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Texas Roadhouse Misses by a Penny

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Louisville, Kentucky-based Texas Roadhouse Inc. (TXRH - Free Report) posted first quarter 2012 adjusted earnings of 31 cents per share, which missed the Zacks Consensus Estimate by a penny, but grew 15.3% year over year. Including a charge of 4 cents related to a legal settlement, the company reported earnings of 27 cents per share. The lower-than-expected results were attributable to charge for a legal settlement.

Total revenue climbed 14.0% from the prior-year quarter to $324.9 million. The upside was attributable to higher comparable sales growth. Company-owned restaurant sales increased 14.5% to $322.0 million, whereas franchise royalties and fees upped 15.9% to $2.9 million. Comparable restaurant sales grew 6.0% at company-owned restaurants and 6.9% at franchised restaurants.

During the quarter, restaurant operating margin slid 13 basis points (bps) to 19.1% on an 80-bp rise in cost of sales, partially offset by a decrease of 42-bp in labor cost, 19 bps in other operating costs and 7 bps in rent.

Store Update

During the quarter, Texas Roadhouse opened 8 company-owned restaurants but did not open any franchise restaurant. The company did not close any unit. It remains on track to ramp up its development pipeline in 2012 and 2013.

Management’s 2012 goal includes 25 unit openings, reflecting a 25% growth from the unit base in 2011. The company is also aiming to open at least 25 new units in 2013 as well. At the end of the quarter, Texas Roadhouse operated 302 company-owned and 72 franchised restaurants.

Financial Position

Texas Roadhouse ended the quarter with cash and cash equivalents of $77.3 million and total long-term debt of $51.5 million.


Including legal settlement charges of 4 cents, the company expects fiscal 2012 earnings in the range of 91 cents to 93 cents. The company expects food cost inflation in between 7.0% and 7.5% in fiscal 2012, slightly below the previous estimate of 8%.

Texas Roadhouse maintained its comparable-store sales growth outlook of 4–5%. Capital expenditure is also expected to be in the range $80-$85 million for fiscal 2012.

Our Take

Texas Roadhouse’s top-line momentum is in place, as is evident from the continuous rise in comparable sales. Comparable restaurant sales for the first four weeks of the second quarter of 2012 already increased about 4.8% compared with the prior-year period. This optimistic trend is encouraging for the upcoming quarter.  

Financially, the company is in a good position and continues to enhance shareholder value with share buyback and dividend. The company, which offers specially seasoned steaks, also continues to focus on unit growth and international expansion. In 2012, the company plans to open a few restaurants in the Middle East and is also eyeing expansion in both Canada and Mexico.

However, we remain cautious on the stock based on rising input cost pressure, lower consumer spending and intense competition among restaurant companies with respect to price, service, location and concept in order to drive traffic.

Texas Roadhouse, which competes with BJ’s Restaurants Inc. (BJRI - Free Report) , currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

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