The steakhouse chain doubled revenue in five years. What's to stop it from doing so again?
In 2017, Texas Roadhouse was a $2 billion company with 549 locations across its footprint. It took five years—pandemic and all—for the steakhouse to double to $4.014 billion in revenue as it spread to 697 stores (652 Texas Roadhouses, 40 Bubba’s 33 units, and five Jaggers, the company’s fast casual offshoot). Can the same model unfurl over the next decade? CEO Jerry Morgan believes so, and it’s not a projection difficult to crunch.
In recent years, Texas Roadhouse tracked 20–25 restaurant openings—it opened 23 company restaurants and seven international franchises in 2022. It wants to bump Bubba’s to the low double-digits. Layer in measured growth from Jaggers and the outline rises to about 25–30 openings per calendar. Toss “some modest traffic and check growth,” into the pot, Michael Bailen, senior director of financial analysis, said, and Texas Roadhouse sails toward $8 billion.
If that happens, there would be roughly 900 Texas Roadhouse locations globally.
But what’s worth factoring into the company’s prospects is there’s nothing “modest” about its recent run. Texas Roadhouse opened 2023 averaging weekly sales north of $146,000 over the first seven weeks. Same-store sales climbed 15.8 percent. While that latter figure was elevated thanks to an Omicron, year-over-year, lap, Bailen won’t downplay a headliner: “Our restaurants averaged more guests over the past seven weeks than in any period in our history,” he said.
For perspective, Texas Roadhouse generated $117,777 in average weekly sales in the seven days leading up to March 10, 2020—or the inflection of COVID’s disruption. Come March 24, sales plunged 73 percent to $29,432, of which $25,938 flowed outside the four walls. Late CEO Kent Taylor gathered leaders and set an early rebound of $40,000 per week. It took Texas Roadhouse 14 days to get there. That number rose to $48,815 the following period (opening week of April) and $51,650 the next. It then jumped to $62,852, and the comeback was on.
The current view, though, goes beyond a pandemic recovery story. Of the 15.8 percent comp to start 2023, 6 percent owed to pricing and 10 percent traffic—an outlier in a year where pundits continue to project negative guest counts in light of higher prices.
In Q4, which ended December 27, same-store sales climbed 7.3 percent, year-over-year, and average weekly sales clocked in at $130,176 (12.6 percent to-go). This time last year, the brand was at $121,976 and 14.4 percent, respectively.
Pulled out across the full fiscal 2022, Texas Roadhouse recorded $131,802 in weekly sales (13.3 percent to-go) versus $120,706 and 17.1 percent last year. The brand more than doubled its to-go business pre-virus to present, from $8,741 to $17,529.
And to Bailen’s point, it happened as stores served more guests than ever. “We've certainly shown that we're able to generate that level inside our restaurants,” Bailen said. “And that's how our operators are going to continue to do the business.”
As for what’s driving it on the ground, he credited “pretty consistently strong performance.” The timing of Valentine’s Day and the Super Bowl didn’t hurt. Either did gift card redemption or relatively mild winter conditions nationwide. But there’s no spike in Texas Roadhouse’s trendline to suggest a one-off boost it can’t sustain. “We're very excited about the demand for our concept,” Morgan said. “And we've seen the escalation. We softened a little bit in December, but it came roaring back in January, this first part of February. So I will just tell you, I think it's about our execution and about the quality of the product that we're putting on the plate. And we will keep pushing that.”
That escalation flashed clearly. Q4’s comp comprised of 6.2 percent check growth and 1.1 percent traffic. As Morgan highlighted, same-store sales grew 8.3, 7.3, and 6.4 percent for October, November, and December, respectively. And then the top-line ballooned.
Bailen said consumer trends have been interesting to follow as these results pour in. “Tremendous traffic growth” came alongside a bit of negative mix. Texas Roadhouse saw this with entrees but not appetizers, add-ons, or beverages. Bailen suggested it could be a result of some guests trading down amid a higher-cost retail climate. Or, it could be a customer trading up seeing the relative value of Texas Roadhouse compared to a fast casual that charges a similar price but doesn’t have a service element. “And so maybe some of those people are now coming in and driving some of this traffic growth,” he said. “But maybe they are coming in at some of our lower price points on the menu. It’s something we're watching.”
The brand will confront inflationary hurdles in 2023, like all restaurant brands. Texas Roadhouse expects commodity inflation at 5–6 percent, driven mostly by higher beef costs (about 80 percent of that inflation for the year will be beef). The chain plans to take 2.2 percent in price and will likely coast at 5.9 percent pricing for Q1, 5.6 percent in Q2, 5.1 percent in Q3, and 2.9 percent in Q4.
Texas Roadhouse generally looks at menu pricing twice a year, with the intention of adding in early April and October. And commodity inflation isn’t something it typically centers on. “We view that as cyclical in nature,” Bailen said. “So we’re more focused on the structural items, the labor component … We’re in this for the long-term and really don’t knee-jerk react to commodity costs being above or below what we might expect at one point when we’re factoring in our menu pricing.”
Morgan added Texas Roadhouse hopes there’s relief outside of protein in the year ahead; that inflation peaked last year concerning cost of goods. The brand also spent heavy on staffing as it worked back from Omicron and previous shortages. Today, Texas Roadhouse employs some 82,000 people, which is above pandemic levels and very much needed, Morgan noted, to handle the added sales volume.
Regina Tobin, a 27-year company vet who was promoted to president in January, said turnover is on the decline. “And we know that quality of people hired and retention is going to increase our productivity,” she said. “And that's going to help to drive down the labor percent, which is what we are currently working on right now. So tenure matters and connections to our people to create that culture and reduce that turnover amount will continue to be worked on.”
Turnover at the hourly level currently resides in the high 120s for Texas Roadhouse. Middle of 2022, it was mid-130s. Pre-pandemic, it was closer to 105–110 percent. “So we still have a lot of room to go, but we’re getting better,” Bailen said.
Interim CFO Keith Humpich (the company is currently searching for a permanent replacement for Tonya Robinson, who retired after 24 years with Texas Roadhouse in January), said staffing has been an “aggressive” initiative going on 18 months. “We're hoping, obviously this year, as we settle in, we reduce our turnover and we really focus on keeping our folks and connecting with our folks,” he said.
As for the nature of Texas Roadhouse’s growth as it chases $8 billion, the company is building larger locations and rethinking logistics. For instance, can it relocate to add a larger parking lot? Is there room for cooler expansion or bump outs or extra dining rooms? Opportunities, Morgan said, “to do some things a little bigger, as they say in Texas, going forward.”
Speed inside restaurants has been a lead goal. “Roadhouse Pay,” which is the company’s pay-at-the-table tech with Ziosk, is now in nearly 615 locations. The brand is also testing mobile handheld ordering tablets and expanding its “Digital Kitchen,” or new kitchen display system, which first went live at a store in Shakopee, Minnesota, and a conversion in Austin, Texas. Thus far, Texas Roadhouse has opened two new units and converted two others to include it, and Morgan said, the brand is “probably committed” to 30 restaurants this year, “which is obviously exciting.”
“This will be a big year for us when it comes to opening new stores with a Digital Kitchen and even converting some existing stores,” he said. “So definitely going to be leaning on some technology to help us get faster and, really, we want to complement our service with technology.”
The “bump outs” Texas Roadhouse built to help with to-go are active in about 12 restaurants. Every one of them, Humpich said, witnessed a lift in sales. Bailen added it wouldn’t surprise him if Texas Roadhouse added 10–12 this year—another 20-plus are already in the pipeline for 2024 and beyond. “Sometimes they take a little bit more work on the legal side of getting all the approvals to get them done,” he said. “But we definitely have a lot of restaurants still interested in them and new ones every year that qualify and get on our radar to be considered for a bump out.”
Expect Texas Roadhouse to stay focused on growing in suburban and smaller markets, as it always has. Yet it does have a New York spot in New Rochelle it’s looked at, Humpich said. And the brand is beginning to consider more city or higher traffic area sites.
“We’ve got a broad scope in a mind and are looking at every option,” he said. “And I think at a company our size and what we want to accomplish, we got to stay true [to that]. But we have to test and try some new things that might help us.”