Texas Roadhouse’s mixed results capture the conundrum this stock has become
Texas Roadhouse on Thursday evening reported mixed second-quarter results as elevated beef prices weighed on profitability. Still, the company posted strong comparable sales and said the ongoing third quarter was off to a great start, offsetting some fears around higher input prices. Revenue in the quarter ended July 1 increased 12.8% year over year to $1.51 billion, exceeding the LSEG-complied Wall Street consensus estimate of $1.50 billion. Earnings per share (EPS) increased 4% on an annual basis to $1.86, missing expectations of $1.91, LSEG data showed. Shares were down a little more than 1% in extended trading Thursday. The stock has been drifting lower this summer, closing the regular session down 7.4% from its late May high of the year. Bottom line Texas Roadhouse is executing on what it can control – creating an enjoyable environment and offering full menus at affordable prices – and it’s showing within the results. When the restaurant chain reported Q1 results in early May, management said same-store sales growth for the second quarter were tracking at 5%. This is key restaurant industry metric is also called comparable sales, or comps. We were pleased to see that the 5% growth rate not only sustained through the quarter, but improved a little further. What a difference the weather can make. By month, comparable sales, a key restaurant industry metric, increased 4.3% in April, 7.2% in May, and 5.8% in June. Companywide, same-store sales increased 5.8% in the quarter, mostly driven by an increase in customer traffic — a good sign. This result beat the consensus of 5.3%, according to FactSet. Even better, these positive trends continued early into the third quarter, with comparable sales up 5.3% through the first five weeks, beating the consensus estimate of about 5%. This strong rate includes a negative 60 basis point pressure from the calendar shift of the Fourth of July. Texas Roadhouse Why we own it: Texas Roadhouse is a fast-casual steak chain that offers quality food at an affordable price in a fun atmosphere, creating one of the more compelling value propositions for consumers in the full-service dining category. A substantial majority company’s stores are company-owned stores, with only a small proportion as franchise locations. Competitors: Darden (Olive Garden, LongHorn Steakhouse), Brinker (Chili’s and Maggiano’s), Bloomin’ Brands (Outback, Carrabbas Italian Grill, BonefishGrill) Portfolio weighting: 2.3% Most recent buy: April 9, 2025 Initiated: Feb. 4, 2025 Usually, strong traffic and comparable sales performance translate to operating leverage, margin expansion, and earnings per share growth. But out of the company’s control is beef inflation. This headwind weighed on the second-quarter results and is expected to be even worse in the third quarter. The company has some counterbalances in its disposal, including raising menu prices and labor inflation is coming in a little bit better than expected. On the call, CEO…
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