(RRGB) Red Robin Gourmet Burgers 2011 Growth on Track

Colorado-based Red Robin Gourmet Burgers Inc. (RRGB), which currently operates more than 450 restaurants across the United States and Canada, is set to open a new restaurant in Baltimore, Maryland on October 10, 2011.

The new restaurant will come up at 8200 Perry Hall Blvd, in the White Marsh Mall. The White Marsh Mall is one of the largest malls in the Baltimore area, with 5 anchor stores and 142 specialty shops. Given the strategic location of this new restaurant, we believe it will drive significant growth in the coming days. Apart from its popular offering of gourmet burgers, entrees, salads and beverages, the menu will offer an interesting variety for children.

Apart from Red Robin, other major restaurant operators including Buffalo Wild Wings, Inc (BWLD), The Wendy’s Company (WEN) and Ruby Tuesday, Inc (RT) have units in the White Marsh Mall.

As a part of its social commitments, Red Robin has partnered with the National Center for Missing & Exploited Children (NCMEC) to host a fundraiser during its opening week (Oct 10 to 16). Red Robin will donate 50 cents from each burger sold in the week to NCMEC to support its child safety initiatives.

The company, in order to drive revenue at the new location, intends to implement a guest loyalty program called Red Royalty, focused on retaining guests and increasing customer frequency by providing dining benefits. The company will further undertake a Limited Time Offer (LTO) strategy supported with television advertising to drive traffic and create brand recognition.

The burger chain is increasing its company-owned unit expansion based on improving unit-level economics. It opened 11 company-owned restaurants in fiscal 2010 and plans to open 12 full-size units in 2011. For 2012, the casual dining restaurant operator anticipates to launch 12 to 15 restaurants (up from previous estimate of 5), which would include both full-sized restaurant footprint and smaller prototype units.

Red Robin plans to open its first smaller prototype restaurants in the fourth quarter of 2011. The smaller prototype restaurants will likely span 2,000 to 4,000 square feet. The new format will provide additional flexibility including a modified menu and service format. Management believes that small-size restaurants will accelerate growth into non-traditional locations and also improve return on invested capital.

Red Robin is also making efforts to expand through franchises, as it reduces capital requirement of the company and ensures a stable growth profile. Currently, the restaurant base is 70% company-operated and 30% franchised. To encourage franchising, the company will also charge less franchisee fee from existing franchisees if they build new restaurants. In 2011, the franchisee expects to open 3 to 4 new restaurants.

Red Robin currently has a Zacks #3 Rank, which implies a Hold rating over the short term. We also reiterate our long-term Neutral recommendation on the stock, given the company’s efforts to turn around its business in 2011 by focusing on revenue growth, expense control by cost-cutting initiatives and capital deployment.

However, commodity cost pressure and an uncertain economic environment resulting in lower traffic and stiff competition from peers such as BJ’s Restaurants Inc. (BJRI) and The Cheesecake Factory Inc. (CAKE) remain headwinds for the company.

BJ’S RESTAURANT (BJRI): Free Stock Analysis Report

BUFFALO WLD WNG (BWLD): Free Stock Analysis Report

CHEESECAKE FACT (CAKE): Free Stock Analysis Report

RED ROBIN GOURM (RRGB): Free Stock Analysis Report

RUBY TUESDAY (RT): Free Stock Analysis Report

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