Texas Roadhouse Inc. (TXRH), a casual dining restaurant chain, recently reported third quarter results that topped the Zacks Consensus Estimate on the heels of lower commodity and pre-opening costs besides a jump in the top-line.

Earnings of 15 cents a share surpassed the Zacks Consensus Estimate of 12 cents and climbed 27% year on year. On account of better than expected results, Texas Roadhouse raised its full-year guidance and now expects earnings to rise 20% as against the 5%?10% previously anticipated.

For the fiscal 2010, management expects EPS growth to be flat to 10%, if comparable restaurant sales lie within the range of (2%) to flat.

The growth in the top-line decelerated. After climbing 12% in the second quarter, total revenues showed a sluggish growth of 4% to $226.5 million in the reported quarter. Restaurant sales jumped 4% to $224.4 million, whereas franchise royalties and fees ascended 2.7% to $2.1 million.

Like other casual dining restaurant operators – Cosi Inc. (COSI), Red Robin Gourmet Burgers Inc. (RRGB), and California Pizza Kitchen Inc. (CPKI) – Texas Roadhouse too has been experiencing sagging comparable restaurant sales and falling traffic as cash-strapped consumers are trading down to quick service restaurant operators like McDonald’s Corp. (MCD), Yum! Brands Inc. (YUM) and Chipotle Mexican Grill (CMG) due to cheaper dining options, or else they prefer to eat at home.

Comparable restaurant sales fell 4.6% at company-owned restaurants and 3.6% at franchised restaurants. Comps fell 2.3% in the first four weeks of the fourth quarter.

Restaurant operating cash flow climbed 12.8% to $38.5 million, whereas restaurant operating cash flow margin expanded 133 basis points to 17.2%.

During the quarter, Texas Roadhouse opened one company-owned and two franchised restaurants, and closed two company-owned restaurants. Management plans to open 17 company-owned and three franchised restaurants in fiscal 2009. In fiscal 2010, it plans to open about 15 company-owned restaurants.

Zacks Investment Research
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