Red Robin Gourmet Burgers, Inc. (RRGB, Financial) offers recovery potential, in my view, after its 60% stock price decline in the past year.
The casual dining restaurant chain is investing in new technology, making changes to its menu and rolling out its delivery service.
New technology
The company is investing in new technology to improve its competitive position versus sector peers. For example, it introduced new card payment machines in its restaurants in fiscal 2019 that reduce the amount of time it takes for its customers to pay for their food. The business reported in its fourth quarter results that its new payment machines have received positive feedback from customers.
In addition, Red Robin is using an increasing amount of data to communicate more effectively with members of its loyalty program. It now uses data on the visit frequency and types of products ordered by its customers to provide more accurate recommendations to members of its loyalty program. This could increase its average order value per customer.
Delivery
The business rolled out its national delivery service in January 2020. Customers can order directly from Red Robin, after which food deliveries are carried out by a third party. This enables Red Robin to retain customer data for marketing purposes and allows its customers to fully benefit from its loyalty program. It also means that the company’s delivery service requires it to make less upfront investment and could improve its profits in upcoming quarters.
The company is set to launch a new website in 2020. It expects this will make it easier for customers to order its products online for home delivery, which may lead to higher demand for its delivery services.
Menu changes
Red Robin reduced the number and range of products that it sells in fiscal 2019. This has led to a reduction in the amount of time it takes for its staff to serve food to its customers.
The business expects to introduce new pizza options to its menu over the next three years. This could broaden its appeal to a wider range of consumers. It may also boost its financial performance, since the pizza has proved to be popular among consumers in its test markets during fiscal 2019.
Potential threats
The spread of the new coronavirus could negatively impact Red Robin’s financial performance in fiscal 2020. The virus may encourage consumers to avoid public places, which could lead to lower numbers of consumers frequenting restaurants in upcoming quarters.
In response, the company will increase its investment in social media in 2020 to appeal to a broader range of consumers. It will also shift its marketing message towards the quality of its products and the customer service levels that it offers, rather than its previous focus on price.
In addition, the business is currently developing a new restaurant layout that may improve the dining experience of its customers. This could encourage its customers to visit its restaurants more frequently.
Future prospects
Market analysts forecast that the business will report earnings per share of $0.44 in fiscal 2020. This follows the company’s loss per share of $0.61 in 2019. Its forward price-earnings ratio of 21.4 suggests it is not a cheap stock, but Red Robin’s growth strategy may catalyze its stock price in the long run.
Disclosure: The author has no position in any stocks mentioned.
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