On this episode of Market Foolery, Chris Hill talks with investor-at-large and Fool 100 Index dynamo Tim Hanson about two very different stories in the market. Texas Roadhouse (NASDAQ:TXRH) is getting it done with its 32nd straight quarter of comparable sales growth, and the restaurant company shows no signs of slowing down. Meanwhile, in a fantastic housing market, Tile Shop Holdings is down around 30% today, adding another step in the company's already depressing downward staircase of a one-year stock chart.

Tune in to learn some of the biggest differences between these two companies, a few causes that could start to explain Tile Shop's abysmal numbers, why Texas Roadhouse isn't especially keen on adding more dessert to their menu, and more.

A full transcript follows the video.

This video was recorded on Feb. 21, 2018.

Chris Hill: It's Wednesday, February 21st. Welcome to Market Foolery! I'm Chris Hill. You can follow us on Twitter. @MarketFoolery is the show's handle. Got a tweet from Nick Fuller in Savannah, Georgia, who, in response to yesterday's episode, wrote: "Since Bill Barker stated you'll be taking requests for guests, on Wednesday's Market Foolery, can you give the people what they want, which is Tim Hanson. With all the [insert here] going on in the world, we could hear from an investor at large." So let me welcome an investor at large, Tim Hanson. You have to feel good about that!

Tim Hanson: That tweet made my morning. I was drinking my coffee with a big smile on my face.

Hill: It put a smile on my face. Now, I don't want anyone to think for one second that...

Hanson: I think I got 100% of the vote.

Hill: Yeah, you did. You did!

Hanson: Yeah! [laughs] 

Hill: Now, I don't want Nick or anyone else to think for one second that Bill Barker dictates anything that goes on with this show. Just know, that's not a cause-and-effect thing. Anyway, we have some earnings to get to. Let's start with Texas Roadhouse, fourth quarter. You tell me what leaped out to you, because what leaped out to me was, they put up same-store sales growth of 4.5%. It's the 32nd-straight quarter of comp growth. For a restaurant, that's a win.

Hanson: Yeah. The consistency is what leaps out to me. This is a company that doesn't necessarily get all the headlines or accolades that some of the other highfliers in the quick-serve restaurant or casual dining space [do]. But just an outstanding operational track record. And I think, for throwbacks like me who want to believe that the stock market rewards operational excellence and consistent fulfillment of expectations, there's no better example of that. Texas Roadhouse doesn't rely on gimmicks, has a good concept, a solid menu, gets rave reviews from employees on Glassdoor, so it does all the blocking and tackling right. It gets results. And in an economic and market environment where advertising and gimmicks and price wars are things that corporate America often reverts to in order to spur growth, I think Texas Roadhouse is a great case study in what it takes to build a sustainably good company.

Hill: Kent Taylor is the CEO. We had him as a guest last spring.

Hanson: He's a riot.

Hill: He's hilarious. We had him as a guest at FoolFest last May. Late May or early June, around then. And one of the things that he said that was ... in the immediate aftermath of this comment, there was a lot of laughter, and then the more I thought about it, the more I thought, from a business standpoint, this makes sense. Kent Taylor is someone who clearly cares about food, cares about the quality of the food that is served in the Texas Roadhouse restaurants. But I think he got a question about dessert, because the one thing that they don't really have a lot of at their restaurant is dessert. And he basically said, "I don't serve people to like, I want people to leave." And he got a laugh in the room, it's like, actually, if you're dependent on turning tables over, you don't want dessert to be an integral part of the dining experience.

Hanson: Yeah. There's not a lot of margin there. Usually, people are done drinking alcohol by that point, as well. You'd rather flip the table and get somebody in there who's going to order a couple of margaritas. When you dig into that company, it's a really fascinating blend of customer appeal, but also real entrepreneurial excellence in the background. One of those fascinating things to do with someone like that is have them walking through their store. Costco is another great example, where you ask a merchandiser at Costco to talk you through Costco. It takes a lot of work to look that haphazard. And it works. And it's expensive to make it look like a warehouse, and look and feel like that. But there's a reason behind it, and they've often tested into it and so on and so forth. And the results that they're getting are not an accident. 

Like I said, Texas Roadhouse continues to put up good results. The stock is down a little bit today, but it's been one of those companies where, if you just buy and watch the story unfold, they have plenty of room to grow Texas Roadhouse locations, both domestically and internationally. But they also have a couple of quick service restaurant concepts out there that they're testing. And if one of those hits and takes off -- it's easy to come up with new ideas. What's hard is to build a culture for operational excellence. I'd rather see a new concept in the hands of the Texas Roadhouse team than I would in the hands of Chipotle or one of these other companies who are also experimenting with new concepts.

Hill: Yeah, that was the thing I specifically looked for. I haven't listened to the conference call, but I specifically looked for, in their official release, the line about restaurant openings. They said they're going to open about 30 new restaurants in this next fiscal year, and seven of those will be Bubba's 33, which is their sports-bar concept.

Hanson: Yeah, burgers and beer, I think.

Hill: And Kent Taylor, when he was here last year, he had a copy of the menu. And I remember looking at the menu and thinking, "Where is the closest Bubba's 33? Because I want to go there right now." And as it turns out, the closest one is in Fayetteville, North Carolina.

Hanson: That's a drive. [laughs] 

Hill: That's a hell of a drive. So to the extent that anyone connected to Texas Roadhouse is listening, one of those seven in the next fiscal year, if you can get it somewhere in the Washington D.C. metropolitan area --

Hanson: Seems doable.

Hill: -- I'd be up for that. Very different story with Tile Shop Holdings. Fourth-quarter loss compared to a profit a year ago. I'll tell you what the story with this stock is. It's down somewhere approaching 30% today.

Hanson: I think it's its third over 20% drop in the last nine months, too.

Hill: Yes.

Hanson: That's impressive. [laughs]

Hill: If you hold up a one-year chart of Tile Shop Holdings, it looks like a downward staircase. It doesn't look like a staircase going up, it looks like a staircase going down.

Hanson: The old downward staircase formation. [laughs] 

Hill: Yeah, that's not the formation you want to see when you're pulling up a stock chart. Were expectations out of line? Or are the wheels just coming off this business?

Hanson: Like I said, this was impressively bad. Particularly against the background of the housing market, where you have Home Depot and Lowe's reporting quarter after quarter of strong results. Smaller companies like American Woodmark, who came through the housing downturn, coming out significantly stronger on the other side, all the interest rate trends, the trends toward people renovating homes, the trends toward millennials buying new homes and then doing renovations before they move in, all these things are working in the favor of the industry. And yet Tile Shop continues to put up horrendous results with regards to margins and sales growth, if you can call it that, and also their outlook for the coming year. 

I think they blame the fact that it's a competitive market, which it is. Obviously, you're competing against some very large and well-run and capitalized companies, which Tile Shop is not, so you're at a disadvantage right off the bat. Decided to try to compete on price -- didn't work out for them. Now they want to go back to competing on service, and so on and so forth. But it seems -- this company came public a few years ago, and it seems like nothing has gone right. I think the founder and CEO stepped down in October, but he's still running the company effectively. It's six months later and they don't have a new person in place yet. That's either damning because the guy won't let go and let new people take over, or nobody wants the job. Yeah, just a confluence of bad juju at Tile Shop, and that's being reflected in the downward staircase formation.

Hill: Thank you for mentioning Lowe's. I should apologize to listeners, because for the last few years, when Home Depot reports, Lowe's has reported the next day. And I mentioned on yesterday's episode, "I'm sure tomorrow we'll be talking about Lowe's." In fact, Lowe's is reporting a week from today.

Hanson: I think they did that just to mess with you. [laughs] 

Hill: Can't prove they didn't. Can't prove that's not the case. No, I think your broader point is definitely one that doesn't get as much attention as it deserves when it comes to investing, and that is, the larger context always matters. Any time you're looking at a company's results, of course, you want to look at, how is this company doing, you want to ask all the questions that you would ask of any business. But then, and this often gets lost, I think you want to widen your gaze a little bit and say, "Here's how this company did this quarter," or "Here's how they've done over the last year." What is the environment in which they are operating? Is it really tough times? 

In the case of Texas Roadhouse, like we were talking about earlier, as you mentioned, the stock is down a little bit today, but it's done well over the last year. Go ahead and pull up a chart of Texas Roadhouse and compare it to some of the restaurants in its space, and you'll see that it's not only doing well relative to the market, its doing well relative to its competitors. By the same token, Tile Shop, as you said, how much better can the housing market get? How much better can things get for a business in this category? This isn't, they're having a tough year and it's early 2009. No! [laughs] No, it's 2018, and the housing market could hardly be healthier.

Hanson: Yeah, I think that's exactly right. If you look at the data on the housing market, it's still positive, but interest rates are starting to tick up a little bit, and I think mortgage applications were down a little bit this month. Which may also explain the big drop today, because what if the housing market all of the sudden takes a turn for the worse? What is Tile Shop going to do? How much worse can the results get in a bad housing market, where the competition is in a much better position and has taken advantage to consolidate their positions? 

And then, your point on context is also spot on. I think that pays both when you're doing company analysis and when you're looking at your own portfolio. If you picked some company affiliated with blockchain, you've probably done remarkably well. But rather than comparing yourself to an index that doesn't have a lot of blockchain, compare yourself against all the companies that are also in the space, and see if you're not lucky or good. It's an important question to ask.

Hill: You were out in San Francisco with me and probably 20 or so other Fools out there. Always good to go to that city, don't you think?

Hanson: It's a fun town.

Hill: It's a great, great city for a lot of reasons. And it struck me that you were quite popular at The Fool ONE event because you had a sign up talking about The Fool ONE Index, and it seemed like there were a lot of people who had questions, but in a very positive way. Which is my way of saying I was eavesdropping a little bit on some of your conversations.

Hanson: It was great. The Fool 100 Index has somewhat a tag line around Bill Barker levels of confidence. Obviously, there's been a lot of movement in the market recently, a little bit of volatility, and one of the guys we work with here was watching The Fool 100 Index returns on fool.com. And every day the market was down, The Fool 100 was down less. And he was like, "Hey, way to build that index. The Fool 100: It goes down less." [laughs] I thought that was funny. We might steal that as a tag line.

Hill: Look, when the market is tanking --

Hanson: We go down less. 

Hill: That's what you want. You want to go down less.

Hanson: It was great, we were out there informing people about the new index and how it works and how it's constructed. I think, relative to some of the things we've talked about in this form in the past, most of the conversations were short, in a good way, and that people understood what it was. One hundred stocks that The Fool likes, market-cap weighted, we'll see how they perform -- the performance should reflect the performance of The Motley Fool investing universe. And people were excited. Obviously, ONE members, that's our highest product, so people there tend to be very active investors, but they were almost universally happy to have something they can tell their less savvy investing friends about, in terms of ways you can look at gaining market exposure via a diversified index.

Hill: I'm not going to name names, but one person I was talking to made a comment along those lines. These are his words. He referred to his "idiot brother-in-law." [laughs] 

Hanson: We all have one of those.

Hill: You know, that is one of those things you don't really think about when you get married. If you're marrying into this person, you're also kind of marrying into their family, and then the people that they go on to marry, and that kind of thing.

Hanson: It's true. It quickly becomes a tangled web, some parts of which you don't want to speak of.

Hill: But as long as the good outweighs the bad, right?

Hanson: Yeah, as long as the kids have fun at the holidays. That's my KPI [key performance indicator] for in-law relations. Did the kids have fun at the holidays? It's not about me.

Hill: Then it's all good. You want to learn more about The Fool 100 Index, it's easy, just go to fool100.com. Tim Hanson, investor at large, thanks for being here!

Hanson: Thank you, sir!

Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!

Chris Hill has no position in any of the stocks mentioned. Tim Hanson has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Texas Roadhouse. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot, Lowe's, and Tile Shop Holdings. The Motley Fool has a disclosure policy.