Over the last few years, there has been a major trend among franchisors to move towards an asset light business model.
Many restaurants in the QSR space have gone through refranchising to get to 90-95% franchised. In the publicly traded space, this has led to a more consistent earnings stream and premium valuation multiples (ie McDonald’s and YUM!)
You can therefore see that we were surprised to see Texas Roadhouse talking this week about wanting to buy back their franchises.
At the ICR Conference this week, Texas Roadhouse indicated that they have more than 70 franchise locations, and they want to buy them back. The issue at hand is that the brand is performing well. Therefore, the franchisees don’t want to sell. The company indicated that they are looking for creative ways to acquire more units.
What Else Did Texas Roadhouse Say
Management talked about the prospects to take pricing in 2019. Reminder that some pricing was taken in November 2018.
There have been some concerns from investors on the lack of earnings upside, so this should help ease concerns about store-level margin contraction.
We also heard that secondary brand, Bubba’s 33, is doing well. Bubba’s made its debut in 2013, and it plans to open around 5-6 restaurants this year.
The last interesting tidbit that we learned was that 3 out of the first 5 Texas Roadhouse stores failed. What great resilience to a brand that has nearly 600 stores today!
Texas Roadhouse is expected to report earnings on February 19th.