At the risk of sounding too simplistic I must say as a frequent guest and a fan both Texas Roadhouse (NASDAQ:TXRH) and Outback Steakhouse of Bloomin' Brands (NASDAQ:BLMN) I can hardly tell the difference. They both successfully manage to sport that pseudo-rugged atmosphere commonly associated with awesome thick steaks while also managing to somehow simultaneously maintain an aura of cleanliness and class. Bravo.
For purposes of Seeking Alpha that many commentators seem to forget with restaurant stocks, it's not about my opinion or your opinion of what we think of each restaurant. They are public companies for investment and it only matters what the masses think of how they are voting with their wallets. For that reason, at the risk of again being too simplistic, I say go with Texas Roadhouse that continually has good news to share and throw its similar cousin in the outback (pardon the pun).
I'm a big fan of turnaround ideas but only when there is a reason to expect one. I don't see anything with Bloomin' Brands that suggests a turnaround is in the bag. The company does also own the Bonefish Grill, Carrabba Italian Grill, and the Fleming's Prime Steakhouse chains but only the tiny latter of the group is the only one doing anything impressive. But with Fleming's only being 66 of the over 1,500 restaurants in the portfolio and nearly 1,000 of them being Outback restaurants, I'll just focus on Outback and it's the concept that will make or break Bloomin' Brands for now.
Outback had a disappointing second quarter following a disappointing first. For the first quarter it blamed the weather. For the second quarter no bounce came and that surprised management. CEO Elizabeth Smith called the quarter challenging but was short on details as to why. She just said Bloomin' Brands is responding with marketing. Marketing? It seems like the typical "we don't know what the heck is going on" response that tells us very little. "More and better marketing on the double" could be acknowledgement that its advertising and/or other marketing is failing?
During the conference call that followed, Bloomin' Brands revealed that the flat traffic would have been even worse if not for the uptick in the lunch crowd as the dinner crowd declined. Lunch traffic isn't nearly as profitable as dinner traffic due to lower guest check average. To cut this short, why deal with this eyebrow-raising uncertainty and hoping that maybe Bloomin' Brands fixes its marketing strategies or whatever other problems it may have? Texas Roadhouse seems to be a story of that's simply going from good to great with little more than excellent numbers to share.
They say everything is bigger in Texas and that's the same with the Texas Roadhouse. With less than one-third the number of restaurants as Bloomin' Brands, the net income last quarter was nearly the same (and their market caps incidentally are also similar). Texas Roadhouse produced a double-digit revenue increase with same-store sales increase of 2.9% for company-owned and 3.5% for franchisees. It expects the third quarter to be around 4.0%. Compare that to less than 1.0% for Outback in the second quarter and an outlook of less than 1.0% going forward as well. There were no excuses, concerns, blame, or anything that we heard from Bloomin' Brands. Texas Roadhouse simply continues to execute and deliver.
The conference call revealed more goodies. CFO Price Cooper shared that the same-store sales were an even split between increased check and increased traffic. Within the second quarter, momentum was on the company's side. April, May, and June saw same-store sales growth of 1.6%, 3.4%, and 3.7% respectively. July was already reported at 4.0%. A four-month trend may not be perfect, but regardless I like that pattern along with the 4.0% guidance for the third quarter (which if the trend continues will prove to be too conservative).
Bottom line here is that we have two mainly similar steakhouse chains showing similar profits and a similar market cap but one is clearly outperforming the other based on percentage growth while seeming to have a control of its destiny and momentum behind its execution while the other is having problems, possibly unknown problems. Why fight it? Go with Texas Roadhouse.
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