Motley Fool Hidden Gems Investing - One Restaurant's Winning Recipe

Episode Date: June 23, 2017

Bed, Bath, & Beyond takes a bath. Oracle hits a new high. Tesla talks China. And Ken gets a makeover. Plus, Texas Roadhouse founder and CEO Kent Taylor talks about the ingredients for success. Thanks to Thumbtack for supporting The Motley Fool.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. Ron Gross. It's the Motley Fool Money Radio Show. I'm Ron Gross, sitting in for Chris Hill. Joining me in studio today from Motley Fool Explorer, Simon Erickson. From Million Dollar Portfolio, Jason Moser. And from Supernova, David Kretzmann. Hello, gentlemen. David Kretzmann. Hey there, Ron. Hello, hello.

Today, we are going to talk about Tesla, Snap, and CarMax, but we begin with a weaker-than-expected earnings report from Bed Bath & Beyond that sent the stock down more than 10% on Friday. So, Jason, I will turn to you. Was there anything good in this report that we can hang our hats on? I mean, it's good that we can sit here and have subject matter for the radio show this week, I guess. Yeah, I mean, listen, probably the biggest question today, we got it last year, the year before, is this a value play or a value trap? I think you have to go value trap here. It seems to be playing out that way. O' Six times earnings, value trapped? Yeah. I think it's really difficult to identify the catalyst that actually turns

this thing around. When you look at the sales numbers, sales are flat, comps are down. They still have $1 billion in net debt on the balance sheet. Now, I will say this, you want some good news. The good news, Ron, is that they've done a very good job of bringing down the share count via repurchases. Since 2013, share count is down 35%. The bad news is, over that same period of time, the stock price has now been cut in half, which essentially just defeats the purpose of the repurchases anyway. Going back to 2014, I noted where they had spent $171 million on share buybacks, basically with shares at all-time highs. So, they have done essentially what you do not want to do in the repurchase game, is buying all your

shares back at really high prices, and then performing very poorly in the process, which really just has destroyed a lot of value here. Right. So, Wonder Woman's in the theaters, and we are clearly living in an Amazonian world in many respects. So, Simon, I will ask you, how bad is Amazon kicking bed bath? And what do you have to do to kind of compete in the world of Amazon nowadays? Well, I mean, Amazon, by the way, I love the pun. Amazon, very nice, Ron. I think that just everything in the world is a data point now, right? I mean, Amazon's acquisition of Whole Foods shows that there is no industry that's safe right now from being Amazon. And just

if you have more data about what people are buying and where they're buying it and get trends out of that, you can appeal to them more in a customer-centric focus like Amazon's been doing. So I'm not really sure there is any industry that is Amazon proof at this point. I will say, though, that one thing that Amazon doesn't want to do is ship a lot of low-value, high-weight stuff across the country. So maybe there are opportunities. One that I like is tractor supply. You don't want to be shipping a whole bunch of deer corn around the country. Amazon is obviously building out a large logistics network, but still, there is some place for retail to buy stuff you don't want to ship. David, can you think of any company that

would be at least somewhat Amazon-proof? Yeah, I think you really need to look for companies that operate in a niche or a specialty that Amazon can't easily replicate. I think Tractor Supply, like Simon mentioned. Wayfair and Etsy are a couple others that come to mind. And with Etsy, you have the ultra-customizable items, personalized, stuff that isn't mass market stuff that you see on Amazon. Yeah, I read a lot about TJX, the owners of TJ Maxx and Marshalls, being called Amazon-proof. I'm not sure that I buy into that, because it's going well now, but it seems like if Amazon wants to, it could get into that discount business pretty strongly.

Jason, what do you think? Yeah, well, I think one we always talk about is Home Depot, just because of the nature of what you're buying, tend to have to go there and see what they have. But Home Depot has done a great job of leveraging that physical network, as well, with the pickup and store, buy online, all that good stuff. I mean, Wayfair is one. I don't think there's any coincidence here that, as Bed Bath & Beyond declines, Wayfair is on the rise. And Wayfair is one that we've talked about for a long time, and one that seems like it would be pretty easy pickings for Amazon. But I think that Wayfair is really keyed in on something

that Amazon doesn't really do so well when you're talking about that home furnishings market. It's very clear to me that Wayfair is by far and away the superior shopping experience. I think that's something that they've really focused on. With Amazon, you know what you want, you go there, you search for it, you find it. With Wayfair, you know generally what you want, but you don't know specifically what you want. Maybe you want a couch, but you're really not sure what kind, what size. You go search for that on Wayfair, and that really helps break it down for you. And that's where Wayfair has really shined. I think that's why Wayfair's numbers are doing so well, as Bed Bath & Beyond really just continues to

decline. Alright, Simon, let's pivot over to Tesla for a minute, who is in talks to build their first China-based factory in Shanghai. So, my question to you, is this move designed to lower costs, or is it an entrance into the Chinese market? It's probably an interest in the Chinese market. I mean, right now, Elon, you keep hearing that he wants to sell 500,000 cars a year, right? Mr. Musk. Exactly. Mr. Musk, the founder and CEO of Tesla. And half of the electric vehicles sold every year are in China. They're lower margin. They're not Teslas today, but they're selling about 500,000 a year.

And so Elon almost has to get a foothold into China if he wants to get there. They also have a lot of government funds that have gone into electric vehicle adoption. They built out over 80,000 charging stations across the country. They've got subsidies for lithium-ion battery producers and for electric vehicles and things like this, too. So, it's very favorable at the bigger picture, but there's also some complications with it, too. It's not going to be just cut-and-dry easy for Tesla to go make a name for itself in China. They're going to have to give something up. They're going to have to partner with somebody.

They're going to have to give up IP or something. And I think that's going to be the question mark for Elon Musk going forward. Agreed. Alright, so Snapchat's corporate parent, Snap, has acquired French social mapping startup Zenly for $200 million in cash, plus additional stock awards. So, David, what's Snap doing? What did they get here? David Gardner Well, earlier this week, they released a new feature within the Snapchat app called Snap Map, which is essentially a location ...

O' Catchy. Yes. Whoever came up with that name deserves a raise. It's a location-sharing feature within Snapchat, so you can see a map of your city or the world as a whole, you can see where your friends are and the pictures and videos that they're sharing on Snapchat. And you can also, on that map, see a heat map that shows certain pockets where a lot of people are sharing pictures and videos. So it might be a YouTube concert or some other big event in your area or around the world. So it brings a new social element into Snap. And it turns out they acquired Zenly about a month ago. They didn't just blindly copy those features. They

actually acquired it. And it looks like they were pretty quick to integrate those features into the main Snapchat app. So I'm on record saying I wouldn't touch Snap with a 10-foot pole, probably not that surprising coming from a value guy. Where do you stand with the stock? I mean, the challenge for Snap is that the company has been very innovative, but it takes almost nothing for Facebook to copy those features across its multiple apps like Instagram, WhatsApp, Messenger, or the core Facebook app. So Snapchat really has to innovate like this every quarter and just stay ahead of Facebook. And if they can do that sustainably, sure, maybe the stock is good, but that's a big bet.

The other thing to remember, too, is if they get caught in any kind of a downward spiral here leading into this next quarter, I think at the end of July, they have a lock-up that expires of somewhere like 1.2 billion shares. I have to believe there are a lot of employees that are looking to cash out on this IPO in some capacity. And if they get into a downward spiral going into that, it could start to get pretty ugly for these guys coming into the end of 2017. If they don't really show a clear path to monetization growth in users and a real value proposition for advertisers. O' Simon, you're a growth guy. Are you a buyer of Snap right here?

Ladies and gentlemen, he's shaking his head. I don't know. I mean, Snap has got such an opportunity to be the experience provider, rather than just a camera company. If you're there in person with your friends, then you can monetize it. I haven't seen it yet. I don't think they have a clear business strategy yet. Yeah, I think competing against Facebook and staying ahead of Facebook is such a tall order, I'd be cautious right now. All right. On Wednesday, Oracle reported better-than-expected results that sent the

stock soaring 10% higher. Simon, cloud business getting it done. 67% SaaS growth year-over-year, right? That's a sexy number that everybody's going to have the narrative built around. But really, Oracle, I think it's just displacing a lot of their own existing business. It used to be that they'd send people out to the enterprise, they'd sell a whole bunch of software for logistics, for HR, for budgeting, for whatever it is your large enterprise needed. And they do it on premise. And now everything is all about the cloud, Ron. So all of that is getting recoded, put onto like an Amazon Web Services kind of environment. But now that's the same basic market that Oracle is wanting to go after too. So they're building

platforms to develop off of. They're putting the software back in the cloud. And then now they're also doing the hosting, going head to head with some big cloud titans out there. They're going to have their existing customer base. It's a sticky business and switching costs for customers to change from Oracle that they've gotten used to. But I just wonder how big their market can get and if they can pull new customers away from the guys already out there. So help a Luddite like me understand, it seems like the cloud is a commodity business. How does one company, whether it's Amazon or Oracle, differentiate itself from another?

And is it really just about switching costs once you get with someone, you tend to stick with them? Yes. Typically, cloud-based software, anything software-as-a-service, is typically lower margin than anything on-premise that you installed. and you've got the maintenance contracts and all of that stuff for. But you can get the pie much bigger because, like you said, it's land and expand. You get a customer to use something, you sell them more and more over time. Amazon's already got 40% of the cloud-based business in the U.S. The next three are Microsoft, Google, and IBM.

They've got 25%. And everybody else, including Oracle, is fighting for the rest. So I think it's going to be really tough to displace that. I think at the $200 billion market cap, there's a lot of optimism already priced into Oracle's stock price. I agree. Okay. way. CarMax reported better than expected first quarter earnings. And Jason, pretty impressive results across the board. Anything stand out to you in particular? Yeah, I think this is an interesting business, just because it has so many different

forces that play out on how the business is going to perform. It's just general economic outlook. It's the number of used cars that these guys may have access to. It's unemployment. All sorts of things. Interest rates. So, CarMax has been kind of a lumpy business here over the recent couple of years, and they have seen at least a shortage in inventory of older used cars based on weaknesses from the overall industry about eight years ago. Now, they're starting to see that kind of roll off, and I think that management is at least optimistic about these coming quarters. They feel like they're going to have more inventory to offer consumers more choices. But if you think about it from the perspective of, if they don't

have a healthy inventory of good used cars to choose from, when you couple that with all of these auto makers now offering all of these great incentives for customers to go buy new cars, then it makes it far more difficult, really, for CarMax. But they have built a really tremendous network out here across the country, making the used car shopping experience far easier than it was, perhaps, when folks like you and I were growing up. I don't mean to date ourselves at all, but it is the fact. So, I think they continue to do very well with that. Management, I think, has done a very good job, in this case, of buying back shares. The share count is down about 17.5% since 2013, in the face of some

lumpy performance. And I think it's also worth noting that the guys that we love down in Richmond at Markel, this is a big holding in their portfolio as well. So, all in all, I think this is a business still with a lot of tailwinds at its back there. And I think we'll see the stock perform well here over the coming years. You talk about lumpy performance. I saw some headlines that talked about how people are spending their tax refunds, and that's perhaps why the quarter looks so good. Is this a sustainable kind of business going forward, or is it going to be that lumpy kind of business? Well, there's no question you're going

to see that sort of lumpy performance from fourth quarter into first quarter every year because of the tax refunds. But again, I think it goes back to the health of the economy, the health of the consumer, and I think right now we're starting to see those trends all improving, which certainly bodes well for CarMax. Haynes Celestial finally reported earnings after completing its internal accounting review, and David, seems like a case of nothing to see here. Yeah, that's actually good news for Haynes. They last reported financial results in May 2016, so it's over a year since we had any financial update from the company.

They were investigating the timing of when they recognized revenue, and they kept saying that the amount of revenue was not in question, just the timing of it. Yeah, they finally reported results, and they don't have to make any major restatements of their previous financials. So it's back to business as usual. And I think that's, if you're a Hain shareholder, that's pretty good news. The company is still in a transition period. A lot of pressure on margins is that natural and organic food space faces a lot of price competition. So they're reinvesting a lot back into their brands, trying to refocus on those core brands. They brought on a new CFO, trying to cut some of the fat and cut costs to the tune of $350 million through 2020. So

still a transition period for the company, but I think shareholders can breathe a little easier now. All right. Sounds good. Coming up, Ken gets a makeover and we'll share some stocks on our radar. You're listening to Motley Fool Money. Hey, it's Chris Hill. Before we get to the next segment, I just wanted to give a quick shout out to our friends at Away. Away makes affordable, high-quality suitcases that charge your phone and start at just $225. By cutting out the middleman, Away is able to offer the perfect luggage made with high-quality materials at a much lower price. It comes in a variety of sizes and colors, and they all cost less than $300. There's two USB ports and a high-capacity battery that allow you to charge multiple devices on the go. Phones,

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code fool at checkout. That's awaytravel.com slash fool and use the promo code fool. Now, back to the show. Welcome back to Motley Fool Money. Ron Gross here, sitting in for Chris Hill, joined by Simon Erickson, David Kretzmann, and Jason Moser. Gentlemen, before we share some stocks on our radar, we have a few minutes to discuss the most important news of the week. Ken of Barbie and Ken fame is finally getting a much-needed makeover. Mattel is releasing 15 new Ken dolls that come with different looks and body types, so that is all well and good, but I thought it would be fun to go around the table here and ask each of you if you have one wardrobe or appearance-related choice you made in the past that makes you

cringe today. And David Kretzmann, I'll start with you. Well, I need to collect all of those Ken dolls. I'll be my mission starting this week. But on two separate occasions in high school, I bleached my own hair with hydrogen peroxide. Nice. Not proud of that. Nice. Jason? You know, college was a wonderful time, but I regret the socks with Birkenstocks. This was just a dumb move.

That's not that bad. Simon, what do you got? Mine's still ongoing, Ron. I have a leather jacket I can't get rid of. It's faded and torn and everything else, but I'm holding on to it. My wife tells me to throw it away every week. In high school, every day during sophomore year, I wore a white satin Yankees jacket. Not as an outside jacket. I wore it every day inside to class all day long. I can't actually believe that's true. Man behind the glass, Steve Broido, what do you got for me?

I had flock of seagull hair for a while. I'm not surprised. I'm proud of it, but looking back, it may have been a mistake. Oh, that's strong. All right, guys, time for stocks on our radar, and I'll bring in our man behind the glass again to ask each of you a question. Jason, you're up first. What do you got? Yeah, I've talked about this one before, Teladoc, ticker is T-D-O-C, and this is basically internet medicine in the simplest description, but the stock is more the double this year.

I've been following this thing since it went public over a year and a half ago. I have a positive rating for it in Fool IQ. There's a lot of value. The value in a platform like this is really seen in the network. And they continue to grow their network as more and more doctors are offering services. Their recent acquisition of Best Doctors is growing that network as well. And so, given the market opportunity in healthcare, I think the market is going to continue to give these guys a bit of a pass as they continue to grow the business. I just don't know why Simon hasn't gotten in rule breakers yet. I'm kind of holding a grudge.

Steve, you got a question about Teladoc? Liability-wise, is that the biggest risk to them? You meet with a doctor online and they get it wrong, and they're liable for something. Well, that's true, and I think any physician is going to have malpractice insurance, and so that's something that won't go away, unfortunately, for doctors. I imagine that's a bill that'll keep on going up. Simon, what are you looking at? Well, Ron, I'm going to continue the cloud computing analogy, so if you'll allow me to

accumulate my thoughts and you won't rain on my parade. I'm going to go with New Relic. The ticker is N-E-W-R. New company on my list. They are a partner of Amazon Web Services. Amazon does a lot of the hosting and the infrastructure stuff, but it's still customers that are handling their own applications that are based in the cloud. And New Relic is actually helping them with a platform to manage those applications. So if you're buying a drink from Starbucks on your cell phone and the payment button doesn't work, or if you're watching the baseball game and all of a sudden the streaming goes down, you want to prevent problems like that in advance of them actually happening.

New Relic's managing a lot of stuff going through the cloud, and I really like them going forward. Steve? What percentage of the population actually knows what the word the cloud is? I'm being totally serious. I hear the cloud all the time. Yeah, it's in the cloud. It's all good. Don't worry about it. I think we need a study on that one. Awesome. David, what do you got? I've got Mazer Robotics, ticker MZOR. This is an emerging innovator in robotic surgical systems, kind of similar to Intuitive Surgical, a popular rule-breaking stock over the past decade or so. But Mazer Robotics focuses on spinal surgeries. So

these robotic systems reduce complications for the patients, and they improve patient outcomes and recovery times. It's a razor and blade business model. They sell the machines to the hospitals, and they generate recurring revenue by selling the spinal implants themselves for the procedures and servicing the machines each year. And these machines are installed in about 150 hospitals worldwide today, up from just over 60 in 2013. So, nice growth. I like them. Steve? How do the results differ from a human surgeon? Pretty much better across the board.

Steve, what do you like? Mazer Robotics, Teladoc, New Relic? I think David's stock sounds very interesting. Mazer? Mazer. Mazer. I'm interested. All right, guys. Thanks very much for joining me. Appreciate it. Coming up, a conversation with Texas Roadhouse founder and CEO Kent Taylor.

Stay right here. You're listening to Motley Fool Money. Mashed potatoes. Here at Cuminina. Mashed potatoes. Rollin' to the moon. The stars at night are big and bright. Welcome back to Motley Fool Money. Ron Gross sitting in for Chris Hill this week.

At our recent member event, Motley Fool analyst Bill Mann interviewed Texas Roadhouse founder and CEO Kent Taylor. Texas Roadhouse is a casual dining restaurant that first opened in 1993. Today, the company has 530 restaurants in 49 states and six foreign countries. And it's a familiar name to many Motley Fool members. Texas Roadhouse stock has been recommended in three different Motley Fool services. Ken Taylor covered a lot of ground in the interview and kicked things off with a colorful description of Texas Roadhouse. Okay, we're the redneck Outback Steakhouse. That's how I would describe us.

We play country music. We do three table stations. They might do four or five. We cut our own steaks in the house. They don't do that anymore. and our managing partners put up $25,000, and they get 10% of the show out back. I stole that idea from them, but they don't do that anymore.

We used to do 2.8 million in sales, and they did 3.2 million in sales. Today we do 4.7 million a unit in sales, and they do 3.3, I think. So somewhere along the line, we've figured a couple things out. And it sounds to me, yeah. And we're dinner only, no lunch. Those are your investors, by the way, who are applauding.

I just want to make clear who your audience is. And it sounds to me like that investment in people to you is one of the keys. Absolutely. We've done that since day one where you paid to run the store. Our area managers put up $50,000, and then they get to run up to like 12 stores. and so we don't really have much turnover and they have to sign a five-year contract to stay in that location so i think that's been probably our biggest key to success on top of you know having quality stakes and cutting in-house when you first opened texas roadhouse it wasn't as if

you just threw open the doors and were you know and success just reigned in i mean you no it was a struggle well yeah i mean uh well i guess for starters i tried to raise money for seven or eight years got turned down uh and so i would make a game of how many times i could get turned down in a month uh but but it was easy for me because back when i was in college i'd go to bars and try to get girls to dance with me and they'd turn me down so i was used to rejection so you were you were practiced exactly so when you opened your you you opened your first five restaurants is right no i In 93, I opened the first two.

I got three doctors to back me. After having a lot of smart investors turn me down, I figured I'd go for doctors that maybe think they're a lot smarter in business than they really are, so that was good. I would like to apologize to any doctors in the room. No, my original doctor is very smart on the doctoring area, but maybe not the other. And then three of the first five failed,

So all three I opened in 94 failed, so I had to rethink things, work on the food, make it better, work on the building, make it better, figure out how to attract sharper people. And it took about 10 stores, I think, before it kind of connected a lot of the dots. And then from that point, we seemed to do better. But I did raise private funds in 98 when we had 20, 30 stores and brought a lot of great people in. But the next year we lost $3 million because a lot of stores were getting ready to open. And then that next year we made $3 million. So you've got to kind of bite the bullet a little bit to move ahead down the road. One of the things that we've been hearing a lot about was that retail in general and malls are failing.

And how have you seen the choice of sites change over time? You're correct. I used to, my first store was actually in a mall. And then today I won't pick a store that's in a mall, maybe on the out partial, but not actually in a mall. And some of the malls I've seen around the country that have really thought things through, they'll get rid of two anchors, put up two high-rise apartment buildings, and then have a restaurant area instead of, say, a third anchor. And it's amazing to see how some malls around the country, specifically on the West Coast, are adapting to that. So you actually, from a, I mean, even if we're not making an assumption about retail itself, malls, I think, there's perhaps some hope that there is a future for that space, I guess.

No, I absolutely believe so, in a lot of locations. Yeah. Let's get back to failure for a second. I've had a bunch. There's this girl in 11th grade. Anyway. I met that girl, too. yeah so i understand that your uh that your office is basically uh you you basically have

a monument to failure in your office oh uh you must have talked to travis um travis is not your monument to failure no i i do have a fish a skull and a fish from this three stores i closed in 94 and underneath the fish when they started when they died and how much money we lost And then there's a franchisee that I was having a disagreement with. He sent me a skunk's butt, and I got that on the wall as well. And then I've got a rejection letter from Steak and Ale when they rejected my idea back in the 80s when I worked for them, thank God. What do you think the difference between a successful restaurant and an unsuccessful restaurant is, both on a restaurant basis and then looking across the chains? Oh, I think for us, it's the managing partner as an owner.

It starts there. And then we basically just try to hire happy people. And then the fact we don't do lunch and they make more tips at night, we kind of get a little better selection of folks, I think, in that regard. And then we're very stringent on making our food in-house. and a lot of companies that try to save some money will you know go go away from in-house scratch food they won't cut their steaks like we do they won't buy the choice steaks that we do and then they'll have five table stations we have three table stations so we get

more guest interaction with our servers is a big piece of that and I'm just speaking for us And I think people that are working for themselves just have a different motivation, you know, every day. And we do no marketing at all. And so our people kind of the weight of increasing sales is on their shoulders, not waiting for the marketing folks to do some, you know, cool marketing. One of the things that we were talking about earlier is you think that in some ways what Texas Roadhouse is selling people isn't food. It's not even necessarily an experience. It's energy. Yeah, I would agree. I think when you come into our stores, we play our music a little louder. We've got a jukebox up front. People are line dancing every hour. And even in our stores in the Middle East, where they told us, oh, you've got to keep it calm there. They're really not into that stuff. And I'm like, screw that.

so so you know we'll line dance in the middle east and you know the the folks will pull their cameras out and they're like checking it out so uh so they doesn't matter what country in the world you're at everybody loves energy and enthusiasm and you think that they and what you found is that they appreciate the authenticity of that concept as opposed to changing it for i don't really know i just look at the sales and i'm happy that's pretty good yeah Thank you. Yes, I agree. That's awesome. So I think one of the things that first attracted us to your business is that we are very attractive. And one of the themes that you all have heard multiple times during our time together in the last two days is that we really do appreciate founder-led companies.

Yours isn't just a founder-led company. You are very, very involved in a lot of the day-to-day decisions that get done. And maybe talk a little bit about your day. Sure. Well, I approve all sites. So even though international, I'm traveling. And so, you know, over time, you kind of realize what site did more in sales versus another one. So you kind of know how to target the better sites.

I'm involved in all menu decisions and menu flavorings, which is a big deal to us. And then… Everything's made from scratch. Everything's made from scratch. We have one steak, a T-bone, that comes in pre-cut for us because I don't want to have a bandsaw in the restaurant where fingers get cut off. But other than that, we cut our own meat and make all of our sides from scratch, which I don't think any of our competitors do as much as we do.

And then on pricing every year, I call up all 50 of our market partners and get their opinions on what they think prices should be. And if somebody's maybe a little high or whatever on the price increase for an item, I'll call some of their stores, say on a Sunday night. I do a lot of calling on Sunday night, and I'll say, can you please put three servers on? And I'll ask them, hey, you know, if we're doing a price test in a store, what are the guests saying? Because a lot of times they're giving me, you know, real information, whereas I might be getting a little BS from the area manager. You also like talking to servers, don't you? Yeah, that's what I was just saying.

I'd call and say, put some servers on. Or if I'm in a store, I'll probably spend an hour talking to the employees before I even talk to the manager just because I learned so much from them. Right, right. Do you feel like that there's a crisis or are we on a downward slope for restaurant chains? I think there's so many people eating out, but there's a lot of people eating at home and people are just shifting. And I think a lot of some of the casual dining folks that we might compete with, I think a lot of what's happened to their sales is really self-inflicted. And I'd tell you about it, but I don't want them to know that they shouldn't do something.

Blame it on Texas. Don't blame it on me. Coming up, Bill talks with Kent about being an undercover boss. Stay right here. This is Motley Fool Money. Before we get back to our Texas Roadhouse interview, I want to say thanks to Thumbtack.com for supporting this episode of Motley Fool Money. Thumbtack makes it easy to find and hire skilled local professionals for any project on your to-do list. No more sifting through millions of search results. Thumbtack will help you find the right professional that's available when you need them and within your budget. Thumbtack has pros offering more than 1,100 different services nationwide for your home,

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It worked like a charm. Download the app or go to Thumbtack.com to find and hire local skilled pros for just about anything you need. That's Thumbtack.com. Welcome back to Motley Fool Money. Ron Gross sitting in for Chris Hill this week. And we're revisiting Motley Fool analyst Bill Mann's recent interview with Kent Taylor, the founder and CEO of Texas Roadhouse. You've mentioned in the past that Sam Walton was someone who you really admired. Absolutely.

Sam Walton, he picked his own sights. He was in the stores like I try to be and really listened to the frontline people. And then I also love Herb Kelleher with Southwest Airlines. A lot of our culture ideas that we do, I stole from Southwest Airlines. All of our people have to read the book Nuts. And then my dad works at GE, and I used to hear these Jack Welch stories, and he was always like, you know, you can't allow the bottom 10% to stay there too long, or you'll bring the average down. And I think through the years, I've kind of been pretty good at holding people accountable, and if they couldn't deliver results, then you have to make a change. Yeah. You always think of, you know, your company as being oriented around fun. It's actually oriented around performance.

that's correct you know we still want to have fun and make sure our employees have fun like we have a fun budget in our stores and we want to make sure that our employees you know it might be co-ed flag football or co-ed bowling leagues or things like that to encourage people to intermix within the stores and we always try to make sure that when we do contests that somebody in the back of the house is teamed up with somebody in the front of the house so that they both win and it kind of gets rid of that barrier that may exist sometimes between the front in the back of that's kind of unheard of in any type of any type of a

retail culture what you think about is people are showing up clocking in collecting a paycheck and right right no we I've had a lot of people that have you know call me through the years that are now not working for us they might be working at another company and they work for us in college and they'll say there's a lot of cool things that I learned at Roadhouse that I'm now applying to where I am now and this I just wanted to thank you or whatever that's great that's cool all right I've been asked not that I'm not excited about asking about this but I want to ask you about about your

relationship with Willie Nelson okay I didn't smoke no no we he approached us to carry his bourbon back in oh three and then he played for us at a a conference that year and i i just got to know him and then i uh got hooked up in a couple poker games with him and he realized that i was a really bad poker player so he kept inviting me back and um and now we do a willie's corner in every every restaurant and um and i he has a poker thing in december every year that i i go to and i have to bring a lot of money to lose i have a poker game tomorrow night can you stick around i'll be out of town that's too bad but he's a really great guy he's really salt of the earth uh some more questions from the audience so with the rising

cost of labor uh do you see automation playing out within the restaurant industry or within your own organization sure you're seeing that now that i think that was one of the big things that excited the uh the group that bought panera you know about their technology of taking labor out and ordering ahead. We probably won't jump on those bandwagons. We really think our people are part of the experience. And so as I see other people getting away from that, I think that actually helps us as you see our sales compared to our competitors. I think people still like that interaction with fun, excitable people. And not everybody wants to play on a computer and get their food and and go sit somewhere and nobody ever talks to you i think people do like interaction

yeah and you've and you've twice now said the words three three stations three tables three tables yeah um that just that seems like the kind of thing that you could easily let slip for you know for a little margin well actually are you you know you don't pay for shoes with margin you pay for it with dollars i've heard so so when i have three table stations and they can spend more time with you our table turns are actually much quicker than our competitors and so the reality is i can get more dollars or more cents per set or per minute as i as we look at it off a table and if you have bussers ready to turn the table then my tables maybe sit empty a minute versus when you have less labor your table might sit empty for five minutes where you're not making any money

on that table sitting empty for five minutes so i really look at it as how we're churning table turns and like we don't really promote desserts because i don't want somebody sitting there for 20 minutes spending five dollars on a dessert i want them to get the hell out so that's why we give them free would like to apologize to anyone who likes dessert no my my chefs came up with some great desserts and i'm like screw that man i want to leave so you know we're gonna have three mediocre desserts and that's it so you are also perhaps one of the first undercover bosses you you you like to go incognito and go into your store yeah actually one time uh i'm assuming you don't wear the hat

because no no i'll wear like a ball cap and a because you don't blend a t-shirt right right I actually had a server once. I said I was staying at a hotel next door, and I ordered four meals because I wanted to taste the menu. And she looked at me, and she goes, do you know how much this is going to cost? And I'm like, no. And then she goes, let me go ring it up first. And she goes, it's going to be $60. Do you have that right?

And I'm like, yeah. No, it's a true story. I hope you said no. No, I told her I had the money. See what they did next. No, they sent the food out, yeah. What are some of the great things that you have, that over time that you've learned from that experience?

That bring $60 with you. Yeah, that's right. Or don't order so damn much. That's right, yeah. No, no, I just like to see the rest. I'm not a big entourage guy. I just like to come in and like see how things are really, you know, going.

Not, you know, like tell them you're coming and they clean everything up and, you know, stuff like that. Soon, Jim Senegal from Costco always says that he can tell within 200 feet of a Costco whether it's well run or not. Where are you when you first get the sense that the ship's running well or not? Probably five minutes in. I'll feel the energy, look at the smiles of the people, hopefully. Then I'll look around at the guests that are interacting with our servers. And if they're smiling back at the servers, then I'm like, okay, there's a positive interaction going on.

And then if you see somebody, you know, the server walks away and they're kind of frowning and talking, then I'm like, okay, I'm going to pay more attention to that server because maybe they're not the nicest person that we would like to have waiting tables. So I think we have time for just a little bit more. I'm going to give you a superpower. and your superpower is that you can close your eyes and you can make one competitor disappear. I don't know.

They do it on their own pretty good. No, those are the ones you want around, right? No, they're actually a great source of our new employees, so I don't really need them to go away so fast. You may just want to hold the mic and drop it. No, I don't, you know, I really don't worry about that stuff. I worry more about us not performing right. You know, I don't get hung up on what other folks are doing.

I do learn from people that do some cool stuff or maybe, you know, screw some things up. But, you know, I just look at it as learning opportunities when I go into other restaurants. He's not using his superpower. Okay, if I had used my superpower, I would fly. There you go. Kent, thank you so much for coming to join us. Ladies and gentlemen, Kent Taylor. The ticker for Texas Roadhouse is TXRH.

That's it for this episode of Motley Fool Money. The show is produced by Matt Greer. The show is mixed by Steve Broido. I'm Ron Gross. Thanks for listening. We'll see you next week.