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Texas Roadhouse feels the weight of labor costs

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Texas Roadhouse kept its nine-year streak of positive comps intact during the third quarter, posting a 5.5% same-store sales gain for company units and a 4.2% jump for franchised stores.

The increase for corporate restaurants was driven by a 4% climb in traffic, according to CFO Tonya Robinson, who also revealed that sales were on a sharp upward trajectory as the quarter ended Sept. 25, with comps increases for company stores of 4.7%, 5.3% and 6.2% for July, August and September, respectively.

Same-store sales for the company’s second concept, 24-unit Bubba’s 33, were up 6.5% year to date, according to CEO Kent Taylor. The company expects to open four Bubba’s restaurants next year, including two new prototypes.

But the high-flying operator proved it’s not immune to the problems afflicting the casual-dining segment and the industry as a whole. Executives revealed the chain will increase menu prices next month by an average of 1.7% to help restaurant managers bid effectively for labor. The field-level operators told management over three weeks of meetings that the pool of talent is the shallowest they’ve ever seen, recounted Taylor.

Overall, Roadhouse expects labor inflation in the mid-single digits, Robinson told investors.

Taylor revealed that units are expanding their staffing by about three server positions and the equivalent of half a manager. The increased labor is required by Roadhouse’s effort to raise average annual sales per unit to $6 million, he stressed.

The chain’s hardest struggle is finding dishwashers and fry station employees, he added.

Overall, Roadhouse generated a net income of $29.1 million, a decrease of 6%, on a 10% increase in revenues, to $540.5 million. Profits were eroded by higher labor costs and increased insurance expenses (Texas Roadhouse self-insures its employees and operations).

The company operates about 453 restaurants in the United States, and franchises about 70 more.

 

 

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