DJ - Texas Roadhouse Inc. (TXRH) said Tuesday in a regulatory filing that its board approved a $50 million increase in the company's stock-repurchase program to a total of $75 million.

Call me old fashioned but I just don't get this move by the Board of TXRH. What exactly is this supposed to mean? Here are some possibilities...

(1) Buy the stock now because we are going to make the quarter.
(2) We are confident in the long-term prospects for our business.
(3) We have so much cash lying around we have nothing better to do with it.
(4) The BOD has a crystal ball that says commodity prices are going down and the consumption recession is over.
(5) Management got the board to prop up the stock because some the large shareholders want out
(6) The stock is undervalued!

The reality is they have no intention of buying this much stock; TXRH does not have the money to do it. Sure they can go to a bank and borrow the money to do it. But why? At this point in the cycle why would you want to add leverage to the balance sheet?

I can understand a share repurchase program when a company has excess capital to put to work. This is not the case for TXRH. Since 2005 the company has not generated free cash flow and its debt/equity ratio has gone from 3.2% to 20.1%. In other words the company has needed to fund it growth with incremental leverage. Over the same time period the company's return on capital has gone from 14% to 10%.

The economics of the casual dining business have changed dramatically over the past twelve months and nobody is immune. I don't care how under penetrated the concept is. What the Board of Directors should have done was announce that they were cutting square footage growth by 50% to improve its ROIIC and using the excess cash flow to buy back stock. Then I would argue that there is more than just a trade into a nonsensical press release. The long term trends for TXRH look suspect to me.