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Red Robin (RRGB) Gains 36% in a Year: More Room to Run?

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Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) has been benefiting from menu innovation, strong comps growth and a loyalty program. Also, focus on strategic initiatives and Donatos’ expansion bodes well.

In the past year, shares of Red Robin have gained 35.7% compared with the industry’s 5.1% growth. The price performance was backed by solid earnings surprise history. Red Robin’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters. Earnings estimates for fiscal 2023 and 2024 have moved up 18.8% and 30.3% in the past 30 days, respectively. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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Let’s delve deeper into the factors likely to spur RRGB’s growth.

Menu Innovation: Red Robin continues to focus on menu innovation to drive growth. It has been witnessing positive customer feedback regarding its limited time offer (LTO) menu items complemented by the everyday value.

RRGB is set to introduce upgrades to bacon, mayonnaise, vine-ripened tomatoes and other produce. It also plans to launch new menu items, such as St. Louis-style pork ribs with the signature Whiskey River barbecue sauce, panko breaded tsunami shrimp, and crispy parmesan Brussels sprouts as an appetizer later in 2023, in line with its barbell strategy. The company intends to focus on creative recipes to drive higher checks and margins.

Solid Comps Growth: During second-quarter fiscal 2023, comparable restaurant revenues rose 1.5% year over year, primarily driven by a 7.5% rise in guest checks. However, this was partially offset by a 6% fall in the Guest count. The rise in guest checks can be attributed to an 8.8% increase in menu prices, partially offset by a 2.1% decline in menu mix.

Focus on Loyalty Program:  A key long-term growth driver for the company is its guest loyalty program — Red Robin Royalty — initiated in 2011. RRGB is focused on enhancing its ability to efficiently reach a broader audience through digital infrastructure and an omnichannel approach. This includes optimizing its owned marketing channels, including the approximately 12.9-million-member loyalty program, to drive traffic efficiently. As RRGB continues investing in its personnel and food offerings, the company intends to lower its reliance on discounts in the future.

Strategic Initiatives: The company focuses on three areas — revenue growth, expense management and efficient capital deployment to drive profitability. In the second quarter of fiscal 2023, RRGB acquired five Red Robin restaurants in the northeastern United States from a retiring long-term franchisee for $3.5 million. This acquisition is expected to contribute approximately $1 million in net annual EBITDA and is part of RRGB's Initial, Prior, and Current Guidance.

Regarding food quality, RRGB successfully rolled out flat-top grills throughout the entire system, including franchise-owned restaurants, during the second quarter. It simplifies the cooking process, enabling higher throughput and consistently delivering a superior product to its guests. This enhanced cooking technology is a foundation for future innovations compared to the previous conveyor belt charbroiler.

Increased focus on Donatos: Red Robin considers Donatos a key growth driver. Red Robin installed 25 Donatos in first-quarter fiscal 2023. As of Jul 9, 2023, it completed the installation of Donatos in 272 company-owned restaurants. The company is optimistic about the success of this partnership. It anticipates annual pizza sales to be more than $60 million and profitability to be above $25 million by 2024.

Other Key Picks

Some other top-ranked stocks from the Zacks Retail-Wholesale sector are:

Kura Sushi USA, Inc. (KRUS - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 139.7% on average. Shares of KRUS have increased by 7.9% in the past year.

The Zacks Consensus Estimate for KRUS’s 2023 sales and EPS indicates 33.4% and 300% growth, respectively, from the year-ago period’s levels.

Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 35%, on average. The stock has gained 37.3% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.

Chuy's Holdings, Inc. (CHUY - Free Report) holds a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 26.6%, on average. Shares of CHUY have surged 53.9% in the past year.

The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS implies increases of 9.5% and 32.9%, respectively, from the year-ago period’s levels.

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