Most people who dine at Texas Roadhouse Inc (NASDAQ:TXRH) don’t associate it with Clarksville, Indiana. However, without the first Texas Roadhouse opening in this small town (population 22,000) in 1993, Texas Roadhouse Inc (NASDAQ:TXRH) wouldn’t be what it is today. Success at that one location is what spurred the company’s growth. Today, there are 405 Texas Roadhouse Inc (NASDAQ:TXRH) locations across 48 states and two countries, and this is just the beginning.
Company strategy
Of those 405 restaurants, 315 are wholly-owned, 15 are majority-owned, and 75 are franchised. Texas Roadhouse Inc (NASDAQ:TXRH) aims to add to these numbers.
So far this year, 10 restaurants (plus three franchisee locations) have been opened, and 18 more restaurants (plus two franchisee locations) are set to open by year end. This demonstrates a methodical approach to an increased store count, which should be looked at as a positive by investors.
Texas Roadhouse Inc (NASDAQ:TXRH) is well aware of its fierce competition, including Bloomin’ Brands Inc (NASDAQ:BLMN)’s Outback Steakhouse. Texas Roadhouse attempts to plan accordingly by researching the employment level, average income level, overall population, and nearby shopping and entertainment offerings at potential locations.
The average expense for opening a new location in 2012 was $3.9 million. That number is expected to remain the same or increase slightly for 2013. However, based on the company’s consistent top-line growth, any small increase in this expense should be overcome. In regards to franchisees, Texas Roadhouse Inc (NASDAQ:TXRH) is also strategic, only offering locations to experienced restaurant owners or those with other industry success and knowledge.
Additionally, Texas Roadhouse is looking to expand overseas, with three restaurants already open in the Middle East, and three minority-ownership non-Texas Roadhouse restaurants in China.
On a domestic level, Texas Roadhouse aims to drive repeat traffic by offering high-quality food at fair prices and friendly service; hence the slogan, “Legendary Food, Legendary Service.” In order to drive new traffic, Texas Roadhouse will rely primarily on marketing, with a focus on speed of service and added seats for comfort.
The company expects to be able to maintain or increase profitability in the near future, made possible by managing commodity inflation and value offerings. This is impressive considering reduced discretionary spending by consumers, which, when combined with rising food costs, has led to pricing pressure.
Comps
Nothing is more important than comps for restaurant chains and retailers. Comps don’t include new-location results, which tend to see higher sales due to consumer excitement. Only a certain percentage of those consumers return over the long haul, those who become known as loyal customers. For Texas Roadhouse, comps are based on locations open at least 18 months.
In the second quarter, comps improved by 4.5%, which is identical to the comp growth seen in the year-ago quarter. In the current economic environment, this is impressive, as most restaurant chains are seeing declining comp growth.
For instance, the aforementioned Bloomin’ Brands Inc (NASDAQ:BLMN) saw comps decline to 2% from 2.4% in the year-ago quarter. On the other hand, its only brand to see increased comp growth of 2.8% from 2.3% in the year-ago quarter was Outback Steakhouse — a direct competitor to Texas Roadhouse.
