Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Texas Roadhouse Inc (NASDAQ:TXRH) achieved a record revenue of nearly $5.4 billion in 2024, with average unit volume exceeding $8 million for the first time.
• The company reported a second consecutive year of double-digit increases in restaurant margin dollars, income from operations, and earnings per share.
• TXRH opened 31 company-owned restaurants and 11 international Texas Roadhouse restaurants in 2024, with plans for approximately 30 new company restaurant openings in 2025.
• The company ended 2024 with over $245 million in cash and generated over $750 million in cash flow from operations, allowing for self-funding of capital expenditures, dividends, and share repurchases.
• TXRH announced an 11% increase in its quarterly dividend and a newly authorized $500 million share repurchase program, indicating strong shareholder returns.

Negative Points

• The company anticipates wage and other labor inflation to remain between 4% to 5% in 2025, driven by state-mandated wage increases and higher benefits expenses.
• Commodity inflation guidance for 2025 has been updated to 3% to 4%, primarily due to tighter cattle supply expectations in the latter half of the year.
• Despite strong performance, the company faces challenges from weather-related store closures and calendar shifts, impacting sales trends in early 2025.
• TXRH's comparable sales growth in the first quarter of 2025 is expected to be lower due to the mismatch of weeks from the 53rd week in 2024.
• The company is experiencing some negative mix impact from alcohol sales, which continues to be a challenge in maintaining positive sales growth.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Sign with TXRH.

Q: Can you provide some context on the quarter and the trends you're seeing in Q1, particularly regarding weather issues and your confidence level on returning to positive traffic growth for the rest of the year? A: Jim Morgan, CEO: Our restaurants are fully staffed, our food is legendary, and our menu offers great value. We just completed Valentine's Day week with strong performance, averaging $183,000 per store, which is significantly higher than the average. Despite some irregularities in comp performance, we remain confident in the fundamentals and strength of our business.

Q: Could you elaborate on the change in your inflation estimate to 3% to 4% and the visibility you have on costs this year? A: Michael Bail-In, Head of Investor Relations: The majority of the increase is driven by beef, with some impact from other proteins. We have about 40% of our overall basket locked for the full year, with more clarity in the first half. We expect the lowest level of inflation in Q1, with a consistent inflationary outlook for the rest of the year.

Q: How do you see margin drivers evolving this year, particularly regarding labor and operating costs? A: Michael Bail-In, Head of Investor Relations: We expect some leverage on the other operating line, depending on traffic trends. Labor inflation is expected to be 4% to 5%, with more pressure in the first half of the year. We are optimistic about getting some leverage on operating costs.

Q: Can you discuss your pricing strategy for 2025 and whether you anticipate any deleverage on the cost of sales line? A: Chris Rowe, CFO: We are at 2.1% pricing through Q1 2025, with a 1.4% increase starting in Q2. We will reassess pricing in Q4. Given the updated commodity outlook, some deleverage on the cost of sales line is expected, particularly in the second half of the year.

Q: How do you plan to maintain consumer engagement and stay top of mind, given the industry's growing promotional environment? A: Jim Morgan, CEO: We focus on local store marketing, offering early dine features, Wild West Wednesday, and a $5 all-day drink menu. We emphasize value and high-level operations to maintain consumer trust and engagement.

Q: What is your outlook for new restaurant openings in 2025, and is there potential for more than the 30 stores planned? A: Jim Morgan, CEO: We aim to open 20 to 25 Texas Roadhouse locations annually, with plans for seven Bubba's 33 openings in 2025. We focus on quality openings and making a great first impression, which is why we maintain a conservative approach to expansion.

Q: Can you provide an update on your ultimate opportunity for Texas Roadhouse locations and the cost to build new units? A: Michael Bail-In, Head of Investor Relations: Our target remains 900 Texas Roadhouse locations. The average investment cost for new stores in 2025 is expected to be about $8.5 to $8.6 million, which is flat with 2024. We are confident in meeting or exceeding our mid-teen IRR targets for new store development.

Q: How are you addressing wage inflation, and what are your expectations for labor costs in 2025? A: Michael Bail-In, Head of Investor Relations: We guided 4% to 5% wage inflation, with some state-mandated changes impacting early 2025. We believe underlying wage inflation has peaked, and we are confident in maintaining our guidance range for the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.