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Here's Why You Should Retain Red Robin (RRGB) Stock for Now
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Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) is likely to benefit from its menu innovation, off-premise business model and Donatos expansion. Also, the emphasis on testing value programs around specific day parts bodes well. However, inflationary pressures are a concern.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Catalysts Driving Growth
Red Robin’s efforts to improve sales and regain market share via efficient menu innovation, focus on increasing service speed and effective marketing strategy bode well. Also, it has been witnessing positive customer feedback related to its limited time offer (“LTO”) menu items. This was complemented by the everyday value, including affordable prices, generous portions, signature bottomless sides and drinks. During the fiscal third quarter, the company reported solid performance with respect to its LTO’s comprising of a $10 gourmet meal. The company intends to focus on creative recipes to drive higher checks and margins. Also, it emphasized on testing other value programs around specific day parts (such as Happy Hour) and lunch specials to drive growth.
Red Robin continues to benefit from its robust off-premise sales. During third-quarter fiscal 2022, the company delivered the 10th consecutive quarter of off-premises sales dollars at more than double pre-pandemic levels. As a percentage of total off-premise sales, the company reported solid contributions from third-party delivery (53.5%), to-go (34.9%), catering (7.5%) and Red Robin Delivery (4.1%). The company intends to maintain the momentum by focusing on modifications related to its processes, staffing, floor plans and technology. It is initiating an expanded floor plan space to support its off-premises and catering orders without impacting the dine-in business.
Red Robin still considers Donatos as a key growth driver. During the third quarter of fiscal 2022, the company reported incremental sales concerning Donatos. It stated that restaurants serving Donatos pizza outperformed non-Donatos locations by 10.1% in comparable restaurant revenues compared with 2019. As of Oct 2, 2022, the company had completed its rollout of Donatos at approximately 50 restaurants for 2022. The company anticipates rolling out Donatos to approximately 150 restaurants in 2023. Red Robin is 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 2024.
Concerns
Image Source: Zacks Investment Research
Shares of Red Robin have plunged 60.5% in the past year compared with the industry’s 7.7% fall. The company’s performance has been affected by higher commodity and labor inflation and costs related to sales-boosting initiatives. During the third quarter of 2022, the cost of sales rose 12.7% year over year to $70.6 million, while as a percentage of restaurant revenues, the metric increased 180 basis points to 25%. Other operating costs increased 2.7% year over year to $52.9 million. During the quarter, the company reported higher-than-expected other operating costs owing to higher repair and maintenance expenses, record utility rates and higher-than-expected usage, restaurant supplies and higher fees associated with higher credit card usage. For 2022, the company anticipates pricing in the mid-single digit, cost inflation in the mid-double digits and restaurant labor cost inflation in the mid-to-high single digit.
Although the company reopened most of its restaurants, the possibility of additional outbreaks can lead to lower capacity, social distancing and suspension of in-restaurant dining operations. Also, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Some better-ranked stocks in the Zacks Retail – Restaurants industry are Wingstop Inc. (WING - Free Report) , Chuy's Holdings, Inc. (CHUY - Free Report) and Chipotle Mexican Grill, Inc. (CMG - Free Report) .
Wingstop sports a Zacks Rank #1. WING has a long-term earnings growth rate of 11%. Shares of WING have declined 0.8% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the comparable year-ago period’s levels.
Chuy’s Holdings currently carries a Zacks Rank #2 (Buy). CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have increased 2.7% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 11.7%, respectively, from the corresponding year-ago period’s levels.
Chipotle currently carries a Zacks Rank #2. CMG has a trailing four-quarter earnings surprise of 4.1%, on average. The stock has declined 16.6% in the past year.
The Zacks Consensus Estimate for Chipotle’s 2022 sales and EPS suggests growth of 15.1% and 31%, respectively, from the corresponding year-ago period’s levels.
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Here's Why You Should Retain Red Robin (RRGB) Stock for Now
Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) is likely to benefit from its menu innovation, off-premise business model and Donatos expansion. Also, the emphasis on testing value programs around specific day parts bodes well. However, inflationary pressures are a concern.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Catalysts Driving Growth
Red Robin’s efforts to improve sales and regain market share via efficient menu innovation, focus on increasing service speed and effective marketing strategy bode well. Also, it has been witnessing positive customer feedback related to its limited time offer (“LTO”) menu items. This was complemented by the everyday value, including affordable prices, generous portions, signature bottomless sides and drinks. During the fiscal third quarter, the company reported solid performance with respect to its LTO’s comprising of a $10 gourmet meal. The company intends to focus on creative recipes to drive higher checks and margins. Also, it emphasized on testing other value programs around specific day parts (such as Happy Hour) and lunch specials to drive growth.
Red Robin continues to benefit from its robust off-premise sales. During third-quarter fiscal 2022, the company delivered the 10th consecutive quarter of off-premises sales dollars at more than double pre-pandemic levels. As a percentage of total off-premise sales, the company reported solid contributions from third-party delivery (53.5%), to-go (34.9%), catering (7.5%) and Red Robin Delivery (4.1%). The company intends to maintain the momentum by focusing on modifications related to its processes, staffing, floor plans and technology. It is initiating an expanded floor plan space to support its off-premises and catering orders without impacting the dine-in business.
Red Robin still considers Donatos as a key growth driver. During the third quarter of fiscal 2022, the company reported incremental sales concerning Donatos. It stated that restaurants serving Donatos pizza outperformed non-Donatos locations by 10.1% in comparable restaurant revenues compared with 2019. As of Oct 2, 2022, the company had completed its rollout of Donatos at approximately 50 restaurants for 2022. The company anticipates rolling out Donatos to approximately 150 restaurants in 2023. Red Robin is 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 2024.
Concerns
Image Source: Zacks Investment Research
Shares of Red Robin have plunged 60.5% in the past year compared with the industry’s 7.7% fall. The company’s performance has been affected by higher commodity and labor inflation and costs related to sales-boosting initiatives. During the third quarter of 2022, the cost of sales rose 12.7% year over year to $70.6 million, while as a percentage of restaurant revenues, the metric increased 180 basis points to 25%. Other operating costs increased 2.7% year over year to $52.9 million. During the quarter, the company reported higher-than-expected other operating costs owing to higher repair and maintenance expenses, record utility rates and higher-than-expected usage, restaurant supplies and higher fees associated with higher credit card usage. For 2022, the company anticipates pricing in the mid-single digit, cost inflation in the mid-double digits and restaurant labor cost inflation in the mid-to-high single digit.
Although the company reopened most of its restaurants, the possibility of additional outbreaks can lead to lower capacity, social distancing and suspension of in-restaurant dining operations. Also, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Red Robin currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail – Restaurants industry are Wingstop Inc. (WING - Free Report) , Chuy's Holdings, Inc. (CHUY - Free Report) and Chipotle Mexican Grill, Inc. (CMG - Free Report) .
Wingstop sports a Zacks Rank #1. WING has a long-term earnings growth rate of 11%. Shares of WING have declined 0.8% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the comparable year-ago period’s levels.
Chuy’s Holdings currently carries a Zacks Rank #2 (Buy). CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have increased 2.7% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 11.7%, respectively, from the corresponding year-ago period’s levels.
Chipotle currently carries a Zacks Rank #2. CMG has a trailing four-quarter earnings surprise of 4.1%, on average. The stock has declined 16.6% in the past year.
The Zacks Consensus Estimate for Chipotle’s 2022 sales and EPS suggests growth of 15.1% and 31%, respectively, from the corresponding year-ago period’s levels.