Texas Roadhouse (Nasdaq: TXRH ) appears to be pulling out of last quarter's slowdown. The restaurateur released its third-quarter results yesterday after the bell, and while July and August sales were still sluggish with flat same-store sales, business picked up in September. Investors also applauded the news that October sales are continuing their positive momentum.
For the quarter, the company saw its top line increase 30%, with much of this growth attributed to new store openings. By year's end, it will have opened a total of 25 company-owned units for the full year. This may not seem like much, but consider that Texas Roadhouse only has 240 or so sites in operation to date.
Comps growth for the quarter came in at 2.3% -- again, with a majority of this increase coming in September. Whereas Buffalo Wild Wings (Nasdaq: BWLD ) attributed its positive comps to a business strategy tied to a successful advertising campaign, Texas Roadhouse pointed toward macro factors, with customers motivated by falling gas prices.
In net income, the company earned $0.12 per diluted share -- a 20% increase year over year. Management is holding to its previously lowered full-year guidance of $0.41 to $0.43 per diluted share.
Beyond that, the prepared remarks by Texas Roadhouse's management during the conference call mentioned no new business developments. We do know that it released a new menu with an overall price increase just less than 1%, which will help the company keep up with inflation.
Generally, new menus should result in a pickup in business; investors should monitor this in the next few quarters. Sonic (Nasdaq: SONC ) , Ruby Tuesday (NYSE: RI ) , and Papa John's (Nasdaq: PZZA ) have benefited substantially from timely and appropriate menu adjustments, and it will be interesting to see if Texas Roadhouse proves to be as adept.
Judging by the five-star rating it has received at The Motley Fool's innovative CAPS community, Texas Roadhouse is garnering favorable reviews among investors, who seem particularly enamored with the company's growth potential. The third-quarter conference call, which highlighted plans to open another 28 to 30 company-owned restaurants in fiscal 2007, only reinforces this sentiment.
There's no denying that the concept has plenty of unit growth ahead. But to earn its five-star rating, this Fool would like to see Texas Roadhouse push for much more than the estimated 2% to 3% increase in 2007 comps, particularly given that it will have favorable comparisons against 2006's projected full-year comps of 2% to 3%.
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Fool contributor Jeremy MacNealy has a player rating of 99.21 and is ranked 95th out of 11,834 participants at Motley Fool CAPS; his profile is listed under jmacn22. He has no financial interest in any company mentioned. The Motley Fool has a nifty disclosure policy.
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