Texas Roadhouse (NASDAQ: TXRH) is Ready to Start a New Comp Growth Streak

Before the pandemic started, Texas Roadhouse NASDAQ: TXRH was riding high; prior to Q1 2020, the restaurant chain had recorded 40 consecutive quarters of comparable sales growth.

The pandemic, of course, started at the tail end of Q1. Texas Roadhouse’s comps dipped 8.4% for the first quarter, as comp growth in January and February mitigated the effects of a weak March.

In Q2, however, Texas Roadhouse’s business took a big turn for the worse; comps dipped 32.8% for the quarter. That said, there was some good news (relatively speaking):

• Comps improved each month; down 46.7% in April, down 41.9% in May, and 14.1% lower in June.
• Texas Roadhouse was outperforming the average restaurant.

=Focused on Maximizing Capacity

The restaurant chains that have actually grown sales during the pandemic have, for the most part, used a digital empire to drive sales. Chipotle NYSE: CMG and Domino’s NYSE: DPZ are two prominent examples.

Texas Roadhouse doesn’t have an app with millions of users, so it’s had to take a different approach. The company has installed partitions, built temporary patios, and utilized its booth-style seating to maximize capacity, enabling the company to safely serve large numbers of customers.

Persistence Paid Off in October

Texas Roadhouse proved that its massive improvement in June was no fluke, and made more progress in Q3. Sales dipped 13%, 6.6%, and 0.5% in July, August, and September, respectively. In October, Texas Roadhouse, for the first time since the onset of the pandemic, recorded positive comp growth. It was only 0.8%, but after what the company endured this year, it means a lot.

Something else that means a lot is Texas Roadhouse’s To-Go sales trends. They comprised around 23% of sales for the full quarter, but that percentage didn’t decrease much even as comps trended upwards. In October, for example, To-Go sales made up 20% of sales.

What Will Happen to Outdoor Sales in the Winter?

Texas Roadhouse estimates that outdoor sales “contributed as much as 2% to 2.5% to our comp sales performance in the third quarter with approximately 35% of our restaurants offering some level of outdoor dining.”

At first glance, this in an area for concern: what’s going to happen when it gets colder?

Fortunately, for Texas Roadhouse investors, a good percentage of the company’s locations are in warmer weather locales. So, there probably won’t be a significant slowdown in outdoor sales for the chain over the winter.

Texas Roadhouse is Well-Positioned for 2021

It’s hard to say whether Texas Roadhouse will record positive comps in Q4 2020 – it could go either way. But with easy comps starting in Q1 2020 – not to mention, an imminent vaccine – expect Texas Roadhouse to start another comp growth streak in Q1 2020.

And Texas Roadhouse isn’t resting on its laurels. The company has noticed demand from customers that want to stock up on steaks during the pandemic, so it has started a new online initiative, dubbed “Texas Roadhouse Butcher Shop.” On top of that, the company is “working on several retail opportunities. And we will share more details with you on those, in early 2021. These are low-risk initiatives, with minimal investment costs and the potential for attractive margins.”

Increasing Price Targets

Back in October, Wall Street seemed to be a little behind on Texas Roadhouse. In December, the company has received a flurry of raised price targets:

• Wells Fargo NYSE: WFC from $74 to $85.
• JP Morgan NYSE: JPM from $70 to $80.
• Raymond James NYSE: RJF from $82 to $90.

The Wall Street love could help propel Texas Roadhouse shares going into 2021.

How to Play TXRH

Texas Roadhouse is pushing all-time highs because investors are (rightly) more focused on the future than the past.

If the company does in fact post monster comp growth for the first few quarters of 2021, then this could just be the beginning for the Texas Roadhouse uptrend.

In the short-term, however, Texas Roadhouse looks primed for a small pullback. Consider getting in if shares get a little closer to the 50-day moving average.