Texas Roadhouse Builds Momentum Heading Into 2019

The steakhouse chain is moving forward.

Dan Caplinger
Dan Caplinger
Feb 19, 2019 at 6:17PM
Consumer Goods

Texas Roadhouse (NASDAQ:TXRH) has worked hard in recent years to stay ahead of its restaurant peers, and investors have generally been pleased with the way that the steakhouse chain has managed to do what its rivals haven't. Even amid rising market volatility, shares of Texas Roadhouse have stayed relatively strong, and many feel confident about the restaurant chain's long-term prospects for success.

Coming into Monday's fourth-quarter financial report, Texas Roadhouse investors expected solid revenue growth and at least modest bottom-line gains. Texas Roadhouse delivered on both fronts, and things look even more promising for 2019.

Texas Roadhouse location at night viewed from the front.

Image source: Texas Roadhouse.

A sizzling quarter for Texas Roadhouse

Texas Roadhouse's fourth-quarter results were strong. Revenue was higher by 11% to $605.9 million, accelerating from its pace in the third quarter and outperforming the 9.8% top-line growth that most of those following the stock were looking to see. Net income eased higher by 6%, and that resulted in earnings of $0.42 per share. That inched above the consensus forecast among investors for $0.41 per share.

Fundamentally, things continued to look good for Texas Roadhouse. Customers appeared to remain loyal, as comparable-restaurant sales were higher by 5.6% at its company-owned locations and 4.8% for its franchise restaurants. Both of those figures were higher than what the steakhouse chain accomplished three months earlier, and the company dramatically accelerated its opening of new stores. A new foreign franchise location combined with 11 new company restaurants, including a Bubba's 33 location, brought Texas Roadhouse's network to more than 580 restaurants in the U.S. and 10 foreign countries.

Once again, though, Texas Roadhouse wasn't able to turn all of its higher sales into profits. Restaurant margin fell by more than a percentage point to 15.9%, with labor costs being the primary detractor from performance on the metric. That resulted in an 11% drop in operating income, and only a massive cut in income tax rates from almost 20% to less than 6% was able to offset the higher expenses.

CEO Kent Taylor kept his comments short but sweet. "We finished the year strong," Taylor said, "with double digit revenue growth for both the fourth quarter and full year." The CEO celebrated Texas Roadhouse's 36th straight quarter of positive comps.

Check out the latest Texas Roadhouse earnings call transcript.

What's ahead for Texas Roadhouse?

Texas Roadhouse is confident that 2019 will turn out well. Taylor acknowledged that the cost pressures that the steakhouse chain is facing aren't likely to go away in the near future, but rapid revenue growth shows that the restaurant concept in general is still resonating with customers.

Moreover, early signs from the current period look positive. During the first part of the first quarter, comps were up about 6% compared to the year-earlier period, and although part of that is due to the change in the day of the week on which New Year's Day fell, other contributing factors look good as well.

In response, Texas Roadhouse boosted parts of its outlook for the full 2019 year. Positive comps are likely to stem from the steakhouse chain's decision to implement a 1.5% menu price increase at the beginning of the second quarter. The company still sees 25 to 30 new restaurants opening during 2019, and Texas Roadhouse is anticipating a 1% to 2% rise in commodity costs plus mid-single-digit percentage growth in labor dollars per store week.

Texas Roadhouse investors didn't have an immediate response to the news, and the stock was roughly unchanged in after-hours trading following the announcement. Given that the restaurant chain seems to be doing what it needs to in order to demonstrate its competitive advantages over its rivals, investors have every reason to think that Texas Roadhouse can keep up its momentum for the foreseeable future.