Red Robin Grows in California - Analyst Blog
June 08 2011 - 10:00AM
Zacks
Colorado-based Red Robin
Gourmet Burgers Inc. (RRGB), which currently operates more
than 450 restaurants across the United States and Canada, is set to
open a new restaurant in Vacaville, California on June 20. This
follows the Red Robin restaurant opening in Woodland, California in
April end. So far, Red Robin has more than more than 70 locations
in California.
We believe the core Californian
market, which was badly hit during the housing downturn, has begun
to turnaround. The gradual betterment in this market, which is one
of the major operational locations for the company, should be a key
driver of growth.
Red Robin Gourmet Burgers focuses
on expediting food orders in a colorful and family-friendly
atmosphere that appeals to women and children. As a result, 30% of
its customers are under the age of 18 compared with 16% for other
casual-dining restaurants.
Accordingly, like all its other
restaurant openings, Red Robin will host a fundraiser with
partner National Center for Missing & Exploited Children
(NCMEC) during the opening week of Vacaville restaurant (June 20 to
May 26) as a part of the social commitments. Red Robin will donate
50 cents from every burger sold during the week to NCMEC to support
its child safety initiatives.
Red Robin plans to open 10 new
company-owned restaurants in 2011 followed by 5 in 2012. It is now
trying to expand through franchises, as this strategy reduces
capital requirement and ensures a stable growth profile. In 2011,
the company expects to open 3 to 4 franchised restaurants.
However, in order to explore new
development opportunities Red Robin has slowed down its
company-owned unit expansion. It opened 11 company-owned
restaurants in fiscal 2010 and 15 in 2009. Last week, the company
announced that it targets a smaller 2,000-4,000 square foot model
with one such unit to be opened this year in Denver.
The company will supplement the
small prototype witha guest loyalty program called Red Royalty to
drive revenue. The company will further use a Limited Time Offer
strategy supported with television advertising to drive traffic and
create brand recognition.
However, Red Robin will face stiff
competition in California with BJ's Restaurants
Inc. (BJRI) having a strong presence over there. One third
of its future openings will be in California, another third will be
built in western states outside of California and the other third
in the Florida market or a few new markets.
Red Robin currently has a Zacks #1
Rank, which implies a Strong Buy rating over the short term. We
also reiterate our long-term Outperform recommendation on the
stock, given the company’s efforts to turn around its business in
2011.
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
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