Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Texas Roadhouse Inc (TXRH, Financial) reported strong third-quarter results with an 8.5% increase in same-store sales and approximately $1.3 billion in revenue.
- The company opened seven new company-owned locations and three international franchise restaurants in the third quarter, with plans for approximately 30 new openings across all brands in 2025.
- TXRH completed over 200 digital kitchen conversions this year, with a target of over 250 by year-end, and aims to convert nearly all restaurants by the end of 2025.
- The company celebrated 20 years as a public company, expanding from one brand to three and growing from 175 to nearly 775 restaurants.
- TXRH was named the 2024 brand icon by Nation's Restaurant News, the first casual dining restaurant to receive this award.
Negative Points
- The company implemented a menu price increase of less than 1%, which may not fully offset inflationary pressures.
- Commodity inflation, particularly in beef, remains a concern, although it was lower than forecasted in the third quarter.
- Labor inflation is expected to be approximately 4.5% for 2024 and 4% to 5% for 2025, with mandated increases contributing to the rise.
- The acquisition of 13 franchise restaurants will require funding, potentially impacting cash reserves.
- The company faces an extremely competitive environment, which could pressure market share and profitability.
Q & A Highlights
Q: Can you provide more details on the labor leverage in the quarter and how long the adjustments in the labor line might continue to be a headwind?
A: Michael Bailen, Head of Investor Relations, explained that the adjustments are related to insurance clearances, which are unpredictable. However, the labor productivity seen is expected to continue through the end of the year. Chris Monroe, CFO, added that they are comfortable being self-insured and have seen improvements in productivity levels, with labor hours relative to traffic growth well below historical averages.
Q: What is the outlook for commodity inflation, particularly for beef, and how does it affect your inflation guidance for next year?
A: David Monroe, CFO, stated that the purchasing department has been working on determining cost levels for 2025, with a combination of locked prices and assumptions. The majority of inflation guidance is driven by beef, similar to this year. Michael Bailen added that while beef inflation is expected, other items are projected to be flat or slightly inflationary.
Q: How does the pricing strategy for 2025 align with cost inflation, and what should analysts consider regarding pricing for next year?
A: Gerald Morgan, CEO, mentioned that they will evaluate pricing with operators after the first of the year, considering the current environment and feedback. Michael Bailen confirmed that the current pricing run rate is 3.1% and will be reassessed in the second quarter of 2025.
Q: Can you discuss the impact of technology initiatives like the Digital Kitchen and Guest Management System on labor productivity and table turns?
A: Gerald Morgan noted that while it's early to quantify the impact, indicators are positive. The primary focus is on improving employee and manager experiences, with expectations of additional benefits as more stores adopt the digital kitchen system.
Q: What is the strategy for unit growth beyond 2025, and how does it align with the company's philosophy?
A: Gerald Morgan emphasized that the focus is on opening the right number of stores for operational balance rather than targeting a specific percentage growth. The aim is to maintain high operational standards and support for new openings, with a comfortable range of around 30 new units annually.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
