Back to top

Analyst Blog

Seattle-based restaurateur, Red Robin Gourmet Burgers Inc. (RRGB - Analyst Report), is set to unveil a restaurant in Baltimore, MD. Positioned at the Inner Harbor area of downtown Baltimore near Canton Crossing, the outlet will beef up the restaurateur’s domestic portfolio.

The value offerings and contemporary ambience of this unit is expected to boost sales of Red Robin, which is famous for its Royal Red Robin Burger and signature Red Robin's Freckled Lemonade.

Red Robin currently operates as many as 482 units in the U.S. and Canada. With the resurgence of consumer confidence, management has accelerated its unit openings and plans to unveil another 20 units in 2013.

Red Robin which was focusing on expanding business in the California markets is now venturing into several under-penetrated locations in the U.S. to avoid market saturation. Among the under-served markets, Maryland needs a special mention where the company has only 15 units as compared with 70 units in California.

As per the National Restaurant Association, the restaurant industry contributes considerably toward the flourishing economy of Maryland, one of the most populous and wealthiest states in U.S. Marylanders’ inclination toward eating out frequently is favorable for the sector’s growth, which, we believe, has caught the attention of Red Robin. According to the research organization, Maryland’s restaurants are expected to earn $10.3 billion in sales in 2013.

Though the company’s effort to expand beyond its barriers is appreciable, we are concerned about the higher pre-opening costs that Red Robin will witness following its entry into under-served markets compared with matured trade areas, in which the company already has support infrastructure. This factor may hurt the company’s profitability in the near term.

Other Stocks to Consider

Other players in the restaurant industry that look attractive at the current levels include AFC Enterprises Inc. , Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report) and CEC Entertainment Inc. . All these restaurateurs carry a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.