Red Robin (RRGB) Surges 134% in 6 Months: Will the Rally Last?
Red Robin Gourmet Burgers, Inc. RRGB stock has performed exceptionally well in the past six months. The stock has surged 133.5% compared with the industry’s gain of 9%.
Our model predicts the Zacks Rank #3 (Hold) company’s sales and earnings in 2023 to increase 2.9% and 52.7% year over year, respectively. However, dismal margin remains a concern.
Let’s delve deeper.
Growth Drivers
Robust digital initiatives are aiding Red Robin’s performance. Growing demand for off-premise orders is resulting in higher traffic. On the delivery front, RRGB partnered with Amazon, DoorDash and GrubHub. It is worth mentioning here that the company is working with each provider to better integrate into its POS and KDS systems, and reduce the complexity in operations teams.
RRGB is also benefiting from robust loyalty program. As of first-quarter fiscal 2023, its royalty members totaled 11.5 million compared with 11.3 million reported in the previous quarter.
The company also emphasized upgrading its cooking techniques. This includes transitioning from the existing conveyor belt cooking system to a more traditional flat-top cooking method. Management stated that this process is simpler and quicker for execution, eliminating significant maintenance and repair costs associated with the cooking platform.
Also, the initiative supports greater quality products and value offerings to its guests. So far, RRGB has enabled the flat-top cooking method in 300 restaurants and reported positive feedback with respect to the same. It anticipates full deployment across its system by the second quarter of fiscal 2023.
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On Jan 9, 2023, Red Robin launched North Star five-point plan to help driving long-term shareholder value and enhance its competitive positioning in the market. The plan focuses on developing an operations-focused restaurant company, upgrading customer experience and engagement, reducing costs along with driving growth in comparable restaurant revenues and unit level profitability. This plan is anticipated to help the company drive growth in 2023 and beyond.
Red Robin is also benefiting from expansion of its partnership with Donatos Pizza. In fiscal 2022, comparable restaurant revenues serving Donatos pizza outperformed non-Donatos locations by 470 basis points year over year. It completed the installation of 25 Donatos in first-quarter fiscal 2023.
As of Apr 16, 2023, it completed the installation of Donatos in 272 company-owned restaurants. Management is optimistic about the success of this partnership. It projects annual sales of pizza to be more than $60 million and profitability to be above $25 million by 2024.
Concerns
A decline in margin continues to hurt the company. Red Robin has been witnessing rising costs and expenses in recent quarters. Moreover, it is investing heavily in several sales-building initiatives like advertising and technical upgrades, which will result in elevated costs. Remodeling, restaurant maintenance and staffing costs will also contribute to rising expenses.
During first-quarter fiscal 2023, cost of sales rose 9.6% year over year to $99.7 million, while as a percentage of restaurant revenues, the metric increased 60 basis points to 24.5%. The increase was primarily due to commodity inflation. Also, it reported higher costs on account of equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology and other miscellaneous costs. For fiscal 2023, RRGB anticipates commodity and labor inflation to be in the mid-to-high single-digits range.
Key Picks
Some better-ranked stocks from the Zacks Retail-Wholesale sector are Dave & Buster's Entertainment, Inc. PLAY, Chipotle Mexican Grill, Inc. CMG and Chuy's Holdings, Inc. CHUY, each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dave & Buster's Entertainment has a trailing four-quarter earnings surprise of 6.8%, on average. The stock has gained 22.1% in the past year.
The Zacks Consensus Estimate for PLAY’s 2023 sales and EPS suggests growth of 17.1% and 25.5%, respectively, from the year-ago period’s levels.
Chipotle has a trailing four-quarter earnings surprise of 4.7%, on average. The stock has soared 53.4% in the past year.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS suggests rises of 14.1% and 33.9%, respectively, from the year-ago period’s levels.
Chuy's Holdings has a trailing four-quarter earnings surprise of 23.4%, on average. The stock has surged 92.2% in the past year.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests improvements of 9.9% and 27%, respectively, from the year-ago period’s levels.
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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Red Robin Gourmet Burgers, Inc. (RRGB) : Free Stock Analysis Report
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Dave & Buster's Entertainment, Inc. (PLAY) : Free Stock Analysis Report
