Yahoo Finance Why Did Texas Roadhouse’s EBIT Margins Decline in 1Q16?
Can Texas Roadhouse Maintain Its Strong 1Q16 Performance?
EBIT margins
In 1Q16, Texas Roadhouse (TXRH) posted EBIT (earnings before interest and tax) of $52.8 million. This represents EBIT margins of 10.2%—compared to 10.6% in 1Q15. The decline in the EBIT margins was due to the rise in G&A (general and administrative) expenses. It was also due to depreciation and amortization expenses.
Factors impacting EBIT margins
Due to sales leverage from positive same-store sales growth and a decline in commodity prices, led by beef prices, the cost of sales declined to 33.9% of the total revenue—compared to 35.1% in 1Q15. However, the increase in labor wages increased labor and benefit expenses from 28.8% of the total revenue to 28.9%. While other operating costs and rent expenses remained constant, the depreciation and amortization expenses increased from 3.5% of the revenue to 3.8% due to increased investments in company-owned restaurants.
The major factor that led to a decline in EBIT margins was increased G&A expenses from 4.7% of the revenue to 5.8%. The increase in G&A expenses was due to $5.5 million settlement charges on a wage-per-hour demand with the Delaware Department of Labor. Excluding that, G&A expenses were flat. Texas Roadhouse forms 0.64% of the holdings of the iShares S&P Small-Cap 600 Growth ETF (IJT).
Peer comparison
In 1Q16, Texas Roadhouse’s peers Bloomin’ Brands (BLMN), Buffalo Wild Wings (BWLD), and Brinker International (EAT) posted EBIT margins of 7.8%, 9.4%, and 10.9%, respectively—compared to 8.2%, 10%, and 12.1% in the same quarter last year.
Outlook
With commodity deflation expected to be 1%–2% and sales leverage from positive same-store sales growth, analysts are expecting the EBIT margins to be 8.8%, 8.2%, and 7.8% in 2Q16, 3Q16, and 4Q16—compared to 7%, 7%, and 7.6% in 2Q15, 3Q15, and 4Q15, respectively. For 2016, analysts expect the EBIT margins to be 8.8%—compared to 8.1% in 2015.
Browse this series on Market Realist:
