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Texas Roadhouse Rides Expansion to Growth

Texas Roadhouse location with grand opening sign on the front.

It's easy to paint an entire industry with a broad brushstroke and miss the nuances that each individual company has. In the restaurant business, many chains have struggled to find growth in recent years due to steadily rising competition. Yet for Texas Roadhouse (NASDAQ: TXRH) , a unique dining experience has helped give the steakhouse chain the resiliency to stand up to tough conditions and thrive.

Coming into Monday's first-quarter financial report, Texas Roadhouse investors expected more of the same from the Lone Star State-themed restaurants in terms of growth. Texas Roadhouse continued to expand its network of locations, including its first entry into a new market, and it hopes to extend its positive trends throughout the remainder of the year and beyond.

Texas Roadhouse location with grand opening sign on the front.

Image source: Texas Roadhouse.

Texas Roadhouse sizzles once again

Texas Roadhouse's first-quarter results were par for the course for the steakhouse purveyor. Total revenue of $627.7 million was up nearly 11% from year-ago levels, inching above the levels that those following the stock had hoped to see. Net income soared 59% to $54.5 million, and earnings of $0.76 per share matched the consensus forecast among investors exactly.

Perhaps the most interesting thing about Texas Roadhouse's quarterly performance was its new strategic opportunity abroad. The company opened seven new corporate-owned restaurants, including one restaurant carrying the Bubba's 33 name. Texas Roadhouse also opened two international franchise restaurants, including its first in Mexico. The chain now has more than 560 restaurants in 49 states and eight foreign countries.

Yet Texas Roadhouse also delivered the same growth in comparable-restaurant sales that investors have come to expect . At company-owned locations, comps were higher by 4.9% during the quarter, and domestic franchise restaurant locations posted a solid 3.9% rise in comps. Increased traffic was largely responsible for the gains, continuing a favorable trend that Texas Roadhouse has seen lately.

The steakhouse chain also made some progress on the cost-cutting front. Restaurant operating costs remained fairly high, but the company slashed general overhead expenses by a quarter from year-ago levels. That helped lead to a more than 30% rise in operating income.

CEO Kent Taylor was happy with how 2018 started. "While restaurant margins remain challenged by ongoing labor inflation, our operators have remained focused on providing our guests with a legendary experience," Taylor said. The CEO also pointed to the company's first Mexican location as historically important for Texas Roadhouse.

Can Texas Roadhouse stay hot?

Texas Roadhouse is optimistic about its future. Taylor said that traffic gains have continued into the current quarter, and that could help to boost comps as well. The CEO also believes that its expansion pipeline will stay strong.

Yet not everything was ideal for the company. Texas Roadhouse raised its expectations for commodity cost inflation from 0% to 1%, reflecting higher food prices for the ingredients that the restaurant chain uses most. The company repeated its past guidance on most other fronts, including 30 new locations, positive comps, tax rates of 15% to 16%, and mid-single digit percentage gains in labor costs.

Texas Roadhouse investors didn't have a huge response to the results, and the stock largely recovered from a roughly 4% drop Tuesday morning following the Monday afternoon announcement. As Texas Roadhouse taps into new areas like Mexico for growth, investors are hopeful that the Lone Star State's popularity across the globe will translate into strong profits for the chain's steakhouses.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Texas Roadhouse. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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