A soft industry backdrop has been hampering the performance of most restaurant chains and Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) is no exception.
In fact, the decline in sales volume has begun to impact the returns on the company’s new restaurant openings due to the challenging operating environment. Consequently, Red Robin has slowed down on its unit growth plan for 2017 and 2018. However, it has not completely refrained from it.
Recently, the company announced its plan to open a Red Robin Gourmet Burgers and Brew restaurant in Clarksville, IN, on Nov 27.
The latest outlet will include its signature items like Royal Red Robin Burger, Bottomless Steak Fries, Smoke & Pepper Burger, and Red's Tavern Double on the menu along with Freckled Lemonade. Additionally, it will serve Black & Bleu Burger, The Marco Pollo, the Southern Charm Burger along with a variety of salads, entrees, soups and wraps.
Currently, there are 570 Red Robin restaurants across the United States and Canada.
Yet, the company loses out in terms of international presence. While several other restaurant chains including Yum! Brands, Inc. (YUM - Free Report) , McDonald’s Corporation (MCD - Free Report) and The Wendy's Company (WEN - Free Report) have opened their outlets in the emerging markets, Red Robin seems to be weak on this front.
Additionally, higher labor, remodeling, restaurant maintenance and pre-opening costs may continue to hurt margins. Also, Red Robin is investing heavily in several sales building initiatives like advertising and technical upgrades, which will result in elevated costs.
In fact, the company’s shares have declined 12.2% year to date, as against the industry’s growth of 10.4%. Given an uncertain sales environment along with rising costs, we find the stock’s upside potential to be limited.
Nevertheless, Red Robin’s efforts to improve sales and regain market share via efficient menu innovation, operational improvement, effective marketing strategy and remodeling programs are encouraging.
Particularly, its focus on value offerings along with a growing off-premise, online ordering business is expected to ensure that this Zacks Rank #4 (Sell) company remains affordable for dine-in and carry-out guests alike.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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