Trying to hold the traffic line amid price hikes has been a puzzle. Brands like Wendy’s and McDonald’s are gaining visits from higher-income guests trading down, while attempting to offset—at least somewhat—the fact value-focused households are dining more at home. McDonald’s CFO Ian Borden described this as, “everybody … fighting for fewer consumers, or consumers that are certainly visiting less frequently.” Starbucks’ traffic declined 7 percent in Q2 as it prepares to open its app to all (not just loyalty users) and start pulsing offers that illustrate value broadly to “occasional customers.”
Essentially, a high-frequency business, thanks to a cautious climate, has had to adjust to earning more per transaction rather than driving consistent, additional visits.
And then there’s Texas Roadhouse, which is doing both.
CEO Jerry Morgan isn’t concerned with where guests are trading in from, he said during the brand’s Q1 recap. As long as they’re happy when they get there, the steakhouse isn’t just going to steady itself during a soft traffic era—it’s going to grab share from everybody else.
“Our focus on our food, our service, and the experience that we provide with the value built into our menu is really what we see happening,” he said.
Texas Roadhouse’s philosophy through inflation has been to price for the structural component, largely wage related. And it’s been modest versus the field, especially near-term. Texas Roadhouse has continued to take a bottom-up approach of talking to operators and ensuring they’re in alignment, and then reacting, Morgan said.
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BTIG analyst Peter Saleh noted Texas Roadhouse’s “consistent performance is a testament to management’s commitment to value, holding the line on price hikes despite skyrocketing commodity and labor inflation over the past couple of years.”
And that set Texas Roadhouse up for what happened in Q1 as commodity inflation moderated. The chain’s same-store sales grew 8.4 percent, beating Wall Street estimates of 7.7 percent. Traffic lifted 4.3 percent and average check rose 4.1 percent (4.9 percent price, negative 0.8 percent mix, as alcohol continues to pull back a bit).
By month, comps climbed 4.2 percent, 10.4 percent, and 10.2 percent in January, February, and March, respectively. Texas Roadhouse also revealed same-store sales surged 9.3 percent for the first five weeks of Q2, year-over-year, despite the company taking a 2.2 percent price hike in March. In fact, mix trends improved in recent weeks. The 9.3 percent comp comprised of 4.9 percent price, 4.6 percent traffic, and negative menu-mix of only 0.2 percent. The latter lifted by roughly 60 basis points over the past few weeks, a change, Saleh said, reflective of consumers trading up to more expensive items (or trading down less) and beverage incidents starting to head toward neutral.
Head of investor relations Michael Bailen said Texas Roadhouse hasn’t seen much change in consumer behavior, largely speaking. Alcohol, as mentioned, is running somewhat negative but entrees, appetizers, and add-ons flattened out. “Very encouraged by what we’re seeing there,” he said. “And to me, it shows that the consumer is still seeing the everyday value that we’re offering.”
“I don’t really see anything else in the mix,” Morgan added, “that tells me anything different than keep doing what we’re doing, legendary food and legendary service, and keep making sure that guests have great experiences in all of our businesses.”
Average weekly sales at company restaurants came in at $159,378 this past quarter, of which $20,815 were to-go. A year ago, the figures were $148,437 and $19,030, respectively.
As a refresher, Texas Roadhouse generated $117,777 weekly in the days leading up to COVID-19. Off-premises accounted for $8,741 of that.
Perhaps as impressive as the sales and traffic lift, though, especially through January weather, was restaurant-level margin of 17.4 percent—100 basis points higher than Saleh’s estimate and the best Q1 result in three years. The performance, which wedged squarely into Texas Roadhouse’s long-term view of 17–18 percent—was driven by leverage and moderating food costs, which were up 0.9 percent, or the lowest level in “several years.”
Additionally, Texas Roadhouse expects commodity inflation of 3 percent this year, down from its 5 percent projection last quarter and the 5–6 percent originally outlined about half a year ago.
In typical Texas Roadhouse fashion, Morgan’s explanation behind the brand’s outperformance wasn’t disorienting. “The benefit of our long-term approach to the business and our focus on always prioritizing the guest experience is evident in the record sales, margin dollars, and net income for the first quarter,” he said.
As the macro backdrop got tougher, the value proposition at Texas Roadhouse allowed it to pull guests from peers. Morgan was asked if this makes it resilient.
“We certainly believe that,” he said, “and we continue to do what we do. We can’t really control what [our competitors] do. We believe in our value that’s built into our menu. We continue to try to be very conservative and take care of our business but take care of our guests and really understand the dynamic of where we’re at today. And so, I just believe that we focus on our food being smoking hot, picture-perfect recipe right, fast, fun, and friendly in our dining rooms, it’s rewarding us.”
Morgan said Texas Roadhouse plans to gather feedback from managing and market partners “probably” in August or September. Then, it will decide what to do (or not do) in October for pricing. “We’ll take the approach of being conservative,” he said. “We’ll see what happens in the industry going forward, and then we’ll absolutely partner up with our operators and decide what is best for each and every one of their stores or their market or their region.”
Texas Roadhouse’s weekly sales in Q1 pushed it well ahead of $8 million average-unit volumes (about $8.3 million or so). This line—up 7.7 percent year-over-year—has done nothing but climb.
AUVs at year-end 2023 were $7.6 million, up from $6.7 million in 2022. Texas Roadhouse stores averaged $6.364 million, $4.649 million, and $5.55 million in 2021, COVID-saddled 2020, and 2019, respectively. Going back further, it was $5.209 million, $4.973 million, and $4.805 million in the three years prior.
So Texas Roadhouse restaurants are earning about $3.3 million more per location, coast to coast, over an eight-year stretch.
Same-store sales tracked as follows last year:
2023
- Q1: 12.9 percent (meaning the brand is up 21.3 percent on a two-year stack)
- Q2: 9.1 percent
- Q3: 8.2 percent
- Q4: 9.9 percent
While Morgan credits much of the brand’s enduring success to execution, steadying labor, and the value ecosystem that ensues (better retention led to improved execution), there are some tech initiatives at work as well. Texas Roadhouse, thus far, has converted 30 percent of about 200 scheduled flips to its “Digital Kitchen” KDS system. Morgan said doing so led to kitchen efficiencies and calmer environments that are less stressful during “power hours.”
“We are being able to see and track our cook times a little bit, the timing of our food, and really the calmness in the organization that the Digital Kitchen brings to our back of the house,” Morgan said, adding it was still early innings. “So, I believe that there is just a quality of life or experience of on the job that will benefit us as we move forward.”
The brand is also preparing to go live in Q2 with a people system called “Roadie-First Technology” that provides workers with a more user-friendly platform for access to data and records. Morgan added it should improve recruiting and employee management processes for managers.
The chain’s Roadhouse Pay with Ziosk, allowing guests to checkout at the table, is being used by about 80 percent of customers.
Texas Roadhouse opened nine company-run stores in Q1 and expects to debut six more in Q2. For the full year, it’s on track to bring about 30 corporate units to market across its three brands, Bubba’s 33 and the fast casual Jaggers factored in. Franchisees also opened two international Texas Roadhouse locations and a domestic Jaggers in Q1 and should get to 14 for the year, including four Jaggers.
Texas Roadhouse closed the quarter with 591 company steakhouses and 106 franchises (56 domestic and 50 international). There were 45 Bubba’s (all corporate run), up five, year-over-year, and 11 Jaggers (eight company and three franchised). The total fleet of 753 restaurants was 49 above this time a year ago.
Morgan shared on the call Bubba’s units averaged more than $120,000 in weekly sales in Q4, while Jaggers delivered nearly $68,000 and is planning its first international franchise in South Korea later in 2024. Bubba’s same-store sales in Q1 lifted 3.5 percent on top of 8.7 percent in 2023’s comparable period. AUVs are about $6 million.
“If we just look at Bubba’s and not compare it to Roadhouse, we’re very, very happy with the performance, not only on our sales—we’re attacking sales—we’re controlling our cost. We’ve done some things in the building to help us long-term, and we’ve done a little bit of menu engineering. We’ve added a combo appetizer, which has really been a success and reorganized a little bit of how we do wings,” Morgan said. “And, we’ve got a new sandwich we’re excited about to be offering out there, and so there’s a lot of momentum. As I look at the first quarter in Bubba’s 33, it tells me we’re in the right business: burgers and pizzas and cold beer and rock and roll, we’re going to be just fine.”
