On Jun 25, 2014, Zacks Investment Research upgraded Red Robin Gourmet Burgers Inc. (RRGB) to a Zacks Rank #1 (Strong Buy) driven by strong first quarter 2014 results reported last month.
Why the Upgrade?
Red Robin Gourmet posted earnings of 82 cents per share, which comfortably beat the Zacks Consensus Estimate of 73 cents by 12.3%. The reported figure was also 24.2% higher than the year-ago quarter’s earnings of 66 cents. Earnings in the quarter benefited from higher revenues.
Despite the inclement weather in the earlier part of the quarter, revenues grew 11.1% year over year to $340.5 million, driven by increased restaurant revenues as well as higher franchise royalties, fees and other revenues. Also, quarterly revenues were above the Zacks Consensus Estimate of $334 million.
Also during the quarter, company-owned restaurants’ comps grew 5.4%, higher than fourth-quarter comps growth of 3.7%, due to a 0.5% and 4.9% rise in guest count and average guest check, respectively. Meanwhile, restaurant-level operating profit margin expanded 90 basis points to 22.4%, buoyed by higher average check and effective labor management.
Despite a sluggish economic environment, the company has been posting positive comparable sales growth over the past three years, which validates its strong fundamentals.
Moreover, Red Robin’s unit expansion remains unruffled amid an uncertain economy. Also, the company is exploring new development opportunities in untapped markets of Florida, New York, New Jersey, Chicago and Texas to further enhance its domestic presence. By focusing more on its smaller prototype restaurants – Red Robin’s Burger Works, the company will be able to accelerate its growth in non-traditional locations and also improve return on investment. The company is also concentrating on its remodeling initiative that will invigorate its potential as a brand and help augment client experience, going forward.
Red Robin’s strong earnings growth and margin expansion are quite impressive. Owing to an improvement in mix and higher sales from re-modeling, the company expects comps to increase in low single digit range in 2014.
Other Stocks to Consider
Other players in the restaurant industry, which look attractive at current levels, include Buffalo Wild Wings Inc. (BWLD), BJ's Restaurants, Inc. (BJRI) and Carrols Restaurant Group, Inc. (TAST). While Buffalo Wild Wings sports a Zacks Rank #1 (Strong Buy), BJ's Restaurants and Carrols Restaurant Group carry a Zacks Rank #2 (Buy).
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