What happened
Shares of Texas Roadhouse (NASDAQ: TXRH) dipped 13.1% in April, according to data from S&P Global Market Intelligence . The stock sank after the restaurant company reported first-quarter earnings late in the month.
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Texas Roadhouse published results for its quarter ended in March after the market closed on April 29, delivering bottom-line results that came in below the market’s expectations. Sales for the period cleared the double-digit-growth threshold, but rising workforce expenses were a drag on performance — and the market appears concerned that operating costs will be an ongoing headwind.
So what
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $690,608 | $627,705 | 10% |
| Income from operations | $60,445 | $64,871 | (6.8%) |
| Net income | $50,390 | $54,541 | (7.6%) |
| Diluted EPS | $0.70 | $0.76 | (8.1%) |
Comparable sales growth climbed roughly 5.2% year over year, so while expenses were up because of workforce expenses, there was significant top-line expansion to provide some counterbalance. However, the average analyst earnings estimate for the quarter had targeted earnings of $0.83 per share, and the big gulf between expectations and the actual results explains why the stock has seen big sell-offs.
Now what
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Following the earnings release, Texas Roadhouse stock continued to slip early in May. Shares are down roughly 10.4% in the month so far.
The company’s comparable sales growth was actually very strong last quarter, and the 1.5% menu price increase the company is implementing should balance out its expected increase in commodities, but investors will probably be looking to see if the restaurant chain can manage its expenses. Texas Roadhouse expects to open between 25 and 30 stores this year, with as many of four of its new location openings coming from its Bubba’s 33 burger-and-pizza offshoot.
Shares trade at roughly 24 times this year’s expected earnings.
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Keith Noonan 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.
