Operations

Texas Roadhouse wants to grow its to-go business

Takeout sales increased for the second straight quarter, and the chain said those orders are good for its margins. But it’s still not doing delivery.
Average weekly to-go sales rose more than 4% year over year. | Photo courtesy of Texas Roadhouse

Texas Roadhouse wants to do more takeout. 

To-go sales at the 672-unit steakhouse chain rose year over year for the second straight quarter, a trend that has the brand hungry for more. “We believe there’s an opportunity to further build upon this business going forward,” CFO Chris Monroe told analysts Thursday.

It was part of another strong quarter on the top line for Roadhouse, where same-store sales rose 8.2% year over year on a 4.1% traffic increase. It marked the steakhouse chain’s fifth consecutive quarter of positive traffic even as the broader full-service segment struggles to put more butts in seats.

The chain continues to chalk the success up to the service, food and atmosphere at its restaurants. But at least some of Roadhouse’s growth is coming from outside of its four walls. To-go sales were $17,000 per week in the quarter, up more than 4% year over year. They accounted for 12.3% of the chain's overall average weekly sales.

Those sales are coming solely from pickup, as Texas Roadhouse is one of the few full-service chains that does not offer delivery. And executives didn’t say anything to suggest that the brand intends to change course on that. Nor did they provide many clues as to how exactly it plans to grow takeout. 

However, they did hint at why to-go is such an intriguing proposition: It is good for restaurant-level margins, which have been the one lowlight amid Texas Roadhouse’s recent sales tear.

“It is a benefit from a margin perspective to have these higher to-go volumes,” said Michael Bailen, head of investor relations. As customers have shifted back to dine-in coming out of the pandemic, Texas Roadhouse has had to add more workers to its restaurants to accommodate the demand. Weekly per-store labor hours rose 3.3% year over year in the third quarter, for instance, and that’s on top of 5.6% wage inflation.

More to-go sales could help ease some of that pain. “If we grow to-go more than dine-in, maybe you don’t need as much labor as you would to serve more dine-in guests,” Bailen said.

Persistent margin declines have become something of a fly in the ointment for Texas Roadhouse. It has a long-term goal of returning to 17% restaurant-level margins, but it has been getting further and further from that number this year. In the third quarter, margins decreased 80 basis points to 14.6%; they were 15.8% in the previous quarter.

The chain maintains that stubbornly high beef costs are the biggest thing standing between it and better margins. Next year, for instance, it is forecasting 5.6% commodity inflation driven almost entirely by beef.

But it has also been reluctant to raise prices too much. In the third quarter, prices were 5.5% higher on average than a year ago, just enough to offset wage inflation. That was roughly in line with full-service menu price inflation nationwide, which was 5.1% as of September, according to the Bureau of Labor Statistics. Some analysts wondered whether it would consider being more aggressive with prices, even if it came at the expense of some traffic, in order to boost profits.

“We do internally think about that,” CEO Jerry Morgan said. But he noted that protecting the top line is key. “I want it to be seen as a value concept, as always.”

And the chain is showing no signs of stopping: Through the first four weeks of the fourth quarter, same-store sales were up 9.2% year over year on 3.4% traffic growth.

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