Texas Roadhouse Continues to “Steer” Ahead of the Competition

Old man winter didn’t stop Texas Roadhouse.

May 31, 2014 at 10:00AM

Bike Night
Source:  Texas Roadhouse

Restaurants from Del Frisco's (NASDAQ:DFRG) to Bloomin' Brands (NASDAQ:BLMN) have been crying foul as they were beat up and taken "outback" this winter, reporting disappointing same-store sales for their casual steak chains. Not Texas Roadhouse (NASDAQ:TXRH), however. The tough cowboy chain asks, "What weather?"

The icy cold results
Del Frisco and Bloomin' Brands felt snowed in during the first quarter. Del Frisco's Sullivan's Steakhouse saw revenue dip 4.4% and same-store sales drop 2.1%. Guest traffic was down and "severe weather" was to blame as the company had to close the restaurants on several days. During the Del Frisco conference call, I counted 20 times when the words "weather," "winter," "snow," "storm," and "ice" came up.

Meanwhile, Bloomin' Brands' Outback had a similar, though more muted, story. Outback's same-store sales actually ticked up 0.8%, although guest traffic was actually negative. Apparently Bloomin' Brands was able to squeeze out just enough extra bucks from the guests who were there to keep its Outback slightly in the black. Bloomin' Brands blamed, of course, "unfavorable weather." The word "weather" was the only winter buzzword that came up during the Bloomin' Brands conference call, but it was uttered 17 times.

The Texas-sized results
Texas Roadhouse reported first-quarter results on May 5. Revenue jumped 10% to $397 million. Same-store sales popped 2.8% at company-owned restaurants and 3.8% at franchise restaurants. Income before taxes tacked on 5.5% to $39.8 million.

Kent Taylor, CEO of Texas Roadhouse, noted "solid traffic growth" during the quarter and said that the momentum had extended into the second quarter so far. He didn't have a word to say about weather in the press release. It was almost as if Texas Roadhouse operated in another country or dimension in time than Del Frisco or Bloomin' Brands.

Sirloin Steak

Source: Texas Roadhouse

No cold call
Of course, during the Texas Roadhouse conference call weather came up. However, unlike during the calls of Del Frisco and Bloomin' Brands, it was barely mentioned and only forced out of the company during the Q&A session where the word "weather" came up twice. One mention came from President Scott Colosi who dismissively stated, "Of course there is always weather here and there." The second mention came from CFO Price Cooper who also pretty much dismissed it as well. He stated that the Northeast and Midwest probably had softer trends, but Texas Roadhouse doesn't bother to track that.

What seemed to be the nonstop theme of the Del Frisco and Bloomin' Brands conference calls was nearly entirely excluded from the Texas Roadhouse one. This is a great sign of a solid, sustainable brand. It's not surprising though. Recall that during the February conference call, Cooper stated, "At the end of the day temporary things like weather disruptions do not impact how we run our business for the long term."

Then during that same February call, Colosi further explained, "We just historically haven't spent much time trying to calculate what we think that impact is. Some of the weather, remember there is always bad weather." Good advice. As a Foolish investor though, you know that winter created a challenge for the industry as a whole and those brands that actually increased their business are brands that consumers will seek out, literally no matter what. Those are good brands for investments.

Trh Logo

Source: Texas Roadhouse

Foolish final thoughts
Texas Roadhouse plans to open between 25 and 30 more locations this year for further growth of between 6% and 7% in restaurant count. Fools should take closer looks at Texas Roadhouse for possible long-term investments.

While the brand currently seems to be gaining strength in value against others such as Outback and Sullivan's, the next question might be: Is the stock priced at a better value than that of a publicly traded fine-dining steakhouse? The answer to that will appear in an article in the near future.

Will this stock be your next multi-bagger?  Hint: it's not a steak chain.
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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Texas Roadhouse. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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