Why Business Is Booming for Steakhouses Like LongHorn and Texas Roadhouse
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Key TakeawaysConsumers have pulled back on many areas of discretionary spending, but steakhouse chains have managed to keep thriving.LongHorn and Texas Roadhouse reported comparable sales growth in their most recent quarters, while a number of other restaurants have reported lower sales.Other industries, like fast food and retail, have reported lower discretionary spending, with companies like Target and McDonald's cutting prices to win consumers back.
Americans are pulling back spending across several categories, but they're still comfortable splurging on a night out.Steakhouses like Darden Restaurants' (DRI) LongHorn and Texas Roadhouse (TXRH) have managed to continue delivering strong results and traffic even as consumers contend with higher prices on essentials and seek out the most value for their money.The perception that steakhouses deliver value—along with rising meat prices at supermarkets that make ordering it in restaurants more appealing—are helping pull more people through their doors."The consumer is really focused on what price they're paying in everywhere, not just in restaurants," Darden Chief Executive Officer (CEO) Ricardo Cardenas said on a conference call last week. If consumers get relief in the price of essentials like rent and utilities, he said, that could mean more discretionary income and even more business at LongHorn and Darden's other brands like Olive Garden. Sales Continue To Grow at SteakhousesCompanies from McDonald's (MCD) to Home Depot (HD) have noted in recent quarterly reports that customers are growing tired of inflation and are shifting to the lowest-cost option across many categories as essentials have gotten more expensive.Darden in its last two quarters reported lower sales at a number of its brands like Olive Garden as executives called the operating environment "tougher than we anticipated," but sales have continued to grow at LongHorn. Darden's earnings have also received a boost from the higher-end Ruth's Chris Steak House, which it acquired last year.Darden and rivals like Texas Roadhouse aren't likely to engage in the "value war" that is brewing in other industries like fast food and retail, J.P. Morgan analysts said last week, with McDonald's, Burger King of Restaurant Brands International (QSR), Target (TGT), and others announcing plans in recent weeks to lower prices or offer temporary deals to win back inflation-weary consumers.Same-restaurant sales grew 4% year-over-year at LongHorn in the most recent quarter. Texas Roadhouse reported 8.4% in comparable restaurant sales growth at its namesake steakhouse chain in its most recent earnings last month.Rising Grocery-Store Prices Help Steakhouse DemandThe budget of the everyday consumer is stretched, Walmart (WMT) executives noted last month, and a way to ensure they get value for their money could be to spend it on things like steak that have a high value perception. A recent investor presentation from The Cheesecake Factory (CAKE) puts the average per-person check price at LongHorn and Texas Roadhouse at $26 and $22, respectively, while Bloomin' Brands' (BLMN) Outback Steakhouse ranks slightly higher at $28.Consumers are likely also being driven to dine out on occasion by higher prices at the checkout counter. Recent data from the U.S. Department of Agriculture showed that a number of types of steak are more expensive at grocery stores across the country than the same time last year.Boneless ribeye steaks are up to $15.17 per pound compared with $10.82 at the same time last year, and while filet mignon steaks are up just over a dollar to $14.49 per pound from $13.32, they were nearly $25 per pound last week, according to the USDA."Consumers recognize the center-of-plate value offered by steak," Bank of America analysts wrote in a note following Darden's earnings.Darden shares, which ended trading Friday at $151.32, are down about 7% this year as other brands in the company's portfolio like Olive Garden have struggled. Texas Roadhouse shares closed at $171.81 after hitting a record high above $175 earlier in the session, and have risen roughly 40% this year. Read the original article on Investopedia.
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