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Texas Roadhouse, Inc.
Consumer Cyclical | Restaurants
⚡ Executive Summary
📊 THE BOTTOM LINE
Texas Roadhouse operates a successful casual dining chain, demonstrating consistent revenue growth and profitability in a competitive restaurant industry. Its focus on value, quality, and a unique dining experience has fostered strong customer loyalty, underpinning a fundamentally sound business model.
⚖️ RISK VS REWARD
Trading at a trailing P/E of 25.38, TXRH appears fairly valued given its growth prospects. Analysts target a range from US$155 to US$228, with an average of US$189.16, suggesting potential upside to the current US$166.27. Risk/reward seems balanced, favoring long-term growth for patient investors.
🚀 WHY TXRH COULD SOAR
- • Continued expansion of restaurant count, especially with newer brands like Bubba's 33 and Jaggers, could drive significant revenue growth and market penetration.
- • Effective management of commodity costs and labor expenses could expand profit margins, leading to higher earnings per share in a challenging inflationary environment.
- • Strong brand loyalty and a consistent dining experience could allow for pricing power, offsetting inflationary pressures and maintaining robust profitability.
⚠️ WHAT COULD GO WRONG
- • Intense competition in the casual dining segment could lead to price wars or market share erosion, potentially impacting revenue growth and profit margins.
- • Rising food costs or labor shortages could significantly increase operating expenses, compressing profitability despite revenue growth unless effectively mitigated.
- • A downturn in consumer discretionary spending due to an economic recession could reduce restaurant traffic and average check sizes, negatively impacting sales.
🏢 Company Overview
💰 How TXRH Makes Money
- • Texas Roadhouse primarily generates revenue from operating casual dining restaurants under its flagship Texas Roadhouse brand, known for its hand-cut steaks, ribs, and fresh-baked bread.
- • The company also operates and franchises restaurants under the Bubba's 33 and Jaggers brands, diversifying its restaurant concepts and expanding into new market segments.
- • Revenue growth is largely driven by increases in comparable restaurant sales (customer traffic and average check size) and the opening of new company-owned locations.
Revenue Breakdown
Texas Roadhouse Restaurant Sales
95%
Revenue from company-operated Texas Roadhouse restaurants, forming the core business.
Bubba's 33 Restaurant Sales
4%
Revenue from company-operated Bubba's 33 sports restaurant and bar concept.
Franchise Royalties and Other
1%
Income from franchised locations and other miscellaneous sources.
🎯 WHY THIS MATTERS
Texas Roadhouse's revenue model, predominantly from company-operated restaurants, grants it significant control over brand consistency, quality, and operational efficiency. The smaller, complementary brands offer diversification and additional growth avenues in adjacent dining segments, enhancing overall market presence and resilience.
⭐ Competitive Advantage: What Makes TXRH Special
1. Strong Brand Recognition and Customer Loyalty
Texas Roadhouse has cultivated a strong brand identity known for its lively, family-friendly atmosphere, value-driven menu, and high-quality food, especially hand-cut steaks. This has built a highly loyal customer base that consistently returns, driving repeat business and insulating it somewhat from intense competition. The consistent quality across locations reinforces this loyalty, leading to robust comparable sales.
2. Value Proposition and Operational Efficiency
The company excels at offering a perceived high-value dining experience for its price point, combining generous portions with quality ingredients. This is supported by strong operational efficiency, including a focused menu, bulk purchasing power for key commodities, and effective kitchen management. These efficiencies allow Texas Roadhouse to maintain attractive profit margins even with competitive pricing, underpinning its financial health.
3. Unique Dining Experience and Atmosphere
Texas Roadhouse restaurants are known for their distinctive, energetic, and engaging atmosphere, featuring line dancing by staff and complimentary peanuts. This unique, fun environment differentiates it significantly from many casual dining competitors, creating a memorable experience that encourages customers to choose Texas Roadhouse over alternatives and fosters a strong sense of community around the brand.
🎯 WHY THIS MATTERS
These competitive advantages collectively enable Texas Roadhouse to sustain its market position and maintain pricing power in the highly competitive casual dining industry. The combination of strong brand loyalty, compelling value, and a unique dining experience consistently attracts and retains customers, positioning the company for long-term profitability and market share growth.
👔 Who's Running The Show
Jerry Morgan
Chief Executive Officer
Jerry Morgan was appointed CEO of Texas Roadhouse in March 2021, bringing 4.75 years of experience in the role. He joined the company in 1997, holding various positions before becoming CEO. His leadership is focused on maintaining the brand's core values, operational excellence, and strategic expansion.
⚔️ What's The Competition
The casual dining restaurant industry is highly competitive and fragmented, with Texas Roadhouse competing against both national chains and independent restaurants. Competition is primarily based on food quality, menu variety, service, atmosphere, location, and price. Texas Roadhouse differentiates itself through its unique concept and strong value proposition.
📊 Market Context
- Total Addressable Market - The U.S. full-service restaurant market is a multi-billion dollar industry, driven by evolving consumer dining preferences and discretionary spending.
- Key Trend - A key trend is the increasing consumer demand for value, quality, and convenience, pushing restaurants to innovate while managing rising operational costs.
Competitor
Description
vs TXRH
Darden Restaurants
Operates a portfolio of full-service restaurant brands, including Olive Garden and LongHorn Steakhouse, targeting diverse dining occasions.
LongHorn Steakhouse is a direct competitor in the casual steakhouse segment; Darden benefits from a larger, diversified brand portfolio.
Bloomin' Brands
Owns and operates casual dining brands like Outback Steakhouse, Carrabba's Italian Grill, and Bonefish Grill, with a focus on steak and seafood.
Outback Steakhouse competes directly in the casual steakhouse market; Bloomin' Brands has broader casual dining offerings.
Brinker International
Operates Chili's Grill & Bar and Maggiano's Little Italy casual dining restaurants, catering to a wide range of tastes.
Primarily focused on broader casual dining; less direct steakhouse competition but vies for overall casual dining consumer spending.
Market Share - US Casual Dining Market
Texas Roadhouse
%
Olive Garden
%
LongHorn Steakhouse
%
Outback Steakhouse
%
Others
%
📊 Valuation & Analysis
📈 Wall Street Summary
Analyst Rating Distribution - 18 Hold, 10 Buy, 1 Strong Buy
18
10
1
12-Month Price Target Range
Low Target
US$155
-7%
Average Target
US$189
+14%
High Target
US$228
+37%
Current: US$166.27
🚀 The Bull Case - Upside to US$228
1. Continued Restaurant Expansion
High Probability
Texas Roadhouse consistently executes its strategy of opening new company-owned restaurants, directly fueling revenue and earnings growth. Successful expansion of its Bubba's 33 and Jaggers concepts could further accelerate market penetration and diversify its brand portfolio, driving significant upside.
2. Strong Unit Economics and Profitability
High Probability
The company's business model is characterized by robust unit-level economics, leading to high restaurant-level operating margins. Continued focus on cost management, efficient operations, and menu optimization could further enhance overall profitability and free cash flow generation, directly contributing to shareholder value.
3. Resilient Consumer Demand for Value Dining
Medium Probability
In varying economic conditions, consumers often prioritize value without sacrificing quality or experience. Texas Roadhouse's strong value proposition positions it favorably to capture and retain customers, leading to consistent traffic and sustained revenue even amidst potential economic uncertainties or inflationary pressures.
🐻 The Bear Case - Downside to US$155
1. Intensifying Competition and Pricing Pressures
Medium Probability
The casual dining segment faces intense competition from various restaurant formats. Increased promotional activity or aggressive pricing strategies by competitors could force Texas Roadhouse to respond, potentially compressing its profit margins and slowing comparable sales growth, impacting overall financial performance.
2. Rising Commodity and Labor Costs
High Probability
The restaurant industry is highly susceptible to fluctuations in food commodity prices (e.g., beef) and labor costs (e.g., minimum wage increases). Significant increases in these key operational expenses could directly impact the company's cost of goods sold and operating margins, negatively affecting profitability if not fully offset by price increases.
3. Changing Consumer Preferences and Dining Habits
Medium Probability
Shifts in consumer preferences, such as a move towards healthier eating, plant-based diets, or an increased preference for off-premise dining, could impact demand for Texas Roadhouse's traditional offerings. Failure to adapt its menu or service model could lead to reduced customer traffic and revenue declines over time.
🔮 Final thought: Is this a long term relationship?
If one believes premium casual dining, emphasizing value and experience, will remain a strong consumer preference for the next decade, Texas Roadhouse's operational excellence and brand loyalty present a durable moat. Management has a track record of consistent execution and expansion. Key long-term risks include adapting to evolving consumer tastes, managing rising input costs, and maintaining its unique culture at scale. This is a potential compounding quality play, less about rapid growth.
📋 Appendix
Financial Performance
Metric
FY 2022
FY 2023
FY 2024
FY 2026 (Est)
FY 2027 (Est)
Income Statement
Revenue
US$4.01B
US$4.63B
US$5.37B
US$6580971000.00B
US$7239068000.00B
Gross Profit
US$0.65B
US$0.74B
US$0.95B
US$1170889000.00B
US$1287800000.00B
Operating Income
US$0.32B
US$0.35B
US$0.52B
US$444760000.00B
US$489200000.00B
Net Income
US$0.27B
US$0.30B
US$0.43B
US$472944060.00B
US$496591263.00B
EPS (Diluted)
3.97
4.54
6.47
7.15
7.51
Balance Sheet
Cash & Equivalents
US$0.17B
US$0.10B
US$0.25B
US$113580600.00B
US$119259630.00B
Total Assets
US$2.53B
US$2.79B
US$3.19B
US$3430000000.00B
US$3601500000.00B
Total Debt
US$0.75B
US$0.77B
US$0.85B
US$933744000.00B
US$933744000.00B
Shareholders' Equity
US$1.01B
US$1.14B
US$1.36B
US$1533490000.00B
US$1609900000.00B
Key Ratios
Gross Margin
16.3%
15.9%
17.6%
17.8%
17.8%
Operating Margin
8.0%
7.6%
9.6%
6.8%
6.8%
Return on Equity
26.65
26.70
31.92
31.88
31.88
Valuation Ratios
| Metric | Value | Description |
|---|---|---|
| P/E Ratio (TTM) | 25.38 | The trailing twelve-month Price-to-Earnings ratio indicates how much investors are willing to pay per dollar of past earnings, reflecting current valuation based on historical profitability. |
| Forward P/E | 23.25 | The forward Price-to-Earnings ratio measures how much investors are willing to pay per dollar of estimated future earnings, offering insight into future valuation expectations. |
| PEG Ratio | N/A | The Price/Earnings to Growth ratio relates the P/E ratio to the earnings growth rate, providing a more complete picture of valuation for growth companies. |
| Price/Sales (TTM) | 1.89 | The trailing twelve-month Price-to-Sales ratio compares the company's market capitalization to its revenue, useful for valuing companies with low or negative earnings. |
| Price/Book (MRQ) | 7.71 | The Price-to-Book ratio compares the market value of a company to its book value, indicating how investors value the company's assets relative to their accounting value. |
| EV/EBITDA | 16.91 | Enterprise Value to EBITDA measures the total value of a company relative to its earnings before interest, taxes, depreciation, and amortization, often used for comparing companies across different capital structures. |
| Return on Equity (TTM) | 0.32 | The trailing twelve-month Return on Equity measures the profitability in relation to shareholders' equity, indicating how efficiently the company is using equity to generate profits. |
| Operating Margin | 0.07 | Operating Margin indicates the percentage of revenue left after paying for operating expenses, showing the company's profitability from its core operations. |
Peer Comparison
| Company | Market Cap (B) | P/E Ratio | P/B Ratio | Revenue Growth (%) | Operating Margin (%) |
|---|---|---|---|---|---|
| Texas Roadhouse (Target) | 11.05 | 25.38 | 7.71 | 12.8% | 6.8% |
| Darden Restaurants | 20.67 | N/A | N/A | N/A | N/A |
| Bloomin' Brands | 0.59 | N/A | 1.70 | N/A | 3.0% |
| Brinker International | 6.73 | N/A | N/A | N/A | 5.5% |
| Sector Average | — | N/A | 1.70 | N/A | 4.3% |