Despite the coronavirus pandemic, shares of Red Robin Gourmet (NASDAQ:RRGB) Burgers, Inc. RRGB have soared 118.2% in the past three months, compared with the industry’s growth of 8.1%. The upside was driven by robust off-premise sales, reopening of dining rooms and effective marketing strategy. We believe there is still momentum left in this Zacks Rank #2 (Buy) stock. This is further substantiated by an expected long-term earnings growth rate of 10%. Let’s delve deeper.
Catalysts Driving Growth
The company’s off-premise sales have increased sharply compared with the pre-COVID-19 levels. During the second and third-quarter of 2020, off-premise sales increased 208.7% and 127.2%, respectively. The off-premise sales accounted for 63.8% and 40.7% of total food and beverage sales in second and third quarter 2020, respectively. Notably, the upside can primarily be attributed to its focus on all off-premise sales channels, carry-out, third-party and Red Robin delivery (or last mile). Further, reductions in menu and refined operating processes resulted in the accuracy of timely pickup and delivery.
Red Robin’s initiative of shifting call-in ordering to a centralized call center is also yielding positive results. In fact, it is gradually expanding its reach to ensure quality experience. On the delivery front, the company partnered with Amazon (NASDAQ:AMZN), DoorDash and GrubHub (NYSE:GRUB).
The company continues to focus on three areas — revenue growth, expense management and efficient capital deployment to drive profitability. On the expense front, the company is concentrating on a new supply chain management software and replacing its older manual system. This might result in improved control of waste and cost of goods, significantly reducing inventory levels at its restaurants.
After coronavirus-induced shutdowns, the company has reopened its dining rooms. It has installed partitions at all of its dining rooms as a precautionary measure. Following the reopening of dining rooms, the company has also accelerated the implementation of its new service model Total Guest Experience (TGX).
Other Key Picks
Some other top-ranked stocks, which warrant a look in the same space, include Texas Roadhouse (NASDAQ:TXRH), Inc. TXRH, Cracker Barrel (NASDAQ:CBRL) Old Country Store, Inc. CBRL and Fiesta (NASDAQ:FRGI) Restaurant Group, Inc. FRGI. All these stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Texas Roadhouse has a trailing four-quarter earnings surprise of 27%, on average.
Shares of Cracker Barrel have gained 19.5% in the past month.
Fiesta Restaurant’s 2021 earnings are expected to soar 418.8%.
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