Rubio’s 3rd-Quarter Profit Tumbles 36%

Heavy discounts helped boost traffic at Rubio’s Restaurants Inc. but not enough to overcome rising food costs, as the Mexican fast-food chain’s third-quarter profit dropped 36%, the company reported Monday.

The Carlsbad, Calif.-based operator of 145 Rubio’s Fresh Mexican Grill restaurants, known for their seafood, earned $836,000, or 9 cents a share, compared with $1.3 million, or 14 cents, a year earlier.

Rubio’s also said it expected to post a net loss of 25 cents to 30 cents a share for the full year. In the second quarter, the company had a net loss of $3.1 million as it wrote off some underperforming restaurants.

Revenue for the quarter ended Sept. 28 rose 6% to $32.7 million. Sales at restaurants open at least 15 months gained 2.6% over the year-earlier period, marking the eighth consecutive such increase, the company said.

Rubio’s released its results after the stock market closed. Its shares lost 6 cents to $5 on Nasdaq.

Rubio’s stock has fallen 19% this year. Investors are concerned about how Rubio’s will fare against bigger competitors.

Ralph Rubio, the company’s co-founder and chief executive, acknowledged in a recent interview that “the last couple of years have been challenging, to say the least.”

After Rubio’s went public in 1999, “we grew fast, and in doing so we made a number of mistakes,” he said. Rubio’s, which operates restaurants in six Western states, opened 67 restaurants in just two years, and the growth outpaced the firm’s ability to keep up, he said.

“We got a little off track and now we’re back on it,” Rubio said.

The firm closed several underperforming outlets last year. It also opened prototype restaurants with a more upscale look featuring display kitchens so that customers can see chefs working at copper-topped open grills. The company hopes that the revamped outlets, which cost upward of $500,000 per store, will entice customers to return more often.

After the second-quarter loss, the company was able to post a profit in the third quarter by trimming costs, especially product costs and labor. Though food costs were higher than a year earlier, they were down compared with the second quarter. And that had analysts wondering whether the company was backing away from its upgrade plans.

“Have we gone from trying to invest in the brand to ‘Let’s just run it for quarterly profits’?” asked analyst David Geraty with RBC Capital Markets. He has an “underperform” rating on Rubio’s stock.