Texas Roadhouse, Inc. (TXRH) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reflect a positive sentiment overall. The company reported strong comparable sales growth, effective cost management, and strategic expansion plans. Despite concerns about beef inflation, management expressed confidence in managing through the cycle. Dividend increases and share repurchases are planned, which are positive for shareholder returns. Although there are some uncertainties, such as the structural nature of beef inflation, the company's proactive strategies and optimistic guidance suggest a positive outlook for stock price movement.
Key Financial Performance
Revenue $1.4 billion, a 12.8% increase year-over-year, driven by a 5.5% increase in average weekly sales and 6.8% store week growth.
Average Weekly Sales $162,000 at Texas Roadhouse, $119,000 at Bubba's 33, and $75,000 at Jaggers. Comparable sales increased 6.1%, driven by 4.3% traffic growth and a 1.8% increase in average check.
Restaurant Margin $204 million, a 1.1% increase year-over-year. However, restaurant margin as a percentage of total sales decreased 168 basis points to 14.3%.
Diluted Earnings Per Share (EPS) $1.25, a 0.8% decrease year-over-year, impacted by higher commodity costs and other operating expenses.
Food and Beverage Costs 35.8% of total sales, a 224 basis point increase year-over-year due to 7.9% commodity inflation and shifts within the on-trade category.
Labor Costs 33.6% of total sales, an 18 basis point decrease year-over-year. Labor dollars per store week increased 5.2% due to 3.9% wage inflation and 1.3% growth in hours.
Other Operating Costs 14.7% of sales, a 40 basis point improvement year-over-year, driven by leverage on operator bonuses, partially offset by changes in general liability insurance reserves.
Cash Flow from Operations $144 million, offset by $214 million in capital expenditures, dividend payments, and share repurchases.
Comparable Sales 6.1% increase, driven by 4.3% traffic growth and a 1.8% increase in average check.
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Operating Highlights
New restaurant openings: Opened 7 company-owned locations in Q3, including 2 Bubba's 33 and 1 Jaggers. On track to open 30 restaurants across 3 brands in 2025.
Franchise acquisitions: Acquired 20 franchise restaurants in 2025, including 3 in Q4. Plan to acquire 5 California franchise locations in early 2026.
New product offerings: Introduced mocktails, $5 all-day beverage specials, and regional beverage options like dirty sodas in Utah and Idaho.
Retail expansion: Presence in over 120,000 retail outlets with products like rolls, buttery spreads, steak sauces, and dips.
International expansion: Franchise partners opened 2 international Texas Roadhouse restaurants in Q3 and plan to open 6 more in 2026.
Domestic market growth: Franchise partners plan to open 4 domestic Jaggers in 2026.
Digital systems implementation: 95% of restaurants now use a digital kitchen and upgraded guest management system, with full rollout expected by year-end.
To-Go business: Focus on speed and order accuracy has improved guest experience and increased order capacity.
Labor efficiency: Labor hours grew at 35% of traffic growth, with 2025 wage inflation guidance at 4% and 2026 at 3%-4%.
Capital allocation: 2026 capital expenditure guidance set at $400 million, prioritizing new store development and maintenance.
Inflation management: 2025 commodity inflation guidance updated to 6%, with 2026 guidance at 7%.
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Risk or Challenges
Beef Price Volatility: Higher-than-anticipated beef prices in the back half of the quarter have led to increased commodity inflation, with expectations of continued volatility and a 7% inflation rate for 2026. This could pressure margins and profitability.
Labor Inflation: Wage and labor inflation is projected at 3%-4% for 2026, with mandated increases contributing to cost pressures. This could impact operational costs and overall profitability.
Restaurant Margin Decline: Restaurant margin as a percentage of total sales decreased by 168 basis points year-over-year to 14.3%, driven by higher food and beverage costs and shifts in the on-trade category. This reflects challenges in maintaining profitability.
Insurance Costs: Adjustments in general liability insurance reserves led to additional expenses, with $1.7 million incurred this year compared to $400,000 last year. This increase in insurance costs could strain financial resources.
Capital Expenditures: Projected capital expenditures of approximately $400 million for 2026, excluding franchise acquisitions, could strain cash flow and financial flexibility, especially with ongoing inflationary pressures.
Tax Rate Increase: The effective tax rate is expected to rise to approximately 15% in 2026, up from 14.5% in 2025, potentially reducing net income.
Fourth Quarter EPS Impact: The lapping of a 14-week quarter from last year is estimated to have a 10% negative year-over-year impact on fourth quarter EPS growth, which could affect investor confidence.
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Guidance & Outlook
Restaurant Openings in 2026: The company plans to open approximately 35 company-owned restaurants in 2026, including 20 Texas Roadhouses, 10 Bubba's 33, and up to 5 Jaggers. Franchise partners are expected to open 10 new restaurants, including 6 international Texas Roadhouses and 4 domestic Jaggers.
Franchise Acquisitions: Texas Roadhouse has an agreement to acquire 5 remaining California franchise locations at the beginning of 2026.
Commodity Inflation Guidance: The company expects 2026 commodity inflation to be approximately 7%, with higher inflation in the first half of the year and lower inflation in the second half.
Wage and Labor Inflation Guidance: For 2026, wage and other labor inflation is expected to be between 3% and 4%, with mandated increases accounting for approximately 1% of the increase.
Capital Expenditures in 2026: The company is guiding to approximately $400 million in capital expenditures for 2026, excluding the cost of acquiring the California franchise restaurants. This will prioritize new store development and maintaining existing restaurants.
Store Week Growth: The company expects 5% to 6% store week growth in 2026.
Income Tax Rate Guidance: The full-year 2026 income tax rate is expected to be approximately 15%.
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Shareholder Return Plan
Dividend Payments: The company made dividend payments as part of its capital allocation strategy.
Share Repurchases: The company engaged in share repurchases, which were part of the $214 million allocated to capital expenditures, dividend payments, and share repurchases in the third quarter.
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Key Q&A
Q:What is the outlook for beef inflation or commodity inflation for next year?
A:The company is assuming high single-digit inflation for formula pricing and low double-digit unweighted beef inflation due to lapping favorable contracts from this year.
Q:What is the status of the beverage program and trends in consumer preferences?
A:The beverage program has been focusing on mocktails, dirty sodas, and other non-alcoholic options to cater to younger consumers who are drinking less alcohol. Alcohol mix has been negative, but mocktails and soft beverages have been flat year-over-year.
Q:What gives confidence that beef inflation is transitory rather than structural?
A:The company believes the current beef inflation is part of a cattle cycle, which is transitory. They are not making assumptions about structural changes but are prepared to manage through the cycle.
Q:Are there any differences in consumer behavior by income or age cohort?
A:No significant differences have been observed. The menu's value offerings appeal to a broad range of consumers, and traffic and sales growth have been strong across regions, days, and dayparts.
Q:How does the company approach pricing decisions in light of inflation and managing partner pay?
A:The company takes a conservative approach to pricing, balancing inflationary pressures with protecting consumer value perception. Managing partner pay is tied to sales and profit growth, and the company supports partners through challenges.
Q:Why did Bubba's same-store sales decelerate compared to Texas Roadhouse?
A:The company remains confident in Bubba's offerings and attributes the deceleration to competitor dynamics. They continue to focus on menu engineering and leadership improvements.
Q:What is the strategy for new unit growth, particularly for Bubba's and Jaggers?
A:Bubba's is expanding in existing markets, while Jaggers is focusing on a 'Heartland' strategy, targeting states like Ohio, Indiana, Kentucky, Tennessee, and Georgia.
Q:What is the impact of grocery store beef prices on restaurant traffic?
A:High grocery store beef prices have led to more guests ordering steaks at the restaurant, recognizing the value of the restaurant's offerings compared to cooking at home.
Q:What is the status of franchise acquisitions and CapEx plans for next year?
A:After completing the California acquisition, 31 franchises remain. CapEx for next year is expected to be similar to this year, excluding the $23 million Support Center acquisition.
Q:What are the expectations for labor, OpEx, and G&A lines in the fourth quarter and next year?
A:Leverage is expected on labor, OpEx, and G&A lines in the fourth quarter and potentially into next year, assuming top-line trends continue.
Q:What is the company's stance on menu adjustments due to beef inflation?
A:The company does not plan to pivot away from beef despite inflation, as it is a steakhouse and beef is central to its identity.
Q:What is the progress and impact of the digital kitchen system?
A:The digital kitchen system is nearly fully rolled out, providing better information for decision-making. The guest experience duration remains at 54 minutes, balancing speed and quality.
Q:What is the company's approach to retail initiatives?
A:Retail initiatives, such as 'inspired by' rolls, aim to enhance brand awareness and have been successful, with strong demand for the product.
Q:What is the company's perspective on long-term restaurant maintenance and lease renewals?
A:The company maintains its restaurants year-round to avoid major CapEx needs and relocates only when necessary. Lease renewals are negotiated as needed.
Q:What is the company's view on inflation in other operating expenses for next year?
A:Other operating expenses are expected to grow at a low single-digit rate per store week, with potential increases in utility costs and tariffs.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the structural versus transitory nature of beef inflation, stating they rely on industry and expert opinions without making definitive predictions. Additionally, they did not provide specific details on the percentage of beef locked for next year, citing competitive reasons.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CEO Executive
California franchise
Chairman evening
Chairman fall
Congratulations Investor
Executive Vice
Idaho guest
Jaggers agreement
Jaggers commodity
Jaggers consumer
Jaggers track
McNamara store
Officer Interim
Officer operator
Partner Summit
President Investor
Relations program
Relations role
Roadhouses Jaggers
Roadies employer
Summit event
Texas Roadhouses
Vice Chairman
approach
beef price
beginning franchise
fall tour
franchise location
inflation labor
location restaurant
offering
partner restaurant
place
regard capital
restaurant Texas
sale week
week period
TXRH Transcript
Texas Roadhouse, Inc. (TXRH) Q1 2026 Earnings Call Transcript
Positive5-8
The earnings call summary highlights strong financial performance with a 10% revenue increase, 8.5% comparable sales growth, and improved operating margins. The EPS rose by 13%, and cash flow from operations increased by 15%, indicating robust financial health. Despite not discussing strategic initiatives or operational updates, the 10% dividend increase signals confidence in future performance. The absence of significant concerns in the Q&A further supports a positive sentiment. Given these factors, the stock price is likely to experience a positive movement in the next two weeks.
Texas Roadhouse, Inc. (TXRH) Q4 2025 Earnings Call Transcript
Unknown2-19
The earnings call presents a mixed outlook. While there are positive elements such as a strategic expansion plan and conservative pricing strategy, there are also concerns about commodity inflation, labor costs, and margin pressures. The Q&A highlights uncertainties like beef inflation and unclear timelines for new initiatives. The absence of a market cap suggests caution. Overall, the positives and negatives seem to balance each other out, leading to a neutral sentiment.
Texas Roadhouse, Inc. (TXRH) Q3 2025 Earnings Call Transcript
Positive11-6
The earnings call summary and Q&A reflect a positive sentiment overall. The company reported strong comparable sales growth, effective cost management, and strategic expansion plans. Despite concerns about beef inflation, management expressed confidence in managing through the cycle. Dividend increases and share repurchases are planned, which are positive for shareholder returns. Although there are some uncertainties, such as the structural nature of beef inflation, the company's proactive strategies and optimistic guidance suggest a positive outlook for stock price movement.
Texas Roadhouse, Inc. (TXRH) Q2 2025 Earnings Call Transcript
Positive8-7
The earnings call highlights strong financial performance with revenue growth, positive guidance, and effective cost management. The company is expanding through new restaurant openings and technology initiatives, which are well-received by analysts. Despite inflationary pressures, margins are maintained, and the off-premise sales growth is sustainable. The Q&A reveals optimism about Bubba's 33 expansion and the mobile app's impact, although some details remain unclear. Overall, the positive outlook on revenue and strategic initiatives outweigh the minor concerns, predicting a positive stock price movement in the short term.
TXRH Report
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