiversifiedIndustrials

Todd Vencil, CFA (804) 282-7385

Homebuilding

Jay McCanless (615) 760-1475

Annie Worthman (615) 760-1478

Water and Flow Control

Kevin Bennett, CFA (804) 282-4506

TECHNOLOGY

Data Networking and Storage

Alex Kurtz (415) 402-601

Amelia Harris (415) 402-601

Enterprise Software

Robert Breza (612) 360-755

Jean-Baptiste Jouve (917) 392-570

Interactive Entertainment / Internet

Arvind Bhatia, CFA (214) 702-400

Brett Strauser (214) 702-400

LED Supply Chain

Andrew Huang (415) 362-614

John Shen (415) 402-6052

Semiconductors

Vijay Rakesh (312) 525-843

Troy Cowdrey (312) 525-843

TRANSPORTATION,SERVICES &EQUIPMENT

Sal Vitale (212) 338-476

Documents

Sterne Agee on Red Robin