Kent Taylor didn’t need a lot of superlatives to explain Texas Roadhouse’s red-hot April. “When I opened my Christmas presents at Christmas, and I got something I’m not sure I expected, I was [just] happy to see it. So that’s kind of where we’re at,” Taylor said during an April 30 conference call.
Like usual, the 558-unit chain enjoyed a stellar quarter of results, posting comparable same-store sales gains of 4.9 percent at company restaurants, including 4 percent higher guest counts, and 3.9 percent at domestic franchised units in Q1. But it was the start to Q2 that really had investors trying to crack the code on what’s becoming one of the most consistent chains in the business.
In the first four weeks, or through April, Texas Roadhouse’s comparable sales are up an impressive 8.5 percent year-over-year.
Scott Colosi, Texas Roadhouse’s president, said part of the success could be credited to what was one of the company’s easier comparisons last year (2.6 percent growth). That’s just a fraction of it, however. “It could be some consumer pickup, we really don’t know,” he said. “… But no doubt, we’re thrilled with the sales that you’re seeing.”
“We’re not changing anything of what we’re doing except we hope to continue to execute at a better level each and every day.” — Kent Taylor, Texas Roadhouse CEO.
On a two-year basis, comp sales for the month of April are up 11.1 percent.
Taylor had a very Texas Roadhouse-like response to the trend.
“We’re not changing anything of what we’re doing except we hope to continue to execute at a better level each and every day,” he said. “I know that [doesn’t] sound like a big change, I guess. But that’s kind of what we talk about—just trying to get better and better and take care of our guests, and take care of our people.”
“Just the basics,” he added. “Blocking and tackling every day.”
Diluted earnings per share increased 57.9 percent to 76 cents from 48 cents in the prior year primarily due to lower general and administrative expenses and the benefit of a lower income tax rate. Seven company restaurants, including one Bubba’s 33, and two international franchise units, opened.
One differentiating factor Texas Roadhouse delved into—a factor that’s squeezing some of its margins—is labor.
Taylor said Texas Roadhouse continues to hire while competitors “continue to maybe shave a little labor here and there.” He added that the reason behind this, and why it’s worth shouldering the extra financial burden, isn’t overly complicated, either.
“We found that our stores that have over a certain level of servers on the high-end have stronger comps than those that have an amount of servers on the low-end, which have lesser comps,” he said. “So that basically tells you that when you’re properly staffed life looks a little better.”
Labor as a percentage of total sales increased 126 basis points to 31.5 percent, and labor dollars per store week grew 8.1 percent compared to the prior-year period. This was driven, chief financial officer Tonya Robinson said, by wage and other inflation of about 4.7 percent, including increasing managing partner base pay.
In fact, Texas Roadhouse boosted annual managing partner base pay, which has not changed since 1993, by about 10 percent.
“Savings from tax reform certainly helps offset the cost of our investments in labor, while continuing to keep our prices low. We also will continue to look at other ways to reinvest in our people as we move through the years,” Taylor said.
“No doubt, our operating performance is being pressured by continued labor inflation and investments,” Colosi added. “But we’re confident we’re doing the right things for the long-term health and success of our brand. We believe that investing in staffing and in our people will take us to the next level in providing legendary food and service, which is always will position us for continued strong top line growth down the road.”
In late March, Texas Roadhouse implemented a menu price increase of about 0.8 percent to go along with the 0.3 percent lift the chain took in mid-December. There are no plans for further pricing actions the rest of the year.
Colosi said the company approaches this as a marathon and not a sprint.
“We’re going to continue to be very competitive on our pricing,” he said. “That got us here to this point. Dance with the one that brought you in.”
Texas Roadhouse made progress with its to-go business as well. The company rolled out new packaging in late 2017 and said it expects other operating costs to be about $1.5 million to $2 million higher for the remained of 2018 due to those changes.
Right now, Texas Roadhouse is reporting about 7 percent of its sales from to-go, which is up from 6.2 percent last year and 5.7 percent the year before. In 2017, online to-go was just 6 percent of its to-go orders. Currently, it’s 22 percent. Two years ago, it was zero.
“That’s one initiative that’s scored pretty well for us,” Taylor said.
