These have been strange times for restaurants, and Texas Roadhouse is no exception. To understand some part of how extraordinary it’s been, consider what’s unfolded: Like most chains, Texas Roadhouse was forced to transition nearly 600 stores to a to-go-only setup in March. But come May and June, the majority of those same locations pivoted once again.
It’s a dilemma unique to restaurants in a lot of respects. Reopening is often not a revert back to business as it used to be—it’s a reimagining.
And for Texas Roadhouse, which took six weeks to install partitions in restaurants, the result is a hybrid that was nowhere near its radar pre-pandemic. One that could change again soon.
Financially, here’s a look at how disruptive COVID-19 has been. In the week ending March 3, Texas Roadhouse units averaged weekly sales of $118,512. Of that, only $9,115 came outside the four walls. By March 24, those numbers were $29,432 and $25,938, respectively. And then the shift arrived.
Within just a week, Texas Roadhouse jolted to-go sales to $41,892, a number that would rise into the high $50,000, low $60,000 range in late April.
Here’s are more recent trends, in the hybrid model world.
All restaurants
April
- Same-store sales: –46.7 percent
- Average weekly sales: $54,937
- Number of restaurants: 518
May
- Same-store sales: –41.9 percent
- Average weekly sales: $62,343
- Number of restaurants: 519
June
- Same-store sales: –14.1 percent
- Average weekly sales: $88,874
- Number of restaurants: 521
Q2
- Same-store sales: –32.8 percent
- Average weekly sales: $70,281
- Number of restaurants: 521
Limited capacity restaurants (this includes dining rooms reopened at limited capacity and excludes spots operating as to-go or outdoor dining only)
May
- Same-store sales: –28 percent
- Average weekly sales: $80,235
- To-go sales as a percentage of average weekly sales: 41.9 percent
- Number of restaurants: 340
June
- Same-store sales: –8.2 percent
- Average weekly sales: $96,623
- To-go sales as a percentage of average weekly sales: 25.9 percent
- Number of restaurants: 499
Q2
- Same-store sales: –13.7 percent
- Average weekly sales: $92,227
- To-go sales as a percentage of average weekly sales: 29.7 percent
- Number of restaurants: 499
As of the end of July, more than 95 percent of Texas Roadhouse’s company restaurants had dining rooms running at some level.
Which bring us to more recent results:
All restaurants
Week ended July 7
- Same-store sales: –16.9 percent
- Average weekly sales: $79,630
- Number of restaurants: 523
Week ended July 14
- Same-store sales: –12.3 percent
- Average weekly sales: $86,704
- Number of restaurants: 523
Week ended July 21
- Same-store sales: –13.1 percent
- Average weekly sales: $87,835
- Number of restaurants: 523
Week ended July 28
- Same-store sales: –9.9 percent
- Average weekly sales: $90,080
- Number of restaurants: 523
July
- Same-store sales: –13 percent
- Average weekly sales: $86,062
- Number of restaurants: 523
Limited capacity restaurants
Week ended July 7
- Same-store sales: –14.9 percent
- Average weekly sales: $81,725
- To-go sales as a percentage of average weekly sales: 25.4 percent
- Number of restaurants: 497
Week ended July 14
- Same-store sales: –10.2 percent
- Average weekly sales: $89,063
- To-go sales as a percentage of average weekly sales: 25.3 percent
- Number of restaurants: 490
Week ended July 21
- Same-store sales: –11.4 percent
- Average weekly sales: $89,377
- To-go sales as a percentage of average weekly sales: 25.7 percent
- Number of restaurants: 497
Week ended July 28
- Same-store sales: –8.4 percent
- Average weekly sales: $91,364
- To-go sales as a percentage of average weekly sales: 25 percent
- Number of restaurants: 499
July
- Same-store sales: –11.2 percent
- Average weekly sales: $87,882
- To-go sales as a percentage of average weekly sales: 25.3 percent
- Number of restaurants: 499
So, if we take the first real pandemic-stricken week and compare it with the most recent, Texas Roadhouse lifted average weekly sales $60,650 while maintaining to-go mix of roughly 26 percent. Figures climbed from $55,000 in April to nearly $89,000 in June.
These unthought-of dynamics are leading the brand to rethink design, Taylor said. In recent weeks, Texas Roadhouse has worked on potential changes to its building prototype intended to further enhance its ability to handle higher to-go volume. And this isn’t a restaurant chain that takes remodeling lightly. Outside of some past kitchen upgrades and a bar fix to open the concept and allow sightlines, the Texas Roadhouse on display today is a near replica of the one George Lask helped develop in 1996.
Taylor said potential upgrades are being born out of managing partner innovation (Texas Roadhouse owners have stakes in locations). Operators have found ways, he said, to capitalize on off-premises by taking either all or part of waiting rooms and putting doors on them. Or a sticking a sliding window on them, with curbside walk-up to the window, 6 feet away from the next.
Essentially, Taylor said, it’s converting waiting areas and, in cases with an outdoor overhang (where Texas Roadhouse had some outdoor waiting space before) pushing the wall out. This way, there’s additional space for restaurants to execute to-go curbside. The other part is in prior waiting rooms, Texas Roadhouse can now store to-go supplies. And it’s also concepting the idea of putting a barn door that goes toward the lobby where a door can slide and transform the space into on-deck seating, or a waiting space for people who need it, like older guests. “We’ll have that ability for that room to pivot depending on what’s going on at that time,” Taylor said.
It’s a push for flexibility and embracing “shoulder-to-shoulder” opportunities, CFO Tonya Robinson added. Meaning operators are doing everything they can to cover depressed traffic by opening earlier, getting creative, and expanding outdoor dining.
Overall, the to-go heavy game carries a much different feel for Texas Roadhouse, as it has discovered in recent weeks. Cost of sales as a percentage of total business increased to 34.7 percent in Q2. The line was negatively impacted earlier in the period by higher off-premises mix. These transactions typically don’t carry the benefit of a higher-margin beverage attachment, Robinson said, especially soft drinks.
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Texas Roadhouse witnessed about a $4 difference on per-person averages from dine-in and to-go guests (to-go being the lower side). Typically, there are less hours and labor cost, but the chain is paying higher wages since it’s a minimum-wage position versus a tipped-wage one inside the restaurant. “So really, the labor—you don’t really get any benefit on the labor side as it stands,” Robinson said.
To-go customers skew away from bigger steaks, too. There are fewer combo and appetizer occurrences.
Taylor said added to-go business is stemming mostly from existing guests accessing the brand in new ways. Although, “I think,” he said, “absolutely, we’ve made a lot of new friends.”
“I’ve gotten some letters, interestingly enough, specifically more in the March-April time-frame from people that had not been regular guests of ours,” Taylor added. “That said, they really appreciate everything we’ve done and how safe we’ve made it and they are not going back to whatever restaurant they might have mentioned before, but they’re going to stay with us.”
Labor as a percentage of total sales increased to 41.1 percent in Q2 as labor dollars per store week declined 17.3 percent year-over-year, including a decline in hours of 26.3 percent, partially offset by 9 percent of wage and other inflation (the to-go non-tipped difference coming into play). Texas Roadhouse also spent $4.7 million in the quarter on relief payments in sick pay for employees, as well as other front-line benefits.
Robinson said to-go volume has held steady regardless of capacity, whether it’s near full or at 25 percent. “We don’t see any fall-off from that with a higher capacity restaurant. So I think we can continue with all the things we’re doing from a to-go perspective,” she said. “That focus we have, I think we can continue to build those sales along with the dining room.”
Even in 100 percent capacity markets, Texas Roadhouse is still losing seats to socially distant needs, which could be a lasting change, at least for some time. In those cases, the brand doesn’t have all of its bar seats and, generally, fewer tables. This is where outdoor dining has helped, yet remains volatile based on weather. Truthfully, Taylor said, 100 percent is more like 80–85 percent these days for restaurant chains.
Today, 332 Texas Roadhouses fall into the 50 percent capacity bucket. About 115 are in that 100 percent range, with 68 operating at 25 percent, and 27 at 75 percent.
With partitions, the biggest takeaway, Taylor said, has been positive comments from guests. Cities and states vary on regulation and need. And, notably, they will be part of new-builds, which are coming back into the fold after a COVID-19 pause.
The brand opened two Texas Roadhouses in Q2 and one Bubba’s 33. Additionally, two steakhouses debuted in July and four are planned for this quarter. Taylor said Texas Roadhouse is moving forward with construction on eight additional sites that could open before the end of the year, including one Jaggers—the chain’s two-unit fast casual. The growth would bring Texas Roadhouse’s 2020 development to 20 or so units compared to pre-virus guidance of 30 locations.
Taylor said it was too early to outline development for next year, but Texas Roadhouse expects to continue opening new restaurants.
Texas Roadhouse reported a quarterly loss of 48 cents per share in Q2 compared to earnings of 63 cents in the year-ago period. The company swung to a loss of $33.6 million. It posted revenues of $476.43 million versus $689.93 million.
