Red Robin Gourmet Burgers, Inc. RRGB continues to focus on menu innovation, digital capability enhancement and expansion to revive top-line growth. In the past six months, shares of the company have gained 8.8% against the industry’s 2.2% decline. However, high costs and limited international presence are concerns.
Let’s delve deeper into the factors that substantiate its Zacks Rank #3 (Hold).
Catalysts Driving Growth
Apart from brand revitalization efforts, Red Robin is focused on menu innovation, operational improvement and creating a better customer service platform. In an effort to attract customers, the company also consistently introduces a variety of salads, appetizers, innovative desserts and adult beverages as well as kids’ menu.
Furthermore, Red Robin focuses on promotional and limited-time offers to boost revenues. The company’s guest loyalty program — Red Robin Royalty — initiated in 2011 with a goal to increase the guest count, is an added positive.
Of late, Red Robin has been investing significantly in technology and data infrastructure. The company is set to grow off-premise, online-ordering business via carry-out, delivery and catering. Increasing demand for off-premise orders is resulting in higher traffic.
On the delivery front, the company has partnered with Amazon, DoorDash and GrubHub. Notably, it is working with each provider to better integrate into its POS and KDS systems, and ease the intricacy in operation teams. Also, third-party delivery is now available at most of its locations.
Meanwhile, Red Robin is expanding its productivity and service models, and also increasingly supporting To-Go and catering services to drive greater guest check. To make its menu affordable to a varied range of customers, and drive incremental traffic and sales, the company is banking on prudent pricing strategies.
Apart from significant top-line pressure, Red Robin has been witnessing rising costs and expenses in recent quarters. Additionally, the company is investing heavily in several sales-building initiatives like advertising and technical upgrades, which is resulting in elevated costs.
Remodeling and restaurant maintenance are also adding to rising expenses. In the third quarter of 2019, restaurant-level operating profit margin contracted 70 basis points (bps) to 16.1%. The decline was due to a 90 bps rise in labor costs and a 30 bps increase in other restaurant operating expenses.
Red Robin operates in the retail restaurant space that is highly dependent on consumer discretionary spending. Consumers’ tendency to spend largely depends on the overall macroeconomic scenario. If the company does not make pragmatic use of advanced technologies to innovate across value chains, it has high chances of fading out like many other restaurant retailers.
Some better-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Bloomin' Brands, Inc. BLMN and Chipotle Mexican Grill, Inc. CMG. While Chuy’s sports a Zacks Rank #1 (Strong Buy), Bloomin’ and Chipotle carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Chuy’s, Bloomin’ and Chipotle’s long-term earnings are expected to grow 17.5%, 9.8% and 19.7%, respectively.
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