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01/11 03:12
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
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.
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%.
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.
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%.
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.
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.
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.
The earnings call revealed several concerning factors: an EPS miss, increased guidance for commodity inflation, and a decline in restaurant margins. Despite a revenue increase, these negative aspects overshadowed positive elements like cash flow and comparable sales growth. The Q&A section highlighted uncertainties in labor costs and commodity prices, further weighing on sentiment. Share repurchases and dividends were maintained, but not enough to offset negative financial indicators. Given these mixed signals and lack of a strong positive catalyst, the stock price is likely to experience a negative reaction in the short term.
The earnings report shows mixed results: a slight increase in revenue and EPS, but declining margins and increased labor costs. The Q&A reveals concerns about pricing below inflation and labor leverage, but management remains optimistic about sales rebounds and operational efficiencies. The neutral outlook is due to the balance between positive sales growth and negative margin pressures, with no significant catalysts for a strong price movement.
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