Louisville, Kentucky-based Texas Roadhouse Inc. (TXRH) recently posted fourth quarter 2010 earnings of 14 cents that missed the Zacks Consensus Estimate of 16 cents, but escalated 13.0% year over year. The lower -than-expected results were due to higher costs, which contracted margin.
Texas Roadhouse, a casual dining restaurant chain, said that total revenue in the quarter climbed 8.0% from the prior-year quarter to $244.6 million. The upside in revenues was attributable to higher comparable sales growth. Restaurant sales jumped 7.6% to $242.4 million, whereas franchise royalties and fees upped 5.6% to $2.2 million.
The company’s full-year earnings per share were 80 cents versus 67 cents in full fiscal 2009. Revenues were $1.0 billion in full fiscal 2010, representing a year-over-year leap of 7.0%.
Comparable-store sales grew 3.1% at company-owned restaurants and 2.9% at franchised restaurants during the quarter, as the economy is reviving, consumer demand is increasing. Moreover, Texas Roadhouse pointed out that despite bad weather condition, comparable-store sales grew 3.8% in the first seven weeks of first quarter 2011.
During the quarter, restaurant operating margin dipped 35 basis points (bp) to 17.1%, aided by a 13 bp spike in labor cost and 64 bp rise in other operating costs, partially offset by a 36 bp fall in cost of sales and a 3 bp drop in rent. However, in fiscal 2010 restaurant operating margin expanded 78 bps to 18.5%.
Store Update
During the quarter, Texas Roadhouse opened 7 company-owned restaurants, and plans to open 20 more outlets in fiscal 2011. At the end of the year, there were 274 company-owned and 71 franchised restaurants.
Financial Position
Texas Roadhouse ended the year with cash and cash equivalents of $82.2 million, total long-term debt of $51.9 million and shareholders’ equity of $496.6 million.
The company also announced a stock repurchase program of up to $50 million and quarterly cash dividend of 8 cents.
Management anticipates capital expenditure in the range of $60–$65 million in fiscal 2011.
Outlook
Management expects earnings growth of 10% in 2011 as compared with its previous expectation of 5% to 15%.
Texas Roadhouse, which offers specially seasoned steaks, has raised its outlook of comparable-store sales growth to 3.5% compared to its earlier guidance of 2% to 3% in fiscal 2011.
Going forward, management anticipates commodity environment to be unfavorable for 2011, and forecasts a food inflation of 3%. However, to mitigate the impact of input cost pressure, the company is planning to hike its menu prices by 1%.
Our Take
As the economy is showing signs of improvement, we believe Texas Roadhouse will be able to generate improved earnings. However, we expect estimates to drop in the coming days based on below-expectations fourth quarter results. The Zacks Consensus Estimate for 2011 is 90 cents and $1.04 for 2012.
One of Texas Roadhouse’s primary competitors, Red Robin Gourmet Burgers, Inc (RRGB) posted fourth quarter 2010 adjusted earnings of 12 cents per share, which surpassed the Zacks Consensus Estimate of 5 cents. Results benefited from the upside in revenue driven by comparable sales growth.
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TEXAS ROADHOUSE (TXRH): Free Stock Analysis Report
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