Restaurant chains, in general, have had a tough time lately, as competition from fast-casual and fast-food rivals have eaten into the customer base that traditionally used to frequent slow-serve casual-dining establishments. Texas Roadhouse (NASDAQ: TXRH) has done a better job than most at weathering the storm, however, and a loyal customer base has helped ensure that the steakhouse chain has avoided some of the worst of the industry's conditions.
Coming into Monday's second-quarter financial report, Texas Roadhouse investors wanted to see the company continue the momentum it built up during a strong first quarter. Texas Roadhouse served up a good set of quarterly numbers, and shareholders should be pleased to see things starting to pick up for the steakhouse chain. Let's take a closer look at Texas Roadhouse and what its latest report says about its future.
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Texas Roadhouse sizzles
Texas Roadhouse's second-quarter results continued to show how the company stands out from its restaurant-industry peers. Total revenue climbed an impressive 11%, to $566.3 million, outpacing very slightly the ambitious consensus forecast among those following the stock, for 10% growth. Net income climbed 12%, to $37.6 million, and that produced earnings of $0.53 per share, matching what most investors had hoped to see from the restaurant chain.
Looking more closely at the numbers, Texas Roadhouse's streak of accelerating sales gains got longer during the quarter. Comparable-restaurant sales rose 4% at company restaurants and 3.6% at franchise locations, and the overall figure was a faster pace of growth than in the first quarter. The growth in company-owned locations was especially important because of the more direct impact that those restaurants have on Texas Roadhouse's bottom line.
Margin figures deteriorated slightly, taking some of the upward momentum away from Texas Roadhouse. Restaurant margin dropped just over a quarter percentage point, to just below the 19% mark, as wage-rate inflation more than outpaced the benefit of lower food costs. Rental costs also increased due to the restaurant chain's increasing network of locations.
Texas Roadhouse's expansion also kept moving forward. During the quarter, seven new company-owned restaurants opened their doors, including two Bubba's 33 stores. That brought the number of locations in Texas Roadhouse's space to 535, with coverage in all but one state and in six countries outside the U.S., as well.
CEO Kent Taylor put things simply, saying, "We are pleased with our results for the second quarter, highlighted by double-digit growth in both revenue and diluted earnings per share." Taylor went on to note that traffic gains were primarily responsible for growth in comps, which he sees continuing into the current quarter.
What's on tap for Texas Roadhouse?
Texas Roadhouse has already seen early evidence of continued strength. In the first four weeks of the third quarter, comps are up 4.6% and the company's CEO pointed out that continuing to keep a full slate of planned new locations ready is the best way it sees to remain focused on the need for long-term growth prospects.
However, Texas Roadhouse did make some minor changes to its guidance for the year that indicated a very slight slowdown in the pace of its expansion plans. The steakhouse chain reined in its guidance for new-store locations during 2017, taking what had been expected to be 30 new locations and, instead, setting a range of 27 to 29 restaurant openings. The number of Bubba's 33 concept restaurants was cut to four, down from six in last-quarter's guidance.
For the most part, though, Texas Roadhouse thinks it can keep its momentum going forward. The company expects positive comparable-restaurant sales growth, food cost deflation of between 1% and 2%, mid-single digit percentage labor inflation, and $170 million in capital expenditures.
Texas Roadhouse investors were quite happy with the news, and the stock jumped 7% in after-hours trading following the announcement. As long as Texas Roadhouse can sustain its positive momentum with its fundamental business performance, shareholders are likely to stay just as loyal to the stock as customers are to their local steakhouse location.
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