Simply put, the company’s second quarter earnings of $0.62 per share and revenues of $629.24 million, up 11.1% year-over-year, weren’t enough to beat market expectations.
For the quarter, restaurant margin decreased 77 basis points to 18.2% as a percentage of total sales while cost of sales as a percentage of total sales decreased 24 basis points compared to the prior-year period. Labor as a percentage of total sales were up 93 basis points to 32% and labor dollars per store week were up 7.5% compared to the prior-year period. The company continues to expect labor dollars per store week growth to be in the mid-single-digit range, excluding the impact of higher guest counts. Additionally, the company currently expects other operating to be approximately $1 million higher for the remainder of 2018 primarily in Q3 due to changes in to-go packaging.
Comparable sales didn’t accelerate as quickly as the market had anticipated, though were up 5.7% in the quarter including traffic growth of 4.3%. By month, comparable sales increased 8.5%, 3.6% and 5% for the company’s April, May, and June periods, respectively. Strong sales momentum has continued into Q3 with comps increasing approximately 4.7% in July.
On the development front, the company has opened 14 company restaurants so far this year and it has an additional 14 restaurants currently under construction. Due to permitting issues, TXRH pushed the opening of two Bubba's 33 restaurants into next year and updated its full year guidance to reflect its current expectation of 27 to 28 company restaurant openings. The remaining openings this year will be back-end loaded with three expected in Q3 and the balance in Q4. Management’s target remains to open close to 30 company owned restaurants next year with most of those sites already selected.
Management also reiterated the following expectations for 2018: Positive comparable restaurant sales growth; Commodity cost inflation of approximately 1.0%; Mid-single digit growth in labor dollars per store week, excluding the impact of higher guest counts; and Total capital expenditures of approximately $165.0 million to $175.0 million.
After notching an all-time high seven sessions ago, shares of TXRH have lost more than 10%. This morning, shares gapped below the 50-day simple moving average (65.54) on their way to two-month lows. Shares gave back gains from an impressive June (TXRH added more than 5% in the month of June), yet still hold YTD gains of 19.5%.