Texas Roadhouse Analysts Pick At Q2 Results

The steakhouse restaurant chain Texas Roadhouse Inc TXRH reported second-quarter results Monday that were highlighted by inline EPS at 63 cents per share and a slight revenue beat at $689.83 million versus expectations of $687.99 million.

Wall Street analysts weighed in after the print on the quarter and outlook.

The Analysts

Morgan Stanley's John Glass maintained an Equal-weight rating on Texas Roadhouse's stock with an unchanged $59 price target.

Wedbush's Nick Setyan maintained at Neutral, price target lifted from $56 to $60.

Stephens' Will Slabaugh maintained at Overweight, unchanged $70 price target.

Morgan Stanley: 'Relief' Quarter

Texas Roadhouse's recent earnings reports have been inconsistent, but Monday's report "provided some relief" in the form of a comp beat at 4.7% versus expectations of 4.6% and store margins of 17.6% versus expectations of 17.2%, Glass said in a Tuesday note.

Commodity inflation of 1.8% came in better than expectations of 3%, and management's commentary that it locked in 50% of its beef needs for back half of 2019 lowers the near-term risk profile, the analyst said. 

Other encouraging trends seen in the quarter include improving new unit productivity as absolute sales and sales growth for newer stores improved, Glass said. To-go orders accounted for 7% of total sales and could prove to be a major contributor of growth moving forward, he said. 

Related Link: 3 Texas Roadhouse Analysts Agree: Wait For A Better Entry Point In Stock

Wedbush: 'Good Enough'

Texas Roadhouse's in-line second quarter is likely "good enough" in light of margin concerns, Setyan said in a Tuesday note.

The restaurant chain's guidance for 1-2% commodity inflation and 7-8% inflation in labor dollars per store week implies limited margin visibility, but expectations are likely "low enough," the analyst said. 

Wedbush is modeling for Texas Roadhouse to show 90 basis points of labor deleverage in 2019 and 30 basis of leverage on cost of goods sold and other operating expenditures. 

Coupled with expectations for ongoing same-sore sales growth and a 3% increase to menu prices, margin expectations of 17% for 2019 look like a "low enough bar," Setyan said. 

Stephens: Momentum Sustained Into Q3

The restaurant chain reported its 37th consecutive quarter of positive traffic and saw a 30-basis point acceleration on a two-year stack, Slabaugh said in a Tuesday note. 

There is sufficient reason to believe the momentum could continue in the third quarter, although the company is up against a difficult month-over-month comp of 5.3% in August and 6.2% in September 2018 and a full quarter lap of 5.5%, the analyst said. 

"We maintain the belief that nothing is ever as bad as it seems with TXRH, due to their intentional focus o the customer experience and value proposition over all else, which should continue to produce industry-leading sales growth and, therefore, a more dedicated investor following (and valuation) down the road." 

Price Action

Texas Roadhouse shares were up 0.95% at $57.16 at the time of publication Tuesday. 

Related Link: Longbow Turns Hungry For Texas Roadhouse's Stock

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