Tuesday, November 4, 2014

Texas Roadhouse Inc. Earnings: Steaks Are High

Source: Texas Roadhouse.

Texas Roadhouse (NASDAQ: TXRH  ) is hoping that it's not just its signature steaks that are meaty. The chain of 436 casual steakhouses posted quarterly results after Monday's market close.

Revenue climbed 15% to $385.2 million as new openings and a 5.9% uptick in comps combined to drive the top line higher. Net income climbed 10% to $18.9 million, or $0.27 a share. 

It was a mixed showing relative to Wall Street expectations. Analysts were holding out for a profit of $0.29 a share, but they were also only settling for $375.9 million in revenue. 

The stock initially ticked higher in after-hours trading on Monday, suggesting that the tug-of-war between bulls pulling on the top-line beat and bears tugging on the bottom-line miss is being won by the longs.

It also helps that Texas Roadhouse offered up a couple of legitimate reasons for the failure of earnings to grow as quickly as revenue. Food costs rose and general liability insurance clocked in higher as a result of an overlapping credit a year earlier. Its income tax rate bumped higher, given the expiration of a work opportunity tax credit last year and higher stock option exercise activity last year. The income tax disparity alone took a 12% uptick in operating profit down to the ultimate 10% bottom-line gain.

The market's cool with that, and that's saying something since shares of Texas Roadhouse had hit an all-time high on Monday ahead of the report. With that kind of optimism already priced into the stock, it could have been vulnerable with the mixed showing. 

Momentum is in Texas Roadhouse's corner these days. It has added 27 new locations over the past year, and there's plenty of real estate left to conquer. Investors were already impressed with the 5.9% uptick in comps for the entire quarter, and during the subsequent conference call Texas Roadhouse revealed that monthly comparable sales increased 4%, 6.3%, and 7.2% in July, August, and September, respectively. That's welcome acceleration, as Texas Roadhouse noted that October comps has also risen roughly 7%.

Texas Roadhouse is the last of the casual steakhouses to trade as a standalone namesake company. The market darlings of the 1990s -- Outback Steakhouse, Lone Star Steakhouse & Saloon, LongHorn Steakhouse, Sagebrush, Timber Lodge, Roadhouse Grill, and Logan's Roadhouse -- were taken private or buckled, with some returning as part of larger diversified companies today.

Texas Roadhouse doesn't need to run with a big crowd of its peers. It's doing just fine on its own, judging by the brisk expansion, robust comps, and new all-time highs this week. 

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