Casual Restaurant Stock Showdown: CHUY, BLMN and TXRH

The outlook for casual restaurant stocks is improving these days. After many years of steep traffic declines for casual restaurant chains, we finally started to see some flattening out in the 12 months ended February 2015.

casual restaurant stocks

Better news? Casual dining customers spent more — the segment saw an overall 3% rise in sales during the same period.

And that’s not a trend being seen across the board. Casual restaurant chains saw the growth in customer traffic, but independent casual restaurant visits actually declined.

Casual chain restaurants Chuy Holdings Inc (NASDAQ:CHUY), Bloomin’ Brands Inc (NASDAQ:BLMN) and Texas Roadhouse Inc (NASDAQ:TXRH) are all looking to secure their hold in the segment. But are any of these restaurant stocks worth buying?

We’ll take a closer look at all three casual restaurants and determine whether any of them might give you some extra oomph in your portfolio.

Casual Restaurant Stocks: Chuy Holdings Inc (CHUY)

Casual Restaurant Stocks: Chuy Holdings Inc (CHUY)Chuy Holdings Inc (NASDAQ:CHUY) didn’t exactly thrill investors with its quarterly report. While quarterly revenues grew by 19.4% year-over-year to $66.8 million, same-store sales improved by just less than 2%.

The mild comps growth was blamed on poor winter weather. CHUY reported a 3.3% growth in average check orders that was offset by a 1.4% decrease in foot traffic.

Still, even amid tepid same-store sales growth, Chuy did manage to beat the streets with earnings of 19 cents per share; the Street was expecting earnings of 3 cents.

Looking to improve on sales growth, CHUY executives are exploring opening stores in larger metropolitan areas. Chuy’s CEO Steve Hislop said, “While we have in recent years grown our restaurants in a sequential manner from our existing hubs … we believe our entire restaurant base will benefit from greater brand awareness by ramping up development in new, larger markets more quickly before backfilling into medium and smaller markets.” The Mexican eatery added a new director of real estate and a second broker to scout out store locations in the larger markets.

CHUY opened a store in 2014 in the metropolitan Washington, D.C., area that’s doing well, Hislop says. Next on the radar are Miami and Chicago, the latter of which is expected to have a Chuy’s buy 2016. Chuy’s 2015 guidance has it opening 10 or 11 new stores.

CHUY is a pricey stock, trading at 35 times earnings, but I believe the price premium is based on Chuy’s future increased revenue growth and store expansion plans. It’s hard to see that kind of promise now, considering that that CHUY has only begun to execute its plans to open in larger markets. Given Chuy’s 2014 annual return on assets of 6.9%, Chuy’s management is not generating remarkable performance with current assets. In short, CHUY stock has not yet justified its stock price.

If you own CHUY stock currently, keep holding on. If you’re looking to invest new money, wait until there are better signals that Chuy’s openings in larger markets are effective. If CHUY is successful in its new larger markets, shares will certainly head higher.

Casual Restaurant Stocks: Bloomin’ Brands Inc (BLMN)

Casual Restaurant Stocks: Bloomin' Brands Inc (BLMN)While Bloomin’ Brands Inc (NASDAQ:BLMN) had better results than its Mexican eatery counterpart, BLMN’s quarterly financials still didn’t entice investors.

Bloomin’ Brands reported quarterly revenues of $1.2 billion, a 3.8% increase from the same period last year. Quarterly same-store sales grew by 3.8% with traffic growth of 0.7%. Earnings came to 54 cents per share, which matched Zacks analyst estimates.

However, BLMN faces a few challenges in the foreseeable future. Bloomin’ lowered its projected 2015 revenues to $4.43 billion from $4.49 billion thanks to foreign currency translation. This is significant as BLMN has a large international presence — out of its 1,305 stores, 206 are based outside of the U.S., including 75 stores in South Korea and 64 in Brazil.

The lowered projected revenues spooked investors, who sold off BLMN stock to the tune of more than 4% shortly after the announcement. Shares are now off 7% year-to-date.

Bloomin’ Brands is taking steps to reverse this trend. Its major brand, Outback Steakhouse, recently expanded its services to include lunch at 70% of its stores. While it is early, BLMN projects that Outback’s lunch service can ”add $1 billion in sales if it can achieve the 10-percent market share it has at dinner.” That would more than offset the loss of the revenues due to currency weaknesses from foreign sales.

Like CHUY, I think BLMN’s valuation (it trades at a P/E of 29) is a reflection of its future growth plans.

Investors shouldn’t have to wait long to see how Outback’s lunch service pans out. Success in this area would instantly improve Bloomin’s outlook and make BLMN stock a buy.

Casual Restaurant Stocks: Texas Roadhouse Inc (TXRH)

Casual Restaurant Stocks: Texas Roadhouse Inc (TXRH)Texas Roadhouse Inc (NASDAQ:TXRH) gave its investors plenty of cheer as it reported 16% revenue growth to $460 million on same-store sales growth of 8.9%. Meanwhile, earnings of 46 cents per share beat analyst estimates by 2 cents. The news gave TXRH stock a much-needed boost after more than two months’ worth of selling.

While TXRH shares have held steady since the start of the year, its stock has jumped up by 32% in the last 12 months. It is now trading close to $34 per share.

Texas Roadhouse’s future plans are straightforward: stay the course. TXRH plans to open 25 to 30 more stores in 2015 to its existing base of 455 locations. CEO Kent Taylor already hinted that the first four weeks of the second quarter went well as far as same-store sales are concerned, growing by 8.4%.

TXRH also is piloting the Bubba’s 33 brand, a family sports restaurant that serves burgers, sandwiches and pizza. There are only four Bubba’s 33 locations now, but Texas Roadhouse plans on opening three more. Despite the fact that Bubba’s 33 locations are actually in close proximity to Texas Roadhouse stores, Kent says the chain is doing well, and there has been no evidence that Bubba’s is taking any sales away.

Given the small scale of the Bubba’s 33 project, it has little current impact on Texas Roadhouse’s financials, but the new brand does look promising and could be a driver of TXRH stock in the future.

TXRH shares are the cheapest of all three stocks we’ve looked at today, trading at 26 times earnings. It also has the most straightforward course – slowly expand its namesake brand while trying to grow its pilot brand. Texas Roadhouse looks the most promising from here.

As of this writing, Johnny Chen did not hold a position in any of the aforementioned securities.

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