Record traffic lifts Texas Roadhouse sales, but not profits

Traffic rose 7.6% at the chain in the first quarter. But more guests spelled higher labor costs, which ate into margins.
Texas Roadhouse saw record traffic in Q1. / Photo: Shutterstock

Texas Roadhouse set a guest-count record in the first quarter.

Traffic rose 7.6% at the chain compared to last year, contributing to a nearly 13% increase in same-store sales for the period. The trend continued into April.

Executives attributed the growth to better staffing, which led to better execution. Technology improvements like Roadhouse Pay also got guests in and out faster, they said, and the chain is attracting new customers.

But the most important thing was staffing. “Really and truly it comes down to our ability to execute,” CEO Jerry Morgan said. “Getting staffed is the key component to our continued topline success.”

And yet the cost of those additional workers, plus higher wages and ongoing beef inflation, ate into the company’s restaurant-level margins, which declined for the fifth straight quarter.

Margins were 15.9% in the period, a 0.5-point decrease from last year. Commodity inflation was 8.9% and wage and labor inflation were 8%. 

Labor hours rose 4.8% in the quarter, a function of the higher traffic and the chain’s labor-intensive business model. Much of Texas Roadhouse’s menu is made from scratch and its steaks are hand-cut. 

“Our component is heavy staffing,” Morgan said. 

And yet the company has not wavered from its goal of getting restaurant-level margins back to 17% or 18%. Executives detailed some of the ways it could still get there.

Even with its heavy labor costs, it’s working to get more efficient. Roadhouse Pay, which allows guests to check out at their leisure, is one part of that. It has also been gradually digitizing its kitchens, a change that Morgan said can shave additional minutes off service times. Just four Roadhouses have digital kitchens now, but the 20-plus new restaurants it plans to open this year will have the system, and it’s transitioning another 10 to the high-tech model. 

“I think we’re looking at every component as to how to become more efficient,” Morgan said.

The chain is also expecting labor costs to ease as the year goes on and the impacts of new hires and raises roll off. 

Roadhouse has also been more conservative with price hikes than its peers. Prices were 5.6% higher in the first quarter than a year ago. That’s an area where it could offset some costs, but it showed no signs of changing its strategy there.

“I think our pricing is below what others have done,” said Senior Director of Finance Michael Bailen. “We’ve done what we felt was right for our business.”

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