Texas Roadhouse shared mixed results for the second quarter, as rising beef prices significantly impacted profitability. However, the company did see strong comparable sales and reported a solid start to the ongoing third quarter, easing some concerns over increasing input costs. Revenue for the quarter ending July 1 climbed 12.8% year-over-year, reaching $1.51 billion, surpassing Wall Street’s predictions of over $1.5 billion. Earnings per share (EPS) increased by 4% to $1.86, although expectations were around $1.91, according to LSEG data. Following the announcement, stock prices dipped more than 1%. This summer has seen stock prices decline, with a 7.4% drop since late May.
The Bottom Line: Texas Roadhouse focuses on what it can manage – providing a fun dining atmosphere and an extensive menu at reasonable prices. In its first quarter report from early May, management noted steady sales growth of 5% in the same-store metric, also known as comps. This growth not only held firm throughout the quarter but actually improved. Weather plays a role, too. In fact, comparable sales rose by 4.3% in April, 7.2% in May, and 5.8% in June. Overall, same-store sales were up 5.8% for the quarter, primarily due to increased customer traffic, which is a promising sign. This performance exceeded the 5.3% consensus expectation from FactSet. Even better, early indications in the third quarter showed a 5.3% increase in the first five weeks, outpacing estimates of 5%. This growth includes some negative pressure from the July 4th holiday calendar shift.
Texas Roadhouse is viewed as a fast-casual steakhouse known for its high-quality food at great prices in a lively setting, making it appealing to consumers in the full-service dining sector. Most of its locations are company-owned, with only a few being franchises. Its competitors include Darden (Olive Garden, Longhorn Steakhouse), Brinker (Chili’s, Maggiano’s), and Bloomin’ Brands (Outback, Carrabba’s, Bonefish Grill). The company’s portfolio weight stands at 2.3%.
Interestingly, management has not seen any relief from beef inflation; thus, challenges are anticipated in the second and third quarters. The company plans to counter this by increasing menu prices by 1.7% starting in the fourth quarter. CEO Jerry Morgan expressed confidence that this adjustment will help maintain everyday values while also managing inflationary pressures. While the brand shows consistent traffic-driven sales growth, and new openings appear successful, the rising cost of beef remains a critical concern. Despite a strong comparable sales performance, significant stock price increases may be unrealized until beef prices stabilize. Tight supplies in the U.S. have led to record high cattle prices at the Chicago Mercantile Exchange.
We’re cautiously optimistic about the future, thanks to positive trends in customer traffic, continued franchise acquisitions, and new store openings. Nonetheless, increasing product costs serve as a headwind. As a result, we are maintaining a neutral rating for Texas Roadhouse and will hold off on purchasing additional shares until a more attractive opportunity presents itself. Commentary suggests that a comparable sales growth of 5.8% exceeded expectations, driven by a 4% increase in customer traffic and an average check rise of 1.8%. Management also discussed how various factors impacted revenue, noting a decline in alcohol sales—a societal trend. To address this, they’ve added non-alcoholic options, or mocktails, to their menu.
During the quarter, Texas Roadhouse launched four new company-owned restaurants, along with 33 locations under the Bubba’s 33 brand and one franchise restaurant. The company aims to open around 30 new outlets this year and enhance the growth of Bubba’s 33, which currently has 52 locations. Additionally, Texas Roadhouse recently acquired three franchise restaurants, bringing the total to 17 this year, with future plans to acquire eight more, including five remaining franchise locations in California. While the company is open to repurchasing franchises, such acquisitions may be viewed as beneficial for business efficiency and control.
In terms of shareholder returns, the company repurchased $9.8 million worth of shares during the quarter, a decrease from $50.2 million in the first quarter. As previously mentioned, comparable sales at company-owned restaurants increased by 5.3% year-over-year in the first five weeks of the third quarter. For 2025, management reiterated much of its outlook, indicating expectations for robust comparable sales growth aided by menu price actions. The company also anticipates about 5% growth in store openings and franchise acquisitions, backed by a $400 million capital expenditure plan. Nevertheless, it forecasts product cost inflation to rise to around 5%—up from 4% last quarter—reflecting ongoing beef price challenges. On a somewhat brighter note, management expects labor inflation to be around 4% and adjusted the effective income tax rate projection from the previous 15% to 16% range.
