Texas Roadhouse, Inc.

Good evening and welcome to the Texas Roadhouse Third Quarter Earnings Conference Call. Today's call is being recorded. All participants are now in a listen-only mode. After the speaker's remarks, there will be a question and answer session. At that time, if you would like to ask a question, please press star then the number one on your telephone keypad. Should anyone need assistance at any time during the conference, please press star zero and an operator will assist you. I would now like to introduce Michael Balin, Head of Investor Relations for Texas Roadhouse Human Beginner Conference.

Thank you, Julianne, and good evening. By now, you should have access to our earnings release for the third quarter ended September 30th, 2025. It may also be found on our website at texasroadhouse.com in the investor section. I would like 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. 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, and Keith Humpik, our Interim Chief Financial Officer. Following the prepared remarks, we will be available to answer your questions. In order to accommodate everyone that would like to ask a question, could everyone please limit yourself to one question? Now, I'd like to turn the call over to Jerry.

Thanks, Michael, and good evening, everyone. Before we begin our formal remarks, I want to take a moment to recognize Michael Bailyn on his promotion to Vice President of Investor Relations. As many of you know, he has played a pivotal role in shaping our investor outreach and communicating the company's financial strategy. Congratulations, Michael. I am very proud of all you have done for Texas Roadhouse and I'm excited to see you continue to grow our investor relations program. Moving on to our quarterly results, our strong top line momentum continued in the third quarter with revenue topping $1.4 billion. Through the relentless efforts of the best operators in the business, we achieved our highest quarterly growth of the year in revenue same-store sales, and traffic. There's no doubt there is a healthy demand for our brands. Our people-first focus, value proposition, and operational excellence continue to be a winning formula to drive our long-term success. On the development front, we opened seven company-owned locations in the third quarter, including two Bubba's 33 restaurants and one Jagger's. We remain on track to open approximately 30 restaurants across the three brands in 2025. We have also acquired 20 franchise restaurants this year, including three purchased at the beginning of the fourth quarter. Our franchise partners opened two International Texas Roadhouse restaurants during the third quarter. We expect they will open one more franchise location in the fourth quarter. Looking ahead to 2026, we expect to open approximately 35 company-owned restaurants, including approximately 20 Texas Roadhouses, 10 Bubba's 33, and as many as five Jagger's. Additionally, as mentioned on last quarter's earnings call, we have an agreement in place to acquire our five remaining California franchise locations at the beginning of 2026. On the franchise side, Our partners are planning to open 10 new restaurants, including six international Texas roadhouses and four domestic daggers. Regarding consumer behavior in the third quarter, we are pleased with what we saw from our guests visiting our restaurants. As they continue to favor steaks in larger size entrees, in addition, we haven't seen any noticeable change in guest behavior since our 1.7% menu price increase at the beginning of the fourth quarter. The guest is also responding positively to our newer offerings on the beverage side. In addition to mocktails and our $5 all-day, everyday beverage specials, we are also having success with our regional approach to the beverage menu and offerings. For example, we are testing Dirty Sodas in Utah and Idaho, which have been well received by our guests. The regional approach allows us to be more receptive and responsive to local taste and potential trends. Our to-go business continues to show solid momentum. Our operators have done a great job focusing on speed and order accuracy. This focus has improved the overall guest experience, and as we become more efficient, our operators can take more orders per hour. Outside the four walls of our restaurants, We are also very excited about the retail segment of our business. Our retail strategy is about building guest awareness and engagement. Over the past several years, we have introduced mini rolls, buttery spreads, steak sauces, and dips. We are excited that between our gift cards and retail items, we have a presence in over 120,000 retail outlets across the country. We believe having our logo in the grocery store aisles helps keep Texas Roadhouse top of mind to our current and potential guests. Our success would not be possible without the partnership of our vendors. We just recently held our annual vendor partner summit. During this event, we met with many of our key suppliers. There were a number of takeaways around how we continue to work together to strengthen our partnership and ultimately better support our operators. Moving on to technology, approximately 95% of our restaurants are currently using a digital kitchen and upgraded guest management system. We expect the rollout of both systems to be completed by year end. As we look to next year, our operating philosophies remain unchanged despite the current inflationary environment. We will maintain our focus on driving top line through a combination of guest traffic growth and the expansion of our restaurant base. Will remain an industry leader in all and offering high level hospitality in everyday value to our guests and continue to invest in our roadies to ensure we remain an employer of choice. And finally, We will stay true to our mission, values, and purpose for the long-term health of the business. This is what has made us successful for over 30 years and what we believe best sets us up for further success going forward. Now, Keith will provide some thoughts.

Thanks, Jerry. As Jerry mentioned, our operators drove strong sales performance in the third quarter. with all three brands delivering same-store sales growth. Weekly sales averaged nearly $162,000 at Texas Roadhouse, $119,000 at Bubba's 33, and over $75,000 at Jagger's. On commodities, inflation in the third quarter was above our expectation due to higher than anticipated beef prices in the back half of the quarter. These higher prices have persisted and have impacted our forecast for beef inflation over the remainder of the year. As a result, we are updating our full year 2025 commodity inflation guidance to approximately 6%. As everyone is aware, there is certainly significant volatility and multiple unknowns related to beef prices. With that said, we are setting our initial 2026 commodity inflation guidance at approximately 7%. At this time, we expect to be above the guidance in the first half of the year and below the guidance in the second half of the year. Moving on to labor, wage and other labor inflation for the third quarter was in line with our expectations. Our operators continue to execute at a very productive level as labor hours grew at approximately 35% of comparable traffic growth. Our full year 2025 wage and other labor inflation guidance remains unchanged at approximately 4%. And for 2026, we are guiding to wage and other labor inflation of 3% to 4% with mandated increases representing approximately 1% of the increase. With regard to capital allocation, we ended the third quarter with a cash balance of $108 million. Cash flow from operations was $144 million, which was offset by $214 million of capital expenditures, dividend payments, and share repurchases. Also, as previously mentioned, we acquired three franchise restaurants at the beginning of the fourth quarter, And we will be acquiring five California franchise restaurants at the beginning of 2026. Finally, with regard to capital expenditures in 2026, we will continue to prioritize new store development and maintaining our existing restaurants. With approximately 35 new store openings, and five restaurants being acquired at the beginning of the year, we are expecting five to 6% store week growth in 2026. And we are establishing our initial 2026 Capital expenditure guidance at approximately $400 million. This excludes the cost of acquiring the California franchise restaurants. And now, Michael will walk us through the third quarter results.

Thanks, Keith. For the third quarter of 2025, we reported revenue growth of 12.8%, primarily driven by a 5.5% increase in average weekly sales and 6.8% store week growth. We also reported a restaurant margin dollar increase of 1.1% to $204 million and a diluted earnings per share decrease of 0.8% to $1.25. Average weekly sales in the third quarter were over $157,000 with to-go representing approximately $21,500 or 13.6% of these total weekly sales. Comparable sales increased 6.1% in the third quarter, driven by 4.3% traffic growth and a 1.8% increase in average check. By month, comparable sales grew 5%, 7%, and 6.1% for our July, August, and September periods, respectively. And comparable sales for the first five weeks of the fourth quarter were up 5.4%, with our restaurants averaging sales of nearly $160,000 per week during that period. In the third quarter, restaurant margin dollars per store week decreased 5.3% to approximately $22,500. Restaurant margin as a percentage of total sales decreased 168 basis points year over year to 14.3%. Food and beverage costs as a percentage of total sales were 35.8% for the third quarter. The 224 basis point year-over-year increase was driven by 7.9% commodity inflation combined with shifts within the entree category, which was partially offset by the benefit of a 1.8% check increase. Labor as a percentage of total sales decreased 18 basis points to 33.6% as compared to the third quarter of 2024. Labor dollars per store week increased 5.2% due to wage and other labor inflation of 3.9% and growth in hours of 1.3%. Other operating costs were 14.7% of sales, which was 40 basis points better than the third quarter of 2024. The improvement was driven by leverage on operator bonuses, partially offset by changes in our quarterly reserve for general liability insurance. These insurance adjustments include $1.7 million of additional expense this year as compared to $400,000 of additional expense last year. Moving below restaurant margin, G&A dollars declined 1.4% year-over-year and came in at 3.8% of revenue for the third quarter. The decline was primarily driven by lower incentive compensation and lapping the additional expense from our change to annual equity grants. Our effective tax rate for the quarter was 13.1%. Based on our outlook for the remainder of the year, we are updating the guidance for our full year 2025 income tax rate to approximately 14.5%. We are also setting our guidance for the full year 2026 income tax rate at approximately 15%. Finally, as a reminder, in the fourth quarter of 2025, we will be lapping a 14-week quarter from last year. We estimate that this will have an approximately 10% negative year-over-year impact on fourth quarter EPS growth. Now, I will turn the call back over to Jerry for final comments.

Thanks, Michael. We just completed our 20th annual fall tour. where we traveled to 28 cities over a six-week period, gathering feedback from nearly 800 managing partners. While it is called Fall Tour, it is really about listening to and engaging with our managing partners to learn how we can better support them. There's nothing that feeds my soul more than spending time with the best operators in the industry who continue to create a place where roadies want to work and our guests want to dine. And speaking of guests, I want to give a big shout out to some of our raving fans, Mike and Judy McNamara, who have just completed their 530th store visit. We are proud to have Mike and Judy as a part of Rhody Nation.

That concludes our prepared remarks. Julianne, please open the line for questions.

Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Sarah Senatore from Bank of America. Please go ahead. Your line is open.

Oh, thank you very much. I just, I guess maybe one question and one clarification. I'll start with a clarification. As you think about the outlook for beef inflation or commodity inflation, I think, you know, the implication is that beef inflation might be up kind of mid-teens if your commodity basket is up high single digits. Could you just talk a bit about, you know, what you're seeing that is, that's, you know, leading you to draw that conclusion. I guess I thought maybe we would start to see some, you know, pullback in demand at retail just given where prices have gone, and it sounds like perhaps that's not the case. And then I guess the question was more about your beverage program. I know that's something that you've been working on for a while, kind of mocktails. and shifting perhaps to address the fact that younger consumers maybe aren't drinking alcohol. Did you talk a little bit about whether, you know, whether you're continuing to see that trend in terms of negative mix?

Thanks. Great. Sarah, this is Michael. I'll start with your commodity question. Were you referring to fourth quarter of this year or next year commentary?

Next year. Next year, please.

Yeah. So, you know, for next year, you know, we are assuming, you know, five single digit, you know, inflation when it comes to, you know, formula, you know, pricing. We also will be lapping some favorable contracts from this year. So, the combination, you know, of those two things is what gets us into, you know, low double digits, unweighted beef inflation.

And then I'll, Sarah, this is Jerry, talk about the beverage program. You know, I really am excited the last couple of years as we've rolled out our $5 all day, every day, which is a 10-ounce margarita, a value pint beer, and some other things there. And the mocktails have gone very well. Dirty sodas we're testing in Utah and Idaho. And, you know, there's a lot of our consumers out there that beverages – is a different category for them. And I think us being aware of consumer trends and how that applies. And I think people want a good beverage, maybe not as much the beer and margarita anymore, but they want to have a quality of beverage option. And so whether it be liquor, beer, and wine, whether it be soft or iced teas and sodas or a mocktail or a dirty soda, and I think we're learning that the better the offering, the more options the guest and the consumer has, the better it is for us. So I think the overall blend of the beverage category has clearly been a focus of ours for the last 18 to 24 months, and I'm excited to see that continue to expand.

Okay. Great, very helpful. And just impact on mix, anything to say there on the tech mix?

When it comes to mix, you know, we're continuing to see, you know, some negative alcohol mix that's really remained, you know, consistent through the year, and that's where most of the negative mix that we are, it's really where all the negative mix that we're seeing this year is coming from. Some of that is being offset by positive mix of mocktails, and soft beverages continue to be Thank you.

Thank you. Our next question comes from Gregory Frankfort from Guggenheim. Please go ahead. Your line is open.

Hey, thanks for the question. I guess I'm curious, maybe not to hammer on beef, but what gives you guys the confidence that this is transitory versus structural, and I guess how are you evaluating the structural nature of what's going on versus maybe not pricing against it because it's transitory. Thanks.

Yeah. Hey, Greg. It's Michael. Thanks for the question. I think, you know, the industry, the experts, our purchasing department all believe that this is a, you know, we are in a cattle cycle and, you know, it is transitory in nature. You know, cattle cycles do, you know, last longer and you tend to, when you come out of it, settle in probably higher than where you came into it. So, you know, certainly as we take pricing for other structural inflationary pressures, i.e., wage pressure, it does help offset any component that is, you know, structural in nature on the commodity line. We're not going to, on the front end, guess of what is structural and what is transitory, you know, when the cattle cycle ends or the industry expects something different than we would have, you know, different conversations. But right now, everything we're told and believe is that this is a cyclical issue and one that we just need to manage through. Thank you.

Our next question comes from Jacob Aiken Phillips from Milius Research. Please go ahead. Your line is open.

Hi, everyone. Good afternoon. I just wanted to ask on your take on the consumer. I know traffic was strong, but are you seeing any differences by income cohort, age cohort, and then other restaurants have said that there's been a bifurcation among consumers and how you manage your menu and your pricing architecture to appeal to both sides of that?

Thanks, Jacob. This is Jerry. I'll kick it off, and then I think Michael will have a comment, but You know, there's nothing significant that we can see. We're excited about our traffic growth and our sales growth. And, you know, our menu has always had value built into it. And we have some offerings on our early dine. And so I think we've always been focused on that from the very beginning. And, you know, we do have some larger steaks and some entrees that can go to that side of the menu. But there's also a lot of entrees with our country dinners or six ounce sirloin with two sides are still extremely value oriented. And I do believe that that is what allows our menu to be very, you know, favorable for all consumers. So we feel like we're in a great position to be able to pride folks. And when we talk about our beef selection, and we have four cuts of sirloin that you can choose a six, an eight, 11, or 16. You know, so that you have options on how much you want to spend and how much you want to eat. And I really do believe that that's always been our philosophy, and it's really served us extremely well.

Yeah, and Jacob, this is Michael. When I look at our mixed trends, you know, from the third quarter and the first part of the fourth quarter, I'm really not seeing anything different than what we've been seeing all year. We don't spend a lot of time separating out, you know, income or consumer by cohorts. But there's nothing in there that tells me that we aren't continuing to see a guest that appreciates the value that we're offering. When I look by region, I'm seeing strong results. When I look seven days a week, I'm seeing strong results. When I look by day part, I'm seeing strong results. And that goes for both our dine-in business and our to-go business. So we're very happy with what we're seeing from the consumer and believe that just goes to The value that we offer and the overall, you know, experience that we're offering in the desktop still is enjoying what they're getting from us.

Great. Thank you.

Our next question comes from David Palmer from Evercore ISI. Please go ahead. Your line is open.

Great. Thank you. Congratulations, Michael, on the promotion. Crazy well-deserved. Thank you, David. Yeah, two questions. Jerry, I was just wondering, you know, philosophically about pricing, and I'm wondering how you weigh the potential impact of pricing or not pricing or underpricing the inflation on managing partner pay. You know, you were one in the past, and you manage a ton of them now, and then, you know, if this is going to be a year where, you know, we're getting a spike in beef, and I'm not saying you should chase that with pricing because it won't last forever. But I do wonder how you manage that in a year like what we might be having in 26. And then separately, I just wanted to ask about Bubba's. You know, the same store sales, it decelerated a bit, you know, two and a half points or so. You know, not a massive slowdown, but obviously Texas Roadhouse really didn't slow at all. It actually accelerated a little bit. So any theories about why those would have been different in terms of those sequential sales? growth and thank you.

Thanks, David. As far as the MP compensation, it really has been built around that partnership side of it. You grow your sales, you grow your profits, you grow your paycheck. You know, I think that philosophy works very well. And when we look at store, restaurant store margin, those dollars are what they get paid off of. So, you know, we continue to monitor and reach that. But, you know, again, if you're running a healthy business and you're executing at a high level and you're growing your sales and your profits and your people, then you're going to get compensated for that. And I think that's been a great philosophy for us. If there are people in our system that that might be struggling for whatever reason, then we will continue and have great conversations with them if there's any adjustments. But the overall system works extremely well. When you've got skin in the game and you've got ownership and partnership, you know, and we just came off of fall tour and we talked about, you know, they all have their own individual challenges and problems and how can we help them solve them, whether it be sales profits or people and helping them run a healthy business for the long term and There are ups and downs in business, and that is part of partnership. We're not going to be able to fix everything for you every time, but we will work with you to help you grow that side of the business. And, you know, as far as Bubba is concerned, I think we are still very excited. You know, there's been a lot of work put into Bubba's the last few years from a leadership standpoint, from a menu engineering standpoint. There's a lot of things going on in their competitive set. So what we feel have a lot of confidence in what Bubba's doing and the offerings that we have with our burgers and pizzas and wings and all of those things that go in there, the sports, the rock and roll. Michael, say that again for me. Rock and roll. Yeah. So we like what we got going on in Bubba's. It's always been great. It's our second brand. We believe in it completely. So we'll continue to watch and see if there's anything we need to do differently. But We still have a lot of faith and confidence in Bubba's 33. Thank you.

Thank you.

Our next question comes from David Tarantino from Baird. Please go ahead. Your line is open.

Hi. I wanted to follow up on that last question about the restaurant profit dollars. And, you know, if I look at restaurant profit dollars per location or per operating week, which is, I guess, a proxy for the metric that you pay the store managers on. You know, it's been a really long time since that metric has declined in two consecutive years. So this year looks like a year where we're going to see a decline. So I'm just wondering, Jerry, if you could comment specifically on the appetite for letting that decline in 2026, given all this inflation. Or perhaps, you know, is there a thought to around the time you make your next pricing decision to price in a manner that would protect that line, you know, specifically so that you don't have two years in a row of declines in pay?

Yeah, David, thank you. I think we'll continue to look at our philosophy on pricing. We've always tried to have a conservative approach, and we do believe that protects that top line and that consumer. And, you know, we do understand that the beef is driving a lot of those other results. But as we look at it, we just started our pricing for the fourth quarter, and we took the 1.7%. And as we get closer to the end of the year, our next pricing will be in period four, which is the start of April. We'll start having conversations with our company and within ourselves and within all of the operators and seeing what what they're going up against when they're competitive set in their own communities. And then we'll make that decision from that standpoint. So I think, again, we always try to have a conservative approach, and I think it's paid us very well overall. And we want to talk to our partners before we make a decision like that.

And, David, this is Michael. Our partners take a long-term view just like we do. And, you know, we look back and, you know, know that those restaurant margin dollars per store week, are still, you know, approximately 35% higher than they were in 2019. So, yeah, maybe we've given a little bit back, and we need to watch and see what happens next year. But, you know, where those profit dollars have gone over the last five or six years is still very impressive.

Great. Thank you.

Our next question comes from Brian Bittner from Oppenheimer. Please go ahead. Your line is open.

Hey, thanks. Good afternoon. They clearly you're seeing really resilient traffic trends in an environment where most are seeing choppier, softer trends. And that's not surprising based on their track record. But the question is, is based on the data and insights you guys have DC new customers coming through the door, you picking up new customers right now? And if so, where are you stealing those customers from? Are they trading up from QSR? Are you stealing them from the grocery store? How would you frame that up?

I'll kick it off, but it's hard. We don't really measure it that way. You know, we try to get a great reputation in a community and be the talk of the town to some degree, and that's what really drives the excitement around. When you drive into a Texas Roadhouse and the parking lot's full and the energy's going on and the lights are so bright, I mean, that is our attraction. And if you drive to another business and maybe they don't have the same activity, but I think we're drawing from everyone. whether it be a higher end steakhouse, whether it be QSR, whether it be, I mean, we got quality made from scratch food. We cut our own steaks and we've got this energy and this vibe in these restaurants. So I think the American consumer of the consumer across the world is just saying they like what we're doing from an energy standpoint, a hospitality standpoint, and the quality of our food always has been in our respect and reputation in the communities all across America and the world. It's something to be really proud of, and we are extremely proud. And we work really hard to deliver a great experience for our employees and for our guests. Thank you.

Our next question comes from Peter Saleh from VTIG. Please go ahead. Your line is open.

Great. Thanks. Maybe two quick questions, just one on the beef side. Just curious if you can comment a little bit you know, how much of this beef is already locked for next year? If we do see a rolling over, which I don't think anybody expects of beef, could there be some, you know, moderation in your inflation targets for 2026? And then just secondly, on the KDS, 95% of the units now have it. Can you talk about what you're seeing on table turns and just how you try and balance speed of going fast, maybe getting a couple of table turns, but not going too fast and not destroying the overall guest experience. Thanks.

Hey, Peter, this is Michael. I'll definitely take the first one. On the commodity basket, I will tell you that the overall commodity basket is approximately 40% locked in the first half of the year for competitive reasons. We're not going to get into specifics on, you know, what percent of the beef has been locked, but I think it's fair to say If there's moderation or a change in expectations, then that could certainly, you know, move the needle on our forecast for overall inflation in 2026.

And then on the digital kitchen, I think, like you said, we'll be completely rolled out with the digital kitchen, the dust management system upgrade by the end of the year. There are indicators that show that it does give us more information so that we can make great decisions. We want to balance how fast that we are. We still see the guest experience at about 54 minutes, and that's a good spot for us to be. You want them to feel important in that we're hustling but not rushed. And so I think all of this does is give us some more information about how to make sure that we balance a great experience when it comes to to your grits, to your drinks, to your appetizers, salads, your entrees. And obviously, the roadhouse pay or the pay at the table has been a huge component where our guests can pay and leave when they're ready and they're wanting and not waiting on us or we're not waiting on them kind of thing. So I think all of technology, if it enhances the guest experience, then we're all about it. And if we learn things once the whole system is on it, then we will share that with our operators and make some decisions on how do we increase speed of service if needed.

Thank you.

Thank you.

Our next question comes from Jeffrey Bernstein from Barclays. Please go ahead. Your line is open.

Great. Thank you very much. My question is on the uses of cash. I guess it's a two-part question. The first part is on the franchise acquisitions. It seems like a clear ramp in activity over the past few years. Just wondering what those conversations are like. Presumably these are very profitable units. I'm just wondering how many are still outstanding, which could be potential targets for 2026. And then to balance that, I guess, on the CapEx side, I think you mentioned for 26 it's gonna be 400 million, which is similar to 25, I know you're opening up more new units and I'm sure there's inflation on the cost to build and there's larger boxes. So I'm just wondering the offset there, why we're not seeing an increase in that CapEx, whether it's you've found a way to be more efficient with the openings or maybe Bubba's is a much lower cost to build, just trying to figure out the balance of CapEx between the two years despite greater openings. Thank you.

Yeah, Jeff, this is Keith. Thanks for the question. On the franchise acquisition side, After we complete the California acquisition at the beginning of the year, we will have approximately 30 franchises left. I think it's actually 31 is the exact number. And, you know, we just continue to have ongoing conversations with all of our franchise groups. We still have, I'd say, three large franchise groups left after this. And we continue to have ongoing conversations with them. And I think you can expect to see, you know, other franchise acquisitions in the future. On the CapEx, you know, I think you have to factor in that this year we had the support center acquisition was part of our number. So, I think you kind of have to back that out. And when you do that, I think the numbers become a little bit more comparable.

How much was that acquisition?

23 million. Thank you. Thank you.

Our next question comes from Brian Harbor from Morgan Stanley. Please go ahead. Your line is open.

Thanks. Good afternoon, guys. I guess I think the B side is pretty clear. I guess I'm just curious, you know, as you think about sort of labor lines, OPEX lines, which were a bit favorable in the quarter, G&A as well. You know, is that something you still expect to continue in 4Q? And, you know, some of those, I assume, were affected by the extra week. So how should we think about that?

Hey, Brian, it's Michael. I say Yeah, that the fourth quarter, we should still be able, you know, to, you know, if the top-line trends continue the way they have for the first five weeks, I would expect to see leverage on all those lines, labor, other ops, and G&A. And those are also lines that potentially could see some leverage into, you know, 2026, again, if the top-line trends, you know, continue. Our operators are doing a great job. and staffing the restaurants, and so that labor hour growth relative to traffic has been very favorable. Other op, you know, again, we can see some leverage on that. And, you know, G&A, we'll see how that, you know, plays out.

Thank you. Our next question comes from Brian Vaccaro from Raymond James. Please go ahead. Your line is open.

Good evening and congrats, Michael. I wanted to ask you this sort of the sticker shock effect in the grocery store. You know, in my local market, ribeye is over $23 a pound. And I think for maybe six or seven bucks more, I could have you guys cook it and not burn it like I do at home and have great service. And you'll even do the dishes for me. I mean, so I guess the question is, even anecdotally, are you hearing that from your customers? And do you think that that's adding some incremental topspin to your comps? Is there any way to flesh that out in your data or any demand destruction you're seeing in the grocery store? I don't think I've ever seen it that pronounced is sort of my point. Even 10, 12 years ago, it just seems quite intense, that effect.

Yeah. Hey, Brian, it's Michael. I certainly do think that people are aware of what it costs to buy beef in the grocery store. And, you know, while maybe we weren't seeing as much retail demand degradation over the, you know, in the second quarter or In third quarter, we've heard that maybe you're seeing a little bit more of that now. And we certainly have seen this year that more of our guests, when they come in, are getting a steak when they order from Texas Roadhouse than what we had seen in years past. So I think they are recognizing the value of our steak offerings relative to what they can do at home. And as a a company that, you know, prepares a tremendous stake. I think that creates loyal guests for us for years to come. So we are aware of that, and I think it is helping us.

All right, that's helpful. And then just on the unit growth side, I was going to touch on maybe both Jaggers and Bubba's, but You know, Bubba's opening 10 units, and I think you said five on Jagger's. But on Bubba's specifically maybe, can you talk about any new markets that you're going into, or is it mostly existing markets? Maybe just elaborate on sort of the growth and how it's accelerating at Bubba's.

Yeah, Brian, this is Jerry. I think this year we'll get seven, and the year prior, a couple years, we got four handfuls. And we've been able to work the pipeline. We are trying to stay primarily with the market partners that we have. We're continuing to look at the future growth. But I would say most of that growth is in pretty existing markets from that standpoint. And, Jaggers, we have a homeland or a, you know, strategy here, the heartland. It's really Ohio, Indiana, Kentucky, Tennessee, Georgia. Our company-side stores will be close to the Louisville base. That's the strategy for now. We're very excited about the growth. We will be going into Tennessee or Nashville area and and then start looking in a little south of that, and try to even break into Ohio. So that's kind of the strategy that we have with Jaggers is stay close to Kentucky and maybe the two states north and south from that. And we call that the heartland strategy for the company side.

All right. Thank you very much.

Thank you.

Our next question comes from Dennis Geiger from UBS. Please go ahead. Your line is open.

Great. Thanks, guys. And, Michael, I'll echo the congrats. Well-deserved. Always appreciate all of your help, for sure. Great detail on the inflation on your key cost items for 26. Curious if you would comment at all on thinking about that other OpEx line item looking to 26. Gina, any notable call-outs there? I know the other OpEx has a gazillion buckets in it, and we're not in 26 yet. But any call-outs on those other items as we just kind of trying to get a full picture of how the P&L looks in the next year. Thank you.

Hey, Dennis, it's Michael. I appreciate the kind comments. You know, it's certainly, you know, early, but as we think about other, you know, operating for next, you know, year, it could look, you know, grow in a similar fashion to what we've seen this year. Low, you know, single-digit growth in, you know, other operating dollars per school week. You know, we have heard that, you know, utility, you know, costs are going up and, you know, You know, tariffs would be something that maybe flow through there, but not expecting anything dramatic on that line as we know it right now. So, assuming our top line continues to grow at a healthy traffic pace, right now I'm expecting low single-digit dollar per store week growth. Thank you very much.

Our next question comes from Andy Barish from Jefferies. Please go ahead. Your line is open.

Hey, good evening, guys. Did want to level set on the quarter to date. I mean, with the pricing you took, it looks like traffic, we don't know all the variables, but it looks like traffic is probably running half the rate of the 3Q. Is that in the ballpark? And what may explain that other than maybe comparisons or something else out there?

Hey, Andy, it's Michael. Yeah, so we reported a 5.4% for the first five weeks. I will tell you, that the timing of Halloween moving from a Thursday to a Friday had over a 60 basis point negative impact on that number. So I would say if you were to adjust for that, we would be running over a 6%. But within that 5.4, you do have pricing that's probably running in the little over, you know, two and a half percent. And so you are you know, seeing traffic that's, you know, over 3% at this point, but that 3% would probably be over 3.5% X the Halloween adjustment.

Okay, so your menu price kind of layered in through the month?

Well, the 3.1% pricing, you know, was fully, you know, that was fully in effect as of day one, but we still have some negative mix, call it 50 to 60 basis points, so you're running, Two and a half, 2.6% check increase, and the remainder is traffic.

Okay. Got it. Got it. And then, yeah, with the beef side of things, I mean, 2015 was, you know, your previous high on COGS at 36%. Is that – kind of the analog with hopefully the peak in the cattle cycle, at least the low in the cattle cycle driving peak prices for, you know, 2026, at least what we know today in terms of what you've laid out.

Andy, it's Michael again. It's hard to fully know. You are right, 2015, I think it was a 35.9%, and that was the end of the cycle, and then, you know, the next year when things have you know, did turn, you know, we were 200 basis points lower. So, you know, we do obviously expect, you know, that percentage to increase in 2026. We will see what happens beyond that. But, again, we know when the cycle does turn and you get that year of less inflation or deflation, that COGS line does improve, you know, very quickly. And so that's why we're remaining optimistic. But, you know, too early for us to, you know, guide and predict what will happen beyond, you know, 2026.

Okay. Appreciate the talk.

Our next question comes from Lauren Silberman from Deutsche Bank. Please go ahead. Your line is open.

Thank you very much. A couple of follow-ups. I wanted to also ask on the quarter-to-date side, there's been a lot of noise around October. Industry-wide, it's been pretty volatile. In recent weeks, it sounds like things have slowed, given pressure from the government shutdown. Outside of what you saw with the Halloween, are you seeing any volatility in trends at all more recently, or it's been pretty stable?

This is Michael. I would say, as I looked at each week of the October period, outside of Halloween, it was very stable and consistent. So we saw strong performance, you know, throughout the month of October.

That's great. And then on the commodity guide, are you guys actually embedding a step up in underlying costs on a dollar basis in 26, or is this more about compares? I guess I'm just thinking through commodities up 8%, 9% in the second half of 25, and I guess your guide would imply close to mid-single digit in the back half of next year as well. So just trying to understand.

Yeah, it is a mixture of that. I mean, you know, beef, you know, does go through, you know, cycles of prices or, you know, very seasonality in beef prices. So, it is not on every cut that the dollar cost is going straight up from where it was in the third quarter. In some cases, it may be lower in the fourth quarter. And then, you know, it could go, you know, higher and some things move around. So, it is not. a linear assumption in there. You know, our procurement experts in the beef area, you know, spend a lot of time thinking about how this will play out, and it varies by cut. So a lot of this inflation, certainly in the first half of the year, is simply the fact that formula, you know, based pricing was much lower and really, you know, escalated in the back half of the year. Some of this is just the year over year lap, even if it comes down from where we were in the third quarter.

Understood. Thank you very much.

Our next question comes from John Ivanko from JPMorgan. Please go ahead. Your line is open.

Hi. Thank you. I actually had to remind myself when your IPO was, which I think was in 2004. Correct me on that. But, you know, shortly after that, Your unit growth obviously significantly accelerated as a public company. And, you know, sometimes in this industry, you know, 20-year-old restaurants, you know, can one kind of lead to at least renewals. So just kind of comment, you know, if there are any, you know, kind of step ups in rent as you go from the first 20 years to the second. And then the question just kind of on, you know, as you think about the asset itself, you know, do you have an opportunity or is there a need to you know, to kind of come and say, okay, you know, you can only remodel a restaurant kind of cosmetically to an extent where it actually makes sense to go back and do some more major work for the next 20 years of the restaurant's life. Is that something that we should consider as part of the future CapEx cycle?

Yeah. Hey, John, it's Michael. First, on the rent, you know, we do, you know, do straight line on the rent. So, you know, we report, you know, similar costs. rent numbers and so there wouldn't be the stuff up there. It is certainly possible if we came to the end of the negotiated lease term with a restaurant, whether that's 20 or 30 years or with the landlord, excuse me, that there is a reset that could be higher, but that was going to be on a smaller number of stores so probably wouldn't have a huge impact on that rent number. As far as you know, the need for investing in our restaurants. I mean, we continually maintain our restaurants. And, you know, certainly there have been some that we have relocated that maybe in the early days that Texas Roadhouse, you know, wasn't the first restaurant to be in that building. And it wasn't something where you could not continue to just take care of, you know, the building. And we did relocate. And you'll have cases like that. But the fact that we take care of these restaurants, I think, prevents us from having any major concern about a huge step up in the CapEx needs, because we're taking care of them year in and year out.

And, John, this is Keith. You know, I would just add, you know, on the CapEx side, we do have an aging restaurant base now. And that is why you have seen kind of the uptick in the last couple years is all the projects that we have been doing to maintain the restaurants. So, I think you can expect to see it at kind of like a level that we've been at going forward. Thank you.

Our next question comes from Andrew Strelzyk from BMO. Please go ahead. Your line is open.

Hey, thanks for taking the question. I had a follow-up and then a question. The follow-up is on. the mix shift to larger entrees and stakes and things like that, can you quantify how much of a margin had when that created as number one? And number two, on the pricing side, you know, your price increases that you've been taking for the last couple rounds here have been stepping up a little bit, not a ton, but a little bit. And at the same time, your, you know, wage growth expectations have actually been coming down from four to five to four to three to four. So in your conversations with the operators, what are they pointing to that's driving that? larger price increase over the last couple rounds.

Thanks. Andrew, I'll start on the mix shift. You know, certainly the, you know, the higher percentage of guests ordering a steak has had a little bit of a negative impact on our food and beverage as a percentage of sales, maybe 20 to 30 basis points of impact on that percentage. But I'll tell you, it's net neutral. by and large, to our profit dollars. Those steaks tend to be, you know, or larger entrees come at a higher, you know, sales price. So we get more sales dollars, and their profit dollars are probably equal to what the guest maybe would have ordered otherwise. So from a margin dollar standpoint, not having a huge impact, but you definitely do see a little bit of extra pressure on the food and bed percent line.

And Andrew, yeah, this is Jerry. On the pricing, I think we have really candid conversations about what's going on in their local community, what's going on in their state, whether it be labor or continued commodity and utilities and all the other factors that come into running a profitable business and then make those decisions based off of that. And sometimes it is about a store or a market or a state. But overall, for the company, it's what we feel comfortable with. And it is a little bit about what our competitors are doing. We try to get as educated as possible when we make those decisions twice a year on where we're at and what we're comfortable with. We're not going to be able to price for every beef inflation as of right now, but we want to make sure that we protect the value side of our business and our menu and our perceptions.

Great. Thank you very much. Thank you.

Our next question comes from Jim Solera from Stevens. Please go ahead. Your line is open.

You guys, good afternoon. Thanks for taking our question. Derek, if you're looking for a place for new Jaggers in Ohio, I recommend the west side of Cleveland if the real estate team needs some site selection help. Thank you. I wanted to ask a little bit about the retail piece of the business that you guys had mentioned earlier. Do you get to quantify how much of an impact that is? I would think given the really strong brand equity that you have, that could potentially be a way to access kind of a whole new group of consumers at what I would think is a decent margin for you. But just any color you can offer there and if you have any thoughts around maybe the potential size of that business.

Well, thanks for the – obviously, all of our retail initiatives are about the brand awareness and being on the grocery store. And, you know, our consumer, they see that logo and they put a smile on their face and they think about their local Texas roadhouse. And, you know, all we're trying to do in all of that. Now, with that said, you know, obviously the Inspired By roles are really a hit. And they are really selling well at the retail outlets out there. And we are extremely happy, and so is our vendor partner. So it's still just early on as we wrap up the year and we see what kind of revenue that it provides. But I will tell you, there is a demand for that particular product. And so we're excited about it. And we will continue to look at making sure that it's available two folks and we've had a tough time keeping up with it. But it's exciting to see Texas Roadhouse inspired by many roles flying off the shelf like they are. So we're very proud of that.

Great.

I appreciate it all. Thank you. Thank you. And I'll let the real estate team know about that selection. Thank you.

Our next question comes from Zach Fadum from Wells Fargo. Please go ahead. Your line is open.

Hey, good afternoon. So on the inflation front, you see competitors trying to shift the mix to chicken or less inflationary items, either via promo or other avenues. So philosophically, curious if there's a point where beef inflation gets to, you know, so high where you would consider either a menu pivot at the core business or Bubba's, etc. Any thoughts there?

Yeah, we're kind of a steakhouse, and I think that it would be hard. We have a lot of offerings with our chicken and pork and salmon and the country dinners with our country fried chicken and all of those things. So I think we have a lot of other offerings, but, you know, America really does believe that we cook a great steak, we serve a great steak, and we provide a great steak. And that's what they crave, so we're not going to take that away from them. Appreciate the time. Thank you very much.

Our last question comes from Jake Bartlett from Truist Securities. Please go ahead. Your line is open.

Great. Thanks for taking the question. Mine was on your pace of development, and nice to see the increase in 26 and kind of putting a number on that, really driven by the above of 33. My question was on the growth at Texas Roadhouse. You've always been very disciplined, not wanting to stretch the team, but, you know, 20 openings would be the least amount that you've opened since. I guess, since COVID or just post COVID and, you know, on the low end of your historical range. So, the question is why have it, you know, so low? You know, are there any sort of headwinds or anything to think about of why that couldn't be a little higher? I know bandwidth is something you're very conscious about, but I think, I would think as you open different brands that the bandwidth is more on a kind of a per concept basis. But any comments there would be helpful.

I think we said approximately. So, you know, that gives us some wiggle room. Some of these deals take a little longer. But I'll tell you, I feel great about the pipeline for 26 and 27 for Texas Roadhouse, for Bubba's and Jagger's. We obviously know that that roadhouse is what drives a big part of the business. So we feel very comfortable at approximately 20. I can't commit too far past that. It's a little early. But I do believe that we will be north of that number.

Great. Thank you so much.

Thank you.

We have no further questions. I would like to turn the call back over to Jerry Morgan for any closing remarks.

Thank you, everyone. Congratulations, Michael, for all your hard work with everyone, and we appreciate the support. It's been a heck of a year, and let's go, Roadhouse!

This concludes today's conference call. Thank you for your participation. You may now disconnect.