Colorado-based Red Robin Gourmet Burgers Inc. (RRGB), which currently operates more than 450 restaurants across the United States and Canada, is set to open a new restaurant in Vacaville, California on June 20. This follows the Red Robin restaurant opening in Woodland, California in April end. So far, Red Robin has more than more than 70 locations in California.

We believe the core Californian market, which was badly hit during the housing downturn, has begun to turnaround. The gradual betterment in this market, which is one of the major operational locations for the company, should be a key driver of growth.

Red Robin Gourmet Burgers focuses on expediting food orders in a colorful and family-friendly atmosphere that appeals to women and children. As a result, 30% of its customers are under the age of 18 compared with 16% for other casual-dining restaurants.

Accordingly, like all its other restaurant openings,  Red Robin will host a fundraiser with partner National Center for Missing & Exploited Children (NCMEC) during the opening week of Vacaville restaurant (June 20 to May 26) as a part of the social commitments. Red Robin will donate 50 cents from every burger sold during the week to NCMEC to support its child safety initiatives.

Red Robin plans to open 10 new company-owned restaurants in 2011 followed by 5 in 2012. It is now trying to expand through franchises, as this strategy reduces capital requirement and ensures a stable growth profile. In 2011, the company expects to open 3 to 4 franchised restaurants.

However, in order to explore new development opportunities Red Robin has slowed down its company-owned unit expansion. It opened 11 company-owned restaurants in fiscal 2010 and 15 in 2009. Last week, the company announced that it targets a smaller 2,000-4,000 square foot model with one such unit to be opened this year in Denver.

The company will supplement the small prototype witha guest loyalty program called Red Royalty to drive revenue. The company will further use a Limited Time Offer strategy supported with television advertising to drive traffic and create brand recognition.

However, Red Robin will face stiff competition in California with BJ’s Restaurants Inc. (BJRI) having a strong presence over there. One third of its future openings will be in California, another third will be built in western states outside of California and the other third in the Florida market or a few new markets.

Red Robin currently has a Zacks #1 Rank, which implies a Strong Buy rating over the short term. We also reiterate our long-term Outperform recommendation on the stock, given the company’s efforts to turn around its business in 2011.

 
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