It was just five years ago when Texas Roadhouse exceeded $2 billion in sales and, last year, the company surpassed $4 billion for the first time. CEO Jerry Morgan believes the company has the potential to double its revenue again within the next decade. If big traffic numbers continue to flow into Texas Roadhouse’s restaurants, there’s no reason to believe that goal isn’t attainable.
During the company’s Q1 earnings call Thursday, Morgan said the company generated record guest counts, with traffic up 7.6% on the quarter, continuing its 10 straight years of positive traffic patterns. Notably, the company’s total revenue on the quarter was $1.174 million, putting it on track to surpass its record revenues in 2022.
Texas Roadhouse also reported Q1 comp store sales increases of 12.9% at company-owned restaurants and 13.3% at franchised restaurants. Average weekly sales at company restaurants were $148,437, of which 12.8% were to-go sales. This is compared to $132,263 and 14.8%, respectively, a year ago.
According to executives on the call, recovering employment levels and employee longevity, as well as technology deployments, are driving the chain’s current momentum. Roadhouse Pay is now rolled out companywide, for instance, allowing guests to pay at the table whenever they want, while also allowing the company to sell and redeem gift cards and promote its loyalty program.
“On Roadhouse Pay … we have gotten great feedback not only from the guests but from our operators, so we absolutely believe that guests that want to get in and out have the ability to execute that on their own,” Morgan said. “Roadhouse Pay is definitely another enhancement to the service level and maybe even a little bit of the speeding of a table turn.”
Additionally, Morgan said the company has also had “great success” with its digital kitchen – or new kitchen display system – which has improved cook times, order accuracy and “other efficiencies.” Most new builds this year – an estimated 25 to 30 Texas Roadhouse and Bubba’s 33 restaurants – will include the digital kitchen system, while more than 10 existing restaurants will convert to the system.
Morgan said with the system, “we are seeing food hitting the window in a timely matter, which should save us [labor] time. All indications now are that it should save us some minutes and that can help us in power hours. The technology is very encouraging as to how it will help us be a more efficient business overall.”
Additionally, staffing levels are returning to normal and those employees have more longevity than cohorts throughout the past three years. Executives said this contributed to much of Texas Roadhouse’s success in Q1.
“We’re looking at every component as to how to become more efficient,” Morgan said. “The number one thing is to be fully staffed. The more experience they get, the more efficient and productive they are, and we should see that continue to pay dividends for us, as we’ve invested heavily the last few years to get to that level. It’s driving our topline mentality and the way we’ve been able to conduct business.”
Those investments in labor have impacted the chain’s margins for years, and in Q1, labor as a percentage of total sales increased by 23 basis points to 33% versus last year. Labor dollars per store increased 13.1% primarily due to wage inflation and 4.8% growth in hours. Michael Bailen, head of investor relations, notes restaurant margin as a percentage of total sales decreased to 15.9% in Q1.
“However, restaurant margins dollars per store week, which we believe is a more relevant metric for us, were up 8.7% and hit an all-time high of over $23,500,” he adds. Texas Roadhouse executives are targeting long-term margins in the 17% to 18% range and Morgan said that should come as the company focuses on efficiencies and as inflationary pressures “settle.”
As for consumers, there has been some trade down activity at the chain, and some guests might be “doing a little bit of check management,” according to Bailen. However that trend has been offset somewhat by new guests coming in.
“Our guest volumes tell us people still want to be at a Roadhouse,” he said. “Our mixing is still extremely positive relative to pre-pandemic levels.
“We are seeing growth seven days a week, we are seeing it early in the day, we are seeing it late at night, we are seeing it during our power hours,” Bailen added. “Really strong growth throughout all days of the week and very pleased to see that it’s coming across the board.”
Contact Alicia Kelso at [email protected]