Hedgeye Restaurants analyst Howard Penney is hosting an institutional Black Book presentation to discuss the addition of Red Robin Gourmet Burgers (RRGB) to his team's Best Ideas List as a LONG. The call will be held Wednesday March 8th at 1pm ET.
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KEY DISCUSSION POINTS
REVAMPED MANAGEMENT TEAM
Where the head goes, the body follows, and this analogy can be used when describing the RRGB management team. The recent promotion of Red Robin veteran Denny Marie Post and the recent hire of industry past master Guy J. Constant signals a commitment to a new game plan, one that includes slowing unit growth in order to focus on 4-wall profitability, maximizing technological capabilities to foster an improved guest experience, and streamlining SG&A expenses. Industry veterans, Ms. Post and Mr. Constant bring more than 30 and 20 years of leadership experience, respectively, and are a duo to be reckoned with in the restaurants space, as RRGB works to realign the business for long-term success.
TECHNOLOGY & DELIVERY TO FUEL TOPLINE GROWTH
Technology is not necessarily a new endeavor for Red Robin, but the company's approach has undergone a facelift. Red2 was the Company's initial technology initiative, introduced in January 2016, and it spoke of doubling EBITDA by 2020. The initiative included Revenue Growth, Expense management, and efficient capital Deployment. However, by 3Q16 the Company pivoted from their initial Red2 initiative in favor of an abbreviated version (we are calling it Skinny RED) that would move the brand forward. Additionally, as stated on their 4Q16 earnings call, the Company's biggest opportunity lies with off-premise operations. At the end of FY15, RRGB had fallen far behind its competitors in the delivery, to-go, and catering space, with carry-out sitting below 4%, however, the company is now full steam ahead on partnering with DoorDash and Amazon Prime Now to roll-out delivery. With delivery only available at ~84 units, there is still a tremendous amount of white space for RRGB to move forward aggressively.
SHEDDING ASSETS, SLOWING UNIT GROWTH WILL HELP SLOWING CAPEX TREND
Given the Company's aggressive brand transformation remodels and technology initiatives, CAPEX had hamstrung the business, with capital expenditures growing by ~55% from 2014 to 2015 and reaching ~$189M at the end of FY16. With only a small number of remodels to be completed in 2017, unit growth slowed significantly (8 net new Company restaurants in 2017), and the decision to close 9 Burger Works locations that were underperforming relative to company expectations, in 2018 we expect the company to eliminate nearly all growth CAPEX, allowing for significant FCF generation going forward.
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