Texas Roadhouse Inc. is committed to “drawing some lines in the sand” on margins and plans further menu price increases to offset increased labor costs, executives said Wednesday.
The Louisville, Ky.-based casual-dining brand, which took a 1.7 percent price increase late last year, plans another 1.5 percent hike in the first quarter to protect “deteriorating” margins.
“We are very serious and committed on the margin percent part of the business,” Scott Colosi, Texas Roadhouse president, said on a fourth-quarter earnings call. “Hopefully, that sends a message to investors on that point.”
With about 3.2 percent in total price increase in four months, Colosi added, the company expects to keep the brand’s margins above 17 percent. The fourth-quarter margin rate was 15.9 percent.
“We've had similar price increases before and haven't seen that much of an overreaction,” Colosi said, which may be mitigated by Texas Roadhouse value platforms. “We have value pricing every day on our menu. We have our ‘Early Dine’ menu that's very aggressively priced. We have a couple other programs that are very aggressively priced.”
Colosi said Texas Roadhouse executives had discussed pricing and margins over the past six months.
“We're playing offense,” he said, “and that's part of the reason why our traffic growth is what it is.” Traffic growth was 3.2 percent in fourth quarter, which contributed to same-store sales increases of 5.6 percent at company-owned restaurants and 4.8 percent at domestic franchised units.
That growth in traffic, Colosi added, is part of the reason Texas Roadhouse posted $5.2 million average unit volumes last year, up from $3 million a unit at the beginning of the decade.
“We're very happy about that,” he said. “That's what's got us here in part so we're going to continue down that road.”
The 3.2-percent pricing increase in four months remains less than the brand took in 2012, Colosi added.
“We took close to that back in 2007 when you had really big changes in minimum wage, both on the federal and state level,” he said, adding that he would not rule out additional pricing increases.
“But hopefully, 3.2 percent in a matter of four months shows we're pretty committed to drawing some lines in the sand on our margin percentages,” he said.
Colosi said Texas Roadhouse has not found “a definite correlation” between price increases and traffic changes.
For the fourth quarter ended Dec. 25, Texas Roadhouse’s profit was up 6 percent to $30.3 million, or 42 cents a share, from $28.6 million, or 40 cents a share, in the same period last year. Revenues rose 11.2 percent, to $605.9 million, from $545.1 million in the prior-year quarter.
The company opened 11 owned restaurants in the quarter.
Colosi said that for 2019 the company is targeting a total of 25 to 30 company restaurant openings, including as many as four Bubba's 33 restaurants. Franchisees plan to open as many as eight restaurants.
He said Bubba’s 33 had same-store sales increases in the past year and the company is researching consumer reaction to the smaller brand.
Colosi said the company is likely to build future Bubba’s 33 closer together, a departure from the Texas Roadhouse development strategy, and two units have added lunch service.
“So last year we did add lunch to one of the Bubba's locations,” he said. “Out of the 25 that are open, two have lunch every day. And lunch may, longer term, play a bigger role. We do plan to add lunch to a couple more locations later this year. We'll see how that goes.”
Texas Roadhouse, which debuted in 1993, has more than 580 restaurants system-wide in 49 states and 10 other countries.
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