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BJ's Restaurants or Red Robin: Which Stock is More Appetizing?

Zacks Equity Research
·6 mins read

Although the coronavirus pandemic continues to adversely impact the restaurant industry on a global scale, it has forced restauranteurs to evolve their operations to survive amid such trying times.

Notably, majority of the restaurant companies have resorted to an off-premise business model, which primarily focuses on delivery, takeout, drive-thru, catering, meal kits, and off-site options such as kiosks as well as food trucks. Given a spike in contactless delivery preference, companies have also increased their focus on driverless delivery systems to augment sales amid the coronavirus pandemic. Meanwhile, restaurant operators have also initiated the opening and expansion of patios around the perimeter of their restaurants to accommodate more seating where dining capacity is limited.

Dismal store traffic due to social distancing protocols cannot be ruled out. Also, some dining rooms have been closed again owing to local and state restrictions due to rise in the number of coronavirus cases.

Despite the roadblocks, it is worth noting that the Zacks Retail-Restaurant industry has had a decent run on the bourses in the past six months. The industry has rallied 59.4% in the said time frame compared with the S&P 500’s growth of 47.3%.

Leading restaurant companies like BJ's Restaurants, Inc. BJRI and Red Robin Gourmet Burgers, Inc. RRGB have been adopting and deploying strategies to generate profits.

Let’s analyze and find out whether BJ’s Restaurants or Red Robin, each carrying a Zacks Rank #3 (Hold) at present, is better positioned right now.

Price Performance

BJ's Restaurants’ stock has soared 250% in the past six months while Red Robin's shares have gained 64.5%.



Shares of BJ's Restaurants have benefited from robust sales-building initiatives, enhanced loyalty program, rollout of digital check-ins, digital menus and digital payment options.

Earnings History and Projected Growth

BJ's Restaurants beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with the average surprise being 54.9%. Meanwhile, Red Robin missed estimates in each of the trailing four quarters, with an average negative surprise of 89.6%. BJ's Restaurants has an impressive long-term earnings growth rate of 15%. The same for Red Robin's is anticipated to be 10%.

Fundamentals

BJ’s Restaurants has implemented several sales-building initiatives that have boosted the company’s performance over the past few weeks. Notably, its increased focus on off-premise services and dining re-openings bodes well. As of Jun 30, 2020, the company reopened dining rooms in 208 of its temporarily-closed restaurants, while one of its restaurants still remains closed due to the pandemic. Apart from dining re-openings, the company is investing in technology-driven initiatives like digital ordering to boost sales. Also, productivity-improvement initiatives such as a centralized call center to capture more online orders are expected to boost the top line. The company continues to drive awareness in its key markets through greater and more targeted marketing.

Nonetheless, its app and digital platforms are allowing the company to offer promotions more effectively and efficiently. It has rolled out several digital initiatives like digitized check-ins, menus and payment options to attract customers. Moreover, to boost sales from its dine-in services, the company has initiated the opening and expansion of patios around the perimeter of its restaurants. Notably, the addition of 155 patios enabled the company to increase its seating capacity and serve more guests, while maintaining social-distancing protocols.

Meanwhile, the company plans to introduce new flavors and improve the quality of its menu items. Notably, it plans on bringing back Prime Rib for both dining-in and take-out by mid-August 2020. The company is also working on Family Bundles comprising Slow-Roasted Tri-Tip in order to boost single-serve catering options. It stated that it has sufficient liquidity to maintain operations for some time amid the current scenario.

Coming to Red Robin, the company has been investing significantly in technology and data infrastructure. The company is set to grow the off-premise, online-ordering business via carry-out, delivery and catering. On the delivery front, the company has partnered with Amazon, DoorDash and GrubHub. In fact, the company is working with each provider to better integrate with POS and KDS systems, and ease the intricacy in operations teams. The company’s off-premise sales have increased sharply from the pre-COVID-19 levels. For second-quarter 2020, off-premise sales increased 208.7% and accounted for 63.8% of total food and beverage sales. The increase was primarily attributed to its focus on all off-premise sales channels, carry-out, third-party and Red Robin delivery (or last mile). Also, reductions in menu and refined operating processes resulted in timely pickup and delivery.

With the reopening of dining rooms, the company has accelerated implementation of the new hospitality model — TGX or Total Guest Experience — to improve customer experience. Moreover, to boost sales from its dine-in services, restaurant operators have initiated the opening and expansion of patios around their restaurants to attract more guests. The initiative enabled Red Robin to increase its seating capacity and serve more guests, while maintaining social-distancing protocols.

Furthermore, the company intends to reduce costs and improve efficiency at both restaurant and corporate levels, as well as redesign its restaurant prototype to enhance the off-premise experience.

Our Take

Our comparative analysis shows that BJ’s Restaurants has an edge over Red Robin in terms of share price appreciation and projected EPS growth rate. However, the fundamentals of both the companies look solid. Taking all the factors into account, we believe BJ’s Restaurants is better positioned than Red Robin at the moment.

Key Picks

Some better-ranked stocks in the same space include Brinker International, Inc. EAT, Darden Restaurants, Inc. DRI and Domino's Pizza, Inc. DPZ. Brinker sports a Zacks Rank #1 (Strong Buy), while Darden and Domino's carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Brinker has a three-five year earnings per share growth rate of 11.4%.

Darden has a trailing four-quarter earnings surprise of 8.1%, on average.

Domino's fiscal 2020 earnings are expected to rise 34.1%.

Zacks’ Single Best Pick to Double

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.

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Dominos Pizza Inc (DPZ) : Free Stock Analysis Report
 
BJs Restaurants, Inc. (BJRI) : Free Stock Analysis Report
 
Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
Brinker International, Inc. (EAT) : Free Stock Analysis Report
 
Red Robin Gourmet Burgers, Inc. (RRGB) : Free Stock Analysis Report
 
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Zacks Investment Research