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Texas Roadhouse Beats by a Penny

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Texas Roadhouse Inc. (TXRH - Free Report) recently posted fourth quarter 2011 earnings of 17 cents, which exceeded the Zacks Consensus Estimate of 16 cents and grew 28% year over year. The higher-than-expected results were attributable to lower-than-anticipated workers compensation expense and income tax rate. In full-fiscal 2011, earnings per share grew 11% year over year to 88 cents.

Total revenue climbed 13.0% from the prior-year quarter to $276.6 million. The upside was attributable to higher comparable sales growth. Company-owned restaurant sales increased 13.1% to $274.2 million, whereas franchise royalties and fees upped 7.0% to $3.8 million. Comparable-restaurant sales grew 5.6% at company-owned restaurants and 5.7% at franchised restaurants.

During the quarter, restaurant operating margin slid 25 basis points (bps) to 16.8% on a 90-bp rise in cost of sales and an 18-bp increment in labor cost, partially offset by decreases of 76 bps in other operating costs and 7 bps in rent.

In full-fiscal 2011, revenue grew 10% year over year to $1,109.2 million.

Store Update

During the quarter, Texas Roadhouse opened 10 company-owned restaurants and no franchise restaurant. The company did not close any unit. It remains on track to ramp up its development pipeline in 2012.

Management’s 2012 goal includes 25 unit openings, reflecting a 25% growth from the unit base in 2011. At the end of the quarter, there were 294 company-owned and 72 franchised restaurants.

Financial Position

Texas Roadhouse ended the quarter with cash and cash equivalents of $73.7 million and total long-term debt of $61.6 million.

The company authorized a new stock repurchase program under which it can buy back up to $100 million of common stock. The company called off the previous stock repurchase program, which had no expiration date.

Moreover, the company’s board authorized an increase of 12.5% in quarterly dividend payment, bringing it to 9 cents per share versus 8 cents paid last year.


Management projected earnings growth of 5% in 2012. The company expects food cost inflation of 8% in fiscal 2012. Texas Roadhouse provided its comparable-store sales growth outlook of 4–5%. Capital expenditure is expected to be in the range $80-$85 million for fiscal 2012.

Our Take

Louisville, Kentucky-based Texas Roadhouse’s top-line momentum is in place, as is evident from the continuous rise in comparable sales. Its comparable restaurant sales for the first seven weeks of fiscal 2012 already increased about 6.7% compared to the prior-year period. This optimistic trend calls for a sound first quarter.   

The company, which offers specially seasoned steaks, also took a modest price increase of around 2.2% in late January. The increment was followed by another increase in the third quarter of fiscal 2011. The positive part is that guest count remains unscathed despite the menu price hike. Financially, the company is in a good position. Share buyback and dividend hike are other positives.

Coming to the downside, like many of its restaurant peers, the company is also reeling under rising input cost pressure. For 2012, the food cost environment is expected to be more expensive compared to 2011, primarily due to higher beef costs. For 2012, the company will have to grapple with higher labor costs due to an increase in minimum and tip wages in 6 states and a rise in the income tax rate given the scheduled expiration of certain federal tax credits at the end of 2011.

Texas Roadhouse which competes with BJ’s Restaurants Inc. (BJRI - Free Report) currently retains a Zacks # Rank, which translates into a short-term ‘Strong Buy’ rating. We are also maintaining our long-term “Outperform” recommendation on the stock.

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