The restaurant business is a tough one, with huge numbers of industry players competing against each other for a limited number of dining customers. Even with many restaurant companies having struggled, Texas Roadhouse (NASDAQ:TXRH) has put together an impressive return lately, climbing 50% in the past year and more than doubling since early 2013. Coming into Monday afternoon's fourth-quarter financial report, Texas Roadhouse investors were hoping to see continued solid growth from the steakhouse chain, and for the most part, the company delivered the growth in revenue and earnings that investors wanted. Still, with ambitious expansion plans for 2015 and beyond, Texas Roadhouse will have to keep delivering juicy results in order to satisfy investors' appetites. Let's take a closer look at how Texas Roadhouse did in the fourth quarter and whether it can keep sizzling this year.
Hot off the grill: sales and income growth
Texas Roadhouse's headline results continued its impressive run of good performance. Total revenue climbed 8% to $404.4 million, with that growth coming in more than a full percentage point greater than most of those following the stock had expected. Net income climbed at a 9% pace, boosting earnings to $0.26 per share, matching consensus estimates. Yet the company's gains were even more impressive because the year-ago quarter had 14 weeks instead of 13, giving Texas Roadhouse an added boost. Comparable restaurant sales gained 7% at company-owned locations and 5.7% at franchise-run restaurants.
Diving into the details of Texas Roadhouse's quarterly results reveals some interesting trends. Overall, restaurant margins as a percentage of sales fell by just less than half a percentage point, as higher costs of food and other ingredients offset cost savings from labor and other operating expenses. Yet on a comparable per-store/week basis, margins climbed by 4% from the year-ago quarter, reflecting accelerating revenue from Texas Roadhouse's locations.
CEO Kent Taylor was mostly pleased with the company's results, noting that "we achieved our fifth consecutive year of positive comparable restaurant sales growth." Taylor cited the same commodity cost pressures that showed up in Texas Roadhouse's margin figures, but he boasted about the ability to invest in growing its business while still returning ample capital to shareholders in the form of dividends and share repurchases.
What is Texas Roadhouse serving for dessert?
Texas Roadhouse shared some of its success with shareholders. It boosted its dividend by 13% to $0.17 per share quarterly, marking the fifth straight year in which the company raised its payout since initiating a dividend in early 2011.
Meanwhile, Texas Roadhouse has ambitious plans for 2015. The company said that the first seven weeks of the fiscal year have been exceedingly strong, with comparable restaurant sales soaring 12%. For the full year, though, Texas Roadhouse is being more measured in its optimism, simply reiterating its guidance for positive growth in comps and 25 to 30 company-owned restaurant openings. The restaurant chain expects further food inflation in the 3% to 4% range, and capital expenditures of $135 million to $145 million will help it grow out its business.
Of particular interest will be whether the company's new restaurant concept will take off in 2015. Texas Roadhouse opened two new company-owned restaurants under the Bubba's 33 name during the quarter, bringing its total number of locations to three. Taylor said that overall, "our development pipeline is in great shape," and Texas Roadhouse anticipates opening as many as five new Bubba's 33 locations during 2015.
Overall, Texas Roadhouse investors reacted favorably to the news, sending shares up more than 2% in the first half-hour of after-hours trading following the announcement. If the restaurant's expansion efforts keep panning out as well as they did last year, then Texas Roadhouse could make 2015 a tasty follow-up for investors after the feast they've enjoyed in recent years.