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Restaurateur Texas Roadhouse Inc.’s (TXRH - Snapshot Report) first-quarter 2013 adjusted earnings of 37 cents per share beat the Zacks Consensus Estimate of 35 cents by 5.7% and the prior-year earnings per share of 31 cents by 19.8%. Increased revenues along with efficient cost containment resulted in the increase in earnings.

Total revenue climbed 11.0% from the prior-year quarter to $359.7 million, benefiting from positive comparable sales growth. Reported revenues inched past the Zacks Consensus Estimate of $358.0 million. Comparable restaurant sales grew 3.5% at company-owned restaurants and 4.5% at franchised restaurants.

During the quarter, restaurant operating margin dropped 17 basis points (bps) to 18.9% due to higher commodity costs. Food cost inflation was at 7.2% in the quarter mainly driven by higher beef costs.

Store Update

During the quarter, Texas Roadhouse opened 3 company-owned and 2 franchised restaurants. At the end of 2012, the company operated 397 restaurants, of which 321 were company-owned and 74 were franchised.

Texas Roadhouse remains on track to ramp up its development pipeline in 2013. In 2013, the company aims to unveil 28 new units. The development schedule is expected to be backend loaded with two-third of openings taking place in the second half of the year.

Outlook

For 2013, the company anticipates positive comparable sales growth and food cost inflation in the range of 6.0% to 7.0%. Comps at company restaurants for the first four weeks of its second quarter of 2013 increased nearly 5.7%, indicating a strong start to the next quarter.

Our Take

Despite a tough consumer environment, Texas Roadhouse’ ability to continuously register solid comparable sales is commendable. Comparable restaurant sales for the initial days of second-quarter 2013 indicate another quarter of encouraging comps growth.

Also, when the majority of the industry-players are shifting focus toward franchised-based operation, the latest franchisee acquisition speaks of Texas Roadhouse’s confidence in its own operations.

However, food cost pressure, wary consumer spending and intense competition among restaurant companies remain headwinds. Beef costs, to which the company is most exposed to, are expected to remain high in 2013.

Texas Roadhouse currently retains a Zacks Rank #2 (Buy). One of its peers, McDonald’s Corporation (MCD - Analyst Report) missed on both lines while two other restaurateurs Yum! Brands Inc. (YUM - Analyst Report) and Brinker International Inc. (EAT - Analyst Report) beat earnings and missed revenues in the quarter.

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