Texas Roadhouse (NASDAQ: TXRH) has done it again. The casual restaurant chain is doing a circle dance around what is an otherwise struggling casual-dining industry. While others may be lamenting having a stake in casual-dining stocks, Roadhouse shareholders didn't get the memo.
Dancing to its own tune
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The restaurant industry has been stuck in a steady decline for nearly two years. A combination of too many new restaurants and diners opting to eat at home are to blame. The negative trend has been only partially offset by menu price increases.
This so-called "restaurant recession" has seemingly skipped over Texas Roadhouse. The company certainly has had its fair share of hiccups in the past two years, but same-restaurant sales have never dipped into the negative.
Quarterly revenue increased 11% year over year to $566 million, helped not only by better comparable sales but also from an additional 33 locations that weren't open last year. Earnings per share also increased 11% to $0.53, hurt by rising wages but offset by falling food costs.
Letting the good times roll
According to restaurant industry research company TDn2K, upscale dining and restaurants offering an "experience" have largely been exempt from the pain. Texas Roadhouse fits that bill, giving guests generous portions at an affordable price in a fun-loving "Texas-themed" atmosphere -- line dancing included.
Also in the stable is the new Bubba's 33 sports bar chain. There are currently only 18 of them, but a large part of the planned 30-per-year new store openings will be Bubba's locations. Of the 15 total new restaurants opened since January, only two of them are the new sports-bar concept. That's because management says it is still in learning mode on the new chain.
Management reported that sales at the new test locations are coming in similar to new Roadhouse locations. However, the profit margin is higher (bar food is cheaper), but the up-front investment is higher. The team is still working on tweaking the model to get it right, and that it could take a little more time to do so.
On the technology side, about 200 Roadhouse locations are utilizing the new app for call-ahead reservations, ordering food for pick-up, and paying the bill. It's expected it will be available for all locations by the beginning of 2018.
Food delivery has been picking up steam in urban markets, which really isn't Texas Roadhouse's sandbox, as most of its locations are in suburbs. That makes delivery a less viable proposition. No matter, as the company has expressed little interest in expanding in that direction in the past. With comparable sales continuing to rise, why would Roadhouse be interested in diverting its busy kitchen's time to an unproven model? When asked about possible future plans in delivery, CEO Kent Taylor said, "We encourage all of our competitors to do as much delivery as they can so they can deliver lukewarm food to their people."
All things considered...
It was another fantastic quarter for Texas Roadhouse, as the company continues to expand both the number of locations and sales at existing restaurants. A month into the third quarter, and management said comparable sales are up another 4.6%.
With that kind of momentum, this business looks to have plenty of runways ahead of it.
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