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spk01: Good evening and welcome to the Texas Roadhouse Third Quarter Earnings Conference Call. Today's call is being recorded. All participants are now in listen-only mode. After the speaker's remarks, there will be a question and answer session. Time, if you would like to ask a question, please press star and then the number one on your telephone keypad. Should anyone need assistance at any time during today's conference, please press star followed by zero and an operator will assist you. I would now like to introduce Tonya Robinson, the Chief Financial Officer of Texas Roadhouse. You may begin your conference.
spk00: Thank you, Emma, and good evening, everyone. By now, you should have access to our earnings release for the third quarter, and it's September 28, 2021. It may also be found on our website at TexasRoadhouse.com in the Investors section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance, and therefore undue reliance should not be placed upon them. We refer all of you to our earnings release and our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements. including factors related to the COVID-19 pandemic. In addition, we may refer to non-GAAP measures. If applicable, reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Jerry Morgan, Chief Executive Officer of Texas Roadhouse. Following our remarks, we will open the call for questions. Now I'd like to turn the call over to Jerry.
spk10: Thanks, Tanya, and good evening. Our sales momentum continued in the third quarter with strong comparable sales growth versus 2020 and 2019. It is encouraging to continue to see our dining rooms busy while our to-go volumes remain elevated. Our operators and their teams are delivering on the promise of legendary food and legendary service each and every shift. Their commitment to the quality of our food and the level of our service remains unwavering. And the benefit of this commitment is seen in the growing number of guests choosing our restaurants. Our strong top-line performance during the quarter led to continued unprecedented growth in the restaurant margin dollars and earnings per share. At the same time, industry-wide labor and supply chain issues on top of rising commodity inflation remain a challenge. While inflation is certainly impacting our financial results, we remain focused on what we can control and executing on our top priority, which is taking care of our guests. With sales growing and margin dollars increasing, we are confident that we are doing the right things for the long-term success of our business. As I mentioned on our last call, during the third quarter, we completed our normal process of evaluating our menu pricing. With the feedback from our operators, we implemented a menu price increase of approximately 4.2% last week. This increase will help offset some of the structural cost pressures that our restaurants are facing. While 4.2% pricing is above our typical range, we are comfortable that we are maintaining our leading value position in the industry. On the development front, our pipeline of openings remains on track despite the challenges of buying the supplies and equipment necessary to open new restaurants. We opened seven company restaurants in the third quarter and expect to open as many as 11 more in the fourth quarter, for a total of 29 company openings in 2021. This total is expected to include five Bubba's and one Jagger's. Our franchise partners should open two more Roadhouse locations in the fourth quarter, which would give us a total of four franchise openings this year. As we look ahead to next year, we are targeting 25 to 30 company-owned Texas Roadhouse and Bubba's 33 restaurant openings. Additionally, we look forward to adding seven more restaurants to our company base as we have a non-binding agreement with one of our franchisees to acquire their restaurants at the beginning of 2022. As I conclude my prepared remarks, I want to again thank all of our managing partners, our managers, and roadies for their efforts. I want to extend a special congratulations to David Hollinger, our managing partner from Greenville, North Carolina, for recently being named our 2019 Managing Partner of the Year. While COVID caused us to delay recognizing David until just recently, it does not diminish the passion, partnership, integrity, and fun that David consistently brings to the restaurant and to Texas Roadhouse. Congratulations, David and Team G Vegas. Now Tanya will provide a financial update.
spk00: Thanks, Jerry. For the third quarter of 2021, we reported diluted earnings per share of 75 cents, driven by $869 million of revenue and $135 million of restaurant-level profit. Average weekly sales grew to over 120,000 as compared to approximately 92,000 in Q3 2020 and approximately 99,000 in Q3 2019. Comparable restaurant sales for the third quarter grew 30.2% versus 2020, comprised of 23.6% traffic growth and a 6.6% increase in average check. As compared to Q3 2019, comparable restaurant sales grew 22.3%, including 12.2% traffic growth and average check growth of 10.1%. The two-year check growth includes positive mix of 4.3% as guests move to higher-priced entrees. By month, comparable restaurant sales versus 2019 grew 25.5%, 21.5%, and 20.3% for our July, August, and September periods, respectively. As Jerry noted, we continue to benefit from elevated to-go sales volumes. In the third quarter, our restaurants averaged approximately 18,000 per week in to-go sales, which represented 15.1% of total sales. Over the course of the quarter, we saw a gradual increase in to-go sales as a percentage of total sales, as dine-in sales levels moderated slightly, which we attribute to normal seasonality. Sales in our October period were also strong, with average weekly sales of over 121,000 and comparable restaurant sales growth of 23.6% versus 2019. In October, to-go sales remained at approximately 18,000 per store week, or 14.8% of total sales. For the third quarter, restaurant margin as a percentage of total sales was 15.7%, up 111 basis points as compared to the third quarter of last year. Restaurant margin benefited by approximately 45 basis points from a $4.8 million adjustment to other sales primarily related to adjusting our historical gift card breakage assumption. Food and beverage costs as a percentage of total sales were 34.6% for the third quarter. This was 242 basis points higher than the prior year, as a higher than expected increase in beef prices during the back half of the quarter drove total commodity inflation to 13.9%. Commodity inflation was approximately 10%, 15%, and 16% for our July, August, and September periods respectively. Labor shortages at the processing plants, coupled with high consumer demand, are the primary drivers of the higher beef prices. And these cost pressures have been magnified for us as we need to buy even more beef for our restaurants so they can continue to serve a significantly higher number of guests. Based on our current outlook, we expect high teens inflation for the fourth quarter, which would bring full-year 2021 inflation to approximately 10%. Looking ahead to next year, we expect commodity costs to remain elevated. With approximately 30% of our commodity basket locked for the first half of 2022, we currently expect high teens inflation over that time period, with inflation likely above that range for the first quarter. With little of the basket locked for the back half of 2022, and given the level of volatility we are seeing, we currently do not have enough visibility to provide meaningful full-year inflation guidance. At this time, we expect inflation in the back half of the year to moderate, given the beef prices that we will be lapping. Labor as a percentage of total sales improved 147 basis points to 33.2% as compared to Q3 2020. However, like last quarter, we believe a comparison to the third quarter of 2019 is more relevant and beneficial. As compared to Q3 2019, labor as a percentage of sales was 62 basis points lower, even as labor dollars per store week increased 19.3%. This increase in labor dollars per store week was driven by wage and other inflation of 15.1% and growth in hours of 3.4%. The remaining increase of 0.8% was due to adjustments to our quarterly reserve for workers' comp and group health insurance, including a $2.6 million charge this year. For 2022, we are forecasting wage and other inflation of approximately 6%, with the first quarter above this level, as rates did not begin to significantly increase until the second quarter of 2021. Other operating costs were 14.8% of sales, which was 163 basis points lower than the prior year period. Approximately 60 basis points of the decrease relates to adjustments to our quarterly reserve for general liability insurance, which includes a $3.2 million benefit this year and a $1.4 million charge in 2020. Moving below restaurant margin, G&A costs for the quarter increased $15.3 million to 4.7% of revenue, a 63 basis point increase versus the prior year period. The increase in G&A dollars includes $2.8 million of conference expense in the third quarter. While we held our MP Awards celebration this quarter, next year we will return to holding conference during the second quarter. Additional drivers of the G&A increase include cash and equity compensation, which was up $8.2 million, and travel and meeting expense, which was up $1.7 million. Lastly, we lapped a $3 million benefit from the sale of a legal claim in 2020. Our effective tax rate in the third quarter was 11.6%. And like last quarter, our tax rates saw a higher than normal benefit from FICA tip credits driven by the increase in our sales. Based on current sales trends, we expect our full year effective tax rate will be approximately 14%. And for 2022, we would expect an income tax rate of approximately 15%, assuming no changes to the federal tax code are enacted. With regards to cash flow, we ended the third quarter with $437 million of cash, which is down $47 million from the end of the second quarter. Cash flow from operations was $52 million, net of a $24 million FICA tax liability payment that had been deferred from 2020. This was offset by $54 million of capital expenditures, $28 million of dividend payments, and $15 million of share repurchases under our program that we restarted in August. We expect full-year 2021 capital expenditures will be approximately $200 million. For next year, we are currently projecting that will grow to approximately $230 million. The majority of the year-over-year increase is due to the planned relocation of six Texas Red House restaurants in 2022. Finally, on a housekeeping note, I want to point out that Christmas Day will be on a Saturday this year versus a Friday in 2020. We estimate that this shift will have an approximately 1.5% negative impact on comp sales growth for the fourth quarter. Like Jerry, I want to congratulate David Hollinger and also thank the entire Texas Roadhouse family for their continued dedication and commitment. Emma, please open the line for questions.
spk01: Thank you. If you'd like to ask a question today, please press star followed by one on your telephone keypad. Our first question today comes from Jared Garber from Goldman Sachs. Please go ahead. Your line is now open. Hi, Jared. Can you just make sure that you're not on mute? OK. Our next question today comes from Peter Salo from BTIG. Please go ahead. Your line is now open.
spk02: Do you hear me all right? Yes, we can hear you. Excellent. All right. Thanks for taking the question. Just one point of clarification. I think you guys mentioned you took a 4.2% price increase last week. I believe about 100 basis points or so was rolling off of your price. What is the implied pricing in the fourth quarter and going forward for the next couple?
spk00: Yeah, so for Q4, the implied pricing would be about 5.3%. Peter, that'll be, you know, the impact from taking the 4.2%. Also, we have about 1.75% that we took in April. of 2020, and then about 1.4% that we took in October of 2020 that rolls off this quarter. So as you're going forward, you're really looking just into 2022 at the 4.2 for most of the year, and then that 175 rolls off in April. So that gives you for Q1 about 5.9%, and then you essentially just drop down to the 4.2.
spk02: Got it. Okay. And do you anticipate taking any more replacing pricing in April? I mean, I know it's kind of early, but given what you're doing right now, do you think that you're comfortable with the 4.2 that you took in October, or do you think you'll come back in April and take some more?
spk10: Well, I think we'll look at it again and evaluate either late January or February and really see where we're at. But we typically look at it twice a year and then see what we need to do to the adjustment from that standpoint. But, yeah, we will definitely be looking again and seeing where we need to be.
spk02: Great. And then just on the restaurant margins in 2022, Tanya, any thoughts on where you guys think, given the pricing they're taking and all the inflationary pressures? I know historically you guys tried to defend that 17%. Just curious as to where you think you'll land next year.
spk00: Yeah, that could be a little tougher in 2022. You know, that 17%, 17 to 18 range that we talked about really is the long-term goal. With this level of commodity inflation that could be coming in 22, that's a little bit tougher to do. Now, on the sales side of things, you know, we're going to continue to drive top-line sales. We're going to continue to protect those to-go sales. And Q1 is a bit more beneficial because we're lapping still, you know, some capacity restrictions that we had in Q1 of 20. And then as you head into Q2, you know, we're kind of – up and running both years. So, you know, a lot will depend on traffic growth. A lot depends on where that commodity inflation, you know, does land, particularly in the back half of the year. And we're going to continue to be pushing on staffing and making sure that we're staffed appropriately and doing all of those things. So, you know, all of those things could make it a bit tougher on the margins for the full year. All right. Thank you very much.
spk02: I'll pass it along. Thank you.
spk01: Thanks, Peter. Our next question today comes from Chris and Cole from Stifle. Please go ahead, Chris. Your line is now open.
spk09: Thanks. Good afternoon, guys. I had a follow-up on the pricing question. I know the company typically raises prices to cover structural changes, like you mentioned, like wage increases, but I was hoping you could explain how you determined that 4.2% or 4% was the necessary increase, and then I had a follow-up.
spk00: Sure. So, really, we went through the same process we always go through. We sat down with our operators, really talking to them about, you know, the things that we look at, you know, how are their sales turning, how's traffic behaving, how they're feeling about the competitive environment. You know, they're looking closely at competitor pricing and things like that on the menu. And so we did all of those things. And we came in a little bit higher, you know, just as we were thinking about how wage inflation is going to probably continue to grow. And we were learning more about this commodity inflation. and the potential that it could be pretty impactful for a bit of time. Given that we didn't take two price increases in 2020, we had to skip one, it's more comfort, too, that we could come in just a bit higher maybe than we normally would with that pricing this time.
spk09: Okay, that's helpful. And then, Jerry, the company consistently opens 25 to 30 units a year, or at least targets that. But the mix has been shifting between Rodas and Babas. When do you believe Babas will have the scale to start opening more stores and potentially increase the total number of units that the company can open a year?
spk10: I really have a lot of confidence in our team currently. We've been able to open five to eight a year very successfully. All of our openings this year have really opened strong on the sales side and been able to get to the profitability a little quicker than in the past. So we're very confident. We're continuing to work on some building costs to look at what we can do there to get it to the financial position we'd like a little sooner. But we're happy with the sales. We're happy with the food and the service model that we have. So I don't think we're that far away. We've got a real good product there. A couple of more things we want to work on before we kind of open up that gate a little further.
spk09: Okay. Thanks, guys. I appreciate it. Thank you.
spk01: Our next question today comes from Nick Stettion from Redbush Securities. Please go ahead, Nick. Your line is now open.
spk05: Thank you. Many of your peers are pointing to staffing challenges impacting top line growth. Obviously, we didn't see much of a slowdown with respect to your top line. Can you just talk about whether you're fully staffed? If not, what kind of percentage growth in labor hours we should expect in 2022? Just any context there would be very helpful.
spk10: Yeah, I would say that we're feeling much better about it. We had a pretty good summer of hiring and getting new people into the system. We're back to our original 2019 numbers, but, again, based on our sales growth, we still need some folks, and just in different areas of the country, in the front of the house, in the back of the house, in management. I will tell you that. Our folks are probably working a little more overtime and spending a few extra shifts, and we'd really like to get them some fresh legs and some help, and we definitely need some more people. But I think overall, we met with our regional operations partners yesterday and with Doug and really feel good about where we're at. We'd like to feel great, but we're really feeling good. We do have some closed sections at times and things because we are in pockets and areas, but overall we feel very confident. I'd like to get really, really confident and back to 100%. We're not there yet. It's hard for me to tell you whether... to the number we are, but I feel very confident that we are very close to where we want to be. We still need some great people to help us, and we're looking. We just had our second national hiring day, and we're excited to see some of the numbers come out of there as we add more help to the team and as the people that have settled into school. So like I said, I want to feel real good. I want to feel real great, so we've still got work to do.
spk00: Yeah, Nick, and, you know, on the hours perspective, from an hours perspective for 22, I think you'll continue to see hours pick up a little bit more. Right now you're seeing, you know, the productivity be pretty high because we're probably a little short in some situations from an hours perspective, and we'd like that, as Jerry said, to be a little more staffed. So I don't know what's going on. We'll end up being, you know, we always talk about that in terms of traffic, you know, and maybe we get back to more of that 70%, 75% of traffic from an hours, labor hours perspective. That overtime shows up in the wages, and that's kind of helping to drive a little bit of that wage inflation right now. So maybe you get a little relief there, but you see the hours pick up a little bit more.
spk05: Great. Thank you very much.
spk01: You're welcome. Our next question today comes from Drew North from Baird. Please go ahead, Drew. Your line is now open.
spk06: Great. Thanks. I had two questions on the development front. First, as it relates to your outlook, what's the breakdown of Texas versus Bubba 33 in terms of the openings next year? How many Bubbas are embedded in that outlook? And just wanted to confirm that the six relocations are not embedded in that 25 to 30 outlook. that you mentioned. And then the follow-up there is just that several in the industry have upward pressure on development costs, and I believe you had mentioned that last quarter for new store openings. Wondering if you could comment on what you're seeing from a development cost perspective, how much upward pressure you're feeling, if any, there, and if it's having an impact on the development pipeline over the next 12 to 24 months.
spk00: I'll take the first couple questions you had, Jude. Those relocations are not in the 25 to 30 guidance for 22, so those would be in addition. The seven franchise acquisitions are not in those store openings either, just to be clear. And then there's about, I would say, as many as eight above us that are built into that number, the rest being Roadhouse. Obviously, you know, sometimes that changes throughout the course of the year as deals change and things like that, but The way the pipeline looks like right now, I think that's about where we'll be. And then, you know, from a cost perspective, you know, we can see costs creep up a little bit. You do see that. You know, I think, you know, definitely here anecdotally that, you know, contractors continue to have labor, you know, staffing issues just like all of us are having. and that can impact sometimes the building costs, things like that. It hasn't been anything that has been unmanageable at this point, nothing that makes us say we want to, you know, take our foot off the gas from a development perspective. So, so far so good, but we're definitely keeping an eye on it, you know, trying to making sure that we've got equipment sourced and that we're ready to go to keep this pipeline moving.
spk10: Yeah, I would agree. I feel really comfortable with the Roadhouse piece of it, the 22 to 24 maybe, and then obviously Bubba's is about eight. And the six relocations we're very excited about. We look back in the history of the last four or five years, and we've done six to eight relocations and really provided a bigger restaurant with more parking and saw our sales spike and our ability to make a lot more money So we feel like these relocations are, again, an addition to where they're at. Sometimes the energy moves. So our investment in these relocations of some really top performers is a real smart business, I believe.
spk06: Thanks. That's helpful. I'll pass it on. Thank you.
spk01: Our next question today comes from Eric Gonzalez from KeyBank. Please go ahead, Eric. Your line is now open.
spk09: Hey, thanks. Good afternoon. I'm just wondering if you can comment on maybe the long-term implications of the supply chain issues right now. And as you speak with your suppliers, do you have a sense that whether this will have a long in terms of beef inflation given the long replacement cycle? And then just on your hedging strategy right now, I think you said you're about 30% locked. Maybe correct me if I'm wrong, but was that for the first half of the year? But wondering how that compares to the past and maybe why you might not want to push that higher.
spk00: Sure. So, yeah, 30% is locked on the first half of the year. And that's probably, you know, I would say a little lower maybe than we normally would be. Now, normal is maybe going back to 2018, 2019. But, yeah, we would like to – We do a lot of that, you know, in the fourth quarter and into the first quarter of the year. So I think we'll continue to see, you know, getting a little more locked on some of those amounts that we need. So that will be good. And then I'm sorry, Eric, but I forgot the other question that you were asking. Oh, about supply chain, I believe is what it was, and how we think that's going to – the long-term implications. You know, I think a lot of people have different perspectives of long-term implications. Some would tell you maybe this is just going to be a few quarters long. Others would tell you, you know, we're hearing, hey, this could go into 2023. So I think it just a lot depends on how some things play out. And staffing is definitely one of them, I think, for, you know, the supply chain folks, transportation, another. And then it's just that ability to build up some inventory, a product, you know, given the high demand of beef. And so, you know, we have a great supply chain we have awesome vendors that have been working very closely with us to you know supply the beef that we need supply all of the commodities that we need at these levels so that's been really great and um you know the inflation I think we'll just we'll just kind of have to wait and see kind of how that plays out yeah I feel uh sure
spk10: Well, I just wanted to – I mean, obviously, we've been buying the same product for 28 years, and our team has done a really good job. The meat is available. It's just the pricing of it, obviously. The supply chain for the development side, we're really paying close attention to, especially as we get in there. We are having the stock – on things that we didn't have to do in the past. So we're aware of that. We are definitely building up inventory on things that are big-ticket items that we will absolutely need to get a restaurant open and to grow. obviously the relocation so our vendor partners have been working very closely with us we are definitely looking out for the whole year we want to know where we out on each quarter for all of the items that we need we're asking those questions so far it's gotten a little tight I can tell you that so we're aware of that but as of right now it looks really good and and they we you know obviously if we get into a situation our vendors are aware of that and they're We're working closely with them to know if we're going to have any emergencies of something critical from an equipment standpoint that would delay us. But as of right now, we feel real good about 22 and being able to get the things that we need to open all these restaurants.
spk09: Thanks for that. And maybe real quick on pricing, I was wondering if you tested any different levels of pricing or if you ever go out into the market and see if you, you know, would you expect to see any resistance at that 4% level? Or if you push it higher, where you might start to see resistance? And then if you can maybe comment on where you're seeing some of the competitors or the category price relative to what you're doing, that'd be helpful. Thanks.
spk00: Sure. So we really are testing all the time because we have a number of pricing tiers across the country, you know, and that allows us to do different things at different times. And so we learn a lot from that, and we utilize that when we're looking at, you know, pricing each year and doing it twice a year, too. really allows us the ability to pivot and do some things differently. So that's been working really well. I mean, you know, historically, I would tell you, we don't see any issues with flow through. We don't see, you know, any issues when we take pricing. And, you know, a lot of times it's hard to tell. You're not going to see it in the short term. Sometimes it's a longer term issue. And it gets really hard to kind of see it, but we're watching it. It's only been a week since we took the 4.2, but we're going to definitely be keeping an eye out. And a lot of it is just talking with operators and getting their thoughts and what they're hearing from guests and things like that. From a competitive side, you know, I think, again, as I said earlier, we feel very good about, you know, how we're positioned. And we're definitely measuring certain items on our menu, looking at them compared to others in the industry, making sure we feel good about that. And as much as the pricing, it's the quality of the product, the quality of the food, the quality of the service that we're delivering. That whole experience really comes into play. So it's definitely something, Eric, that we think about for sure.
spk10: Yeah, Eric, and I would say, again, we haven't changed our quality model at all, and we still cut our stakes in-house. We sure use a brand that we are very specific and happy with. We haven't changed any of that, and we feel very good. We know that we have to earn it. day for our guests. If we are going to charge a little bit more, then we all know that we've got to ramp up the level of that experience, and that's on our operations team. And we're very committed to continue to cut our own steaks and make our food from scratch, which is definitely more difficult. But it absolutely tastes better, and we have to deliver on our legendary food and our legendary service experience. every single time. If we do that, people will be okay with what we have to charge them because of some of the other pressures. Great. Thanks. I'll pass it on.
spk01: Our next question today comes from Jeff Farmer from Gordon Haskett. Please go ahead, Jeff. Your line is now open.
spk10: Thank you very much. Just wanted to follow up on a staffing question from a few minutes ago. One of your casual dining peers last week did say that, at least from their perspective, they thought that peak casual dining staffing shortfalls or pressures were seen in August. From what you've seen, August, September into October, do you agree with that? Do you think it's getting a little bit easier out there to bring employees into the restaurant? I don't know about easier. I think we're still hustling to find people. We're doing a couple of things to recruit and to retain people. We've just offered some tuition benefit. I say having to do things. We're doing things because we feel great about being able to add people to our program and offering some better benefits and even better pay. We know that, but would I say easy? By no means. Are there more people in the pool? I would say maybe a little bit, and we have to go earn the right for them to come choose us to work at. So easing up a little bit, but I still think there's a long way to go to get enough people out there that could supply all of us with our needs. Okay, and then just one more similar topic, which is on the labor side of the equation, which is that Again, the same peer called out roughly 100-plus basis points of what they consider transitory labor cost pressures in their quarter, and that included things like training costs, reduced productivity, waste, I think things like retention bonuses. Are you seeing a healthy component of that in your own labor costs right now?
spk00: Jeff, I don't know if I could quantify any of those things as far as how we're seeing them in the labor model. I mean, we're seeing higher wage inflation. We know we're paying higher wages, especially in the back of house. You know, that's become very competitive. by the industry even just across the country. So that's something we're doing. We've always had a phenomenal training program and development program, and so we've definitely doubled down on those and taken those to another level during this time. But we don't really slice and dice it that way or look at it from that perspective, so I don't know that I could tell you we're comparable there. Okay.
spk10: Thank you very much.
spk00: Mm-hmm.
spk01: Our next question today comes from James Rutherford from Stevens Inc. Please go ahead. Your line is now open.
spk08: Great. Thank you. I wanted to circle back on the commodity question. The guidance for high-teens commodity inflation in the first half of the year, I'm curious what assumption is embedded into that for the 70% of your basket that I understand you'll be buying on the spot market. Are you assuming that essentially current spot prices hold from today, or is there some kind of improvement? in those dollar costs, just as we kind of track the market as we're here?
spk00: Sure. James, I would tell you we're assuming more probably along the lines of the trend continues. The elevated costs continue versus seeing anything ease up. I think we saw some easing in October. um late october um and then you know the expectation though is we're going to see the historic seasonality the normal spike from the holiday seasonality um so so that's kind of our expectation and and remember too you know we're buying we're aging our meat as jerry mentioned earlier so you're doing anything from 30 you know up to 45 days so what we're buying in october are things we're probably using in december into the new year And so we expect to see the cost stay elevated. And right now, a lot of that is just based on market prices.
spk08: Perfect. That's really helpful. And then just one more on the commodity side, if I may. Just so we can kind of all level set our models for the fourth quarter, I know kind of Peter asked a question earlier about 2022 restaurant margins, but I'm kind of putting together the commodity and wage information you gave us and getting to a restaurant margin in the 13% range. Am I off there by very much? Just if you can help a little bit on that, calibrating that margin. Thank you.
spk00: Yeah, sure. There's a lot of moving pieces in those numbers. There's no doubt about it. And a lot depends on what you're using for traffic and sales growth. So, you know, as I mentioned earlier, we're expecting, you know, Q1 sales, we're going to be lapping capacity restrictions from last year. So we're definitely going to see some benefit there from a sales perspective. And that's going to help from, you know, from leveraging costs. And then I think the staffing issues, you know, we continue to see some of those occur throughout the year. That might keep hours growth, you know, a little moderated, along with that 6% wage inflation. So, you know, I think it's definitely tough to say kind of where we'll be on that. I would tell you that seems a little low to me, but I might be a little more optimistic from a sales perspective.
spk08: Got it. Well, thank you very much, Tonya and Jerry. I appreciate it. Thank you.
spk01: Our next question today comes from Brian Vaccaro from Raymond James. Please go ahead, Brian. Your line is open.
spk09: Thanks, and good evening. I just wanted to circle back on staffing levels as well, and I appreciate your earlier comments. But could you help frame what percentage of your stores may be at levels that are still meaningfully below 19 staffing levels, however you may define that? And if they are below, can you frame how much of an impact it may be having to comps in those locations?
spk10: Well, I think it's a small number that are below the 19 levels. I mean, there are some staffing areas like Louisiana has been hit hard by some weather and we've had some challenges getting people back in that area. So, you know, just because they had to relocate because of all that. So I would say that's one of our tougher areas necessarily to get completely staffed. But other than that, there's some real small pockets of people that are We know who they are. We've got what we're calling a ninja staffing team that is helping these restaurants get there. But I would say the vast majority are at my team levels and just looking to go and cover the additional sales that we have today. So, like I said, we feel real good.
spk09: I'd like to feel great. Okay, that's helpful. Thanks, Jerry. And Tanya, on the average hours per store, I think you said that was up three or three and a half percent versus 19 in the quarter. Is it fair to assume that that progressed higher through the quarter? And can you ballpark kind of where you exited the quarter or where you may be thus far in October on average hours per store?
spk00: I don't have that number in front of me, Brian, as far as the cadence throughout the quarter. Just trying to think a little bit off the top of my head. I would expect that it probably grew a little bit throughout the quarter. You're also looking at volumes that kind of had some seasonality throughout the quarter, too. So it could have been a little bit more lumpiness there. But, you know, like I said earlier, you know, I would expect to be, you know, for us to start seeing hours getting close, you know, more in that 60, 70, you know, 70% range when we're looking at traffic growth. Now, you know, when right now traffic, a lot of the traffic growth is driven by to-go sales. So that's a little more efficient from a labor perspective, and that explains a little bit of why those hours may be a little bit lower. And we still have the people working. We just have fewer people working. So, again, you have people working overtime, things like that. So that's something that we're focused on moving a little bit more away from overall.
spk09: Okay, okay, that's helpful. And you touched on seasonality there, so a good little segue to average weekly sales. And just to frame kind of expectations as we move through the fourth quarter, can you remind us how November, December, typically the interplay between those months? I think you said you gave us October average weekly sales, but what's typical seasonality as we move through the rest of Q4?
spk00: Typically as you're moving into the holidays.
spk09: Yeah.
spk00: Yeah, sure. Yeah, typically you're going to see those volumes increase throughout the quarter. You know, as Jerry mentioned, we're getting into the holiday season, things like that. Now, you do have the impact of that Christmas shift to Saturday, so we'll be closed on that Saturday. We gave you that impact, but typically, you know, seasonality would be growing volumes over the course of the year, over the course of that quarter. Sorry.
spk09: Okay. Okay. I'll circle back on that offline. I guess this last one, and Connie, I appreciate the early thoughts on 22, but could you ballpark your expectations on GNA just so we're on the same page there? Thanks again.
spk00: Yeah, no problem, Brian. So, yeah, from a T&A perspective, I think you continue to see growth, you know, stay moderate. I think as a percentage of revenue, we stay below 5% of revenue is our expectation. So, obviously, we talked a little bit about some costs are ramping back up, travel, which we're really excited to see that ramping back up, getting those meetings going in the restaurants. with our managers and our coaches and things like that has been wonderful to see happening. And, you know, so I would expect, you know, a little bit of increased spend in G&A in 2022 versus 2020. But I think it will still, you know, we'll keep it below 5% of revenue and see some leverage there.
spk09: Okay, thank you. Thank you.
spk01: Our next question today comes from Jeffrey Bernstein from Barclays. Please go ahead, Jeffrey. Your line is now open.
spk04: Thanks. This is actually Jeff Priester on for Jeff Bernstein. Just wanted to dive into the franchisee acquisition a little bit more. Longer term, has your thoughts changed any on how the Texas Roadhouse brand in particular will look from a company franchise mix going forward? And then on this transaction in particular, Did they approach you or did you approach them? And kind of what was the driving force behind wanting to make this transaction?
spk00: Sure, Jeff. You know, this is something even, you know, prior to COVID, we were having conversations with franchise partners all the time. I don't know if there's a one approach versus another. It's kind of a joint conversation that we're always kind of talking about and just seeing where everybody stands. And I think from a franchise perspective, domestically for Texas Roadhouse, You know, we're really not looking at growth from a franchise perspective. We may add one or two a year domestically. The growth from a roadhouse perspective on a franchise is really international focus. All of our international growth right now is franchise, and we expect that to continue. Bubba's right now is all company. We expect that to continue. And then Jagger's is probably where there's some opportunity. And we signed a franchise partner, really excited about them getting a restaurant open next year. We continue to, you know, look at the path for company restaurants. So overall, really, Roadhouse, I would say not as much franchise, domestic, very, very little. And it's kind of the way we're looking at it. And we're going to keep talking to franchise partners. Everybody's kind of in a different place, and we'll continue to have conversations with them, and we'd like to continue to, you know, just add more of those roll-ups.
spk04: Appreciate it.
spk01: Sure. Our next question today comes from Jared Garber from Goldman Sachs. Please go ahead, Jared. Your line is now open.
spk07: Hey, can you hear me this time?
spk01: Yes, we can hear you.
spk07: Great. Sorry about that. And also, this is Michael Rothstein on for Jared Garber. Sorry about that. So, quick question on unit growth, actually. In the outer years, in kind of 23, 24, you're seeing great demand right now and expect positive comps next year. Does that maybe drive maybe accelerating unit growth, especially Texas Roadhouse? I know we kind of touched on Bubba's earlier in the call. And what could that look like kind of 23 and 24 onwards? Thanks.
spk00: Sure, Jared. I'll kind of start out and tell you, you know, we've always felt really good about that range of 25 to 30 for several reasons. One, you know, we make really good discipline real estate decisions when we're in that range. And we also make really good people choices. And those are the two probably bigger drivers when you're talking about opening new restaurants. So I don't see that changing for us. Now, just like Jerry mentioned, as Bubba's begins to ramp up a little more, maybe we start living at the higher end of that range. But for 20, you know, 22, we wanted to kind of keep that option of 25 out there. Just, you know, we're dealing with some of the supply chain stuff. But in the out years you're mentioning, I could see us getting, you know, closer to 30 more often for the Roadhouse Bubba's concept.
spk07: Great. Thank you. Appreciate that. And then as far as next year goes with that positive comp, you know, aside from price, Can you talk a little bit about what you expect for traffic or mix? Obviously, you're lapping a very strong 21. What does that sort of look like? Obviously, from a mix perspective, also very strong. So any clarity around that would be a great thing.
spk10: Yeah, I would just say if we nail it on the operations side and keep delivering on the quality of our food and the experience, the demand is there. I think if you look at our comp sales, that is a strong model. And yes, we know that we have to compete against that in 22. But as I said, we met with our regional operations, but we were with our operations team and And as we get more staff, as we continue to make sure that we're delivering on our promise of legendary food and legendary service, our consumer is telling us to keep doing what we're doing. Open our doors, create a great environment, deliver on our promise of the food and the service. And I don't see that going away. We're going to continue to operate at a very, very high level. It is important for us to have operational excellence, you know, have a memorable experience and develop our people. So as long as we deliver on that promise to our guests and we put the right people out there and they enjoy working for us, I think we will continue to have a still. I expect us to be very aggressive on the top line sales.
spk00: Yeah, and I'll tell you here, it's really hard to follow that, but I'll tell you on the mix, Because we have seen some phenomenal mixed growth, you know, over, you know, starting in late 20 and into 21. We would expect that to moderate quite a bit, probably get closer back to flat mix for 2022 would be my expectation.
spk07: Thank you. Appreciate that. And then one last quick one from me. We've heard from a couple of your peers that repairs and maintenance kind of have upticked a little bit recently. Maybe that's because you haven't been able to get equipment or stores are starting to get more used again, something along those lines. What are you guys seeing from that front? Thank you.
spk00: Yeah, we're definitely seeing that. You know, on the P&L, you're seeing, you know, there were delays in 2020. We were putting things on hold and things like that. So, yeah, you see some of those projects that have been on hold getting going. And then, you know, probably a little inflation, I would venture to guess. Just, you know, again, everyone's dealing with labor shortages and getting things done and things like that. So definitely seeing that a little bit. All right. Emma, I think that's the last question. Yep, that's our last question for today. All right. Well, thanks, everyone, for joining us. Hope you're doing well. And let us know if you have any questions. Thanks so much. Have a great night.
spk10: Thank you all.
spk01: Thank you, everyone, for joining today's call. Enjoy your evening. You may now disconnect your lines.
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