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Financing

Texas Roadhouse has no ‘silver bullet’ for inflation

The chain is focusing on building traffic and staff while doing its best to manage rising costs.
Texas Roadhouse exterior
Photograph: Shutterstock

Texas Roadhouse has much to feel good about at the start of 2022. A lot of people are eating its food. Traffic, average check and sales were all up significantly in its last quarter compared to 2019. Its dining rooms are starting to resemble pre-pandemic times, while people continue to order takeout at an elevated clip. 

Even the spread of the omicron variant of COVID-19 appeared to do little to slow its momentum in December and January, as it did for many casual-dining chains. For the quarter ended Dec. 28, same-store sales were up 21% on a two-year basis at company-operated restaurants and 19% at franchised stores. 

The main challenge now for the Louisville, Ky.-based chain, like for many restaurants, is managing the rising costs associated with those sales. Executives are expecting commodity inflation of about 17% for the first half of this year and labor inflation of 7% for the full year—expenses that will make it difficult for Roadhouse to recapture its target operating margin of 17% to 18%, or even maintain its Q4 margin of 15.8%.

Given those factors largely out of its control, the chain will focus on doing what it has historically done best: selling more food, particularly inside of its restaurants.

“A lot is going to come down to how we're growing traffic in the dining room,” said CFO Tonya Robinson on the company’s earnings call Tuesday. “We know the demand is there on sales, and getting the staffing back to where we don't see any impact, to having to have sections closed and things like that, would definitely be a big benefit to the year.” 

Dine-in sales, in fact, were approaching their pre-pandemic levels in Q4, only to be dulled by the omicron wave. Returning to those 2019 benchmarks will be more a function of staffing than customer demand, Robinson said. And overall, staffing is improving. Some operators have reported better applicant flow recently along with fewer callouts due to COVID-19. Others are still struggling. But as those levels return to normal, “we're going to be able to continue to push that dining room traffic a little harder this year,” Robinson said.

The chain believes it can handle more dine-in business on top of a sturdy to-go channel that made up 14% of its sales in the quarter—though it may have to direct some traffic to slower dayparts.

“Our peak hours, we are jamming. We are busy and we have long waits,” said CEO Jerry Morgan. “So there is still opportunity prior to that in our early segment and maybe even our last segment and maybe even some of our Saturday lunch.”

New technology in the restaurants will also help improve the experience and speed table turns. That includes things like handheld tablets for servers and a new program called Roadhouse Pay that allows guests to pay at their leisure.

“The ability for the guests to pay and to leave at their convenience and not really wait for us is really a big win,” Morgan said, noting that it has saved a few minutes on table turns. “It's definitely something we held off on, but we probably shouldn't have.”

At the end of the day, there's no simple fix for shrinking margins, executives said.

“I don't think there's going to be any silver bullet,” Robinson said. “I think it's just going to be a combination of continuing to drive sales, traffic, and dealing with whatever we're dealing with on the inflation side of things.”

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