Higher sales and lower beef costs kept profits flowing at Texas Roadhouse Inc. last quarter.
Net income in the quarter ended Sept. 27 increased nearly 25 percent to $25.7 million, or 36 cents per share, from $20.5 million or 29 cents in the same period a year ago.
Same-store sales rose 3.4 percent at company restaurants in the period, thanks mostly to higher traffic at the Louisville-based chain. Executives said that same-store sales are up 3.8 percent so far in the fourth quarter, again driven mostly by an increase in customers.
“Our traffic is positive, and our margins are up this year,” Scott Colosi, the company’s president and chief financial officer, said on the company’s earnings call Tuesday. “So we’re very pleased with the momentum we have in our business and feel very good heading into 2017.”
Revenues in the quarter increased 10 percent to $481.6 million from $438.1 million.
Restaurant margins increased 155 basis points in the quarter to 18.1 percent of revenues.
Food costs in the period fell 4.2 percent. Beef costs in particular were lower — by 4.1 percent — as costs continue to come down off of record highs in 2015.
Higher labor costs offset that somewhat — labor as a percent of sales increased 65 basis points thanks to higher wage rates and higher turnover in a competitive labor environment. Executives on the call said that labor inflation has been 3 percent to 3.5 percent all year.
Colosi suggested on the call that things could get worse on the labor front next year. “We will continue to be challenged by increasing labor inflation and changes in how we pay our employees,” he said.
Still, the company’s sales results came amid a weak environment for the casual-dining segment overall, and many of Texas Roadhouse’s competitors in the market have not been as fortunate.
Executives on the call, in fact, were mindful of the experiences of the competition as they consider their future plans and how to respond to rising labor costs.
For instance, the company is planning to increase prices by 1 percent in November.
“As we look at our competitors and their negative traffic, we’d rather be conservative out of the gate and hopefully let our traffic speak for us,” Kent Taylor, the company’s CEO, said on the earnings call.
Executives did note that the company’s two-year sales trends were a bit softer in the quarter. But they dismissed suggestions that lower prices at the grocery store are to blame.
They also said that companies that focus on service can generate higher sales in this market.
“We are still bringing more people in the door,” Colosi said. “I’ll tell you one big thing that we think makes a big difference for us is service. We continue to staff our restaurants as if we’re on offense. And we’re ready to grow sales and take care of guests in a very attentive manner.”
Said Taylor: “I’m kind of like, if you want to sit at home and turn on the TV and be depressed, eat a mediocre meal, or come into our place and have a great meal, interact with our employees and kind of get energized and feel better about life. That’s the way I look at it.”
Contact Jonathan Maze at [email protected]
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