Texas Roadhouse continues its hot streak

The chain reported another quarter of impressive sales and traffic growth, and its margins increased, too.
Texas Roadhouse sign
Same-store sales rose 8.4% at company-owned stores. | Photo: Shutterstock

Texas Roadhouse continued its traffic tear to start the year, and for the first time in a while, that growth hit the bottom line too. 

Same-store sales increased 8.4% year over year at the chain’s company-owned restaurants on 4.3% traffic growth, 4.9% pricing and 0.8% negative mix.

The quarter started slowly by Texas Roadhouse standards, with comps up 4.2% in January. But they ramped up to 10.4% in February and 10.2% in March. And through the first five weeks of the current quarter, same-store sales were 9.3% higher than a year ago.

The 697-unit steakhouse chain has been seemingly immune to the traffic declines that have hit its peers in casual dining and elsewhere. Instead, it has been able to take share.

“We believe that our offerings and the value that's built into our menu is really what is allowing people to be very happy when they do trade in from wherever,” CEO Jerry Morgan told analysts Thursday. “I don't really see anything else in the mix to tell me anything different than keep doing what we're doing.” 

The chain has been content to keep prices lower and to invest heavily in staffing. While that has helped drive traffic, it has also come at the expense of the bottom line. 

That changed in the first quarter, when restaurant-level margins jumped by nearly 150 basis points year over year to 17.4%, clearing the chain’s long-term benchmark of 17% to 18% margins. Higher sales and a more productive workforce helped turn the tide.

“I think it’s a reflection of more stable staffing and having our more tenured Roadies,” or employees, said CFO Chris Monroe. “It just allows our operators to have a team that’s together, that’s working together, that’s getting reps together and they’re just more efficient.”

As another measure of that productivity, Morgan said the chain aims for its labor hours to increase half as much as its traffic every quarter. In the first quarter, it did even better: Labor hours rose 1% while traffic was up more than 4%.

"I think last year, all that hard work of the operators to get their stores staffed the way they needed to be is now paying off in that percentage for the first quarter," said Michael Bailen, senior director of investor relations.

The chain expects to post similar margin growth for the second quarter. But it will be more difficult in the latter half of the year because commodity costs are projected to be higher, Monroe said.

However, he said, the long-term goal is still 17% to 18% margins.

Texas Roadhouse is working on several initiatives that could help it get there. The first is the ongoing rollout of a digital kitchen system. Thirty percent of the planned 200 conversions are now complete, Morgan said, and early returns have been positive: Cook times are improving and kitchens are calmer and more organized.

“I believe there is just a quality of life on the job that will benefit us going forward,” he said.

And this quarter, it will go live with a new HR platform called Roadie First. The system will make it easier for employees to access their data and records and should help managers with recruiting and employee management, Morgan said.

Texas Roadhouse also took a 2.2% price increase in March. 

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