Texas Roadhouse, Inc.

You know, weather was more of a headwind, so people stayed home. And then I do have a question about kind of your beverage platform, please.

Hey, Sarah, it's Jerry. How are you? Listen, I think we continue to operate at a high level, and, you know, we continue to execute, and some of the technologies that we're using might help us manage the business a little bit more. But, again, it really comes down to the ease to be able to place the order through the app, the pickup windows that we have in the transaction there, the people grabbing their food, getting home, making sure all of the food has everything in it, So I believe that not only is our food delivery a great-to-go experience and we're continuing to improve upon it, but it's just resonating when you get home and you have every item that you requested and you've got plenty. We never have enough rolls and butter in there, but we keep trying hard. I just really, really believe that it's about the demand for our product and the execution that our operators are continuing to focus on.

Thank you. And then just a quick question on beverages. I think based on what I think your pricing was, I think 3.1, maybe mixed with very slightly negative. You know, is there anything there? I know you said Michael entrees, you know, hasn't been the issue. Is it still alcoholic beverages? And, you know, are you seeing kind of traction with some of your non-alcoholic beverages?

Hey, Sarah. Yeah, so we had 3.1% pricing in the first quarter, and the check was up 2.6, so about 50 basis points of negative mix. And it's all coming from a combination of either still some negative mix. in the alcohol category, although that has been improving. That combined with the to-go business is growing at a faster rate than the dine-in business. The dine-in is still growing. And since the to-go business has a lower average check with typically not a beverage attachment, that puts a little bit of pressure on the overall mix. So not seeing anything in the entree or other food categories that are concerning us.

Thank you. Your next question comes from the line of Elliot Simon with Evercore. Your line is now open.

Hey, guys. Jerry, first, I have to compliment the burger-eating prowess, and the beer looked tasty, too. I just wish there was a Bubba's closer to New York City.

We're working on it. Thank you, though.

Yeah, it's an hour and a half away. On Bubba's, you've talked in some interviews about the potential for the brand to grow well beyond 200 restaurants over time. The unit economics are already solid, but the calm energy still feels different than Texas Roadhouse. So as you evaluate the brand today, what are the biggest unlocks to getting Bubba's performing more like Roadhouse over time? Is it brand awareness, site selection, marketing, operational maturity, or the smaller format restaurants you mentioned in the annual report? And when everything starts humming for the brand, what is the big audacious goal on the wall in terms of how many Bubba's you can build in a year?

Well, Elliot, that's a big question out there, sir. But I will tell you, you know, if really if you don't look at Roadhouse and put Bubba's against all of its competitors in that segment, It is at the top of the class, and we're really proud of the operations. We're proud of the people and the work that's been done to get it there. The energy has a lot of the similarity, a little different vibe versus the country, more into the rock and roll side, but it's still got that sports, the music, the energy, the entertainment, and more importantly, the fantastic food. So, you know, I think we'll continue to work on that piece of it and keep growing. And as long as we're continuing to have great success, we have tried a little smaller prototype, and we've got number two up and running now. And we'll continue to evaluate it as we build more. We've had a couple of conversions, I guess you would call them, that we're very excited about from a profitability standpoint. So we're continuing to look at all kinds of options to make sure that we have a second concept that can bring burgers and pizzas and wings and beer and margaritas and fun to any community that we plant our flag in. So I'll tell you, we're very excited about the Bubba's brand and everything and the energy that it continues to bring to our companies.

Awesome. Thanks, guys.

Thank you.

Thank you. Your next question comes from the line of Jim Solera with Stevens, Inc. Your line is now open.

Hey, guys. Good afternoon. Thanks for taking our question. Two-part question on the consumer. One, if you look back historically, is there any correlation we can glean from periods where there's longer – higher gas prices, do you see a point in which maybe some of the consumer engagement starts to fade? Or maybe do you perhaps benefit given the overall value proposition and the lower frequency? And then the second part of that, have you seen any demand destruction at retail given higher beef prices? And is that something that you think might be supporting the robust trends you continue to see on traffic?

Yeah. Hey, Jim, it's Michael. You know, on the first part with the higher gas prices, you know, I don't think we've ever been able to find a correlation between gas prices and our traffic, you know, trend. I think, you know, people still want to go out there and have that simple luxury of a casual dining meal with friends and family. They're going to be picky as to where they go. And so what you talked about about our value proposition probably does you know, benefit us in a situation like that. So if someone is trying to watch what they spend because they're spending more money at the gas pump, Texas Roadhouse becomes a great option for them. But like I said, never been able to see an exact correlation there. As far as Demand for beef at retail, I do think there has, you know, been some demand destruction. People, you know, trading to pork and chicken, but maybe even, you know, also within the beef category, there's been, you know, some shift to lower cost, you know, cuts. So, we are seeing, you know, that as well at retail.

Great. I appreciate it, Pomp. I do, too.

Thank you. The next question comes from the line of Lauren Silberman with Deutsche Bank. Your line is now open.

Thank you, and congrats on the quarter. I wanted to just ask on the mixed side as it relates to the COGS line. I know you talked about the increase in beef consumption last year, which is a pressure point on COGS. Are you still seeing that, or has it stabilized?

Hey, Lauren, it's Michael. It really has stabilized. There may still be a little bit in there. I would expect maybe it's around 10 basis points of the COGS pressure is related to that, or that's kind of what I'm expecting going forward. So we've lapped a lot of that. We are still seeing a lot of state demand, but not as much of a pressure point within the COGS percent at this point.

Great. And then just on the comp side, any color that you see on trends that if there's any differences across regions, state parts that you're seeing?

Yeah. Hey, Lauren, it's Mike. The quick answer is no. We continue to see strength across all regions. We also see strength across all age of our restaurants. And very encouragingly, we continue to see the trend of our highest restaurants or our highest comp restaurants also being some of our highest volume restaurants.

Thank you. Your question, the next question comes from the line of Peter Sela with BTIG. Your line is now open.

Great. Thanks for taking the question and congrats on the quarter. Jerry, you mentioned the handhelds. in the stores that you're testing and are maybe rolling out. Can you just give us a little bit more color on what this unlocks for you at Texas Roadhouse? Does this help the servers cover more tables, or is that something that you're not looking for? Just trying to understand, you know, the unlock here. And then, Michael, if you could give us the pricing by quarter that's embedded now going forward, given the pricing you took in April, that would be helpful. Thanks.

Hey, Peter and Sherry. Yeah, I think what it is is technology is to enhance the experience. And, you know, we have a group of employees that really are very reliant and used to technology. And we do believe that it could speed up things a little bit if you're placing the order and sending it. But that's not the motivation behind it is to run more tables. It's actually just to be more efficient and more functional when it comes to the overall and complete experience of our guests. And so we want to make sure that our servers are comfortable, whether it's a hardwired POS or a handheld. that there are ways that they can get the order in. The accuracy of it is something that we have continued to see improve on the handheld, so that is definitely a component that we like. We're still working on it. We're going slow, but there are definitely some favorable attitudes towards it.

And, Peter, it's Mike. On pricing and the cadence throughout the quarter, I think Michael may have mentioned in his prepared remarks, we had 3.1 in Q1. And for Q2 and Q3, we'll have 3.6.

And in Q4, it will be 1.9 plus whatever additional we may choose to take at the beginning of the fourth quarter.

Thank you very much.

Thank you. Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is now open.

Thanks. Michael, you called out improved labor productivity in a quarter. I'm just curious if you see an opportunity to drive further productivity gains on the labor side.

Hey, Jeff, thanks for the question. As a reminder, we talk about that ratio with you all. That is not a... ratio or a measurement that our operators are focused on. It is an output. And so, you know, we still want them to staff for the volumes that they want. But with all that said, I do think, you know, the expectation, you know, is that, you know, we could be below that historical 50%. you know, level, whether we, you know, drop further down from the 35% that we just saw here in the first quarter. I don't know if I would be expecting that, but being, you know, around 40%, you know, would not be a surprising number to me based upon the trends that we have been seeing. So that's kind of how I'm looking at it these days. We're, you know, part of that is the benefit of to-go, which is a little bit less labor intensive. So as that's growing, you do get a little bit of maybe later, additional labor productivity there.

All right. Thank you, Michael.

Thank you. Your next question comes from the line of Dennis Geiger with UBS. Your line is now open.

Hey, guys. Thanks and kudos on the results. Just curious, you gave great color on the food cost and the COG side of things and just spoke to labor a bit there. Anything else, though, as it relates to restaurant margins over the balance of the year. Maybe you had to think about OPEX over the coming quarters. Probably it's only the only piece that you haven't touched on. So just curious maybe if any color there through the rest of 26.

Yeah, again, it's Michael. On restaurant margin, I do think under the assumption that we continue these positive trends on traffic that we have been seeing, then I think there's opportunity on on the labor line, as well as on the other offline to continue to get leverage. And that leverage could look fairly similar to what we saw in the first quarter. Again, the traffic trends, the pricing flow through will have a big impact on exactly what levels we do see. But those are the areas that are under our control and where our operators are doing a tremendous job of of managing the business. So, you know, that would be the expectation is we can get some, you know, leverage, ultimate margin standpoint on those lines. And certainly, you know, what's more important to us are the margin dollars and the dollars per store week. And, you know, if these trends continue, we would absolutely expect that both of those on a dollar basis, you know, continue to grow year over year throughout the year.

Great. Thanks, Michael.

Thank you. Your next question comes from the line of Gregory Frankfurt with Guggenheim Securities. Your line is now open.

Hey, thanks for the question. Jerry, your off-prem business, I mean, it seems like it's accelerating as the base kind of grows. And anything you did specific this quarter to kind of add to that and other strategies you're working on and maybe any reason, any level that could get to over time? Just curious how you're thinking about it. Thanks.

Thanks for the question. You know, I just think that we're continuing to execute at a high level. And, you know, the bottom line is that when people get home and they open up that food, that they've got everything that they desired. And, you know, I think we've worked really, really hard on not having any missing items and really making the experience. But just the ease of getting on the app, placing the order, we have – revamped a little bit of the order guide and with the pictures of the food and just some of that makes it a little easier, the language. We continue to learn what makes the ordering process for the guests easier through our own learnings and through our guest feedback. Then the pickup at the window and every restaurant being able to either get in through a to-go window. And then our operators just really understanding how big of a part of the business that it is and really dedicating people to it. And so I just feel like it's just absolutely grown because of the efforts that we've put in. We're not really doing anything additionally other than delivering on the promise of legendary food and legendary service through that hospitality and the ease of them being able to pick it up. I really believe those are the biggest drivers.

Thank you. Your next question comes from the line of Brian Bittner with Oppenheimer and Company. Your line is now open.

Hey, thanks for the question. Good afternoon, guys. You know, last quarter, as it relates to the COGS inflation outlook, you said you expected 2Q to be the peak, and you actually said very high single digits for 2Q. So, first of all, has that changed? Is it going to be better than that, given the change to the inflation guide? And just for the full year, as you brought inflation to six to seven from seven, is that all related to beef or is there anything else going on in the food basket that's also helped drive the change in the outlook?

Hey, Brian, it's Michael. Yes, our second quarter expectation for commodity inflation is still our highest expectation for the year, but we would say it's more of the 7% to 8% inflation range now for Q2. And it really is a beat that has caused the change in our expectations. That's almost all, if not the lion's share of it.

Awesome, thank you.

Thank you. Your next question comes from the line of John Ivanko with JP Morgan. Your line is now open.

Hi, thank you very much. So the question is on Bubba's new unit volumes and particularly in your newest class of new unit volumes. The volumes actually look and have looked quite strong. what are you really learning? You know, I guess, you know, in terms of, you know, those new unit volumes, which actually are compressing more towards Roadhouse, new unit volumes and the overall average unit volumes, you know, of the concept. So what are you learning of the new unit volumes at Bubba's? And what, if anything, can you do to take those new unit volumes and actually grow from there, you know, as opposed to just kind of experience the honeymoon? In other words, once you have the initial customers in the door, any specific plans or things that you can do in the future to not just retain that customer base, but even grow, because that's obviously where the new unit in total economics would actually compress between the two concepts in a very nice way. Thank you.

Hey, John, it's Jerry. Yeah, I mean, we're very excited about Bubba's and the brand recognition as we creep up to 60 units open and we're getting to understand who we are. You know, I think the big thing is, again, are we opening and operating through these high volume openings and successfully doing so? And are we able to serve more people and make sure that more are satisfied and taken care of? And then it's about getting settled in, running great shifts, and then getting out into our, a lot like Texas Roadhouses, we're getting out there and do local store marketing and Really making sure that our community knows who we are, what kind of food that we serve, what is our vibe and our energy that's going on, and how can we help them in their business by partnering with them from a marketing strategy. So using that same basically game plan is it. boots on the ground, shaking people's hands, getting to know the brand of Bubba's 33 and how can we partner up with them. But first and foremost, you've got to deliver on the experience, greet them at the front door, get them sat, get them fed, and appreciate that they came in and let them be sure that they're having a great experience inside the restaurant, watching some sports, drinking ice cold beer, having a little pizza, burger, wings, and, you know, and just having some fun and then being appreciated for being there. So that's kind of that formula of the same that we've always used as an organization, provide great food, great service and hospitality, and then be great partners in our community. So that's the approach, and it seems to be working pretty well. Absolutely. Thank you. Thank you.

And your next question comes from the line of Jim Sanderson with North Coast Research. Your line is now open.

Thanks for the question. I wanted to go back to your pricing. I think you're caring about, you mentioned 3.6% pricing. How does that compare to peers in the steakhouse category? Just wondering how you line up and if you're satisfied with your value position relative to those peers.

Thank you, Jim. We believe very firmly in our conservative approach to how we look at pricing. Again, we go through the same exercise. We just implemented that pricing in April. It'll run through October. But we'll start having conversations with our operators in August and make that decision in September where we go from there. But I believe that we are a little lower than most of our state competition from that standpoint. And we try not to really focus too much on that. We just try to make sure that we feel good about the pricing that we have to charge our consumers. And again, if you're paying more, are we doing a better job? I think that's ultimately what we focus on. I believe the consumer knows that we have to charge a little bit more because of beef and everything going on in the world. But what they expect is at least the same service and hospitality, if not better, or a little more energy, focus, or hustle to serve them when we're forced to do some of the things that we've had to do from a pricing standpoint. but our intention is always to be conservative.

All right. Thank you very much.

Thank you.

Thank you. And the next question comes from the line of Logan Reich with RBC. Your line is now open.

Hey, good evening. Thanks for taking the question. I wanted to go back to the carryout business. Is there any opportunity for you guys to ramp up the marketing process for the carryout business, given the kitchen is operating at a higher level. And then just curious how the margins compare on carryout versus in-store. Thanks.

I'll kick it off with a little bit on we don't really market things. We believe that the brand markets itself in a lot of ways in the food. So I just think that we continue to execute. And again, a high demand allows us to give our guests the choice of coming in to the dining room, or if they're in a real hurry to be able to plan a meal at home by stopping by their local Texas Roadhouse or Bubba's 33 and taking that food to their dining room table and getting a great experience.

Yeah, Logan, on the second part of your question on the profitability of to-go, so long as the dining room is full and continues to grow as it has been, the to-go business is very beneficial to the margin dollars and is probably slightly beneficial to the overall restaurant margin percent of the business. I can allocate costs. you know, between the two businesses differently and, you know, make one look more or less profitable. But at the end of the day, so long as we continue to grow the dining room, keep that busy, and, you know, we're doing this incremental to-go business, I would expect you would see a little bit of benefit to the margin percent and the dollars benefit greatly.

Thank you. Your next question comes from the line of Jacob Aiken Phillips with Milius Research. Your line is now open.

Hi, good afternoon. Got another beef question for you. I'm just curious, what would we have to see in order for you to decide that beef costs are structurally higher is it really just a matter of waiting until the herd rebuilds a little bit and then in that scenario should we just expect like a similar pricing cadence based on the other inflationary pressures until we get to a point where you could decide if it's structurally higher or just cyclically higher hey jacob it's uh it's michael i mean there's certainly you know is always going to be a portion of

of that beef cycle that is, you know, structural, but we do believe it is a cycle that, you know, we will see, you know, relief over time, you know, but we have to be patient there. And so, the pricing that we, you know, have taken, which we've always said we price for structural inflation, you know, we use maybe labor as more of the guidepost for determining that level of pricing. But obviously, the pricing we take benefits the COGS line and all the lines of the P&L. So we'll be patient. And you're all right. You are right. We'll see where things settle in in the future and where beef prices land to you know, help us determine, you know, have we taken the appropriate amount of pricing, you know, of where that COGS percent settles in over time. We've seen it come down in past cycles, and that's what we would expect to occur here again.

Thank you. Before we continue with questions, I'd like to just remind you, if you would like to enter the queue, press star 1 on your telephone keypad. Your next question comes from the line of Brian Harbor with Morgan Stanley. Your line is now open.

Thanks. Hi, guys. The good performance you had just on labor hours, is that sort of a retention thing? Are your operators doing anything differently in stores? Do you think you're seeing some benefits from you know, the kitchen display system or anything else behind that, you think?

I mean, Brian, yeah. I mean, I think our turnover, obviously keeping people in the positions a lot longer, it's been very positive for us from that standpoint, which makes them more productive and I do believe maybe that the technology things that we're doing in the kitchen have helped also by creating a calmer experience and allowing the cooks to really be able to look at the screen and know exactly what they have to do. So we believe there are several factors that could be helping us on that labor productivity side. And I appreciate the shout out on that.

Thank you. Your next question comes from the line of Brian Vaccaro with Raymond James. Your line is now open.

Hi, thanks, and good evening. Most of them might have been asked, but maybe I'll ask them. Jerry, in your prepared remarks, you noted the tech investments positively impacting operations, and I know it's been a couple years now in the works between different elements, but could you elaborate just on the benefits and any metrics you might share, whether it be kitchen output, speed of service, etc.? ? And then I had just a quick bookkeeping question on comps.

Yeah, Brian, I mean, everything we've done, let's just, First thing, the pay at the table. You know, it allows the guests to choose when to pay out. That was probably four or five years ago when we instituted that. It's been a big win for the consumer. Our operators love it, so that has worked out. You know, our guest management upgrade is really about how we manage the dining room and getting people sat quickly and efficiently in the right size table. So there are some things with that efficiency. The digital kitchen continues to really show us some things. We are able to track a little bit of our cook times and identify some things that maybe we didn't do before or we had to do manually. And I believe we'll continue to learn more from that technology base in the kitchen, and then we'll continue to look at these handhelds. So there are a lot of things. Technology is designed to help enhance the guest experience And that's what we're seeing. And actually, the benefit is that it's enhancing our employee experience also by doing some of the math for our positions. And so it's working. It's working really well from the guest experience and from our employee experience and helping our managers run their business more efficiently. So all of it together is definitely helpful.

All right, that's helpful. And then just back to the comms, Michael, can you just level set kind of what the weather impact you estimate in the quarter was and any calendar shifts? I think New Year's Eve early in the quarter. And then were there any Easter spring breaks shifts to be mindful of as we think about March versus April? Thanks again.

hey brian um so for for the first quarter you know the new year's eve shift uh had about a 60 basis point benefit to the to the quarter uh that was offset uh by weather and you know there were two components of the weather there was the the negative uh from this you know from the weather in january of this year that had about a 1.4 percent negative impact on the quarter, but that was offset, and I think a lot don't call this out, but lapping weather from last year probably was about a 60 basis point benefit to us. So weather was about an 80 basis point negative, while the holiday was a 60 basis point positive for an overall 20 basis point negative impact to the quarter. So that 7.1 maybe would have been closer to 7.3%, if not for that noise. Nothing to call out as far as Easter or any other items in the first quarter, or sorry, to date in the second quarter. I think everything looks good there.

Thank you. There are no further questions at this time. Mr. Morgan, I turn the call back over to you for closing remarks.

Thanks, Amy. And just a reminder, Sunday is Mother's Day, so happy Mother's Day to all of you out there and to Mama Morgan. If your plans include your favorite steakhouse, it might be good to use our digital wait list, as we're usually very busy. Thank you all, and have a great evening. Let's kick it up, Roadhouse!

That concludes today's conference call. You may now disconnect.