How the casual-dining leader is navigating one of the industry's greatest crisis periods.
Texas Roadhouse has long been a company that leads with hospitality and keeps its focus within the four walls. Delivery doesn’t line dance.
The March arrival of COVID-19, however, brought CEO Kent Taylor back to the early days, when three of the chain’s first five locations failed. Only now, there were 600 restaurants to worry about, and 75,000 employees instead of 400.
But the challenge felt nostalgic: Texas Roadhouse was in survival mode again. Just like the mid-1990s, it needed to pivot. Back then, the issue was mostly tied to site selection, market awareness, and store layout, and securing an identity that would remain mostly unchanged for the next 20-plus years.
Taylor said Monday his past struggles, along with 15 or so years running daily shifts before founding Texas Roadhouse, provided him with perspective when it came time to fight COVID-19. He’s not a marketing or finance person running a restaurant company, Taylor says. “I try as much as possible to live in the mindset of our store managing partners,” he wrote in a personal letter.
So when the crisis crashed down, Texas Roadhouse had two choices, as many chains did: a, huddle up, lay people off, conserve cash, and wait it out. Or b, deal with the reality of stay-at-home mandates, pivot to off-premises, experiment, learn, and pivot again, Taylor said.
The company choose the latter, which has become a rapid-fire practice in rethinking hallmark traits.
In the near-term, Texas Roadhouse switched to curbside and drive-thru business (it’s still not interested in third-party delivery), offering regular menu items as well as family packs and ready-to-grill steaks. They put up double-drive-thru tents, and equipped all employees with gloves and masks.
In January, Texas Roadhouse’s to-go business was pushing about $8,400 per week, per restaurant. By the last seven days of April, it was up roughly 575 percent to $56,000.
“Make no mistake, Texas Roadhouse is open for business,” Taylor said Monday on a conference call.
It’s been quite a jerky trek in recent weeks. In the period that ended March 3, Texas Roadhouse restaurants were averaging $118,512 in weekly sales, with $9,115 coming via to-go business.
By March 24, when essentially the entire country’s dine-in business went dark, units were taking in just $29,432 as same-store sales plunged 73 percent versus the prior year.
Here’s a full breakdown:
Week ending March 3
- Same-store sales: 4.4 percent
- Average weekly sales: $118,512
- Average weekly to-go sales: $9,115
Week ending March 10
- Same-store sales: 2.5 percent
- Average weekly sales: $113,777
- Average weekly to-go sales: $8,741
Week ending March 17
- Same-store sales: –22.5 percent
- Average weekly sales: $86,264
- Average weekly to-go sales: $9,211
Week ending March 24
- Same-store sales: –73 percent
- Average weekly sales: $29,432
- Average weekly to-go sales: $25,938
Week ending March 31
- Same-store sales: –61.5 percent
- Average weekly sales: $41,892
- Average weekly to-go sales: $41,892
Week ending April 7
- Same-store sales: –53.3 percent
- Average weekly to-go sales: $48,815
Week ending April 14
- Same-store sales: –50.7 percent
- Average weekly to-go sales: $51,650
Week ending April 21
- Same-store sales: –37.3 percent
- Average weekly to-go sales: $62,852
Week ending April 28
- Same-store sales: –45.3 percent
- Average weekly to-go sales: $56,432
All of April
- Same-store sales: –46.7 percent
- Average weekly to-go sales: $54,937
More sales help could be on the way, too. Starting this week, Taylor said, Texas Roadhouse plans to reopen restaurants in states lifting restrictions. On Monday, it brought 25 company-run restaurants back on line with limited capacity. By the end of the week, the company expects to have more than 125 corporate restaurants offering some form of dine-in service. The goal is 210 before June.
To date, Texas Roadhouse’s model has been to wait a week after states pull mandates and take the pulse of local communities—then react. It’s had two restaurants open in Alaska for five days at 25 percent capacity. The stores are seating guests every third booth with wood partitions around booths to raise the level of protection in addition to plastic glass dividers.
While the sample size is immature, CFO Tonya Robinson said, the Alaska experience has suggested a few early notes. Mainly, dine-in service hasn’t cannibalized to-go. “We’re seeing the guests wanting that dine-in experience even with the restrictions in place,” she said. “So that has certainly has been encouraging to see.”
The hope is that dine-in business proves incremental for Texas Roadhouse throughout COVID-19 and slow reopenings, and doesn’t replace to-go gains. Robinson said there’s reason to expect that based on Alaska, but every market and restaurant will experience different trends. It’s simply too early to bank on anything.
But one thing that is crystal: don’t expect curbside to exit the picture.
About two-thirds of Texas Roadhouse’s off-premises orders are coming from normal menu items, Robinson said. And close to 50 percent of that is flowing through online ordering.
Yet Taylor believes the No. 1 sales driver in recent weeks isn’t tied to any technical feature. It’s the fact people have shown up and witnessed how safe it is to get food from Texas Roadhouse in the parking lot. That’s what social media comments suggest, he said.
“We’re going to keep it trucking,” he said of curbside. “We’re not pulling back. We're going to serve you outside in the parking lot. We're going to serve you inside the building. However you want it, we're going to make sure we're there for delivering that food to you.”
“I think there is still going to be a big demand for the to-go as people maybe are slower to transition back in,” Taylor added. “And some people just like the convenience of eating at home, I guess. So yes, we're going to be full-blown on both sides of the equation.”
In short, Texas Roadhouse could morph into more of a two-pronged business post-COVID-19 than it was before.
“I think the outside curbside model is here to stay … as we see the food moving outside of the building increasing and we get back to a more near-normal inside, that we're pretty excited about that possibility,” Taylor said. “But we are not, at this point, looking to hand our food over to somebody else third-party delivery.”
There remain a lot of learnings ahead.
One thing Texas Roadhouse has done throughout the crisis is open its corporate checkbook for labor. Through April, on top of earned wages, the company provided hourly employees with about $17 million in additional pay and benefits. This includes “Roadie Relief” payments for workers who need extra help. Texas Roadhouse contributed $400,00 to Andy’s Outreach Fund, a program started years ago by the brand’s long-time director of care and concern, Dee Shaughnessy. It offers employees benefits for things like medical expenses, fires, funerals, and so on. Taylor himself put $5 million into the pool and stopped taking a salary. Most of the executive team and the board of directors also decided to forgo pay. They did so with the intention to help frontline employees, not simply cut spending.
Texas Roadhouse took a $10.7 million impact in Q1 (period ended March 31) from relief pay and benefit programs. The chain’s Q1 same-store sales fell 8.4 percent, which ended a consecutive gains streak of 40 quarters.
Comps were up 8 percent in January and 4.2 percent in February, year-over-year. They dropped 29.7 percent in March to bring the period into negative territory. One company restaurant and 22 international franchises were temporarily closed in the quarter. Texas Roadhouse posted revenues of $652.52 million, down from $690.61 million in 2019. Restaurant margin dollars per store week declined 39.1 percent, and restaurant margin as a percentage of total sales decreased 576 basis points to 12.1 percent as compared to the prior-year period.
Texas Roadhouse ended Q1 with $231 million in cash, and has a burn rate of about $5 million per week at current levels. It drew down $190 million on its revolver and is appreciating $22 million in cash flow from operations.
“We do not yet know how this burn rate will be impacted by the gradual reopening of our dining rooms,” Robinson said. “But based on the momentum our operators created under the new to-go model, I look forward to seeing what they can do with a combination of to-go and dining room sales.
More on what’s happening
Taylor said some units are currently pushing $100,000 per week in sales. The average of $55,000 or so, however, is enough to keep restaurants cash-flow positive as it relates to food, labor, and the variable operating costs associated with running the business. It’s helped keep all but two of the company’s domestic restaurants open.
Robinson estimated if locations get to $70,000 per week, they’ll be pretty close to a breakeven point from a G&A perspective.
Robinson said Texas Roadhouse put a temporary hold on the opening of new restaurants and stopped almost all construction related to new stores. It’s finishing up nine locations (venues nearly complete before COVID-19).
In terms of bringing employees back as units expand operations, Taylor said Texas Roadhouse hasn’t faced any real roadblocks. “And for those that maybe are not as quick to come back, there's a lot of other folks that are not working at other places that are wanting to work for us,” he said.
Despite some daypart expansion, Taylor doesn’t believe lunch will become a mainstay at Texas Roadhouse. Normal operating hours will return post COVID-19—there will simply be a harder push on curbside.
Taylor also expects prices to raise back to normal levels. The brand has offered some discounted family meals, and did so deliberately. “We kind of said, ‘Hey, while people are not working, we're going to take care of America and not get as hung up on the margins.’ And as people start to go back to work and we're starting to feed people inside, you will see a more normalized pricing structure,” Taylor said.