On Jun 11, 2013, we reverted our recommendation on the casual
dining restaurant chain,
Red Robin Gourmet Burgers Inc.
), back to Neutral from Outperform. The company is seeing a
sluggish economic environment that is affecting demand on the one
hand and escalating costs on the other. Red Robin carries a Zacks
Rank #3 (Hold).
Why Back to Neutral?
Red Robin has been consistently posting positive same-store
sales growth over the past 11 quarters. Red Robin's management
has undertaken several initiatives such as menu innovation,
improving kitchen efficacy, continuous expansion and a better
service platform to significantly drive its revenues by 2015.
Red Robin continues to make efforts to reduce its costs to
augment its profitability. Red Robin is focused on trimming the
administrative and restaurant level costs and supply chain
expenses to boost its margin, going forward.
In spite of a promising growth story, Red Robin will be
exposed to higher beef and labor costs in the coming quarters.
Although Red Robin's earnings of 66 cents per share in the first
quarter beat the Zacks Consensus Estimate by a penny, they
declined 7% year over year.
Quarterly revenues also missed the Zacks Consensus Estimate.
We believe that a decline in traffic hurt both earnings and
revenues in the quarter.
The company's aggressive sales building initiatives are
scheduled for the later part of the year and will thus hurt
margins in the second half. The benefits of these investments
will however, not be realized before 2014. Lack of international
presence and stiff competition resulting in higher discounting
rates remain other headwinds.
Restaurants Stocks That Warrant a Look
Some other restaurateurs worth considering are
AFC Enterprises Inc.
The Wendy's Co.
Burger King Worldwide Inc.
), all carrying a Zacks Rank #2 (Buy).
AFC ENTERPRISES (AFCE): Free Stock Analysis
BURGER KING WWD (BKW): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
WENDYS CO/THE (WEN): Free Stock Analysis
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