Texas Roadhouse Inc (TXRH), Buffalo Wild Wings (BWLD): Four Numbers Say This Company Could Miss Estimates This Year

I’ve been keeping tabs on Texas Roadhouse Inc (NASDAQ:TXRH) for a little while, and though I like the concept, I’m beginning to get worried. The company has several positive factors working in its favor, with a growing dividend, and growing earnings. However, based on the company’s recent earnings, I would make the argument that there are at least four reasons they may miss estimates sometime soon.

Texas Roadhouse Inc

Cooking up value
I continue to be somewhat shocked at the slow reaction time the market has to great restaurant concepts. I take a page from Peter Lynch’s book and follow quite a few restaurants, because as he said they are so easy to understand. Lynch said, once the company proves its concept, it moves into a fast growth phase where it duplicates this concept as it moves across the country.

What’s amazing is, even after years of positive earnings growth, investors can still find value in this industry. My favorite example is Brinker International, Inc. (NYSE:EAT), which pays a competitive yield, and is still growing fast. Investors also have a chance to pick up shares of restaurants that are turning around, like Darden Restaurants, Inc. (NYSE:DRI). Darden’s Olive Garden chain has been a consistent performer, but the Red Lobster concept has been holding the company back. A more competitive Red Lobster would give investors a reason to expect better results.

For investors looking for better growth, a younger concept like Buffalo Wild Wings (NASDAQ:BWLD) might make sense. The company has been posting impressive revenue growth, and if they can keep input costs for chicken under control, this could be a great long-term investment.

Inflation in two places you don’t want
One issue facing Texas Roadhouse Inc (NASDAQ:TXRH) is the company has to deal with input cost inflation. The company’s heavy reliance on beef prices means their margins can compress suddenly. The company said for 2013 they expect 6% to 7% food cost inflation. While this wouldn’t be a huge deal for a company that will consistently raise prices, Texas Roadhouse has historically been very reluctant to do so. This would seem to argue for margin and revenue challenges going forward.

The other inflation Texas Roadhouse Inc (NASDAQ:TXRH) faces is completely self-inflicted, and that is the inflation in the company’s share count. When I read a company repurchased 1.78 million shares I’m usually pretty happy. However, even with this share buyback, total diluted shares were up 1.48% year-over-year. For a company that is growing very fast, a 1.48% increase in the share count might not be a huge deal. However, Texas Roadhouse Inc (NASDAQ:TXRH) has two additional challenges that just make these additional shares like rubbing salt in the wound.

Less Than Expected
Texas Roadhouse Inc (NASDAQ:TXRH)investors can’t afford to ignore the challenge to the company’s margins. The company’s operating margin in the last quarter was 7.13%. By comparison, the only competitor we’ve mentioned with a lower margin is Darden at 3.88%. Considering that Darden is struggling to turn their Red Lobster concept around, it makes sense the company is struggling.