Texas Roadhouse: Earnings Call Highlights Growth Amid Challenges

Texas Roadhouse ((TXRH)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call for Texas Roadhouse presented a balanced sentiment, highlighting both achievements and challenges. The company showcased robust revenue growth and successful store openings, attributed to effective execution and technological advancements. However, the call also addressed challenges such as rising commodity and labor costs, margin pressures, and potential impacts from tariffs, which tempered the overall positive sentiment.

Revenue Growth and Same-Store Sales Increase

Texas Roadhouse reported impressive financial results with over $1.4 billion in revenue for the first quarter of 2025. The company experienced a 3.5% increase in same-store sales, driven by positive traffic growth, indicating strong consumer demand and effective business strategies.

Successful Store Openings

In the first quarter, Texas Roadhouse successfully opened eight company-owned restaurants, including one Bubba’s 33 location. The company remains on track to open approximately 30 company-owned restaurants this year, showcasing its commitment to expanding its footprint and reaching more customers.

Digital Kitchen and Guest Management System Upgrades

Technological upgrades have been a focal point, with 65% of restaurants now using a digital kitchen system, and full conversion expected by year-end. Additionally, 70% of restaurants have implemented a new guest management system, enhancing wait times and floor management, thereby improving overall customer experience.

Cash Flow and Capital Expenditures

The company ended the quarter with $221 million in cash, generating $238 million from operations. However, this was offset by $173 million in capital expenditures and other financial activities, reflecting the company’s investment in growth and infrastructure.

Commodity and Labor Inflation

Texas Roadhouse has adjusted its full-year commodity inflation guidance to approximately 4%, largely due to anticipated increases in beef costs and tariffs. Labor inflation is expected to remain between 4% and 5%, reflecting ongoing wage pressures and increased labor hours.

Restaurant Margin Decline

The company reported a decline in restaurant margins, with a decrease of 77 basis points year-over-year to 16.6%. This was accompanied by a 2.2% decrease in restaurant margin dollars per store week, highlighting the impact of rising costs on profitability.

Impact of Tariffs

Tariffs are anticipated to contribute approximately 30 basis points to the full-year commodity inflation, affecting the costs of commodities, supplies, and equipment. This external economic factor poses a challenge to maintaining cost efficiency.

First Quarter Labor Deleveraging

Labor costs increased, with labor as a percentage of total sales rising by 79 basis points to 33.3% compared to the first quarter of 2024. This increase is attributed to wage inflation and growth in labor hours, impacting the company’s cost structure.

Forward-Looking Guidance

Looking ahead, Texas Roadhouse has provided a detailed outlook for fiscal year 2025. Despite a challenging start, the company saw improved sales momentum in March, April, and May, with a 5% increase in comparable sales in the early weeks of the second quarter. The company plans to open approximately 30 company-owned restaurants, including seven Bubba’s 33 locations and one Jaggers. Commodity inflation is projected at 4%, influenced by beef costs and potential tariff impacts, while labor inflation is expected to remain between 4% and 5%. Texas Roadhouse remains focused on delivering high-quality food and service while navigating external economic challenges.

In conclusion, the Texas Roadhouse earnings call painted a picture of a company that is navigating a complex economic landscape with both strengths and challenges. While revenue growth and technological advancements are promising, rising costs and margin pressures present hurdles. The company’s forward-looking guidance reflects a commitment to growth and quality, despite external economic pressures.