Texas Roadhouse (TXRH) is trading higher (+3%) this morning after reporting a strong Q2 earnings result last night. In case you're not familiar, Texas Roadhouse is a casual dining steakhouse restaurant chain. Its founder and CEO W. Kent Taylor started the business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, TXRH has grown to 535 restaurants. Its operating strategy is position each restaurant as the local hometown favorite for a broad segment of consumers.
Texas Roadhouse is a moderately priced, full-service, casual dining restaurant concept offering an assortment of specially seasoned and aged steaks hand-cut daily on the premises and cooked to order over open grills. In addition to steaks, TXRH also offers a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, and an assortment of hamburgers, salads and sandwiches. The majority of its entrees include two made-from-scratch side items, and it offers all customers a free unlimited supply of roasted in-shell peanuts and fresh baked yeast rolls. TXRH also operates Bubba's 33, a family-friendly, sports restaurant concept offering an assortment of wings, sandwiches, pizza and burgers, including its signature 33% bacon grind patty.
In a high percentage of its restaurants, TXRH limits its operating hours to dinner-only during the weekdays with about one half of restaurants offering lunch on Friday. By focusing on dinner, its restaurant teams have to prepare for and manage only one shift per day during the week. This allows for more consistent food and service. In addition, the dinner focus provides a better "quality-of-life" for its management teams and, therefore, is a key ingredient in attracting and retaining personnel.
Turning to the Q2 results, Texas Roadhouse reported EPS of $0.53, which was up 11% YoY. Revenue rose 11.3% year/year to $566.3 mln. Both results were in-lime with or better than market expectations. Comparable restaurant sales increased +4.0% at company restaurants and +3.6% at domestic franchise restaurants. That compares to +3.1% and +3.8%, respectively, in Q1. Comp sales at company restaurants for the first four weeks of Q3 were +4.6%, so that is trending nicely higher. Restaurant margin, as a percentage of restaurant sales, decreased 28 basis points to 18.9%, primarily driven by wage rate inflation, partially offset by the benefit of lower food costs.
TXRH says it was pleased with its Q2 results, highlighted by double-digit growth in both revenue and EPS. In addition, its comp sales growth, driven by traffic gains, continues to be solid with an increase of +4.6% for the first four weeks of Q3. In terms of new openings, TXRH is on track to open 27-29 company restaurants this year. Looking ahead, the company is filling its new restaurant pipeline for next year and beyond.
In sum, after a sizable miss in Q4, Texas Roadhouse and reported impressive back-to-back quarters in Q1 and Q2. Also, as you can see the same store comps are trending nicely higher and Q3 has gotten off to a good start with a +4.6% comp so far. This restaurant chain does not provide specific revenue and guidance so its earnings can be difficult to predict. The stock had been weak over the past few days apparently on concerns over the Q2 results, however, these were solid results with good comps.