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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 Donatos expansion, off-premise business model and sales-boosting efforts. Also, the emphasis on upgrading its cooking techniques 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 considers Donatos a key growth driver. In fiscal 2022, the company reported incremental sales concerning Donatos. It stated that comparable restaurant revenues serving Donatos pizza outperformed non-Donatos locations by 470 basis points year over year. The company anticipates approximately 25 Donatos installations in fiscal 2023. Red Robin is optimistic about the success of this partnership. It expects annual pizza sales to be more than $60 million and profitability to be above $25 million by 2024.
An increased focus on its off-premise model bodes well. Although more guests have started visiting restaurants, the company’s off-premise sales remain strong. The company intends to maintain the momentum by focusing on modifications concerning its processes, staffing, floor plans and technology. It is initiating an expanded floor plan to support its off-premises and catering orders without impacting the dine-in business. Given the focus on effective and accurate executions, the initiatives are likely to drive growth in the upcoming periods.
Red Robin’s efforts to improve sales and regain market share via efficient menu innovation, a focus on increasing service speed and an effective marketing strategy bode well. In fiscal 2022, the company emphasized elevating the guest experience by improving its staffing levels. To this end, the company added bussers, hosts and bartenders (removed earlier during the pandemic). The initiative supports the company’s transition to a traditional service model comprising busser assistance and fewer server tables. Also, it enables the restaurant to serve more guests, thereby reducing the false wait in the restaurant. Backed by solid sales gains (in the fiscal fourth quarter of 2022), the company intends to carry out a phased implementation to drive growth in the upcoming periods.
Meanwhile, the company emphasized improving its cooking techniques, including transitioning from the existing conveyor belt cooking system to a more traditional flat-top cooking method. The company stated that the process is simpler and quicker for execution, eliminating significant maintenance and repair costs associated with the cooking platform. Also, the initiative supports greater product quality and value for its guests. So far, the company has enabled the flat-top cooking method in 10 restaurants and reported positive feedback for the same. The company stated that full system deployment would begin during the fiscal second quarter of 2023.
Concerns
Image Source: Zacks Investment Research
Shares of Red Robin have declined 11.8% in the past year against the industry’s growth of 8.5%. Higher commodity and labor inflation and costs related to sales-boosting initiatives have affected the company’s performance. Although the company reopened most of its restaurants, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
During the fourth quarter of fiscal 2022, the cost of sales rose 7.6% year over year to $72.2 million, while as a percentage of restaurant revenues, the metric increased 120 basis points to 24.9%. Restaurant labor costs (a percentage of restaurant revenues) increased by 50 basis points (bps) year over year to 34.6%. The increase was primarily due to labor cost inflation. Also, it reported higher costs for equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology and third-party delivery fees. For fiscal 2023, the company anticipates commodity and labor inflation costs to be in the mid-to-high single-digit range.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Chuy's Holdings, Inc. , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Bloomin' Brands, Inc. (BLMN - Free Report) .
Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 33.1% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 6.1% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands carries a Zacks Rank #2 (Buy). BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 18.7% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.4% and 5.5%, respectively, from the year-ago period’s reported 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 Donatos expansion, off-premise business model and sales-boosting efforts. Also, the emphasis on upgrading its cooking techniques 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 considers Donatos a key growth driver. In fiscal 2022, the company reported incremental sales concerning Donatos. It stated that comparable restaurant revenues serving Donatos pizza outperformed non-Donatos locations by 470 basis points year over year. The company anticipates approximately 25 Donatos installations in fiscal 2023. Red Robin is optimistic about the success of this partnership. It expects annual pizza sales to be more than $60 million and profitability to be above $25 million by 2024.
An increased focus on its off-premise model bodes well. Although more guests have started visiting restaurants, the company’s off-premise sales remain strong. The company intends to maintain the momentum by focusing on modifications concerning its processes, staffing, floor plans and technology. It is initiating an expanded floor plan to support its off-premises and catering orders without impacting the dine-in business. Given the focus on effective and accurate executions, the initiatives are likely to drive growth in the upcoming periods.
Red Robin’s efforts to improve sales and regain market share via efficient menu innovation, a focus on increasing service speed and an effective marketing strategy bode well. In fiscal 2022, the company emphasized elevating the guest experience by improving its staffing levels. To this end, the company added bussers, hosts and bartenders (removed earlier during the pandemic). The initiative supports the company’s transition to a traditional service model comprising busser assistance and fewer server tables. Also, it enables the restaurant to serve more guests, thereby reducing the false wait in the restaurant. Backed by solid sales gains (in the fiscal fourth quarter of 2022), the company intends to carry out a phased implementation to drive growth in the upcoming periods.
Meanwhile, the company emphasized improving its cooking techniques, including transitioning from the existing conveyor belt cooking system to a more traditional flat-top cooking method. The company stated that the process is simpler and quicker for execution, eliminating significant maintenance and repair costs associated with the cooking platform. Also, the initiative supports greater product quality and value for its guests. So far, the company has enabled the flat-top cooking method in 10 restaurants and reported positive feedback for the same. The company stated that full system deployment would begin during the fiscal second quarter of 2023.
Concerns
Image Source: Zacks Investment Research
Shares of Red Robin have declined 11.8% in the past year against the industry’s growth of 8.5%. Higher commodity and labor inflation and costs related to sales-boosting initiatives have affected the company’s performance. Although the company reopened most of its restaurants, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
During the fourth quarter of fiscal 2022, the cost of sales rose 7.6% year over year to $72.2 million, while as a percentage of restaurant revenues, the metric increased 120 basis points to 24.9%. Restaurant labor costs (a percentage of restaurant revenues) increased by 50 basis points (bps) year over year to 34.6%. The increase was primarily due to labor cost inflation. Also, it reported higher costs for equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology and third-party delivery fees. For fiscal 2023, the company anticipates commodity and labor inflation costs to be in the mid-to-high single-digit range.
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-Wholesale sector are Chuy's Holdings, Inc. , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Bloomin' Brands, Inc. (BLMN - Free Report) .
Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 33.1% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 6.1% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands carries a Zacks Rank #2 (Buy). BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 18.7% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.4% and 5.5%, respectively, from the year-ago period’s reported levels.