Texas Roadhouse Beats, Outlook Up - Analyst Blog
November 07 2011 - 8:30AM
Zacks
Texas Roadhouse
Inc (TXRH) recently posted third quarter 2011 earnings of
22 cents, which exceeded the Zacks Consensus Estimate of 19 cents
and grew 15% year over year. The higher-than-expected results were
attributable to lower than anticipated workers compensation
expense, property tax expense and income tax rate.
Total revenue climbed 10.0% from
the prior-year quarter to $269.3 million, in line with the Zacks
Consensus Estimate. The upside was attributable to higher
comparable sales growth. Company-owned restaurant sales increased
9.6% to $266.9 million, whereas franchise royalties and fees upped
9.1% to $2.4 million. Comparable-restaurant sales grew 4.0% at
company-owned restaurants and 3.7% at franchised restaurants.
During the quarter, restaurant
operating margin upped 10 basis points (bps) to 18.0% on a 100-bp
fall in other operating costs and flat rent, partially offset by an
80-bp rise in cost of sales and a 10-bp rise in labor cost.
Store Update
During the quarter, Texas Roadhouse
opened 10 company-owned restaurants and one franchise restaurant.
The company plans to open 20 more company-owned outlets in the
remainder of 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 284 company-owned
and 72 franchised restaurants.
Financial
Position
Texas Roadhouse ended the quarter
with cash and cash equivalents of $55.7 million and total long-term
debt of $51.7 million. The company repurchased 1,503,400 shares of
its common stock for a total price of $21.2 million.
Outlook
Management expects earnings growth
of 7% to 8% in 2011 as compared with its previous expectation of
5%. The company expects food cost inflation of 4% in fiscal 2011.
Texas Roadhouse maintained its comparable-store sales growth
outlook of 4.0–4.5%. Capital expenditure is expected to be $70
million for fiscal 2011. For 2012, the food cost environment is
expected to be more expensive with inflation increasing 7% to
9%.
Our Take
Louisville, Kentucky-based Texas
Roadhouse’s top-line momentum is in place, as evident from the
continuous rise in comparable sales. The company, which offers
specially seasoned steaks, also took a modest price increase in the
third quarter. It has also increased its earnings outlook for 2011
based on the lower cost structure in the quarter.
The quarter’s downside was higher
pre-opening expenses for future unit development. Texas Roadhouse
expects this burden to exist throughout the year. Like many of its
restaurant peers, the company is also reeling under rising input
cost pressure.
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.
One of Texas Roadhouse's primary
competitors, BJ’s Restaurants Inc. (BJRI) reported
third quarter 2011 adjusted earnings of 24 cents per share, in line
with 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.
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TEXAS ROADHOUSE (TXRH): Free Stock Analysis Report
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