RRGB Red Robin Gourmet Burgers Inc

Texas Roadhouse Inc.’s (TXRH) fourth-quarter 2012 earnings of 19 cents per share surpassed the Zacks Consensus Estimate as well as prior-year earnings by 11.76%. Increased revenues along with efficient cost containment resulted in the increase in earnings.

Total revenues climbed 12.0% from the prior-year quarter to $309.5 million, benefiting from comparable sales growth. Reported revenues inched past the Zacks Consensus Estimate of $309.0 million. Comparable restaurant sales grew 4.4% at company-owned restaurants and 4.5% at franchised restaurants.

During the quarter, restaurant operating margin expanded 74 basis points (bps) to 17.6% attributable to lower labor cost and other operating costs. Food cost inflation came in at 6% for the quarter mainly driven by higher beef costs.

Full-Year Update

In 2012, adjusted earnings per share were $1.00, up 13% year over year. Earnings growth was facilitated by 14% increase in total revenues to $1.26 billion in 2012. A 4.7% increase in company-owned comps and 5.3% expansion at franchised comps drove the yearly revenues.

Store Update

During the quarter, Texas Roadhouse opened 7 company-owned and 2 franchised restaurants. The company also closed one company-owned Aspen Creek unit. At the end of 2012, the company operated 392 restaurants, of which 318 were company-owned and 72 were franchised.

In Dec 2012, Texas Roadhouse acquired two Illinois-based franchise restaurants for $4.3 million. Although the acquisition did not have any accretive impact in 2012 as it occurred on the last day of the company’s 2012 fiscal year, the impact should be reflected in 2013.

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%, higher than the previous expectation of 5%–8%. Comparable restaurant sales, for the first 55 days of first quarter 2013, have already increased about 2.2% compared with the prior-year period.

Our Take

Despite tough consumer environment, Texas Roadhouse’ ability to continuously register solid comparable sales is commendable. Comparable restaurant sales for the first 55 days of first-quarter 2013 indicate another quarter of encouraging comps growth.

The casual dining chain also implemented a menu price increase of approximately 2.0% across its restaurants in Dec 2012, which should augur well in the ensuing quarters. Also, when the majority of the industry-players are shifting focus towards franchised-based operation, the latest franchisee acquisition speaks of Texas Roadhouse’s confidence in its own operation.

However, food cost pressure, wary consumer spending and intense competition among restaurant companies remain headwinds. Like 2012, beef costs, to which the company is most exposed to, is expected to remain high in 2013.

Texas Roadhouse currently retains a Zacks Rank #3 (Hold). Others players in the same industry, which look attractive at current levels include Red Robin Gourmet Burgers Inc. (RRGB) carrying a Zacks Rank #1 (Strong Buy) and AFC Enterprises Inc. (AFCE) and Burger King Worldwide Inc. (BKW) carrying a Zacks Rank #2 (Buy).
 

 
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