Bear of the Day: Texas Roadhouse (TXRH)

Texas Roadhouse TXRH is a full-service, casual dining restaurant chain that offers a variety of food and steaks, which are hand-cut daily on the premises and cooked to order over open gas-fired grills.

Analysts have taken a bearish stance on the company’s EPS outlook, landing it into a Zacks Rank #5 (Strong Sell).

What’s going on? Let’s take a closer look.

TXRH Faces Commodity Inflation

TXRH’s quarterly releases have largely been mixed concerning headline results, with the company regularly beating our consensus EPS estimate but falling short of sales expectations.

Adjusted EPS fell -0.8% YoY throughout the latest period, with sales up 13%. Notably, comparable restaurant sales were up a strong 6.1%, with average weekly sales at restaurants also improving from the year-ago period.

Below is a chart illustrating the company’s sales on a quarterly basis.

Still, the real thorn in TXRH's side has been commodity inflation, with the company updating its commodity inflation guidance to roughly 6% post-earnings vs. the 5.2% forecast in its Q2 release.

Jerry Morgan, CEO, said –

‘Our operators continued to drive strong traffic this quarter, which helped offset the impact of continued commodity inflation. While the duration of these inflationary pressures remains uncertain, we are committed to running our business with a long-term focus and maintaining our value proposition.’

Bottom Line

Negative earnings estimate revisions, stemming from a challenging operating environment, paint a challenging picture for the company’s shares in the near term.

Texas Roadhouse TXRH is a Zacks Rank #5 (Strong Sell), indicating that analysts have taken a bearish stance on the company’s earnings outlook.

For those seeking strong stocks, the best idea would be to focus on stocks with a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy) – these stocks sport a notably stronger earnings outlook paired with the potential to deliver explosive gains in the near term.

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This article originally published on Zacks Investment Research (zacks.com).

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