Release Date: July 25, 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 a strong same-store sales growth of 9.3% for the second quarter.
- Revenue exceeded $1.3 billion, driven by new store openings and increased average unit volume.
- The company experienced a significant increase in diluted earnings per share, up 46.4% to $1.79.
- Texas Roadhouse Inc (TXRH) saw a positive trend in its digital kitchen conversion, with 50% of scheduled conversions completed.
- The company maintained strong cash flow from operations, ending the quarter with $197 million in cash.
Negative Points
- Despite strong performance, Texas Roadhouse Inc (TXRH) faces ongoing inflationary pressures, particularly in commodity costs.
- Labor costs remain a concern, with wage and other labor inflation expected to be 4% to 5% for the full year.
- The company noted a continued negative mix in alcohol sales, which could impact overall revenue.
- There is uncertainty regarding future beef costs, which could affect margins in the coming quarters.
- Texas Roadhouse Inc (TXRH) is increasing its capital expenditure guidance, which may impact short-term cash flow.
Q & A Highlights
Q: In my mind was on the implications of the quarter-to-date trends. You mentioned 8% in the first four weeks of the quarter. But one question is whether there's any moving pieces there like calendar shifts to 4th of July impact on just want to make sure on that. And then the other part of the question is your comparison is materially last year, so in August and September. So how do you think about those compares on easing? Does that give you comfort that we could accelerate from the current levels or it was last year more in relationship to what was happening the prior year? Just how should we think of the quarter to date and the implications for the quarter as a whole?
A: Jake, it's Michael. I appreciate the question. I'm going to first say, I think we're very happy with the 8% for the month. There's really no timing issues in there that we would call out. And no, I think we've somewhat moved away from looking at the multiyear stacks. But to the extent you do look at them on a two year on even a five year basis, there is no weakness being shown in that 8% number. And given what we are lapping from from prior years, you are right. The overall comp in the next several months on its surface is easier, but you -- but on a multiyear basis, we will see what happens. And so we'll continue to do what we're doing at our operators are focused on driving more guests through the doors, and we feel very happy about the trends we're seeing. Thank you.
Q: I wanted to ask about margins. And kind of a two-part question on margins. First, on the labor side, it's just the flow through on labor margins is meaningfully better this year. It just seems like you've cracked the code on growing hours that a much lesser rate than traffic. So first, can you just help us understand what's going on with labor and why it's so successful now from a leverage perspective? And then secondly, on the food cost side, 2% to 3% in the second half of the year. Can you just remind us how that's going to pace in 3Q versus 4Q, whether it's going to be bifurcated in the trend between those two quarters. So we can think about the amount of COGS leverage you're going to get in three and four Q potentially?
A: Yes, Brian, this is Jerry. I'll take the labor side and then I think Michael's address the food cost side. But I really do believe that our investment in the last couple of years in our and our rebuilding of our management teams in our our hourly ranks has really found a way to flow through the productivity now. And obviously with our elevated sales and people getting comfortable and doing their jobs and getting the repeat reps in basically from that side of it, I think is all flowing through where we're fully staffed. We're comfortable with the tenure that we're having. And all of that is producing some outstanding results on the labor side, which we've been really pushing in the last couple of years.
A: And Jerry, I'll just jump in there. This is Chris. Before we get it over to Michael. On the labor, just for percentages, we've talked about having about a 50% of our labor hours growth compared to our traffic growth. And we got there in the fourth quarter, we were down to 25% in Q1, we're still below the 50% in the mid 30s this quarter, and it's all reflective of the things that Jerry was talking about. And Michael, you want to speak to the food costs?
A: Sure. Yes. When it comes to the back half of the year, commodity inflation, we said 2% to 3%. Yes, that maybe you're a little bit higher in the third quarter than you are in the fourth. But at this time they are they really aren't that that different from each other.
Q: Hi. I had a question maybe a follow-up on the beef costs. I guess two quarters ago, there was a lot about these costs being elevated for a multiyear period. And this year, it seems like they've come in quite a bit below what you're anticipating. So I guess, can you just maybe talk about your current outlook for beef costs. I know maybe some pressures coming in in the second half. I'm thinking more about the next year or two and what the beef cycle might look like for you?
A: Hey, David, it's Michael. Appreciate the question. Yes, I mean, we have I think the belief that the supply is going to be down in the back half of the year. And we have benefited from maybe a little bit less demand out there in the retail space than we had expected. And that has kept prices from going as high as we had originally expected them to do. We were obviously expecting to feel more pressure from that in the back half of the year. It's a little early for us to get into any kind of guidance for 2025. I think the industry data, you called out the expectation for supply to continue to tighten, but we'll see what happens with demand and what that does to the to the beef pressure. We'll give you are probably early thoughts on commodity inflation for 2025 on our next earnings call.
Q: Thank you for that. And then as it relates to the pricing decision you're going to make I guess you mentioned that you will take some pricing against whatever you consider structural inflation, too. But I guess I'm wondering on this topic of beef costs, if it looks like commodity costs are going to be out on a year or two beyond this year, would that be considered structural in your mind? Would you take pricing against that or would you consider that more cyclical?
A: Yes, I think we would consider that side of it a little more cyclical. But um, you know, we will start that process in a few weeks talking with all of our operators across the country and in going through that really looking at what that will be at this time a year, knowing that things have changed a little from the beginning of the year. But I do believe we'll continue to approach it with a very conservative mindset, and we'll see what our operators have to say and then make a great decision.
Q: Good afternoon. I was just curious on the CapEx comments you made increasing for this year. What that going towards? Are you doing some more store expansion or is that perhaps going to some of the other brands? Or is some of this kind of getting a head start on next years new units?
A: Hey, Brian, it's Chris. Yes, thanks for that question. It's really sort of all of the above. We even in last quarter's call, we talked about how we were getting good returns on these store investments. And so we're going to continue to do that. So we're expanding dining areas, we're expanding back of house.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
