Balanced View on Red Robin Gourmet - Analyst Blog
April 08 2014 - 1:00PM
Zacks
On Apr 3, 2014, we issued an updated research report on
Red Robin Gourmet Burgers Inc. (RRGB).
On Feb 14, this casual dining chain reported fourth quarter results
with earnings of 62 cents beating the Zacks Consensus Estimate and
increasing year over year owing to margin expansion. Revenues came
in line with the consensus mark but were up year over year driven
by higher franchise royalties, fees and other revenues.
Amid a sluggish economic environment, the company has been posting
positive comparable sales growth over the past three years, which
validates its strong fundamentals. During the quarter,
company-owned restaurants comps grew 3.7% driven by a 5.1% rise in
average guest check. Margins benefitted due to the decline in local
marketing expense and supply costs.
We believe the company is well poised to sustain its growth
momentum driven by improved guest traffic and innovative offerings.
Owing to an improved mix and higher sales from re-modeling, the
company expects comps to increase in low single digit in 2014. The
company thereby expects a high single-digit increase in total
revenue in 2014 mostly gaining from restaurant openings and
positive comps growth.
Apart from unit expansion, the company is also concentrating on its
remodeling initiative started in 2012. It intends to remodel an
additional 50 units by the end of 2014. The company’s remodeling
initiative will invigorate its potential as a brand and help
augment client experience, going forward.
Overall, we believe that the company’s initiatives including menu
innovation, effective marketing strategy, unit expansion and
remodeling programs to reinvigorate its brands would keep the
company well-positioned.
However, we remain concerned about incremental labor costs and
commodity inflation, which might hurt operating margins in the
upcoming quarters. Also weak consumer spending due to government
budget cuts, high tax rates and still-tightened credit availability
remains a headwind for the company. As a result, cash-conscious
customers are either dining at home or spending less per meal.
Other Stocks to Consider
Red Robin Gourmet holds a Zacks Rank #3 (Hold). Some better-ranked
stocks worth considering in the restaurant industry include
Ignite Restaurant Group, Inc. (IRG), The
Wendy's Company (WEN), and Jack in the Box
Inc. (JACK). All these stocks sport a Zacks Rank #1
(Strong Buy).
IGNITE RESTRNT (IRG): Free Stock Analysis Report
JACK IN THE BOX (JACK): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
WENDYS CO/THE (WEN): Free Stock Analysis Report
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