March was good to Texas Roadhouse Inc.
The Louisville, Ky.-based casual-dining chain said same-store sales increased 3.1 percent in the first quarter ended March 28. March was a particularly strong month, with same-store sales rising 5.8 percent. Most of the increase came from a growing number of customers at the chain’s restaurants.
Texas Roadhouse said same-store sales growth continued into April.
“We just keep doing what we’re doing,” Texas Roadhouse president Scott Colosi said on an earnings call Monday. “We’re very protective of our food quality and our price points and our flavor standards. We just kind of stuck to that, and continue to do that, and it works for us.”
Investors cheered the news. Texas Roadhouse’s stock jumped more than 10 percent in Tuesday morning trading.
The chain’s strong performance in the first quarter outpaced many of its casual-dining rivals. Traffic at Chili’s company-owned restaurants fell 6.2 percent in the first three months of the year, while Applebee’s reported a 7.9-percent decline in first-quarter same-store sales.
Texas Roadhouse’s ability to get customers in the door more than offset weaker earnings, due in part to higher labor costs.
Restaurant margin, for instance, decreased 21 basis points in the quarter, to 19.9 percent of revenue. Wage inflation, the company said, offset the benefit of lower food cost in the quarter.
But net income decreased 4 percent, to $34.3 million, or 48 cents per share, from $35.6 million, or 50 cents per share the previous year.
“Labor inflation is still somewhat of a wild card for us, because it’s still very high right now,” Colosi said. He said that it will be “tough to grow margins, even with a little more pricing” if the wage rate inflation continues.
“I wouldn’t take any margin or growth for granted at this point,” he said.
Total revenue increased 10 percent, to $567.7 million, from $515.6 million.
Earnings included a pretax charge of $14.9 million, related to a legal settlement with the Equal Employment Opportunity Commission over age discrimination allegations.
Texas Roadhouse said it acquired four franchise locations in Florida and Georgia during the quarter. It paid $16.5 million for the restaurants, or just more than $4.1 million per location.
The company now operates 423 of its 507 Texas Roadhouse restaurants, 14 of which are outside the U.S.
Texas Roadhouse also operates 16 of Bubba’s 33 locations. The company expects to develop six units of the casual-dining chain this year.
Bubba’s sales average more than $4 million a year, and the company is shrinking the size of the restaurants to increase its profitability, which is key for the brand’s future growth.
“I think the investment cost is the bigger opportunity for us that we can continue to work on,” Colosi said. “I would see us accelerate the number of Bubba’s. There’s a long runway for it. We just have to keep sharpening our pencils on the box economics.”
Contact Jonathan Maze at [email protected]
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