Texas Roadhouse insider buys $992K of TXRH as labor costs worry investors

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James Zarley, a Texas Roadhouse Inc. (TXRH) insider since 2004, filed a Form 4 disclosing the purchase of 18,900 shares of TXRH on May 1 at $52.91. The long-time director’s $992K purchase was a reversal — Zarley sold 10,900 shares of the steakhouse chain in February of 2018.

Zarley is a former CEO and director of Conversant (Value-Click Inc.). That company was acquired by Alliance Data Systems (ADS) in 2014. The Texas Roadhouse insider has a history of well-timed buying and selling at both TXRH and Conversant.

Texas Roadhouse insider Zarley has a history of well-time buying and selling

Back in 2008-2010 when Zarley was COO of Conversant, he purchased about $8 million of of Conversant shares at an average cost of $9.91. In March 2012 through March 2014 he sold those shares, plus another 190,000 granted shares, at an average price of $23.80. That’s a profit of about $11 million on just the open market purchases.

As a Texas Roadhouse insider, Zarley’s first open market buy was 50,000 TXRH on Aug. 9, 2006 at 10.14. He then sold 50,000 shares on Feb. 26, 2010 at $13.46. He bought $1 million of TXRH on Aug. 3, 2016 at $42.23. His next trade was a $619K sell of TXRH on Feb. 23 at $56.82.

Now Zarley is back on the buy-side with a near $1 million purchase.

James Zarley’s buying and selling as an insider

Filing DateSymbolInsiderTransactionTrade Date Shares Avg. Price Total Holdings % Change
03-May-2019TXRHZarley James RMarket Purchase01-May-2019 18,900 52.51 $       992,439 13.41%
26-Feb-2018TXRHZarley James RMarket Sale23-Feb-2018 10,900 56.82 $       619,384 -31.41%
05-Aug-2016TXRHZarley James RMarket Purchase03-Aug-2016 23,800 42.23 $    1,005,070 22.37%
20-May-2015TXRHZarley James RMarket Purchase14-May-2015   1,300 34.25 $         44,525 1.35%
20-May-2015TXRHZarley James RMarket Purchase13-May-2015   1,100 34.25 $         37,675 1.15%
01-Mar-2010TXRHZarley James RMarket Sale26-Feb-2010 50,000 13.46 $       673,000 -43.48%
10-Aug-2006TXRHZarley James RMarket Purchase09-Aug-2006 50,000 10.14 $       507,000 na
23-May-2014CNVRZarley James RMarket Sale21-May-2014######25.02 $    5,504,490 -49.56%
16-May-2014CNVRZarley James RMarket Sale12-May-2014######25.06 $    4,510,800 -28.85%
22-Feb-2013CNVRZarley James RMarket Sale20-Feb-2013######27.12 $    5,336,400 -24.16%
07-Mar-2012CNVRZarley James RMarket Sale05-Mar-2012######20.88 $    8,244,150 -32.94%
12-Aug-2010CNVRZarley James RMarket Purchase11-Aug-2010######9.99 $       999,000 9.94%
13-May-2010CNVRZarley James RMarket Purchase11-May-2010 16,000 9.48 $       151,680 3.94%
13-May-2010CNVRZarley James RMarket Purchase12-May-2010######9.85 $    5,752,400 138.46%
23-Jul-2008CNVRZarley James RMarket Purchase21-Jul-2008######10.24 $    1,024,000 200.00%

Texas Roadhouse’s rising labor costs hurt the bottom line

Shares of Texas Roadhouse tanked on Tuesday, falling 11% to $54.35, after increased labor costs caused the restaurant chain to miss Wall Street’s first-quarter earnings and sales expectations.

The Louisville, Kentucky-based company said earnings were $50 million, or 70 cents a share, down from 76 cents a share a year ago. This missed analysts’ forecasts of 82 cents a share. Revenue totaled $691 million, up from from $628 million a year ago, but below Wall Street’s projection of $694 million.

Comparable-restaurant sales rose 5.2% at company restaurants and 4.3% at franchised locations. Restaurant margin decreased 128 basis points to 17.9%, the company said, primarily due to labor costs which increased 118 basis points.

Commenting on the 1st quarter results, TXRH President Scott Colosi said: “Much of the labor increase was driven by wage rate and other labor inflation that currently does not show signs of abating. As a result, we are updating our labor inflation expectations for 2019. The additional 1.5% of pricing we put in place at the beginning of the second quarter will provide a significant benefit for the remainder of 2019.”

Analysts lower Texas Roadhouse price targets

Several analysts lowered price targets in response to the earnings shortfall. Wedbush analyst Nick Setyan lowered his price target on TXRH to $56 from $62, noting that margin pressure continues to overshadow same-store sales growth momentum. The analyst reiterated a Neutral rating on the shares.

Based on his purchase, we can surmise that Texas Roadhouse insider James Zarley believes Wall Street is wrong to sell-off THRH, and the stock’s a buy. His trading history suggests there’s a good chance he’s right.

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