Texas Roadhouse Falls Short - Analyst Blog
August 04 2011 - 7:30AM
Zacks
Texas Roadhouse
Inc. (TXRH) recently posted second quarter 2011 earnings
of 22 cents, which missed the Zacks Consensus Estimate of 24 cents
and declined 7% year over year. The results were lower than
expected due to higher costs that contracted margin. A
significantly high amount of pre-opening expenses also adversely
impacted its earnings. Pre-opening expenses also increased a
drastic 68% year over year.
Total revenue climbed 10.0% from
the prior-year quarter to $279.6 million. The upside in revenue was
attributable to higher comparable sales growth. Company-owned
restaurant sales jumped 9.6% to $277.1 million, whereas franchise
royalties and fees upped 6.7% to $2.5 million. Texas Roadhouse
excelled in the top line, aided by rising guest count and new
restaurant performance. Comparable-restaurant sales grew 4.4% at
company-owned restaurants and 3.6% at franchised restaurants.
However, total revenue trailed the Zacks Consensus Estimate of
$280.0 million.
During the quarter, restaurant
operating margin declined 69 basis points (bps) to 18.1%, due to a
61-bp rise in cost of sales and a 46-bp rise in labor cost,
partially compensated by a 34-bp fall in other operating costs and
a 3-bp dip in rent.
Store Update
During the quarter, Texas Roadhouse
opened 3 company-owned restaurants, and plans to open 20 more
outlets in fiscal 2011 compared with 2010. The company 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 projected base for this year. At the end of the quarter, there
were 279 company-owned and 71 franchised restaurants.
Financial
Position
Texas Roadhouse ended the quarter
with cash and cash equivalents of $79.4 million, total long-term
debt of $51.8 million and shareholders’ equity of $502.6
million.
Outlook
Management expects earnings growth
of 5% in 2011 as compared with its previous expectation of 5% to
10%. Prior to this, management had anticipated earnings growth of
10%. The consecutive cuts in outlook can be credited to the
stringent cost environment. The company expects food cost inflation
of 4% in fiscal 2011.
Texas Roadhouse raised its
comparable-store sales growth outlook to 4.0–4.5% from its earlier
guidance of 3.5–5.0% in fiscal 2011.
Management anticipates capital
expenditure in the range of $65–$70 million for fiscal 2011.
Our Take
Louisville, Kentucky-based Texas
Roadhouse is presently reeling under rising input cost pressure
like many of its restaurant peers. Although the company, which
offers specially seasoned steaks, took some pricing action in the
first quarter, it was not sufficient to weather the full
inflationary impact and resulted in margin erosion. However,
management recently took a modest price increase in the third
quarter.
Another downside in the quarter was
higher pre-opening expenses for future unit development of the
company. Texas Roadhouse expects this burden to exist throughout
the year.
However, while the company is
consistently narrowing its earnings outlook, the top-line momentum
is in place, as evident from the rise in comparable sales guidance.
This indicates the slow but steady revival of consumer confidence.
Hence, although we remain negative on the company’s short-term
outlook, we believe the stock will perform better once the new
units begin to pay off. Additionally, management seeks to enhance
shareholder value through share repurchases and dividend
payment.
One of Texas Roadhouse's primary
competitors, BJ’s Restaurants Inc. (BJRI) reported
second quarter 2011 adjusted earnings of 29 cents per share, which
surpassed the our estimate.
Texas Roadhouse 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.
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
TEXAS ROADHOUSE (TXRH): Free Stock Analysis Report
Zacks Investment Research
BJs Restaurants (NASDAQ:BJRI)
Historical Stock Chart
From Jun 2024 to Jul 2024
BJs Restaurants (NASDAQ:BJRI)
Historical Stock Chart
From Jul 2023 to Jul 2024