Bloomin’ Brands Inc (NASDAQ:BLMN) is also attempting to strengthen the Outback name, the company’s largest brand and best performer. This will be done via remodeling, marketing, and menu innovation. And Bloomin’ Brands Inc (NASDAQ:BLMN) will attempt to grow overseas. Therefore, these two companies might be competing for a long time to come. However, there are some significant differences between them.
Financials
While Bloomin’ Brands Inc (NASDAQ:BLMN) turns more investor dollars into profit, with a return on equity (ROE) of 51.3% versus 14.6% for Texas Roadhouse, Bloomin’ Brands Inc (NASDAQ:BLMN) isn’t as efficient at turning revenue into profit, sporting a net margin of less than 3.0 versus 5.9% for Texas Roadhouse.
Texas Roadhouse also yields 1.9%, whereas Bloomin’ Brands doesn’t pay a dividend. And based on Texas Roadhouse’s debt-to-equity ratio of just 0.1, the dividend appears to be very safe. Despite not paying a dividend, Bloomin’ Brands has a debt-to-equity ratio of 3.7. Therefore, if both companies are looking to expand, Texas Roadhouse should be able to do so with more ease.
A higher-end alternative
Some investors considering Texas Roadhouse might also look at Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH), owner of Ruth’s Chris Steak House. While Texas Roadhouse’s stock has appreciated 105% over a three-year period, Ruth’s stock has skyrocketed 270% over the same time.
Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) is similar to Texas Roadhouse based on several key metrics. For instance, it trades at 22 times earnings versus 23 times earnings for Texas Roadhouse. Ruth’s also has a net margin of 4.8%, an ROE of 24.4%, a debt-to-equity ratio of 0.4, and it yields 1.3%. Furthermore, comps jumped 4.6% in the second quarter thanks to a 2.5% increase in the average ticket, a 2.1% increase in entrees, and more foot traffic.
Since it’s a high-end restaurant, this foot traffic partially stems from improved capital positions for many people who have invested in the stock and real estate markets over the past several years. As you might have heard, this has been deemed a 5% recovery, indicating that only 5% of the population has actually improved their financial situation.
This is good news for now, but it makes Ruth’s more susceptible to downside equity and real estate market-moves. Look at the chart below and focus on 2008 and 2009 as an example. Also, notice that Texas Roadhouse has outperformed Ruth’s over the long haul.
Texas Roadhouse data by YCharts
Conclusion
Texas Roadhouse looks to be the best long-term investment option of the three aforementioned companies. On the other hand, Texas Roadhouse still relies on discretionary spending, which isn’t likely to see growth in the near future. The good news is that Texas Roadhouse is likely to hold up better than most restaurant chains. Therefore, if you’re interested in an investment, consider doing so at a very slow and incremental pace, buying on dips if they occur.
The article Legendary Food, Modest Expectations for This Restaurant Chain originally appeared on Fool.com and written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Texas Roadhouse.
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