Red Robin Gourmet Burgers Inc.RRGB

Morningstar Rating

Stock Research and Analysis

by Jeremy Cohen

Red Robin Gourmet Burgers is suffering a temporary growth setback because of the ongoing recession, but this issue will likely dissipate once a swift pace of new openings resumes in a healthier economic environment.

Taking after its name, Red Robin Read more

Bulls Say

Red Robin boasts a strong brand. The grill and bar chain tied for the highest overall score in Zagat's 2007 Full-Service Chains Survey, covering 21 of the country's largest brands.

With just more than 430 restaurants, Red Robin has ample opportunities for expansion. By comparison, Applebee's and Chili's have around 2,000 and 1,300 stores, respectively.

The firm is able to fund development through cash flow from operations. In 2008, Red Robin generated $91 million of cash flow from operations and $8 million of free cash flow. We expect free cash-flow generation in 2009 to be strong.

Red Robin was voted a top 10 family restaurant by Parents Magazine in 2008.

Red Robin's eClub is a good marketing vehicle to promote customer retention. The club has grown more than 40% annually in recent years and consisted of more than 1.7 million members at the end of 2008. Read more

Bears Say

Casual diners are susceptible to declines in consumer spending. A weakened economy is forcing customers to curb discretionary spending and instead allocate their money elsewhere.

Nearly 15% of the company's units are located in California, and more than half of Red Robin's restaurants are in the western U.S., a region hit hard by the current economic downturn.

The federal minimum wage rose nearly 10% in July 2009. This will likely hamper profitability for the firm.

A change in prevailing health or dietary preferences and perceptions could cause some consumers to avoid Red Robin's restaurants.

The company does not intend to increase menu prices in 2009. If commodity prices rise, the company will not be able to pass along the increased expenses unless it retracts this strategy. Read more

Strategy

Management is scaling back capital expenditures in 2009, with restaurant growth of only 13-14 company-owned units and seven to eight franchised units, down from 41 total openings in 2008. In 2010, the Read more

Management

Red Robin is led by its CEO and chairman Dennis Mullen. He has served in these roles since 2005 and has been a director since 2002. We prefer that one of these roles be delegated elsewhere to limit influence. Mullen brings with him more than 30 years' Read more

Profile

Red Robin Gourmet Burgers develops and operates casual dining restaurants. As of July 2009, the Red Robin chain consisted of 435 restaurants (304 company-owned and 131 franchised) Read more

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