TXRH Q1 Earnings Call: Menu Strategy and Cost Pressures Shape Outlook

Restaurant company Texas Roadhouse (NASDAQ:TXRH) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 9.6% year on year to $1.45 billion. Its non-GAAP profit of $1.70 per share was 3.3% below analysts’ consensus estimates.

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StockStory’s Take

Texas Roadhouse’s first quarter results were influenced by consistent guest demand, menu mix shifts, and ongoing operational investments. CEO Jerry Morgan cited a rebound in traffic following a weather-impacted February, emphasizing that “our average weekly sales for March hit all-time highs at all three brands.” Management also pointed to positive same-store sales and traffic growth, supported by new restaurant openings and expanded digital initiatives. CFO Chris Monroe highlighted that labor efficiency remained strong, with labor hours growing at roughly one-third the rate of traffic, and turnover rates below pre-pandemic levels. The company is maintaining its focus on guest experience, with operational changes such as upgraded kitchen technology and guest management systems contributing to smoother restaurant operations and more accurate wait times.

Looking forward, Texas Roadhouse’s outlook centers on navigating commodity and labor inflation, as well as potential tariff impacts on supplies and equipment. Management acknowledged that pricing actions are “below the inflation guidance that we have,” and that commodity inflation, primarily driven by beef and tariffs, is expected to reach 4% for the year. The company plans to continue its measured approach to menu pricing, balancing shareholder and consumer interests as inflationary pressures persist. Morgan noted, “As we get a little closer to the fall decision, we’ll get with our operators...and try to make the best decision not only for our shareholders, but for our consumers and for our operators and partners.” Expansion remains a focus, with targets for new restaurant openings and franchise acquisitions, while operational investments in technology and menu innovation are expected to help offset some cost headwinds.

Key Insights from Management’s Remarks

Management attributed the first quarter’s performance to a recovery in guest traffic, operational efficiency gains, and changes in menu mix, while also noting ongoing cost pressures from labor and commodities.

• Menu mix shift: Leadership observed a notable guest trend toward higher-priced steak entrées, with CFO Chris Monroe explaining this shift was likely influenced by grocery store steak prices, making dining out comparatively attractive. This helped top-line sales but placed upward pressure on cost of goods sold (COGS), as steak items have lower margin percentages compared to chicken or seafood.
• Weather and health impacts: The company experienced a pronounced dip in February traffic due to adverse weather and influenza outbreaks, which led to more to-go sales during that period. Management stated that as weather improved, in-person traffic rebounded across all regions, restoring momentum.
• Labor productivity: Despite inflationary wage pressures, Texas Roadhouse continued to manage labor hours efficiently, with Monroe highlighting that labor hours grew at 35% of traffic growth for the sixth consecutive quarter. Both hourly and manager turnover rates remained below pre-pandemic levels, contributing to operational stability.
• Digital kitchen rollout: 65% of restaurants had transitioned to a new digital kitchen system by the end of the quarter, with all locations expected to convert by year-end. CEO Jerry Morgan noted the system was reducing kitchen stress and improving efficiency, though the company is still measuring the full impact on throughput and labor.
• Beverage and menu innovation: The launch of regional beverage menus—including mocktails and $5 all-day beer and margarita offers—was driven by consumer preferences and operator feedback. Early results indicate positive guest reception, with management expecting the full impact to be seen over the coming quarters.

Drivers of Future Performance

Texas Roadhouse expects inflation, menu strategy, and operational investments to be the main factors influencing near-term results.

• Commodity and wage inflation: Management projects approximately 4% commodity inflation for the year, up from prior estimates due to higher beef costs and new tariffs. Wage and labor inflation is expected to remain in the 4% to 5% range. These pressures are likely to impact restaurant margins, with some cost offsets expected from menu price increases and productivity gains.
• Measured pricing approach: Leadership reiterated its philosophy of pricing below overall inflation, especially for commodities, to balance guest value with profitability. The company remains cautious about future menu price increases, preferring to make decisions based on evolving inflation trends and consumer sentiment as the year progresses.
• Technology and efficiency initiatives: The ongoing rollout of digital kitchen and guest management systems aims to improve operational efficiency and guest satisfaction. Management believes these investments could help mitigate some inflationary pressures by streamlining kitchen operations and enhancing the guest experience, though full benefits are still being evaluated.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the impact of commodity and labor inflation on restaurant margins, (2) the effectiveness of new menu and beverage innovations in driving guest traffic and check growth, and (3) progress on the rollout and operational impact of digital kitchen and management systems. Additionally, we will track the company’s ability to execute its planned restaurant expansion and franchise acquisition strategy.

Texas Roadhouse currently trades at a forward P/E ratio of 27.5×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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