What happened

Shares of Texas Roadhouse, Inc. (NASDAQ:TXRH) were getting chopped today after the steakhouse chain turned in a disappointing fourth-quarter earnings report. As of 12:11 p.m. EST, the stock was down 13.9%.

So what

The fast-growing restaurant chain seemed to get hit by the "restaurant recession," as comparable sales growth at company-operated locations slowed to just 1.2%, and profits surprisingly fell.

A neon Texas Roadhouse sign.

Image source: Texas Roadhouse Twitter account.

Overall revenue was up 7%, to $484.7 million, below expectations of $496.6 million, while earnings per share fell from $0.32 a year ago to $0.29, well behind the consensus at $0.37. Management blamed the decline in profits on higher labor, SG&A (selling, general, and administrative expenses), and depreciation costs.  

In the press release, CEO Kent Taylor noted the strong performance for the full year as earnings per share were up 19% in 2016, but did not address the weakness in the closing period.

Separately, the company also raised its quarterly dividend 10.5%, to $0.21, good enough for a yield of 2% at current prices.

Now what  

Looking ahead, the company's outlook for the current year was similarly underwhelming, as it said in its press release that comparable sales were up 1.5% through the first 55 days of the year, and its guidance called only for "positive" comparable sales growth in 2017.

Management also sees labor inflation in the mid-single digits, which will likely pressure profit growth as it did in the fourth quarter. Texas Roadhouse plans to open another 30 company-owned locations in the year, growing the store base by about 7%. While profit growth may be sluggish this year, the long-term story still seems intact as the company opens new stores and has proven the popularity of its concept.

 

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Texas Roadhouse. The Motley Fool has a disclosure policy.