What: Shares of Texas Roadhouse Inc. (NASDAQ:TXRH) were getting smoked today after the restaurant posted slower sales growth than expected. As of 10:53 a.m. EDT, the stock was down 11%.
So what: Following a trend across the industry, the high-flying steakhouse chain posted sales growth below expectations, adding to what some say are signs of a coming recession. Revenue increased 12%, to $508.8 million, missing expectations at $509.9 million -- a narrow miss but enough to cool off what had been one of the hottest restaurant stocks on the market.
Same-store sales improved 4.5% at company-owned locations and 2.8% at franchised ones, and earnings per share jumped form $0.30 to $0.47, ahead of estimates at $0.45.
CEO Kent Taylor said, "Our operators continued to deliver strong operational and financial results with solid comparable restaurant sales growth and an increase in restaurant margin." He noted this was the company's 26th consecutive quarter of comp sales growth.
Now what: For the current quarter, management reported that same-store sales at company-owned restaurants, the vast majority of locations, grew 3.7%. That slowdown from the second quarter may have also caused the sell-off as comparable sales have been gradually falling since the first half of last year, when they were at 8.5%.
Still, the company increased its expectations for commodity deflation as beef prices have fallen, and it now sees food-cost deflation of 2.5% to 3% for the year, up from its prior range of 1% to 2%. Those lower costs helped drive the huge profit growth in the last quarter, and should boost earnings through the year.
While investors may fear a coming slowdown in sales, the stock looks much cheaper after today's earnings beat and the sell-off. Comparable sales remains solid, and the margin improvements could lift the company's EPS above $2 this year. I'd say this looks like a buying opportunity for investors who missed out on the stock's earlier rise.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and 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.
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