Why Texas Roadhouse is Focused on to-go Customers
Texas Roadhouse just keeps plugging along, macroeconomic pressures be damned. The company reported Q3 earnings Thursday after the market closed, with comp sales up 8.2% at company restaurants and 7.8% at domestic franchise restaurants. Revenue in the quarter grew 12.9%, primarily driven by a 7.8% increase in average unit volumes and 5.7% store week growth.
Average weekly sales at company restaurants were $138,668 versus $129,278 in Q3 2022. To-go sales jumped above $17,000 in weekly sales, versus $16,305 last year. The company does not offer delivery.
Those to-go sales are becoming a bigger priority for Texas Roadhouse as it strives to reach higher restaurant level margins. The company’s target is 17%, but Q3 margins were pressured by commodity (primarily beef) and wage inflation and decreased by 80 basis points to 14.6% – perhaps the only negative highlight from the earnings report. That said, executives noted restaurant margin dollars grew 7.1% to $163 million.
Michael Bailen, head of investor relations, said the company has experienced two consecutive quarters of growth in average weekly to-go sales and believes “there is an opportunity to further build upon this business going forward.” That’s important, he adds, because to-go margin dollars are “much higher,” while the margin percentage is slightly higher.
“If we grow to-go more than dine-in, maybe you don’t need as much labor as you would to serve more dine-in guests,” he said.
CEO Jerry Morgan added that the company is looking at investments in its current and existing buildings to continue driving its to-go business.
“That ease of pickup has always been a factor as we continue to get better at it,” he said.
Margin pressures aside, Texas Roadhouse continued to outpace the industry in traffic, which was up by 4.1% year-over-year. Conversely, Placer.ai data shows that full-service restaurants overall experienced a 5% decline in traffic in September. Bailen said those trends have “remained strong” into the fourth quarter. The company has experienced 11 consecutive years of traffic growth.
“We’re very happy with our … traffic and sales overall. We feel like we’re well-positioned if we continue to deliver on our food promise, our service and hospitality,” Morgan said. “The consumer is telling us they want our food from what we can see from our traffic. The consumer is telling us to keep doing what we’re doing.”
The company is experiencing some trade down behavior from its consumers, including a negative mix in alcohol sales, but Morgan adds that it is also getting trade ups.
This traffic growth comes despite the company’s recent pricing actions. CFO Chris Monroe said the company recently implemented a 2.7% menu price increase, giving the chain a 5.5% average on the quarter. He expects a return to “more normalized and manageable” wage increases in 2024. Beef, however, is expected to remain elevated. Some of the chain’s beef prices are already locked in, but he said “a huge amount of packers are nervous to get too far out there” because of the volatility.
“Our beef experts are giving us their best thoughts on where things will be, but there are a lot of puts and takes that can move things. I think it’s very clear that supply is moving down, we’ll just see where the demand goes,” Monroe added.
Despite continued beef inflation, the company will be careful on pricing moving forward.
“I want to be seen as a value concept,” Morgan said. “But I think it is always on our mind of how can we be more efficient? How can we be more effective on the profitability side? We have to do right by our employees, guests, and holders.”
Meanwhile, the company continues to grow its Texas Roadhouse, Bubba’s 33, and Jaggers footprints. During the quarter, nine company restaurants and four franchise restaurants were opened including the first Jaggers franchise restaurant and two Bubba’s 33 locations. Twelve company-owned restaurant openings are projected in Q4, and the company is targeting 30 Texas Roadhouse and Bubba’s 33 openings in 2024, as well as three Jaggers.
To accelerate the growth of its Bubba’s 33 concept, the company just added its first regional partner and a head of concept.
“We’re definitely excited about Bubba’s future and are absolutely committed to its growth,” Morgan said. “The sales are continuing to show. It is producing the revenue we’re looking for and it has the ability to turn the profit we want.”
That said, the company has had to adjust some of its timelines to navigate continued permitting delays hindering the industry.
“We’ve done a really good job to get projects lined up and know a little better the timeline to get trades set up and get the jobs going. There are a few things that get a little tight – bigger equipment, ice machines, things like that we get a little concerned about,” Morgan said. “But I think right now we’ve got enough inventory to accomplish all of that. We’ve definitely seen some service challenges, but I think we’re working through that.”