Texas Roadhouse (TXRH 2.49%) delivered strong results for its third-quarter earnings announcement in late October. Total revenue was up 9.4% year over year to $650.5 million, while net income increased a hefty 25.4% year over year to $36.5 million, or $0.52 per share. The casual dining chain also reported that comparable-restaurant sales increased 4.4% at company restaurants and 3.2% at domestic franchised restaurants, a very good result considering the weak results from its peers.
Texas Roadhouse has a strong track record of delivering good food at affordable prices. CEO Wayne Taylor also emphasized that labor productivity had boosted restaurant margins, and the company had shifted focus on labor scheduling and efficiency in order to make this happen.
Moving forward, can investors expect even better performance from the company? There are several initiatives and plans afoot that make me confident Texas Roadhouse can continue to outperform.
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Opening more stores in 2019 and 2020
For the first nine months of 2019, Texas Roadhouse has opened a total of 17 new stores, with one being a Bubba's 33. Management expects to open a total of 22 new stores for the whole of 2019, with three being Bubba's 33. Given that we have about a month left in this fiscal year, management seems on track to hit their target.
For 2020, there are grand plans to open more than 30 restaurants, including as many as eight Bubba's 33 locations. Of these new store openings, franchise partners are expected to open as many as eight international Texas Roadhouse locations in both 2019 and 2020. The company has signed on area development and franchise agreements in nine countries such as Taiwan, the Philippines, and China, to name a few. These ambitious expansion plans should drive further top-line growth for the company and deepen its presence among the population.
New hours and menu prices
Earlier this year, management tested the concept of serving lunch at Bubba's 33 at five outlets. The restaurant's operating hours are usually from 3 p.m. or 4 p.m. to 11 p.m., so dinner would be the main revenue generator. For the quarter, Bubba's 33 saw impressive comparable sales growth of 8.8%, 2.5% of which was contributed by the lunch introduction (these trial restaurants are now open from 11 a.m. to 11 p.m.). Due to this success, there are now plans to roll out the lunch concept to other Bubba's 33 outlets.
Meanwhile, the issue of inflation has always been a headache for businesses, as the cost of inputs and staff salaries face an almost inexorable rise. The inflation rate for Oct. 2019 was around 1.8%. Texas Roadhouse will introduce a menu price increase of approximately 1.9% in late November, ensuring that the business continues to adjust prices in tandem with rising costs.
Another restaurant concept
Finally, next year, Texas Roadhouse intends to introduce a new restaurant concept known as Jaggers that specializes in chicken sandwiches and burgers. Jaggers was a brand started by the company back in 2015 with two stores opened in Indianapolis -- those remain the only branches of this concept to date.
Texas Roadhouse is not alone, though, as Outback Steakhouse also recently opened two units of a fast-casual dining concept called Aussie Grill back in Jan. 2019. However, the company behind Outback, Bloomin' Brands, recently announced that it may be exploring a strategic sale of the company. If Bloomin' changes hands, it may lessen the competitive pressure for Texas Roadhouse in the interim and give the company more breathing room.
Starting a new restaurant concept always involves some risk, but management had successfully launched Bubba's 33 in May 2013, so extending Jaggers' presence beyond merely two stores seems like a natural progression for the business.
Tantalizing prospects
With so many plans afoot, investors should look forward to better numbers from the company in 2020. Texas Roadhouse offers tantalizing future prospects as it slowly expands its presence around the country. Investors can look forward to more delicious returns from this restaurant stock.
