Q2 2022 Texas Roadhouse Inc Earnings Call
Good evening and welcome to the Texas Roadhouse second quarter earnings Conference call today's call is being recorded.
All participants are now in a listen only mode.
After the Speakers' remarks, there will be a question and answer session at that time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Anyone need assistance at any time during the conference. Please press star Zero and an operator will assist you I would now like to introduce Tonya Robinson.
The Chief Financial Officer of Texas Roadhouse, you May begin your conference.
Thank you Anna and good evening, everyone by now you should have access to our earnings release for the second quarter ended June 28, 2022, and May also be found on our website at Texas Roadhouse Dot com in the investors section.
Before we begin our formal remarks I need to remind everyone that part of our discussion today will include forward looking statements.
These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.
Refer all of you to our earnings release, and our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward looking statements, including factors related to the COVID-19 pandemic. In addition, we may refer to non-GAAP measures. It's a P.
<unk> reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release on.
On the call with me today is Gerry Morgan Chief Executive Officer of Texas Roadhouse. Following our remarks, we will open the call up for questions now I'd like to turn the call over to Jerry.
Thanks, Tonya and good evening.
We are pleased with our second quarter results driven by impressive sales at our concepts for the quarter, our restaurants averaged over $135000 in sales per week.
It was great to see that dine in guest counts at comparable restaurants remained above both 2021 and 2019 levels throughout the quarter. It was also encouraging that our restaurants still averaged nearly $18000 per week in to go sales seeing our operators generating these sales.
Volumes, both in the dining room and in to go is why our enthusiasm for the future remains as high as ever.
In the second quarter, we saw a return to our historical seasonal sales trends, which we did not have in 2020 or 2021.
As a result, we experienced a slight decline in our year over year total traffic.
As the increase in our dine in guest counts was offset by a decrease in the to go yes, we.
We do not believe this reflects a change in overall demand for our restaurants, rather it appears that more people are getting back to their normal routines. When it comes to dining habits work schedules and vacations.
Additionally, we believe that sales and traffic performance that we saw in the first four weeks of the third quarter supports a continuation of this trend.
Despite the decline in second quarter to go traffic, we remain confident in our ability to execute a successful to go business as our to go sales are settling in well above our pre pandemic levels. We are investing in several digital and development initiatives to improve our.
Our overall long term execution and ensure our to go guests received the same legendary food and legendary service that our dining guests receipt.
At this time, we are evaluating our October menu pricing as always we will stick to our tried and true process of gathering feedback from our operators and listening to what they believe is right for their restaurants. We are pleased that we have not seen any signs of guests pushback or negative.
Mix from the price increases that we have taken over the last 12 months.
This menu price acceptance by the guest is important because our value proposition has been and always will be one of our key differentiators. So we expect to be cautious when it comes to menu pricing, especially at a time when the consumer is feeling inflationary pressures.
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On the development front, we opened four company owned Texas Roadhouse is and one Bubbas 33 during the second quarter and we have already opened an additional two Texas Roadhouse is in July we remain on track to open approximately 25 company owned Texas Roadhouse.
Bubbas 33 restaurants this year.
With all remaining unopened restaurants currently under construction.
It is worth noting that any construction or supply chain delays could push a few of them into early next year.
We also expect to open two company owned Jaggers and our first Jaggers franchise restaurant later this year lastly, our Internet International franchise partners are on track to open six restaurants in 2022.
Our new Texas Roadhouse restaurants continue to open with high sales and guest counts and are holding on to these volumes. The restaurants that we have opened this year and the majority of the restaurants that we expect to open going forward are larger buildings.
These new prototypes are built being built with a similar number of seats, but more storage and cooler space in the kitchen as well as a more dedicated to go area.
This will better support the volumes and the mix of business that we expect going forward.
While the added square footage is pushing development costs higher our returns remain comfortably above our target due to the strong sales of these restaurants.
As I said at the beginning we are excited for the future of all three of our restaurant concepts. They are each at different stages of development, but combined they provide us with a long runway for future sales and profit growth.
Now Tonya will provide a financial update.
Thanks, Terry for the second quarter of 2022, our revenues increased 14% compared to last year, primarily driven by store week growth of six 4% and an increase in average unit volume of seven 4% restaurant margin dollars grew six 6% to $168 7 million and that.
Income decreased four 1% to $72 4 million or $1 seven per diluted share the repurchase of two 7 million shares of stock during the first half of the year benefited EPS offsetting most of the percentage decline in net income for.
For the quarter comparable restaurant sales increased seven 6% driven by eight 4% average check growth while guest traffic declines, 0.8% overall dining room traffic was up three 8%.
Check growth includes positive mix of 1% driven by year over year improvement in the percentage of guests choosing a dining as well as all guests continuing to order higher priced entrees.
As Jerry mentioned, our restaurants averaged 135000 in weekly sales in the second quarter and to go represented approximately $17800 or 13, 1% of these total weekly sales while our to go percentage declined throughout the quarter. We are comfortable in knowing that part of this decline was driven by a year over year in.
Kris and the number of guests dining in our restaurants.
By month comparable sales grew eight 7% nine 6% and five 2% for our April may and June periods, respectively and.
And comparable sales for the first four weeks at the third quarter were up three 9% compared to the same period in 2021.
While the comp percentages softened in June and July . We believe this is more a function of the guest count trends that we are lapping from last year, rather than a significant change in the level of sequential guest demand. This year. This belief is supported by our three year comparable sales trends, which increased at a consistent rate of approximately 30%.
Throughout the second quarter in July .
For the second quarter restaurant margin as a percentage of total sales was 16, 6% down 116 basis points as compared to the second quarter of 'twenty 'twenty. One. We also focus on restaurant margin dollars per store week, which were approximately $22400 up <unk>, 3% as compared to Q2.
2021.
Food and beverage cost as a percentage of total sales were 34, 1% for the second quarter up 98 basis points compared to 2021.
<unk> inflation of 11, 8% was the primary driver of the increase and was better than we expected as we benefited from lower beef prices later in the quarter.
We have updated our full year commodity inflation guidance to approximately 12% with roughly 75% and 30% of our commodity basket secured with fixed prices for the third and fourth quarters, respectively.
While spot prices for beef happens declining our current expectation includes some elevation in beef costs in the fourth quarter.
Labor as a percentage of total sales increased 43 basis points to 32, 7% as compared to Q2, 2021 while labor dollars per store week increased eight 7%. This increase in labor dollars per store week was driven by wage and other labor inflation of seven 7% and growth in hours of two.
3%.
These increases were partially offset by lapping $1 9 million of additional bonus and COVID-19 related payments to our restaurant employees as well as the $1 $6 million net benefit of adjustments to the reserves related to our workers' comp and group insurance programs.
The reserve adjustments include a point $8 million favorable adjustment this year and a point $8 million unfavorable adjustment last year.
Based on current trends, we have increased our full year wage and other inflation expectation to approximately 8%.
Other operating costs were 15% of sales, which was 21 basis points lower compared to Q2, 2021 the year over year benefit comes from sales leverage due to higher average unit volumes, partially offset by higher costs in areas, such as utilities credit card charges and repairs and maintenance expense.
Moving below restaurant margin G&A grew year over year by 33, 5% and came in at four 8% of revenue the $12 4 million dollar growth in year over year G&A expense was primarily driven by costs associated with our managing partner conference that was held in April of this year for comparative purposes, we incurred.
Cost of approximately 8 million in total this quarter versus approximately 3 million for the abbreviated conference in the third quarter of last year.
Our effective tax rate was 13, 4% for the second quarter as we continue to benefit from higher FICA tip credits.
As such we have lowered our full year 2022 tax rate expectation from approximately 15% to approximately 14%.
With regards to cash flow, we ended the second quarter with $180 million of cash, which is down 145 million from the end of the first quarter cash flow from operations of 111 million was more than offset by $60 million of capital expenditures $31 million of dividend payments $25 million of debt repayment and 100 and some.
$28 million of share repurchases. We also acquired one franchise restaurant for $6 6 million.
We continue to expect full year 2022 capital expenditures will be approximately $230 million.
With the addition of the one 7 million shares that we repurchased in the second quarter, we have now repurchased over $2 7 million shares of stock for $212 9 million. This year at the end of the second quarter, we have approximately $167 million remaining under our share repurchase program now.
Now I'll turn the call call back over to Jerry for final comments.
Thanks, Tanya we are fully aware that discretionary spending is being impacted by higher prices.
But history shows that during times like these Texas Roadhouse has incredible value positions us to come through this period with increase guest satisfaction and a larger and more loyal following.
As we move into the back half of the year in plan for next year, we will first and foremost remain focused on our legendary food and our legendary service.
We will remain fanatical about maintaining both our heaping sides and our made from scratch food. We will also continue to ensure that our restaurants are properly staffed with friendly and attentive roadies in order to meet all our guest needs.
In closing I want to thank our managing partners and their teams and also our loyal guests who drove our quarterly sales to over $1 billion for the first time in our history. We are highly confident in our operators and their ability to continue delivering strong operational.
<unk> and that performance along with a smart and disciplined capital allocation approach will create continued growth opportunities for our roadies and position us to create additional value for shareholders over time.
Operator, please open the lines for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
As a matter of time, we ask that you limit yourself to one question and one follow up today. Thank you.
Your first question comes from the line of Brian Bittner with Oppenheimer. Your line is now open.
Great. Thanks, Good afternoon, I wanted to ask about the cost side of the equation it seems as though.
Your food cost outlook is getting a little bit better than you originally were thinking.
When you talked to us last quarter and that seems to be the other way around relative to your peers and how they're communicating.
So I guess the exposure to beef in the near term is helping but you said you expect it to spike again in the fourth quarter. So can you talk to us about how that frames, how youre thinking about beef for 2023 on the cost side and the follow up to that I'll. Just ask now is we saw your Cogs margin.
Really improved from the first quarter, which was which was nice to see how do you want us to think about.
The trend in your Cogs margin moving forward.
Sure. Thanks, Brian .
Yeah, you know we do.
We were able to moderate that guidance on commodities for the full year down to 12%, which felt really good and a lot of it was driven by the fact that we were seeing beef costs soften across the second quarter. So that felt really great to see especially after those prices spiking the way they did in Q3 and Q4.
Some of that was offset to just by higher commodity prices across the basket and I think that's what you are hearing a lot of other folks talking about right now than maybe you haven't experienced beef inflation.
Those other line items, we're seeing it in other proteins like pork chicken, we're seeing on potatoes, some dairy items spread mix oil things like that it truly is spread across the basket basket I'm pretty evenly so as we look at the remainder of 2022. So we did.
Think about what the prices might be and as we said, 70% locked on you know prices in Q3, only a 30% locked in Q4. So there is some risk there is some uncertainty could go either way, but just you know as we're hearing about beef supply potential issues on beef cattle supply how you know.
Farmers are taking a lot of cattle to feedlots, right now and things like that.
We're kind of expecting there could be some you know that could just create some pressure maybe later on in Q4, So still remains to be seen but that's kind of how we're thinking of it and can't really give you a lot of outlook into 2023 on beef I didn't other than to say a lot will depend on what that beef supply looks like how that plays out in 2000.
23, what the timing is obviously as you all know you know if supplies get restricted that that can have an impact. So we'll see kind of what happens going forward on the M. I think the last question part of your question, Brian was just about <unk>.
The margin percent, especially on the Cogs line I'm heading into the back half of the year and I'll tell you you know.
You would expect them to continue to be a little higher and much like they were last year. You know cost kind of went up last year, where we're coming off of those numbers and would expect to see and there's still some pressure on that Cogs line them in the back half of the year compared to maybe what we felt so far this year is kind of the way we're looking at it we do.
You have a little bit of beef deflation in Q3, and we expect that to kind of flip back around in Q4.
Yeah.
Thank you Tanya.
Youre welcome.
Your next question comes from the line of Jared Garber with Goldman Sachs. Your line is now open.
Great. Thanks for thanks for the question actually kind of follows Brian .
Line of questioning but more on the pricing side, Jerry you mentioned.
Youre assessing your typical third quarter price increase and those conversations that you always have with your operators.
It sounded like Youre, taking a little bit more of a measured approach just as we think about the consumer being pressured a bit more broadly.
With inflation. So can you just give us a little bit more color on what the conversations with the operators are like right now and how your customer.
Maybe positioned towards the back half of the year to absorb another round of price increases or is there a reason you're thinking that maybe it might be time to to pump the brakes on the incremental pricing.
Yeah, I think we will go into it from.
From our side with a conservative approach as we have in the past, we will hear from our operators and see where the.
The folks in our category are at and then really try to make the best decision that we can for our business and for our consumer and so we are like you said we're in the early stages. You know, we've obviously shown in the in the past too that we will do what we have to do if we feel like it's the right thing that balances the.
Business in but we will go into it with a conservative approach and see how these next 60 days kind of shake out once we hear from everybody and we have the data and we see where our costs are at and then try to make the best decision possible for both parties.
Okay.
Great. Thanks.
Thanks Jared.
Your next question comes from the line of David Tarantino with Baird. Your line is now open.
Hi, good afternoon.
A couple of questions on the sales trends.
But I look at your performance, it's holding up very well relative to what we're seeing elsewhere.
And I guess my question is are you seeing anything under the surface.
In your business that would make you concerned about your consumer.
No or at least the health of your consumer.
At this point I know, there's a lot of cross currents. So wondering if youre seeing any signs either trade down or or or otherwise that might give you a little pause at this point.
I mean, I would tell you from an operations standpoint, we really haven't like we said it. It really has felt like we've got back to a more seasonal process. We're here at the end of July knowing that in the next two to three weeks people will be going back to school and changing a little bit of a routine but you know I think there were.
Cabinets and a vacation that it seems to have been kind of getting back to normal or most in some aspects. So from that we obviously are the demand is still very high which is which is great for us of the dining rooms are full and the consumer continues to be very hungry for our made from scratch in our hospitality.
And the restaurants, so we feel good from that aspect. It like you said that the demand is high for us which is exciting.
Thank you David at I'll tell you you know its nice to percentages can be a bit misleading because of what the noise in the cross currents as you mentioned and when you look at average weekly sales dollars. It again like Jerry mentioned it. It just gives you some confidence because you see those continuing to grow year over year, so from that perspective.
It feels good.
And we see next we saw mixed moderate a bit that was a little bit more from the shift back into the dining room, a bit more and to go I'm being down a little bit more as you would have expected and so we still got a little bit of benefit on mix from that but the expectation would be and we kind of saw and Tc saw.
And that mix is moderating even a little bit more staying positive, but it's behaving as we would have expected and we're not really seeing anything that would lead us to believe pricing isn't flowing through or that the consumer is changing their behavior.
Good to hear and then Jerry Mike My follow up is related to this.
You are.
The last time, we had a major kind of prolonged downturn in consumer spending so.
I was curious just to hear your philosophy on how you would approach a downturn if we get one certainly there is a lot of concern about that in the environment. So just wanted to hear your thoughts on what you would do differently or not through differently. If you were to get that scenario.
Yeah, and I said that the thing that so when it did happen I was actually our market partner running.
A dozen restaurants in the state of Texas in and so I saw that we stayed true to our made from scratch are heaping sides are friendly service or you know so as long as I I know that we're going to deliver on our promise and we're going to do the things that that we were born to do kind of thing and that is provide every.
That walks through our door with the best value the best play to food the friendliest place and an experience that they will feel good about it and then and that's when you really have to earn it their business is when things are tough because when there when the money's tight they're really thinking about where to spend their money. So we really have to.
Over deliver on the experience so that it's worth it to them and I think our strategy will always be to exceed our guest expectations.
We have to continue to look at our cost controls. Our menu has many items that we would I would referred to them almost as country dinners that are very value oriented to our consumers. So we built that into the menu from the very beginning and to focus on those items that are extreme good Paul.
<unk> sizes and great value. So I think we'll just continue to do the things that we do and try to over <unk>.
To deliver on the promise, but you know I.
I don't want to get into any kind of shrinkage or or reduction of our plate.
And you know, but we I think we can focus on our value driven menu items, if we really need to go push that harder but.
So we will overcome it we will fight the fight and we will earn the business from our consumer.
Makes sense. Thank you very much.
Thank you.
Your next question comes from the line of Chris O'connell with Stifel. Your line is now open.
Thanks.
Jerry you mentioned that a return to normal seasonality. This summer has affected traffic and theres a theres been a.
Abate as to whether seasonality or consumers choosing to spend less or the reasons for the weaker industry sales the past several weeks, but what gives you confidence the slowdown you're seeing relates to a return to normal summer seasonality versus not having that last year and then should we see an improvement in comp performance at <unk>.
We will begin as we start to have like for like seasonal patterns I guess.
Well I think we could if we go back and compared to what would be a normal year, which has been a wow you know typically when school goes back in our week days soften up in our weekends get busier and I guess, that's what we've been kind of studying over the summer is that we've actually seen both the week.
Days, and the weekend, maintaining and holding although a slight reduction typically youre flip your weekends get a little softer during the summer because people are out enjoying lag time and different things like that so.
It's kind of hard to really are we completely back to normal I wouldn't say that but it will be interesting to see as we go back to the school year. This year with I would think most everybody a 100% back in classroom and will the consumers' routines get back to.
More of a normal trend. So it has to be determined I guess at this time, but.
But I do know that typically you see a softening of sales in August September October a little bit because of the school transition.
But we will we've always continued to be positive sales growth over the past, so and we're lapping some pretty big numbers from that standpoint, So I think the big number for the average weekly sales tells US a lot more importantly is there is a huge demand we just got to live up to the expectation.
Thank you Chris you know if you like we mentioned that three year stack number you know as to kind of comparing back to 2019, which maybe was more normal and you see a lot of consistency in that number.
So you know through <unk> seven if you assume that continues in the back half of the year that can give you some confidence unlike comps continue to be you know in the back half of the year. So some of it you know you are losing a bit of check them. You know do we have that four 1% price increase that we took in late October of 21.
So some will depend on what rolls back in from the pricing conversations that we have and we do expect mix to kind of moderate a little more in that flattish area in the back half of the year and then it really just all comes down to traffic.
Okay. That's helpful and then.
Another question Tanya the 10-Q last quarter stated the company expects the average investment to build and to build an open at Texas Roadhouse location. This year is going to be about $1 million higher than what we spent last year is the company planning for this higher level of investment to continue into 'twenty three or are you considering changes to the.
Type or something else to help reduce the investment.
Well, there's kind of a couple of things going on and not increase he's got you know the larger prototype is a piece of it but then there's also just the inflation that we're feeling right now on equipment building costs labor all of those things. So there would be some expectation that those numbers will come down as we get through that inflationary cycle.
And you know see that perhaps come back down a little bit would be the hope and we're always looking for ways. There that to control those cost in you know manage those deals and things like that we're looking for the best deal on rent. We're looking you know for all of those things, but really right now, it's it's really driven by inflation more than anything else.
On the on the Roadhouse side. The Bubba is I think we're probably digging a little deeper on things that we could do to maybe bring some of those construction costs down we've got a few initiatives that we're really trying to see.
And I think we've got a few restaurants right now that have opened with a couple of the initiatives, but we anticipate by the end of the year. The full package of initiatives to reduce some of that without really changing the building.
It will be in fact until then will know right now bubbles hasn't increased any which we've been able to kind of chew up the inflation on that cost and we will continue to look at it and then hope for maybe some reduction in pricing as we go down that road on it but so a couple of more things on the Bubba side, probably more than roadhouse.
When it comes to the building change or being able to pull some costs out.
Great. Thanks, guys.
Thank you.
Yeah.
Your next question comes from the line of Jeffrey Bernstein with Barclays. Your line is now open.
Yeah.
Thank you very much.
First question was just on the the restaurant margin for the back half of the year. It seems like you have a pretty good line of sight into commodities with your tempered expectation and on the flip side, maybe a little bit more labor.
And the other than the pricing, which is unknown, but how do you think about restaurant margins for the second half of the year.
Do you have intention to return to a certain target or better yet just what's your expectation for the back half on that blend of all those puts and takes.
Sure I think you know as we see sales return to some normal seasonality I think margins kind of go that way too in Q3, and four typically some of our lowest margin quarters.
So I think there's kind of that starting point.
For the rest of the back half of 'twenty, two and then a you know a lot just depends on where some of these inputs land ear, continuing besides commodity and labor you're continuing to see you know costs going up a bit in the other operating line utility costs. Those types of things continue to rise and and I could see you know that.
It continues to be an impact in the back half of the year.
And you know where we land on pricing has an impact.
You know on what margins might look like and how traffic fits into that so I think there's still a lot of moving pieces to it I think margins are going to be pressured in the back half of the year and we're going to see that continue them in and so we'll just see kind of how that plays out I still feel good Geoff to your point on being.
We're able to get back to 2017% to 18% margin that's always our goal.
At some point in time.
Lot of that expectation of when that happens, it's just going to be driven by the commodity outlook and labor outlook and and you know what sales continue to look like and feels like that you know don't know what that'll be at 23 possibility.
You know it'll be great. If it is but that is still definitely a goal and we think it's achievable.
Yeah.
Understood and then just to follow up Jerry you talked about the the restaurant pipeline and feeling pretty good that all things are under construction.
Could slip I guess into 'twenty three wishes.
Totally.
Reasonable, but I just think more broadly about 23 have you seen additional available real estate that intrigues you, maybe there would be an uptick from the 25 openings between Texas and bubbles or are you kind of keen to kind of stay more in that mid twenty's, rather than pushing 30 or higher I'm. Just wondering what your early thoughts are I know you don't have all things signed and delivered.
But just your thoughts on unit openings in 'twenty three.
Yeah.
Yeah, I would tell you the pipeline looks pretty solid I would tell you we'd be higher than then right now it looks very optimistic we have quite a bit.
Crept up and ready and not including anything from 'twenty two pushes so we're focused on trying to get to that higher end in 'twenty. Three there have been some really good deals out there where our guys have been working really hard to bring us some opportunities. So I feel very optimistic that you know and like you said, it's a little.
More expensive to do business, but as far as the real estate availability and where we want to go its available out there and we are being aggressive on and I can tell you that.
Great. Thank you.
Thank you.
Okay.
Your next question comes from the line of Peter Saleh with D. T. I G. Your line is now open.
Great. Thanks.
Want to come back to the conversation around you know consumers in the behavior there.
I think in the past maybe several quarters or so you were seeing consumers still trading up from some of the smaller things to larger stakes just wondering if you're still seeing that or if youre seeing any signs of check management at all.
Duction appetizers drinks desserts and anything of that sort would be helpful.
Yeah, you are still seeing that a little bit Peter on the on chase them Youre seeing a little bit of that trade up.
Lee you know if youre seeing any softness on mix, maybe alcohol a number you know with alcoholic beverages, you know a little softer, but we're still seeing a bit of that even though we're lapping some pretty strong numbers.
That happening you know last year, so we're still seeing a bit of that not really anything you know.
Within the food categories that would signal.
Anything happening so that feels pretty good.
Great and then can you just remind us Tanya what the what the one year comps were last year in July August September just so we have a good comparison for this year.
So you want that comp sales last year.
Breaking down by market.
Yeah, Yes. Please yeah, let me, let me make sure I'm, giving you the right numbers here so.
And those numbers last year were 44, 1% in July 29, 8% in August and 27% in September .
Yeah.
Great. Thank you very much.
Yeah.
Your next question comes from the line of Eric Gonzalez with Keybanc. Your line is now open.
Hey, Thanks, Good afternoon, I am wondering about the off premise business you don't play the third party arena, which I believe does skew higher income, but I was wondering how the how the customer profile of your takeout guests my compared to that of your dining guests and which you would say it was a little bit more vulnerable to some macro headwinds that seem to be playing out across the industry and everywhere as a significant economic downturn would you.
To see the takeout business slow before the dine in business or vice versa. Just wondering how you think about that thanks.
Yeah, It's a great question.
Now that we know yet I think it's been interesting to see as the dining room traffic has slowed down a day <unk>.
You see more folks maybe moving from to go back to dine in and I think some of that is just a function of being able to get into the restaurant and during the week. Because you know wage sometimes are so long I think that was me, helping the consumer decide on the to go transaction right rather than waiting.
To get a seat inside the restaurant I don't.
I don't think there is a big difference between those guests as far as what they spend on.
The mix of what their you know or anything like that I mean, it seems very similar as far as obviously you don't have the alcohol transaction on to go but otherwise seems very similar so from that perspective, I think all good but I.
I think it just remains to be seen I think the guest likes the convenience of to go.
It's really what we're seeing in the technology that we've added to that transaction makes it very convenient the way they can come to the restaurant and pick up that order is very convenient. So I think you know just with the way people live. These days that that continues to be something theyre going to look for and seek out. So it's kind of the way we would look where we're very focused.
On continuing to drive those to go sales and Eric can just give a little confidence on that currently all summer long in our restaurants, we've been working on what we call mission statement University and it's rolling out the online ordering switchboard system, which helps integrate our dining room orders or basic.
Really our to go orders, whether it be a walk in a phone or an online a little easier and smoother transition into the kitchen, so that it's giving our operators a little bit more confident that they can handle more to go business without it affecting the dining room. So we're we're very excited we believe that this.
Software and the education of our operators will allow us with confidence to be able to take more orders and every 15 minutes segment and so thats going on out in our restaurants right now and then.
Obviously, we feel great about our windows in our pickup process and even our order process. This.
This is more about our operators feeling more confident that they can handle the to go business successfully without it affecting their dining business. So this is Ben.
An initiative that we've been doing for the last seven or eight weeks and we're very excited about our product coach team and our service experts that are out there teaching and coaching I I just personally have witness too well, one in Connecticut, and one in Florida, and Panama City myself. It is just it is a great experience for us to watch our.
<unk> learning how to execute at a higher level when it comes to dining room business and to go. So we are very excited from an operation standpoint that we're going to be able to execute to go and continue to get better at that experience for our guests.
That makes sense. Thank you.
Thank you.
Your next question comes from the line of Chris <unk> with RBC capital markets.
Line is now open.
Thanks for taking my question I wanted to ask about in restaurant capacity in your existing restaurant base.
The larger formats of restaurants in development.
Well as guest counts above 19, and 21 levels and then we're saying.
I guess off premise mix moderating a little bit rate shifting to on premise. So.
How are you thinking about meeting demand in the restaurants.
Well, it's interesting when you look at the comps anyway, you know that typically in and we continue to see that it's the most successful restaurants are the ones that continue to drive traffic. So theyre finding ways to continue to bring guests in the door. They may be getting a bump out adding seats that might be one way.
So theyre doing it just their seat utilization and and bringing folks in on the shoulder periods and things like that so they continue to find ways to drive drive that traffic. It's always interesting to see so I don't know that we would ever say, we have a store that is maxed out capacity or anything like that it I think.
They are they continue to find great ways to do it.
Okay.
Got it.
And then just for my follow up I wanted to ask about labor costs and maybe if you could provide any additional detail on the outlook there.
The wage and other labor inflation outlook is maybe a little bit higher from what you provided last quarter or so curious how you expect that.
Are those inflationary trends youre going to play out over the remainder of the year.
Yes.
Sure Yeah, you know most of the wage inflation.
That's built into that 8% and get guidance a lot of it occurred in Q1 and Q2.
You know it was it was over 10% in Q1 seven 7% in Q2.
And so a lot of that is what really drove that guidance a bit higher you know for.
For the full year, we expected you know as we started lapping higher wage rates in the back half of the year, we thought they might.
That growth might moderate a bit in the back half where now we still think it will moderate but not maybe not as much as we were originally thinking. So I think you know we have a big focus here on making sure. Our people are taking care of doing the right thing.
Staffing at the levels, we need to staff at and you know so for US it's really that investment in our people is something that you know we want to continue to do them and that's you know a big focus of ours. So I think the trends in the back half, they're just they might be just a touch higher than what maybe we expected them to be but I'm more of it was really what the expectation there.
We saw in Q2 was a bit higher it's really what drove that.
Okay.
Great. Thanks very much.
Mhm.
Your next question comes from the line of David Palmer with Evercore. Your line is now open.
Great. Thanks, good evening.
Question on the food cost just to follow up on some of your other comments.
You mentioned Tonya.
You thought that beef prices might be down in the third quarter and I think your guidance implies for overall food costs for the second half the overall basket would be up.
About nine plus percent I think or something like that so I'm trying to piece that altogether is not often that you have a comment about your beef that's going a different direction than your overall basket, but you did mention that things are going to come back up for beef in the fourth quarter. So my thinking is you're really talking about.
Very different quarters over the next two quarters.
And then that there's something else going on beyond what we would see say earner Barry with regard to the state cuts in your basket maybe distribution. The other thing so love any color about that.
Sure you know some of it David just has to do with what we're lapping from last year Q3 was really where we saw that large spike in increases on <unk>.
I was one of the cuts that we saw huge increase in costs last year in Q3, and so some of it is just you know kind of what we're lapping actually you know you you referenced about 9% in the back half of the year that is about what we are expecting pretty equally across quarters. So you know even with some minimal.
And it feels great to take beef deflation by the way, but it's pretty minimal so even with some minimal beef deflation you do have other parts of the basket that are continuing to see higher costs. You know your other proteins are seeing it.
All of those things I mentioned earlier, Brian Nick says oils potatoes.
Some dairy items. So you really are seeing more across the basket outside of even beef than we've seen before and that's kind of doing that and then the movement to a higher beef cost again, it's pretty minimal.
In Q4, and and it's just really based on not only being took locked 30%.
On fixed prices. So we're just kind of anticipating that cost could get a little bit higher in Q4, just if there are any supply restrictions things like that to start coming into the system kind of what we're thinking.
Yeah.
Thanks for that and then just a follow up on the pricing stuff.
Rents that you made in the trends that you have would seem to suggest that you have pricing power.
Three year trends are quite firm and you don't seem to be seeing any major cracks in terms of trade down I'm.
Im just wondering about any other inputs that would make you give you pause about raising price or is there anything going on with the competitors, where they're discounting or are you just listening to the news reports about maybe what's around the corner.
Anything about your mindset that would make you question your ability to raise price.
Yeah.
While I wouldn't question at this point I still want to really get educated as to what our costs are going to be.
And to hear from the operators. So we're go into it with a conservative mindset we.
We obviously look at the numbers deeply and then we make a decision that we believe is best for the business in a balanced procedure.
Obviously, it's a difficult time, because you hear inflation and all of these different areas. So you know we will pay attention to what we believe is important to take care of our consumer.
Do pay attention to what's going on in the industry and even in the grocery store. So you know.
We have to we will and we have we don't want to but you know I think we have we know that we have to do something I, just don't know where it's going to land right now.
David I'll I'll tell you you know we still believe in you know the philosophy that commodity inflation is cyclical and commodity costs are cyclical. So while you do see we are feeling some significant inflation right now that cycle at some point, we will turn them.
And so that philosophy hasn't changed and you know that just means we may take it on the churn a little bit more during that short term cycle.
And count on the gas being loyal and coming back to us and that's what we've done in the past and that's really benefited us so.
Thanks.
Yep.
Your next question comes from the line of John Glass with Morgan Stanley . Your line is now open.
If I could just first ask a follow up on the question about margins restaurant margins in the back half.
Typically in many years prior to Covid back half margins were about 200 basis points below first half margins for the seasonality reasons. We discussed is there any reason to think this did I understand you to make a pricing decision yet in the fourth quarter, but you kind of know what pricing is in the third quarter. So is that a reasonable starting point to think about back half restaurant margins being down a couple hundred basis.
Since bringing first half or is there a reason.
Not to think that way.
No I think that's a good starting point, yes, John I mean, that's kind of as we head back into some normal seasonality, we're going to be looking we're looking at historical trends too if you know what.
Does that look like from a margin perspective, so I don't think thats unreasonable.
K to start there and then it's just really looking at you know how much pricing are we going to be taking what do we think traffic trends can continue to be and where do we land on some of these cost inputs. So all of that obviously is a lot of meeting pieces for sure yes, no I appreciate it it's just that.
Don't think consensus maybe consider that yet.
Jerry can you talk about technology more broadly and at one point and forgive me. If this is a misremembering, but KBS was something that was being tested where are you on that if I have that right. What are the important things I know you talked about to go but other technology pieces that you would think about for the next 24 months.
How they might impact the business.
Alright, well, thanks, I thought I'd give you an update on our roadhouse pay which we currently have over 300 stores and the stores that have it there's an 82% usage in the concept. So that is very exciting that the pay at the table the consumer is using it.
Helping them turn tables, a little quicker because you know you're right. There you take care of your pay up so we're very excited about our roadhouse PE and the in the Rollouts are going very well the digital kitchen as you know we opened a new store in Shakopee, Minnesota I believe in the early part of the year.
<unk>, we just completed our conversion of an Austin, Texas restaurant and right now the.
Feedback is very positive food quality kitchen times, no loss tickets easy to train employees. So you know it seems like we've got a lot of real positive feedback there I was just talking with.
My My Chief Tech Guy earlier about that success and what we are going to look at for not only the fourth quarter potentially or even into 2023.
So there is definitely some demand for the digital kitchen.
We also again as we've talked about the online ordering switchboard that were out there training in the restaurants right now we have all of our market partners coming to town next week and we'll be doing a training session on that and we want we want to be able to execute to go not only for our guests, but we want to have tools that are available.
Our operators that not only give them confidence to take more orders, but to execute at a high level. So anytime we can use technology to enhance the guest experience.
The top three right now that we are currently having success with and excited about to continue going forward.
Got it thank you.
Youre welcome.
Your next question comes from the line of Lauren Silberman with Credit Suisse. Your line is now open.
Thank you very much I have one on the consumer are you seeing any differences in behavior with the lower income consumer specifically and given your strong value proposition any sense, you're getting benefit from trade down from higher cost restaurants any color that you can give on the demographics of your average consumer would be helpful.
Yes. They are I don't know if I can answer that on the low end consumer we really don't track it our guests that way. So it would be tough for me to comment on that I think overall, you're absolutely right the value on the menu I can see being very attractive to our guests she's looking to manage their you know what they are spending so there.
A lot of great things on the menu that fall into that wheelhouse, which is really awesome. We have the early time, which as you know coming in in those earlier hours of the day part.
And a great options there that provide some value on the menu to so that's really great and I think speaks to that consumer probably I'll tell you. When we you know the last recession. We had we do believe we saw some of that trading inks you are get into our restaurants from the higher end guests maybe he was used to paying.
More of a higher PPA.
And I think when they tried us they realize how good the food wise and they didn't leave them and that really is what helped us with that 10 year traffic growth trend that we had and so we still believe that you know that is possible and that happens.
And so that's something definitely that we're thinking about you know of how we continue to.
Speak to that guest and bring them in.
Great. Thank you and then just on China, and really strong growth in dine in traffic this quarter, where are you running on dine in traffic versus 19 at this point.
Dine in traffic versus 19.
On a three year trend I don't know that I have those numbers in front of me actually but.
But I think we're still seeing some really good chance if I go back and look at.
Kind of what traffic was for Q2.
2019, you know Youre looking at four 7% up in 2019 on comps traffic was running about one 7%.
So.
We were seeing probably in that 1% to 2% range of traffic growth in 2019 each quarter.
What we were running back then.
Great. Thank you very much.
Mhm.
Your next question comes from the line of John Towers with Citigroup. Your line is now open.
Great Yes.
Most of my questions have already been answered, but I guess I'll hit on.
In terms of knowing right now that you've got.
Potentially higher beef supply or excuse me lower beef supply coming in 'twenty late 'twenty. Two 2023, I think the USDA is forecasting.
7% or so reduction in production is there anything you could do.
Proactively do right now with the knowledge in hand to address this maybe it's a walk into supply earlier than you normally do for 2023, maybe there's some technology like youre mentioning about the <unk> pushing that out across the system faster.
Yeah.
Or perhaps even pricing I'm, just curious what you might be able to do now knowing them prices next year might be taken off again.
Yeah from a supply perspective, I mean, you know you could certainly lock up additional supply that's not necessarily going to help you from a cost perspective.
But it would help you kind of walk that up we do a great job of locking up supply even when we can't lock price. So right. Now you know you you're not getting a lot of takers on walking up prices too much I think there's just still so much uncertainty out there as far as what may happen in the future so not really seen an opportunity on pricing.
You could see it on supply.
We have never approach.
Higher beef prices by changing something on the menu are moving our focus away from steak on the menu. So it's really not who we are our menu is so tight.
We don't add a lot of items, we keep things front and center in our guests do they have their favorite thing. So I don't know that there was much there we would do either John to be honest as far as making significant changes we have added things in the past so like a salmon salad or things that we feel like give our menu some variety.
And things for you know just kind of avoid that veto vote.
I think some of it you just kind of have to ride it out and you know and see kind of where things land and want to try and you know how long that cycle might last.
Got it.
I will I just want I'm curious curious if you could clarify that you said something about.
The store margins in the back half being about 200 basis points lower than first half.
Curious if that was <unk>.
Accurate.
Or if I misheard, something I want to make sure that.
It's a better that correctly.
Yeah, you know I think the reference was to 200 and I you know if you go back to 2019, it's probably the closest date you could really see more of that normal trend.
You know and just to give your margins by quarter from 19. It was $17 917.6 16 seven.
And then 17.1 as you look at the cross from Q1 to Q4. So again you do see some of that softness you know in Q3, a lot is just going to depend on commodities really and where that inflate. You know you pick you could pick up leverage of some of that supply doesn't pan out maybe you. You know you see some continued softening on costs you can see.
Traffic come in higher you know pricing all those things just come into play so I would say, it's kind of hard to read a lot into it but there is no doubt that margins typically are softer in the back half of the year for US is just the typical trend.
Okay, Great now that makes sense I just want to make sure I Didnt hear this year anything. Thank you I appreciate it I appreciate it thanks.
Yeah.
Your next question comes from the line of Andrew <unk> from BMO. Your line is now open.
Great. Thank you and good afternoon I had two.
Two development related questions I guess.
First one you talked about last quarter, maybe some opportunities to accelerate or better navigate I guess, the development process and new store development process.
I know theres still some delays going on but have you been successful in realizing some of those opportunities.
First question and number two when you talked about the.
The larger prototype having more storage in coolers to help meet demand what are you doing in the legacy stores to kind of manage that same thing is there any need to I don't know if its investments or what have you.
I'm kind of retrofit that but how are you thinking about that about that the legacy stores.
Yeah, I would tell you so we continue to.
Look at the development, we have learned a lot. We've obviously extended out our timelines I feel really good about where we're at there is.
There's one item right now that we are concerned about because we can't open the restaurant without power and there are some transformer concerns out there.
But we are having a backup plan to be able to do that but you are on temporary power, we can pretty much overcome a lot of obstacles that one concerns me a little bit, but I do believe that pipeline is.
We are coming up with a backup plan if needed. So I think everything else, we've kind of learned how to navigate through some of the permitting and the different extended time periods as far as the new or the existing stores in and whether it be a cooler expansion. We're looking at some of these really high volume restaurants.
And evaluating what they need to be able to handle that and whether it's more seats more cooler space more storage.
So we have some we've done some very cool things with some of the existing prototypes. We relocated some restaurants that have had a lot of success that at the end of their lease. So we move on just a clean.
In a close proximity, but they get more parking and they get a brand new building. So relocations have been very successful we have numerous on the books again for next year as well as this year, but we are looking at our very top high performers and what we can do to help and support them.
It just smart money to spend no doubt because the volume is there.
Makes sense. Thank you very much.
Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is now open.
Be quick given the.
Just two real quick ones anything you can share Tanya on how hourly employee.
Tenure or turnover levels have shifted versus pre COVID-19 levels, So where do you guys stand now on those two metrics tenure and turnover versus pre COVID-19.
Yeah.
On the hourly employees, you're actually seeing a bit of returning to normal more normal turnover levels. You know more of those pre COVID-19 levels. So we have seen you know turnover creep up on the hourly side to a 140 or so percent and that's been coming down more in line with that $1 30 high 100 <unk>.
8% range and everybody calculates it differently, but we're pretty consistent in the way, we do that and and it feels good to see that as I think we saw some work to do our operators would tell you, but we do feel good to see those get a little more in line with things. So on the management side of things you know you continue to see improvement there too.
Returning I think we've actually have gotten back to pre COVID-19 levels from a manager turnover perspective, and most of that isn't at the N. P level, usually that we're seeing that more at the service manager kitchen manager level that's.
That's helpful. And then just taking a stab here, but anything you can provide any color or any sort of framework for how we should be thinking about G&A in G&A dollars.
In 2022 sort of finishing out the year.
Big picture stroke sure well you know.
Yeah, we had that you know you have that mismatch of cost on.
Our conference as we talked about.
Outside of those things, it's pretty it should be pretty consistent from a dollars perspective across each quarter in the back half of the year. So would be our expectation typically you see a little bit you know in 'twenty. One you see a little bit of increase in costs in Q4, a lot of times, that's being driven by bonus path as we.
You get to the end of the year and paying out based on full year performance and with 'twenty, one being so much significantly higher than 20 coming off that that year.
Little bit more of a pop there in Q4 of 'twenty, one than maybe what we're expecting.
You know as we head into the back half of the year. So I think you probably Jeff would just expect to see a little more normalized trend from a dollars perspective. When you. After you back out that that mismatch on conference.
Okay. Thank you.
Okay.
Yes.
Your next question comes from the line of Brian Mullan with Deutsche Bank. Your line is now open.
Hey, Thank you just a question on capital allocation you step up in share repurchase. This quarter. You know really this year has been notable my question is Tony how do you want us thinking about this we know, Texas Roadhouse is always going to keep a conservative balance sheet overall, but are you also in some way expressing a view that the stock is undervalued right now.
That's the case would you be willing to keep up this pace for a while longer.
Well I think Brian what we saw was just some opportunity you know earlier in the quarter to really take advantage of kind of what was going on in the markets and we had some excess cash that you know with development. We knew with development was going to be and what we were going to need from that standpoint, and we felt very comfortable bringing our cash back.
<unk> down and net cash of 75 million in debt on the books, but I would say that doesn't indicate a change in our principal or are the way, we're thinking about share buybacks I think youll continue to see SP.
You know look at dilution and shares that are being issued and we'll continue to see you know what we can do from an opportunistic perspective, but right now we feel really good where we are from a balance sheet perspective, where cash is sitting in the amount of debt that's outstanding.
So from that perspective, I think we feel like we're in good shape.
Thank you.
Mhm.
Your next question comes from the line of Dennis Geiger with UBS. Your line is now open.
Thank you just wondering if there's anything unique that you're seeing by geography or any notable difference in performance across certain markets. Thank you.
Mhm.
Not too much really significant fluctuation pretty much behaving as you would normally expect it to you now at this time.
You know I know you know there's been talks of Covid.
Covid spikes in Covid occurrences and things like that but those are really hard to read across the country and what that impact might be so we haven't really put a lot of energy and just trying to see what that might be but on.
Pretty much the same as what it normally normally looks like Dennis as far as you know just how comps are growing you've got strong stores all across the country.
It makes a lot of sense. Thanks Tanya.
Okay.
Your next question comes from the line of Andy Barish with Jefferies. Your line is now open.
Hey, guys.
Thanks for taking the question wanted to go back to you.
Don't comment you were talking about implementing some software on to go.
Do you.
The business put governors kind of odd to go just given a lot of that demand comes and busy sort of Friday Saturday.
Saturday nights as well and is that what you were referring to it as an opportunity to kind of.
Free up some throughput there.
Yeah. So we every 15 minutes we can.
I'll put a little baffle, if we need to.
So that is a part of it so the software helps blend or a mix that is so that we can handle depending on how many tickets we have hanging from the dining room depends on how much. We can do successfully on to go. So yeah. The software helps it mixed a little smoother and easier and just the.
As you know we can take more orders based on the smooth transition of this allowing the guest to even if they have to get pushed to another segment is not too far so knowing that instead of saying no. We may have to push you to the next bucket I mean, we have a little bit smoother transition and doing that but it has it.
Has really been working well for us given our operators more confidence that they can do more orders.
Got it.
And then and then Tonya on the.
You know on the beef purchasing and contracting side I know, it's gotten a little bit more.
Opaque over the years.
Is there a way just thinking about sort of 23 and the potential for higher costs there to.
Start blending in some of that with the back half of 'twenty, two and is that informing.
Some of your decisions or some of your discussion today on on beef cost and maybe.
23 doesn't feel as much of an impact is potentially could be out there.
Well I mean, you know we do have some ability just based on how we age or beef.
Goodbye you know if there's some opportunity to buy some things you know a little further out or a little sooner we have that ability to do that but you know all of our all of our stakes are kept fresh in the store and Theres not we don't have any frozen meat. So you know from that perspective, it's hard to kind of buy ahead of time and use it later.
The restaurants I don't know if that Andy was what you were referencing or if there wasn't.
Or if I missed the question.
It was just more of a contracting strategy rather than taking.
You know taking physical.
You know product yeah.
Yeah, Okay, I do understand that yeah, and we have never really utilize those hedging.
Hedging you know ourselves internally, we kind of rely on our suppliers and things like that to that but that is something we've looked at recently to see if there is some opportunity there to you know to utilize those those strategies and maybe get ahead of things a little bit. So we'll see if that pans out.
Okay. Thanks very much.
Thank you.
Your next question comes from the line of John <unk> with Jpmorgan. Your line is now open.
Hi, Thank you I also a question on to go at least from what I've heard on the call a lot of it really the changes that you're going to make are very much focused on the operator, and giving them more confidence to hit.
Certain ticket windows, but I was hoping you know I guess, if you could elaborate if there are any changes beyond that if there were changes that the customer themselves may see or notice and you really see how Texas roadhouse is significantly differentiated.
So it appears you know certainly I'm not expecting you to get back to what you did during Covid, where you were a completely unique experience.
Relative to everyone else, but I was wondering how you could stretch for move the brand to do a takeout experience that the customer will notice that maybe maybe others in the segment simply or not.
I don't know that there's anything magic out there right now I think our convenience of the to go pick up windows.
Probably even the ability to come in the restaurant without having to go through the the host area is one of the significant changes that we made more of what we're doing is the flow of our to go food to get to the Packers, where they pack that food up so that we can become more accurate and make sure that you know.
It is critical that when that guest gets home they have everything that they expect or wanted.
So that's more about what we want to be the.
Convenience I think we've done over that through the pandemic the whole pickup experience. The ordering experience I believe is very solid we really have done a great job I just want to continue to give my operators the simplification of how to get it packed right and how to make it work.
Work when you've got a full dining room and to have that confidence that they can do both at a very high level.
And I think to John's sometimes the guests you know feels maybe a little frustrated because they do you think you have to wait for that to go order and so what Jerry is talking about to get that food in the hands of the gas even faster by getting them kind of blend it into the dining room Qs so with the dining room guests so from that perspective, they should see.
That as far as just when they order they are not given you know an hour wait time, maybe they're getting a little bit faster.
Got it understood. Thank you.
Okay.
Your next question comes from the line of Jim Sanderson with Northcoast Research. Your line is now open.
Thanks for the question I just wanted to follow up on pricing strategy and do you have any feedback or sense of how your competitors have reacted to the pricing you've taken market today and whether that has narrowed the value per value position you have in the market.
I think in some ways, that's something we definitely pay attention to whenever we have our pricing decisions. Typically you know we're talking about it in February and March and again in September October we're definitely looking at what the what the guests are what the competitors.
Competitors are doing and we want to make sure that that gap that we're keeping that value and that cap with the consumer. So it is definitely something we're watching Jim I couldn't tell you off the top of my head. He was kind of got what pricing or anything like that we actually dive into it a little bit more than that and our operators kind of brings to the table with the pricing in their area.
And their markets are big.
It is so different across the country. So we actually go a little deeper on it and don't look at it as much from a high level perspective.
Okay.
Noticing anything kind of significant or meaningful that would make you want to pull back on your thoughts on pricing.
Based on what competitors nothing.
Yeah, nothing from a competitive perspective at this time again, we will dive into it more on.
On the upcoming call Yeah for sure just a quick follow up I think on the three 9% comp for July which the underlying traffic trend for that comp number.
Well theres about 7.2% pricing on seven 3% pricing in the menu throughout Q3. So you can kind of use that to back into what the traffic trend. We typically don't don't give out specific traffic trends on a monthly basis.
Alright, Thank you very much.
Uh huh.
Your next question comes from the line of Brian Vaccaro with Raymond James Your line is now open.
Hi, Thank you just a real quick one on labor I wanted to ask one on labor deployment, specifically you know the average hours per store are you happy with current levels and able to achieve your targets for ops and the guest experience or do you expect to continue to add hours year on year moving through the second half. Thank you.
I think you know Brian a lot will just depend on what that traffic Chris looks like that's always a big driver of what Chris and ours is going to be.
You know and I think you know that.
Operator, right now I would tell you they want to be staffed and they want to be stopped for any call outs and they want it for any unexpected changes in you know in the schedule and things like that so they are probably going to move.
Move a little bit more towards being very well staffed that could lead to a little more growth in hours versus what traffic looks like but I'll tell you me as the CFO I'm, okay with that I like that investment in that line and we know that that legendary service really adds to the experience. So we want to make sure that's happening but.
You know I think for the operator, it's tough right now.
From a staffing perspective, and just knowing what you need and what those sales levels are going to be and things like that with just all of the kind of lumpiness that you see lapping last year, so that will probably be a little more leaning towards growing hours a little bit more.
Alright, thank you.
Mhm.
Your next question comes from the line of Sara Senatore with Bank of America. Your line is now open.
Thank you.
A couple of quick clarifications. The first is on the comp trend I know you mentioned July running around 30% versus 2019, I guess, if I just track that three nine out through the quarter. It would imply something less than 30%. So just on a three year basis July sounds like it was the toughest comparison and so.
As we look at that three nine maybe it could get better through the quarter, if that if that three year stack hubs.
That is my first question make sure I'm interpreting it correctly.
Yeah, I mean like we've been talking about from a seasonality perspective, you start to see that softness in July and.
Q3, it tends to be where you see more of it than anywhere else. So I don't think it's unreasonable to think that that three nine you know it could be the low point a lot again will just depend on pricing is pretty consistent throughout the quarter again at seven 3%.
It depends on where mix lands and you know if we continue to see it be flattish.
We get some benefit there and then you know on the traffic side dining room to go so, but I don't think you're being unreasonable I am in.
Or you know kind of how you're looking at it. Okay. Thank you and then just the second question is I'm, sorry to belabor the point about the seasonality of margins, but this year. It seems kind of unusual to me in the sense that you have so much less inflation in the second half than the first half. So the guidance implies if inflation comes down by three or 400 basis points.
<unk> so.
That's pretty atypical I guess is what I'm asking you wouldn't normally see that maybe the seasonality on margins isn't quite as relevant this year.
Well, it's really tough to say because you kind of have it because of the volatility and you kind of have to look at it on a two year stack.
I think that might help them when you're kind of trying to forecast what the back half of the year margins might be so you know looking at the cost of sales percentages, you know theyre going to continue to be a bit elevated them you know in the back half of the year and I you know I think the expectation would be that some of that seasonality does come into play in the back.
Have you know that we typically would see with the margins being a bit lower.
Right understood. Thank you.
Thanks, Chad.
Okay.
Your next question comes from the line of Jake Bartlett with true Securities. Your line is now open.
Great. Thanks for taking the question.
I'm sorry, if you've answered this before I didn't maybe.
Maybe registry, but I wanted to.
Ask whether staffing is at all it has been a hindrance to the sales growth.
Another one of your competitors last night talked about the Covid resurgence.
Impacting the availability of staffing people, calling in sick. So so I'm just wondering whether you whether the staffing is has been.
<unk> sales.
Sales to maybe to a greater degree than it had.
In the first quarter and then the second question is separate and it's on Bubbas.
It looks like you're opening your plan to open a handful of stores this year, but I'm just wondering your confidence I know <unk> been working with others for a while and at some point you would expect it to be in kind of in the high single digits for Bubbas development is that something that you think we could expect for 'twenty three.
Are you there in terms of kind of really starting to ramp up all those growth.
Well I'll take the first part of that question I'm Jake on them, you know kind of how we're thinking about staffing I would I would say staffing is probably easier today than it was back at the beginning of the year and you know.
But you still would probably have operators out there telling you even today it remains.
A challenge for them. So it's definitely a little bit you know, it's not one size fits all across the country. A lot just depends on where they are but I think definitely it has gotten a bit easier than it was at the beginning of the year.
Yeah, and I would I would just say that I think with the with our turnover lowering that means that where people are getting more experience. So they're able to do more so which is great I think from that standpoint. So I do believe that we're still in this quarter were better than last quarter on the staffing side I think it's helping all across there.
There are still a couple of pockets that probably need a little more attention and helped but overall again continued to head in the right direction through the second quarter.
As far as Bubba is I am very confident that.
We've got some leadership we've added.
You know made a little change in the leadership.
Added some some multi unit focus.
I have gotten a real clear vision of what we want and expect them I am very proud of the food I really do think that the bubble is food is really living up to our expectations. We have a service expert that's now leading a team to help us really ramp up our level of legendary service and and so as far as building a lead.
<unk> team that can help carry us into the future. So that I have more confidence in building more restaurants that is really what we've been working on for the last nine months and I feel really really confident with the team going forward, they've gotten a real clear vision and focus and they are coming together as a team.
It not only the managing partners the market partners, our VP of operations.
The team is looking really good for growth. So I'm very excited about it I do believe that I am going to be able to rely on them to produce more and to grow more in the coming years.
Thank you very much.
Thank you.
There are no further questions at this time Tonya Robinson I turn the call back over to you.
Thanks, Emma and thanks, everybody for being on the call Tonight as always if you have any additional questions don't hesitate to reach out to us have a great night.
That concludes today's conference call. Thank you for attending you may now disconnect.
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