Red Robin Gourmet Burgers Inc. (RRGB - Analyst Report), a chain of casual dining restaurants, is set to debut its first unit in Portland area, Maine, shortly. The new restaurant will be at 800 Gallery Blvd. across from the new Walmart, and will offer gourmet burgers served with Bottomless Steak Fries, a variety of salads, entrees, soups and wraps made with the fresh ingredients.
Given customers’ inclination toward organic and fresh food these days, we believe integrity in ingredients will be a crucial factor for traffic growth. Apart from this, there will be other sales enhancement initiatives like a guest loyalty program called Red Royalty.
However, Colorado-based Red Robin will likely face stiff competition in that area because of the presence of several renowned eateries including Chipotle Mexican Grill Inc. (CMG - Analyst Report).
Red Robin currently operates 464 restaurants across the United States and Canada. The company is also expanding through its franchise strategy, as it reduces capital requirement 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 fees from existing franchisees if they build new restaurants.
The company expects to roll out 13 to 15 restaurants in 2012, including both full-sized restaurants and smaller prototype units. Small-size restaurants will likely drive growth in non-traditional locations and also improve return on invested capital.
Red Robin targets investment in the range of $50–$60 million in 2012 toward unit development. It also plans to increase investments in equipment and in store remodeling.
Red Robin currently has a Zacks #2 Rank, which implies a Buy rating over the short term. We reiterate our long-term Outperform recommendation on the stock.
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