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Texas Roadhouse Earnings Sizzle to Start 2016

By Dan Caplinger - Feb 23, 2016 at 8:05AM

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The steakhouse chain boosted its quarterly dividend by 12%.

Image source: Texas Roadhouse.

Steakhouse restaurant chain Texas Roadhouse (TXRH -1.35%) is just one of many companies seeking to feed as many customers as it can bring into its doors. Yet many of Texas Roadhouse's peers have struggled recently, including recent disappointment from Outback Steakhouse operator Bloomin' Brands (BLMN -2.92%). Coming into Monday afternoon's fourth-quarter financial report, Texas Roadhouse investors wanted their steakhouse chain to avoid the problems that Outback had suffered. The company gave its shareholders a solid report that delivered on most of what it was expected to achieve. Let's take a closer look at how Texas Roadhouse did last quarter and what it means for its future in 2016 and beyond.

How Texas Roadhouse got red-hot
Texas Roadhouse's fourth-quarter results showed signs of accelerating growth. Revenue picked up 12% to $454.4 million, which was better than the consensus forecast among those following the stock. Net income climbed at a much more impressive 24% pace, tripling last quarter's growth rate and working out to earnings of $0.32 per share, $0.02 better than investors were expecting to see.

Taking a closer look at Texas Roadhouse's numbers, comparable-restaurant sales figures weakened but still remained robust. Company-owned restaurants posted comps of 4.5%, and franchise-owned locations had a slower comparable-restaurant sales growth rate of 4%. That was somewhat of a letdown compared to the 7% to 8% comps that Texas Roadhouse sported last quarter.

However, restaurant margins reversed course and climbed substantially. The quarterly figure rose by more than a full percentage point to 17.6%, regaining some of the ground that Texas Roadhouse lost in the second and third quarters. Lower food costs as well as less spending on expenses in its other operating costs category contributed to the margin improvement.

Expansion continued to be a big part of how Texas Roadhouse is growing. During the quarter, the company opened seven company-owned Texas Roadhouse restaurants, and that brought the yearly total to 29, including four new Bubba's 33 locations.

CEO Kent Taylor was pleased with Texas Roadhouse's finish to 2015. "This represents our 24th consecutive quarter of positive comparable restaurant sales growth," Taylor said, and he also noted that the company has done well in returning capital to shareholders through dividends and stock buybacks.

What's cooking at Texas Roadhouse?
Taylor also believes that 2016 will be a strong year for Texas Roadhouse. "Our top-line momentum has continued into 2016," the CEO said, "and we are pleased to have seen continued traffic growth during the first seven weeks of the year."

Texas Roadhouse's guidance for 2016 supported that position. The company said that it still believes it will post positive comparable-restaurant growth for the year, and it now expects 30 new restaurant locations, which is at the upper end of its previous range. Among those new restaurants will be seven Bubba's 33 locations. To open those stores, Texas Roadhouse will spend between $165 million and $175 million in capital expenditures, up $10 million from its previous range. Moreover, falling food costs of 1% to 2% should help contribute to profits.

Texas Roadhouse also rewarded shareholders with a dividend boost. The 12% increase to $0.19 per share on a quarterly basis marks the restaurant chain's fifth year of dividend payments and its sixth annual increase.

The best thing about Texas Roadhouse's results is that the company didn't see the challenges that peers have faced. Bloomin' Brands saw comps at Outback fall 2.2% during its most recent quarter, and Bloomin' said that it would need to close more than a dozen locations as part of its Bonefish Grill restructuring efforts. Tough conditions plague several restaurant chains right now, but Texas Roadhouse is making the most of the environment, in part at Bloomin' Brands expense.

Texas Roadhouse investors liked the news, sending the stock up more than 5% in after-hours trading following the announcement. With so much success thus far, Texas Roadhouse seems to be on track to outperform Bloomin' Brands and other competitors in the years to come.

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Bloomin' Brands Stock Quote
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$16.62 (-2.92%) $0.50
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Texas Roadhouse, Inc.
$73.20 (-1.35%) $-1.00

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