Red Robin Gourmet Burgers Inc.
(
RRGB
) recently announced the acquisition of an existing Red Robin
franchised unit in Clifton, New Jersey from UBA Enterprises and
included it in the company-owned operations. The transition to
company-owned model affirms management's confidence in its core
business model. The purchase consideration of the deal is around
$3.2 million.
The recent spurt in growth in the franchised entity has made it
a lucrative acquisition target. According to Red Robin management,
the acquired eatery will likely have annual sales of about $3.9
million. Hence, we view the deal as strategically positive in an
industry that depends largely on franchising.
The acquired unit is the fourth company owned Red Robin site in
New Jersey. This Seattle-based company has been catering to the New
Jersey market since 2004 and envisions further expansion prospect.
Red Robin will shortly come up with another company-owned unit in
Woodbridge, New Jersey. Post-acquisition, Red Robin has only one
franchised unit in New Jersey serving the market at Hamilton.
The company increased its company-owned unit expansion based on
improving unit-level economics. It opened 11 company-owned
restaurants in fiscal year 2010 and 13 units in 2011 and remains on
track to unveil a net of 11 units in 2012. At the end of
first-quarter 2012, there were 466 units in the Red Robin
portfolio, out of which 330 are company-owned and the rest
franchised.
Red Robin is not the only company which has followed this
business strategy. The trend to transition to a company-based model
is fast picking up, although most companies still prefer
franchisees.
Others who followed suit include
Panera Bread Co.
(
PNRA
), which acquired businesses from its New Jersey and Milwaukee
franchisees as well as bought back 16 bakery-cafes in the
Raleigh-Durham-Chapel Hill market from one of its franchisees in
the Carolinas. There is also
Buffalo Wild Wings Inc.
(
BWLD
) which took hold of 15 franchised units in Ohio and South Carolina
in early December 2011.
Red Robin currently retains a Zacks #3 Rank, which translates
into short-term Hold rating. We are also maintaining our long-term
Neutral recommendation on the stock.
BUFFALO WLD WNG (BWLD): Free Stock Analysis
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RED ROBIN GOURM (RRGB): Free Stock Analysis
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