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Red Robin (RRGB) Stock on Fire: Outpaces Industry & S&P 500 YTD

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Shares of Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) have done exceptionally well so far this year, courtesy of continuous efforts to improve sales and regain market share via focus on increasing service speed and effective marketing strategy. Year to date, the company’s shares have gained 65%, compared with the industry’s and the S&P 500’s rally of 11.9% and 17.2%, respectively. Let’s delve deeper.

Benefiting from Dining Rooms Reopening

The company continues to benefit from dining rooms opening after coronavirus-related shutdown. Its average capacity is nearly 65%. In first-quarter fiscal 2021, the company’s average indoor capacity was nearly 48%. Red Robin is also providing outdoor seating. After the reopening of dining rooms, the company has also accelerated the implementation of its new service model Total Guest Experience (“TGX”). This along with the restructuring of management-labor model is likely to boost flexibility and supervisory coverage during peak times.

Digitalization Boosts Sales

Red Robin has been investing more in technology and data infrastructure. The company is set to grow its off-premise, online-ordering business via carry-out, delivery and catering. The growing demand for off-premise orders is resulting in higher traffic. On the delivery front, the company partnered with Amazon, DoorDash and GrubHub. Going forward, it intends to collaborate with new third-party delivery partners, and improve its digital platform through website enhancements and a new Red Robin mobile app. Backed by cost-effective channels, the initiatives are likely to boost operational execution, drive higher-order conversion, and increase guests frequency and royalty participation.

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Off-Premise Sales a Key Catalyst

The company’s off-premise sales have increased sharply compared with the pre-COVID-19 levels. Although more guests have started visiting restaurants, the company’s off-premise sales remain strong. During the second, third and fourth quarter of 2020, off-premise sales soared 208.7%, 127.2%, and 131.8%, respectively. The off-premise sales comprised 63.8%, 40.7% and 43.9% of total food and beverage sales in the second, the third and the fourth quarter of 2020, respectively. During first-quarter 2021, the company delivered strong off-premises sales, which comprises 41.7% of total food and beverage sales, up from 26.3% and 11.6% in 2020 and 2019, respectively. Nearly, 80% of off-premises sales were driven by digital channels. Notably, the upside can primarily be attributed to its process and technology enhancements, and implementation of triple check accuracy program. Also, reductions in menu and refined operating processes resulted in the accuracy of timely pickup and delivery.

Increased Focus on Donatos

Red Robin still considers Donatos as a key growth driver. The company recently announced the expansion of its partnership with Donatos Pizza. However, the financial terms of the deal have been kept under wraps. In 2018, Donatos Pizza partnered with Red Robin, offering its famous pizzas as part of Red Robin's menu offerings. Following success in early launch markets, the two companies are adding more locations this year. Red Robin is planning to add Donatos pizza to nearly 120 additional restaurants by the end of this year, which will take the count to more than 200 locations. In second-quarter 2021, the company added Donatos to 41 restaurants, which includes restaurants in six new states — Idaho, New Mexico, Utah, Nevada, Oregon and Washington. The company also added Donatos pizza to its Arizona locations. In third-quarter 2021, it will add Donatos pizza to several East Coast Red Robin restaurants in Maryland and Virginia. In the later part of 2021, the company will add Donatos pizza to its California locations. Red Robin is very optimistic about the success of this partnership. It anticipates annual sales of pizza to be more than $60 million and profitability to be above $25 million by 2023.

Zacks Rank & Other Key Picks

Papa John’s carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the same space include Chuy's Holdings, Inc. (CHUY - Free Report) , Noodles & Company (NDLS - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . All these stocks have a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.

Noodles & Company’s 2021 earnings are expected to surge 196.6%.

El Pollo Loco has a trailing four-quarter earnings surprise of 85.6%, on average.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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