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Red Robin Stock Soars 104% in 3 Months: More Upside Left?

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Red Robin Gourmet Burgers, Inc.’s (RRGB - Free Report) focus on digitalization, robust off-premise sales and gradual reopening of dining rooms bode well. However, the coronavirus pandemic and high debt remain a concern. In the past three months, the company’s shares have soared 104.3%, compared with the industry’s rally of 33.8%. Let’s delve deeper.

Key Catalysts

After coronavirus-induced shutdowns, the company is gradually reopening its dining rooms. As of Jun 7, 2020, the company had reopened 270 dining rooms with limited occupancy and operating hours. The company is witnessing encouraging trends and volume is also increasing at its reopened dining rooms. The company is expected to reopen more dining rooms in the coming weeks.

Red Robin is witnessing robust off-premise sales due to the coronavirus pandemic. The company’s off-premise sales have increased sharply compared with the pre-COVID-19 level. Off-premises sales growth has been driven by a new enhanced website, order accuracy, speed of service, order packaging and ease of pickup. The company announced that restaurants with open dining rooms are maintaining off-premise sales, which is nearly 1.5 to 2 times pre-COVID-19 levels and 40% of sales mix.


On the delivery front, the Zacks Rank #3 (Hold) company partnered with Amazon, DoorDash and GrubHub. In fact, the company is working with each provider to better integrate into its POS and KDS systems, and reduce the complexity in operations teams. During October 2019, it completed the rollout of POS terminals, and headsets and printers that contain menu item details for off-premise orders, thereby enabling the company to deliver an improved guest experience. Also, third-party delivery is now available at most of its locations.


High debt remains a concern for the company. As of Apr 19, 2020, the company’s long-term debt stood at $735 million, compared with $672 million on Dec 29, 2019. As a result, the company’s debt-to-capitalization rose to 80.2% compared with industry’s average of 65.1%. Moreover, the company ended first-quarter fiscal 2020 with cash and cash equivalent of $89 million, which may not be enough to manage the high debt level.

Red Robin has been witnessing rising costs and expenses in the recent quarters. In first-quarter fiscal 2020, restaurant-level operating profit margin declined to 8.8% in the quarter, compared with a slump of 18.3% in the year-ago period. Restaurant labor costs as a percentage of restaurant revenue rose 360 basis points primarily due to sales deleverage, higher wage rates, and increased group insurance costs.

Stocks to Consider

Some better-ranked stocks in the same space includes Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and Papa John's International, Inc. (PZZA - Free Report) . Al these stocks carry the Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past one month, shares of Cracker Barrel have gained 40.3%.

Domino's and Papa John's have an impressive long-term earnings growth rate of 12.8% and 8%, respectively.

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