Red Robin Acquires Franchised Units - Analyst Blog

Red Robin International, Inc. — a wholly owned subsidiary of Colorado-based Red Robin Gourmet Burgers Inc. RRGB — announced the acquisition of four franchised units in Upstate and Mid-Hudson region of New York.

Previously owned by Connecticut-based Swan Concepts Inc., the franchised units are located in Latham, Halfmoon, Fayetteville and Poughkeepsie. Red Robin Gourmet Burgers currently owns and operates 12 locations in New York, with another restaurant coming up in West Babylon, NY.

Post Hurricane Sandy and the economic downturn, Hudson County is poised for strong economic growth in 2014. Additionally, the waterfront towns in the Upstate and Mid-Hudson region are popular tourist attractions. In our view, the acquisition will be a strategic success, as the profitable location will drive Red Robin's traffic.

The trend of transitioning to a company-based model is fast picking up, although most companies still prefer franchisees. A host of restaurateurs like Panera Bread Co. PNRA and Buffalo Wild Wings Inc. BWLD have also acquired franchised units in the recent past.

The strong growth witnessed in these franchised units makes them a lucrative acquisition target. Hence, we view the deal as strategically positive in an industry that depends largely on franchising.

At the end of the last quarter, Red Robin had 495 restaurants. Of this, 6 were Red Robin's Burger Works restaurants — the company's smaller prototype restaurant — 134 units were franchised and the rest were company owned. The company has plans for aggressive expansion and remains on track to unveil 20 units in 2014, along with 5 Red Robin's Burger Works.

Red Robin Gourmet Burgers currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is The Wendy's Company WEN, which has a Zacks Rank #1 (Strong Buy).