Texas Roadhouse on Thursday night reported blended second-quarter outcomes as elevated beef costs weighed on profitability. Nonetheless, the corporate posted robust comparable gross sales and mentioned the continuing third quarter was off to an incredible begin, offsetting some fears round larger enter costs. Income within the quarter ended July 1 elevated 12.8% yr over yr to $1.51 billion, exceeding the LSEG-complied Wall Road consensus estimate of $1.50 billion. Earnings per share (EPS) elevated 4% on an annual foundation to $1.86, lacking expectations of $1.91, LSEG information confirmed. Shares had been down a bit greater than 1% in prolonged buying and selling Thursday. The inventory has been drifting decrease this summer time, closing the common session down 7.4% from its late Might excessive of the yr. Backside line Texas Roadhouse is executing on what it may management – creating an pleasant setting and providing full menus at inexpensive costs – and it is exhibiting throughout the outcomes. When the restaurant chain reported Q1 leads to early Might, administration mentioned same-store gross sales progress for the second quarter had been monitoring at 5%. That is key restaurant trade metric can also be known as comparable gross sales, or comps. We had been happy to see that the 5% progress price not solely sustained by way of the quarter, however improved a bit additional. What a distinction the climate could make. By month, comparable gross sales, a key restaurant trade metric, elevated 4.3% in April, 7.2% in Might, and 5.8% in June. Companywide, same-store gross sales elevated 5.8% within the quarter, largely pushed by a rise in buyer visitors — an excellent signal. This end result beat the consensus of 5.3%, based on FactSet. Even higher, these optimistic developments continued early into the third quarter, with comparable gross sales up 5.3% by way of the primary 5 weeks, beating the consensus estimate of about 5%. This robust price features a unfavorable 60 foundation level stress from the calendar shift of the Fourth of July. Texas Roadhouse Why we personal it: Texas Roadhouse is a fast-casual steak chain that gives high quality meals at an inexpensive worth in a enjoyable environment, creating one of many extra compelling worth propositions for shoppers within the full-service eating class. A considerable majority firm’s shops are company-owned shops, with solely a small proportion as franchise places. Opponents: Darden (Olive Backyard, LongHorn Steakhouse), Brinker (Chili’s and Maggiano’s), Bloomin’ Manufacturers (Outback, Carrabbas Italian Grill, BonefishGrill) Portfolio weighting: 2.3% Most up-to-date purchase: April 9, 2025 Initiated: Feb. 4, 2025 Normally, robust visitors and comparable gross sales efficiency translate to working leverage, margin enlargement, and earnings per share progress. However out of the corporate’s management is beef inflation. This headwind weighed on the second-quarter outcomes and is anticipated to be even worse within the third quarter. The corporate has some counterbalances in its disposal, together with elevating menu costs and labor inflation is coming in a bit bit higher than anticipated. On the decision, CEO Jerry Morgan mentioned the corporate plans to lift costs by 1.7% at first of the fourth quarter. “We really feel assured that is the appropriate degree of pricing to take care of our on a regular basis worth whereas offsetting among the inflationary pressures we face,” he mentioned. We’re as soon as once more torn on Texas Roadhouse. The continued traffic-driven comps are proof that the model is liked and the idea works wherever they open up a brand new location – and the corporate is doing loads of it. The buyer might get extra “choosy” and “picky” within the again half of the yr, however Texas Roadhouse is a smart place to flock to get nice bang for one’s buck. Nonetheless, beef costs are every thing for this steakhouse chain, and even with the robust comps, we in all probability will not see the large inventory breakout we have been ready for till costs fall. Tight cattle provides within the U.S. have pushed beef prices up in recent times. On Thursday, cattle futures traded on the Chicago Mercantile Change hit one other report excessive. That is our present view. We stay optimistic in regards to the future, supported by robust visitors developments, ongoing franchise acquisitions, and progress from new retailer openings. Nonetheless, commodity pressures stay a headwind, which is why we’re sustaining our hold-equivalent 2 score and refraining from shopping for the inventory till we see a extra enticing entry level. Commentary The higher than anticipated comparable gross sales progress of 5.8% was pushed by a 4% improve in visitors and a 1.8% improve within the common test. Administration spent a while on the earnings name strolling by way of among the combine dynamics— an trade time period for the gadgets bought — impacting test ranges. The alcohol class continues to be a drag, an indication that persons are consuming much less when they’re eating out. This can be a society-wide pattern. Introducing nonalcoholic cocktails, usually known as mocktails, to the menu has been a technique the corporate has addressed the weak point in alcohol. On the entree facet, administration known as out visitors buying and selling as much as both larger steaks or ordering steak extra usually versus different dishes like hen. Throughout the quarter, Texas Roadhouse opened four-company owned eating places, together with two Bubba’s 33 places, and one franchise restaurant. Administration mentioned it is on observe to open roughly 30 company-owned eating places this yr and will perform a little greater than that subsequent yr as a result of plans to step up progress for Bubba’s 33, its sports-bar chain with 52 places presently. Moreover, Texas Roadhouse accomplished the acquisition of three franchise eating places, bringing its year-to-date whole to 17. Texas Roadhouse mentioned it has plans in place to accumulate eight home franchise eating places within the coming quarters, together with its 5 remaining franchised places in California. The corporate buys again these franchised places occasionally, and we usually suppose these are an excellent use of money. Bringing franchised places below the company umbrella provides the corporate extra management over every thing in its eating places and sometimes results in stronger working outcomes. As for money returns to shareholders, the corporate purchased again $9.8 million value of inventory within the quarter. That is a step down from the $50.2 million value of shares repurchased within the first quarter. Steerage As talked about earlier, Texas Roadhouse comparable gross sales at company-owned eating places elevated 5.3% yr over yr by way of the primary 5 weeks of the third quarter. For 2025, administration reaffirmed most of its outlook. It continues to anticipate optimistic comp gross sales progress, together with the advantage of menu worth actions. It additionally continues to anticipate capital expenditures totaling $400 million and so-called retailer week progress of 5% Retailer week progress is a solution to measure each new retailer openings and franchise acquisitions. Nonetheless, the corporate now expects commodity value inflation to be roughly 5%, which is up from final quarter’s view of 4%. That is clearly disappointing to see nevertheless it’s not an entire shock since beef costs are on the rise. Partially offsetting the worsening commodity prices is a greater view on wage and labor inflation. Administration now sees that growing 4%, which is the low finish of its earlier steering vary of 4% to five%. Administration additionally lowered its anticipated efficient earnings tax price to fifteen% from a variety of 15% to 16%. (Jim Cramer’s Charitable Belief is lengthy TXRH. 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