New Red Robin Unit in California - Analyst Blog
December 28 2011 - 6:30AM
Zacks
Red Robin
Gourmet Burgers Inc. (RRGB), a chain of casual dining
restaurants, recently announced that it plans to open a new
restaurant in Arcadia, California on January 9, 2012. Earlier, in
July this year, the company opened a new restaurant in Lakewood,
California. Currently, Red Robin has more than 72 locations in
California.
We believe that the core
Californian market, which was badly hit during the housing
downturn, has begun to turnaround. The gradual recovery in this
market, which is one of the major operational locations for the
company, should be a key growth driver going forward.
The new restaurant will come up at
400 S. Baldwin Ave. at the Westfield Santa Anita Mall. Given the
strategic location of this new restaurant, we believe that it will
drive significant growth in the coming days. Apart from its popular
offering of gourmet burgers, entrees, salads and beverages, the
menu will offer an interesting variety for children.
Furthermore, to drive revenue at
the new location, the burger chain intends to implement a guest
loyalty program called Red Royalty, focused on retaining guests by
providing dining benefits. The company will also use a Limited Time
Offer (LTO) strategy supported with television advertising to drive
traffic and create brand recognition.
Colorado-based Red Robin primarily
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 aged under 18.
Red Robin, which currently operates
more than 460 restaurants across the United States and Canada,
remains on track to open 12 full-size restaurants and its first
smaller prototype restaurants in 2011 followed by 12 to 15 in 2012,
including both full-sized and smaller prototype units. We believe
that small-size restaurants will drive growth in non-traditional
locations and also improve return on invested capital.
The company is also expanding
through franchise, as it reduces capital requirement of the company
and ensures a stable growth profile. Currently, the restaurant base
is 70% company-operated and 30% franchised. To further encourage
franchising, the company will also charge less franchisee fee from
existing franchisees if they build new restaurants. The company
expects to roll out three new franchised restaurants in 2011.
Red Robin currently has a Zacks #3
Rank, which implies a Hold rating over the short term. We also
reiterate our long-term Neutral recommendation on the stock, given
the company’s efforts to turn around its business in 2011 by
focusing on revenue growth, expense control by cost-cutting
initiatives and capital deployment.
However, commodity cost pressure
and an uncertain economic environment resulting in lower traffic
and stiff competition from peers such as BJ’s Restaurants
Inc. (BJRI) and The Cheesecake Factory
Inc. (CAKE) make us cautious.Additionally, labor expense,
which primarily hampers margin upside, is also expected to rise in
2012.
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
CHEESECAKE FACT (CAKE): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
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