I Am Recommending A Short Of Texas Roadhouse, Inc. (“Txrh”

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I am recommending a short of Texas Roadhouse, Inc. (“TXRH” or the “Company”). Company Overview Texas Roadhouse, Inc. joined the casual dining sector in 1993 with the establishment of its namesake concept: the “Texas Roadhouse” restaurant. For the “Texas Roadhouse” brand, the Company’s reputation and identity for offering high-quality beef products results in a substantially higher meat commodity mix at about 90% of menu options (top of the segment), creating a higher-priced average check at $16.31 over the past year. The Company’s per unit sales are over $4.5MM, one of the higher totals in the segment. This short thesis is predicated on the contention that TXRH’s streak of 26 consecutive quarters of positive same-store sales growth is…show more content…
Since 2005, traffic at casual dining chains is down more than 30%. Casual dining growth has been nonexistent and it appears that it will not improve anytime soon. There are two fundamental challenges that make the casual dining segment unlikely to substantially progress over the next few years. First, the 18 – 35 year old demographic favors fast casual concepts that are conversely related to the success of companies in TXRH’s peer group. Second, the segment as a whole typically operates in malls and shopping centers. Declining traffic due to the rise of ecommerce and lower-priced outlet stores spells out disastrous degradation of foot traffic for companies like TXRH. Supporting Points The NPD Group reported in 2015 that from 2008 to 2014, the average CAGR in casual dining sales was just 0.4%. The Company has faced almost insurmountable challenges to foot traffic because of the structural issues facing management’s location targets in malls and gallerias. Because a significant majority of the Company’s unit mix is located at shopping centers, a change in overall traffic patterns across both the restaurant and retail industry would be needed to increase same store foot traffic. That seems unlikely to happen due to the rise of new technologies and consumer preferences. TXRH’s comparable unit traffic looks to be deteriorating because of its location choices. Although comparable foot traffic has been slightly positive, it is likely because of the seasonality and
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