Q4 2022 Texas Roadhouse Inc Earnings Call
Okay.
Please standby were about to begin.
Good evening, everyone and welcome to the Texas Roadhouse fourth quarter earnings Conference call. Just a reminder, today's call is being recorded.
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 and should 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 Mr. Keith topics.
<unk> Chief Financial Officer for Texas Roadhouse, Mr. Haag, you may begin.
Thank you Bo and good evening by now you should have access to our earnings release for the fourth quarter ended December 27 2022.
It may also be found on our website at Texas Roadhouse Dot com in the investors section.
I would like 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.
We refer all of you to our earnings release, and our recent bonds 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.
In addition, we may refer to non-GAAP measures.
If applicable reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release.
On the call with me today is Gerry Morgan Chief Executive Officer of Texas Roadhouse.
Tobin President of Texas, Roadhouse, and microbiome and head of Investor Relations. Most of you know Michael So I have asked him to provide today's financial update.
In the prepared remarks, we will all be available to answer your questions now I'd like to turn the call over to Jerry.
Thanks, Keith and good evening, everyone before we begin our formal remarks I want to thank Gina Keith and Michael for joining me on the call today and express my appreciation for them stepping into more visible roles.
They're all veterans of Texas, Roadhouse, and I look forward to seeing them further contribute to the growth of the company for years to come.
I would also like to address the recent retirement of Tonya Robinson as CFO I had the privilege of working with Tania for 24 years on behalf of Texas Roadhouse I want to thank her for the contributions he made to the company and I wish you nothing but the best moving forward. We're in the process of a national search for a permanent CFO .
We appreciate <unk> taken on an escalated leadership role as our interim CFO and we have the utmost confidence in him and the rest of our experienced financial team.
And now we will move on to our prepared remarks.
There is no doubt that 2022 was a milestone year for Texas Roadhouse with annual revenue, surpassing $4 billion for the first time in our history. This is especially remarkable as it was only five years ago that we exceeded 2 billion in revenue.
By maintaining our long term focus on of opening restaurants across all of our concepts, we see the potential to double our revenue again over the next decade in.
In 2022, despite inflationary pressures throughout the business are strong topline results helped us achieve significant growth and restaurant margin dollars net income and earnings per share. We also returned over $120 million to our shareholders in the form of dividends, we paid 50 million.
There's a debt and repurchased over $210 million of stock <unk>.
Additionally, during 2022, we acquired eight franchise restaurants for $33 million.
All of these actions benefited our shareholders and we are pleased to have numerous levers at our disposal to create value.
Turning to 2023, we have been impressed by the strength of the consumer we are pleased to see our sales momentum carryover from 'twenty two into the beginning of this year the.
The demand to dine inside our restaurants has grown and we continue to hold onto a significant amount of our to go business. We also are encouraged by the potential for a slowing rate of inflation, even though the underlying costs for labor and commodities is still to remain escalated.
Looking long term, we have no plans to lower our target margin per Senate.
Our margin dollars are strong and we believe margin percentages will improve over time as commodity and other operating cost pressures subside.
As a result, we will continue to manage the business with a disciplined approach and a focus on our long term value proposition speaker.
Speaking of value, we recently completed menu pricing calls with our operators and will be taken a 2.2% menu price increase we believe this level of pricing sets us up to achieve a solid year of sales and profit growth, while furthering our industry leading value as many of you know this.
Approaches consistently rewarded our guests and shareholders over the past 30 years moving on to development. We opened 23 company restaurants across all concepts in 2022.
And in 2023, we expect between 25, and 30, Texas Roadhouse, and Bubbas company openings as well as three jaggers.
Our franchise partners opened seven International Road houses in 2022, and we expect them to open as many as 12 international and domestic locations in 2023.
We will continue to maintain our long term focus when it comes to capital allocation and shareholder value creation, we believe the best and most strategic use of our cash is building, new restaurants, and taking care of our existing restaurants. Additionally, as I alluded to earlier, our balance sheet and strong.
Operating cash flow will position us to consistently grow our dividend.
Quire franchise restaurants, and opportunistically repurchase shares and pay down the remainder of our debt.
Finally, I want to comment on Gina's promotion to President of Texas Roadhouse, when I joined Texas, Roadhouse, 26 years ago, and asked people, which managing partner I needed to learn from Gena was always the first name mentioned during her career at Texas Roadhouse, Gina has been a managing partner.
<unk> a market partner head of our training Department and most recently, our chief learning and Culture Officer.
Gena I could not be more excited to have you as my partner and taking a bigger role in the company why don't you share a few thoughts with everyone.
Yeah. Thanks, Jerry I am excited to have the opportunity to carry on the mission of keeping the managing partner at the center of our universe and ensuring that we always viewed the business with an operator's mentality, which has been the key to our long term success.
I look forward to partnering with all roadies and maintaining our culture and serving our operators each and every day.
As many of you know our unique culture, which has been shaped by our people our past hardships our successes and our values.
<unk> us with a competitive advantage and.
And as <unk>, often said we are a people first company that just happens to serve stake at.
Is my promise and commitment to always put our people at the forefront of my work as president.
Now Michael will provide you a financial update.
Thanks Gena for.
For the fourth quarter of 2022, we reported revenue growth of 12, 7%, primarily driven by a seven 1% increase in average unit volume and store week growth of five 5%. We also reported a net income increased 12, 8% to 59.
$9 million and diluted earnings per share increased by 17, 4% to 89.
For the quarter, our restaurants averaged over $130000 in weekly sales and to go represented approximately $16400 or 12, 6% of these total weekly sales comparable restaurant sales increased seven 3%.
In the fourth quarter, driven by six 2% average check growth and a one 1% increase in guest traffic.
Month comparable sales grew eight 3% seven.
Seven 3% and six 5% for October November and December periods, respectively.
Turning to 2023 weekly sales averaged over $146000 for the first seven weeks with comparable sales up 15, 8% as compared to the same period in 2022, we do not expect this level of comp growth to continue as we move past the lapping of.
Oh, Mccaughan and go up against higher traffic levels in the coming weeks.
At the same time, we do not want to downplay the current results as our restaurants averaged more gas over the past seven weeks than in any period in our history.
For the fourth quarter restaurant margin dollars grew three 4% to $145 6 million and were 14, 5% as a percentage of total sales down 132 basis points as compared to last year.
Food and beverage costs as a percentage of total sales was 35, 1% for the fourth quarter up four basis points compared to 2021.
This increase was primarily due to commodity inflation of six 6% in the quarter, mostly offset by the benefit of menu pricing.
Inflation for the fourth quarter was largely inline with expectations other than the higher <unk> costs.
As a result, our full year commodity inflation came in at 10, 8%.
For 2023, our commodity inflation guidance remains unchanged at 5% to 6%. We also continue to expect that the majority of the inflation for 2023 will be driven by higher beef cost.
We have approximately 60% of the commodity basket locked for the first half of the year and based on current visibility we expect inflation in the first half of the year will be above the top end of our full year guidance.
Labor as a percentage of total sales increased 75 basis points to 33, 4% as compared to the fourth quarter of 2021, while labor dollars per store week increased nine 3%.
This increase in labor dollars per store week was driven by wage and other labor inflation of seven 8% and growth in hours of one 9%.
These increases were partially offset by the $1 $1 million net benefit of adjustments to the reserves related to our workers' comp and group insurance programs.
The reserve adjustments include a zero point $3 million favorable adjustment this year in a zero point $8 million unfavorable adjustment last year for.
For 2023, our guidance of wage and other inflation between five and 6% remains unchanged.
Other operating costs were 15, 3% of sales, which was up 58 basis points as compared to the fourth quarter of 2021, the year over year benefit of sales leverage was more than offset by a continuation of the higher costs, we're seeing in areas such as utilities credit card charges.
And repair and maintenance expense.
Moving below restaurant margin G&A in the fourth quarter was 4% of revenue with the overall expense down to $3 million versus 2021.
Primary drivers of the decreased year over year, G&A spend or a $1 $1 million benefit from one time accrual adjustments and a $1 million decrease in total cash and equity compensation.
Our effective tax rate was 11, 5% for the fourth quarter and 13, 6% for the full year, assuming no changes to the tax code. We now expect an income tax rate of approximately 14% for 2023.
With regards to the cash flow, we ended the year with $174 million of cash and $50 million of debt.
Cash flow from operations for the fourth quarter was $117 million. This was offset by $72 million of capital expenditures $31 billion of dividend payments and $25 million of debt repayment.
We continue to expect full year 2022, and capital expenditures to be approximately $265 billion and I will also mention that on the first day of fiscal 2023, we spent approximately $39 million on the acquisition of eight domestic franchise restaurants. These.
These restaurants are included in our expectation of at least 6% store week growth.
Finally, as announced today in our earnings release, our board of Directors has authorized a 20% increase in our quarterly dividend payment increasing its a 55 per share from 46 cents per share in 2022 now.
Now I will turn the call back over to Jerry for final comments.
Thanks, Michael.
Our future success depends on us staying focused on driving topline growth and providing a legendary experience to every guest we will do that by keeping value at the centerpiece of the menu and taking care of our Roadies, who in turn will take care of our guests tomorrow marks the 30th.
Three of the opening of the first Texas Roadhouse I look forward to celebrating this anniversary at our annual conference with over 700, managing partners, who represent the very best of what this company has become over the past 30 years that concludes our prepared remarks opera.
<unk>. Please open the line for questions.
Thank you Mr. Morgan, ladies and gentlemen at this time is do you have any questions simply press star. One if you do find to your question has already been addressed you can remove yourself from the queue by pressing star one again, we'll take our first question. This afternoon from Chris Carroll of RBC capital markets.
Hi, Thanks for the question so Gerry could you maybe expand a bit more on the demand commentary.
Around the start of the year. If my math is correct. The three year stack appears to have meaningfully accelerated in the first seven weeks.
<unk> 23 versus the <unk> in December in particular, so any additional detail will be helpful. There.
Yeah, I mean, we're very excited about the demand for our concept in and we've seen the escalation we softened a little bit in December but it came roaring back and in January in this first part of February . So I will just tell you I I think it's about our execution and about the quality of the product that we're putting on the plating and we will keep pushing that and I think that is.
What help drives our top line sales.
Got it.
And then.
And the long term outlook you mentioned in the prepared remarks, I think it was a doubling of revenue over the next 10 years, what are the underpinnings of that maybe specifically around development across the three brands. Thanks.
Yeah, I mean, I think if we look back at the last five years and we've doubled from there.
The way, we see it with the growth the growth of our existing restaurants, and our continued sales escalations, we definitely feel like that is an attainable with the three concepts and the trends that we are currently can model out Michael might have a couple of comments on how we get there yeah. Chris is really not that different than what you are seeing us doing right now.
Now keep in Roadhouse development.
That 20% to 25 restaurants, and obviously seeing baba's grow to maybe low double digits and then on top of that jaggers could see a little bit of growth, but the assumption of those you know around 30 ish restaurants, a year and some modest traffic and check growth is really the.
Underlying assumption that gets you there.
Got it thanks, so much.
Thank you.
Thank you. We'll go next now to Bryan Harbor of Morgan Stanley .
Yeah.
You very much.
Hmm.
Can you just talk about the pricing decision a little bit and you know are you still going to stick to kind of the two times per year. If for example, beef becomes more inflationary in the second half do you do you want to address that with pricing or do you think that there will still be kind of short term volatility there and you're just more focused on kind of a value proposition.
Yeah, Hey, Brian it's up it's Michael.
I think we are committed to looking at menu pricing twice a year. We we look at it with the intention of taking pricing in early April in sometime in October .
You might remember that commodity inflation is something that we don't typically focus our menu pricing on we view that as cyclical in nature. So we are more focused on the structural items. The labor component. When we are determining what level of pricing, we're going to take obviously any pricing that we take to.
To deal with Labor pressures will also help the commodities and other lines, but we were in this for the long term and really don't need jerk react to commodity costs being above or below what we might expect a one point.
When we're factoring in our menu pricing.
Makes sense, okay. Thank you and then.
Just you know kind of uses of cash do you.
You, you're running pretty low in that here or do you think it makes sense to pay down the rest of that and then also I think you had repurchased some shares earlier in the year. It doesn't look like as much in the second half, but do you.
Have an intent to return to that.
Yes, Brian This is Keith Thanks for the question Yeah on our debt we plan on paying all of that back this year, well, probably even look to do that in the first quarter, but we will be making that decision in the coming weeks.
On share repurchases you know we're really.
I'm proud of our share repurchase program over the years.
And the value that we've created from that.
And the last four years, which include some pandemic years, we've repurchased over $400 million of our stock and when we looked at this year I would say that we will definitely look to buy back dilution and then anything after that is going to depend on our other capital allocation needs when our cash balances and <unk>.
The market conditions, and then we're going to make whatever decisions. We feel like we have to in the best interest of our shareholders and our company.
Okay. Thank you.
Mhm.
Yeah.
Thank you we'll go next to Brian Bittner of Oppenheimer.
Thanks.
Hey, guys.
Like to go back to the the business trends Youre seeing so far in the first quarter. You said comps are up about 16% and based on your commentary last year I think that implies average weekly sales are trending at that 147000 dollar level can you confirm.
Firm that is the math correct, there or is that is that where the average weekly sales are trending and is that how we should think about average weekly sales for the rest of the quarter or is there some reason why.
Those those are going to decelerate to a lower level for that for the full quarter.
Yeah, Hey, Brian It's Michael Yes, your math is pretty spot on yes, we were 15, 8%.
Comp growth and in my remarks, I said, we are we averaged 146000 over the first seven weeks I would say look we don't know.
What the next six weeks of the quarter are going to bring certainly we were lapping all micron, which would that helped with some of those.
So without large growth that youre seeing.
So yes sales that.
That percentage probably comes down from there.
As we start to lap some more normalized numbers, but I think we still have opportunity to grow whether that's 146000 something more around that range, we will see but we've certainly shown that we're able to generate that level of inside our restaurants and that's how our operators are going to continue to view the <unk>.
<unk> yeah.
Yeah, and I would say.
We've been very good on gift card redemption, and Theres been some drive enforces with some great weather across the country and in some enthusiasm out there, but I think theres a couple of reasons why it's being aggressive right now, which we're excited about you know how long it will hold at that level.
Yeah, sorry, sorry, Michael I must have missed the the call out on that $1 46 in the prepared remarks, and I apologize for that.
My follow up is on the labor cost per operating week costs, our punch the inflation because of the hours that have been added in the fourth quarter, but the question is moving forward.
You've given us this this labor inflation guidance for 'twenty, three but how should we think about the per operating week.
Costs in that Labor line, because you know with the type of comp Im sure Youre seeing so far.
'twenty three the question becomes how much operating leverage do you get off that particularly on the labor line.
Yeah, I mean, I think there is.
Yes, there is.
Something still to be determined there.
We are still obviously in the first quarter rebuilding the hours.
From the omicron impact of last year staffing has gotten much stronger and it was getting to the levels. We need so the the hours growth is probably going to come down and I think at some point maybe in the back half of the year, we get back or closer to our historical.
Brickell algorithm.
For lack of a better term as to how our traffic or hours grow in 50% of our of our traffic growth. We'll see if that's the new for the new normal or something else, but I think theres. Some yes, there is no doubt going to be wage pressure.
Throughout the year is our expectation.
With maybe the midpoint of our guidance and a healthy consumer.
That labor line ill, maybe holds fairly steady for the year probably.
It wouldn't surprise me to see some pressure earlier in the year and then.
Maybe getting some benefit in the back half of the year.
Thank you.
Okay.
Thank you we'll go next to David Palmer with Evercore ISI.
Okay.
Yeah.
And Mr. Palmer. Your line is open we can't hear you might want to check your mute function on your phone.
Okay.
You hear me.
I don't know.
Oh, Okay, yeah. Thank you.
The inflation a five to six that early or you said it was going to be above that high end of the five to six in the first quarter.
And that would be I assume is going to be related to beef, but if you could just give us a sense of what.
What sort of cadence of the inflation, you're expecting and in the breakdown of that between beef and other.
Yeah, Hey, David It's Michael.
We did say, yes, we expect the <unk>.
Commodity inflation to be above the top end of the range not just for the first quarter, but above the first half of the year and a lot of that is certainly driven by by beef.
Pretty much throughout the whole year, that's going to be the major pressure point, we believe in our commodity basket in 2023 is beef so.
We were going to feel pressures in other areas some of that youre going to see.
Maybe.
Diminish as we move through the year, the first quarter of last year haven't really felt the impact.
From what was what's going on in the Ukraine as of yet so we're still lapping some of that that some of the reason why youre going to appeal.
Higher inflation in the first quarter and second quarter, and then we start to lap some of those higher numbers. So these pressure throughout the year and maybe moderation in other areas as we.
Move through the quarters.
And then I was wondering if you wouldn't mind, just giving a little color about bubbas, we don't have them here in the northeast and we'd love to get one up here, but.
How are the returns of those units versus we can see some of that the stack comp numbers. They look pretty good but you know how are the returns versus the roadhouse on those units and are you seeing a fairly even set.
Set of returns are they doing as well in and the ones you're placing in the Midwest as they do in the south and in Texas. Thanks.
Yeah, David It's Michael again, I would say you know look we have 40, Bob is right now and we are certainly very excited about the concept. We are very pleased with the returns on some of the more recent openings as well as some of the older ones, but when you have just 40 and you are learning there are some in there.
That are underperforming that pull the overall number down but we certainly believe in the concept to believe and its ability to generate that mid teen IRR that we are looking for which is the same return that we're looking for at Roadhouse, and we're seeing great except.
Of the brand.
Yes.
On the south southwest.
It really all the areas that we are that we're opening them and are very excited.
We'll get about five of those open this year.
Long runway to go there.
Thank you.
Thank you we'll go next now to David Tarantino of Baird.
Hi, Good afternoon, Jerry you mentioned that you expect restaurant margin percentage to recover.
Over time and I guess my question is really about kind of the path to getting there and.
Yeah I think.
Said easing commodity costs and some other other items like leverage on traffic, but if you could just clarify.
How do you get to higher margin percentages over time, and then Michael can.
Can you comment on whether you think progress on that front as possible. This year in terms of margin percentage.
Given all the puts and takes on the cost side.
Yeah, Hey, David It's Michael I'll start and then let Jeremy add in.
I do think.
Let's use the midpoint of our guidance range and the assumption that the consumer remains healthy and we see modest growth moving through the year what level of growth that's going to be up to you guys to determine but yeah. I think you could see some on the percentage side some margin improvement in <unk>.
'twenty three I think other operating is certainly maybe the easiest path forward for some of that margin improvement and then depending upon where we are.
And within our guidance ranges on commodities and labor.
Factor into how much maybe leverage.
We could get it in in those areas.
And so I think obviously driving traffic is one waste and the menu pricing flowing through.
As another way, but I'll tell you that the percentages are important to us, but maintaining that top line growth and maintain those restaurant margin dollars are just as important if not if not more important.
Yeah, and I would just say as we continue to attack our topline sales and continue to watch inflation throughout our cost of goods.
Obviously that part of it we do hope and do here that maybe we're going to have some relief outside of protein and then in other controllable from that labor. Obviously is we've really emphasized getting staff this year and making that investment. So that we can handle the sales and the volume that we're doing so hopefully we have real.
<unk> added to our part we have 82000 people. So we are back above.
Basically the pandemic levels and to handle the volume that we have so we really didn't want to utilize the tenure of our people now and the ability for them to handle the volume there was a lot of ramping up to do these sales. So I feel very comfortable going into this year that we should see some relief in and even make some some headway on those two categories.
<unk> for sure.
Great and just a clarification Michael is there some level of traffic.
They are thinking about that would you know I guess traffic growth that would lead to margin expansion. This year is there a breakeven point that we should think about for the year.
Okay.
I don't know necessarily if there's a.
Okay breakeven versus last year, probably on.
On top of what we've already generated some fairly modest traffic growth continuing through the year, obviously pricing drives margin percents are lot more easily than than does traffic, but you would probably need to continue to see traffic traffic growth is certainly going to benefit.
That labor line in the other operating line and help us get some leverage there.
Great. Thank you very much.
Okay.
Thank you the next now to Jeffrey Bernstein of Barclays.
Yeah.
Thank you very much two questions one just on.
The unit side of things.
I know this year you were originally talking about maybe 30 openings.
No I think you referred to 25 or 30.
In the short term just wondering whether there's any near term headwinds that are kind of still weighing on things.
It kind of ties into the 30 that Michael I believe you mentioned you know for many years to come you guys can do 30, a year I'm just wondering.
That would potentially three concepts still humming along just wondering what the constraint would be too.
Well above 30, whether or not there's anything in particular or whether that's just your comfort zone to assume 30 per year, and then I had one follow up.
Okay.
Yes, Jeffrey how are you doing Buddy listen I do believe that we will continue to focus on the growth of roadhouse at that low.
Low twenty's and as we kicked bubbles in also as we start working towards a double digit number and then you know jaggers is still a little bit early to see what we can put into the pipeline.
I am excited about it I do believe that it will continue to out add to our portfolio. So I do believe that we can get to the high twenty's and in low <unk> in the next couple of years is where our target focus is in our pipeline and then I I do see it escalating from there it will be incremental but it's not going to be a big jump, but as we do.
Get more aware of what we can do with jaggers in Bubbas, they will be there, but we're very comfortable with where our roadhouse is in the pipeline for the next three years I would say, we could be at that number and the other two will be the driver to kick us up over into the thirty's or higher so that would be the thought there on my side.
Got it is there any particular headwind in terms of this year are still ongoing delays and whatnot that would maybe temporary that prior 30.
Yeah I I believe there is some concerns on our part I'm just still a couple of things transition of property between our landlords delays things when we're in a negotiation and we've seen a little bit of that permitting is getting better, but it's still a challenged by city or municipality. So we're anticipating getting through.
Through all of that we also have to be cautious of what we've seen in the last couple of years Yeah. Jeff. This is Michael I just want to mention.
Mentioned.
That adjustment from the approximately 30 down to the 25% to 30, just with some of the movement. We were seeing it just felt like the right thing to update but really had no impact on our thoughts on the store week growth for the year. So it was you know deals that are already expected to be pretty late in the year that just re.
<unk> look like Theyre going to slip into early next year, but again, we're not really change that store week growth number.
Got it.
Follow up is just on the earlier question on beef.
And I think you said the majority of your inflation is going to come from beef.
Just wondering if you can share what you are currently contracted specifically for beef.
And maybe at what inflation rate that we're talking about.
I know one of your larger peers reported earlier today and they talked about how they were 100% contracted for beef assuming mid single digit inflation I'm. Just wondering how that compares maybe it's different product youre looking at a different specs, but it's 100% something that you would look to achieve or any color. You can provide in terms of the outlook for beef specifically as we move through this year it would be great.
Thank you.
Yeah, we're not going to get into what percent of our beef is locked for the year. Obviously, we have more of a locked in the first quarter into the second quarter than we do in the back half of the year and with it being almost half of our basket. If we're 60% locked on the overall basket beef has to be kind of in that same general range.
And you know I did.
In our in our remarks say that the majority.
I think you can call that 80 ish percent of our.
And commodity inflation for the year is expected to come from from beef. So again, if you adjust for the easier math took the the bottom end of our range of 5% commodity inflation that would imply that you you're gonna have beef inflation.
High single digit to load low double digit is what's kind of embedded in that expectation.
And yet I.
I can't really comment on how other what others are doing.
I can just tell you where we are with with the way we buy our beef, where we buy our beef from the fact that we age it and cut it in our restaurants. It does require us to maybe do something a little bit different than what others do.
We have no problem locking in when we think it's appropriate but we're also we have some pretty smart people on our in our procurement Department, who know when.
When's, the right time to buy and when's, the right time to wait and they will.
They will make those decisions on what they think will result in the the best.
Costs for us and obviously, if if locking and can be done we certainly will do that.
Understood. Thank you.
Thank you.
Thank you well go next 19, Peter Sina at Eth.
Oh, great. Thanks for taking the question.
Wanted to come back to the sales performance. So far this year in the first seven weeks.
You saw a pretty sizable increase in average weekly sales to 146000 from the fourth quarter was about 130000 can you talk about it is that increase is really mostly that youre seeing is that mostly traffic or are you seeing any change in behavior in terms of what consumers are spending on the check going up.
Just anything when you look under the Hood in those first seven weeks just trying to understand the consumer behavior there.
Yeah, Hey, Peter it's Michael.
Of that 15, 8%.
We had mentioned on the last call that we were going to about 6% pricing in the first quarter, we're seeing most of that flowing through.
So I would say the traffic is just a tick over 10% of that 15, 8% in the rest of it is check growth.
Great and then just on staying on the average weekly sales for a second given how high it is and it's probably I think maybe the highest that you guys have seen.
How do you feel about staffing levels with average weekly sales at this level do you feel like you need to staff up do you feel like you're appropriately staffed should we expect.
The labor hours to increase from here, just any help with that would be appreciated.
Hey, Peter This is gena I'll tell you that overall right now we are very happy with our current staffing numbers, we've seen an increase in that our turnover is definitely going down.
And we know that quality of people hired and retention is going to increase our productivity and that's going to help to drive down the labor percent, which is what we are currently working on right. Now. So you know 10 year matters.
And connections to our Peach people to create that culture and reduce that turnover amount will continue to be what we work on.
Okay.
Thank you very much.
Okay.
Thank you we take our next question now from Sara Senatore of Bank of America.
Alright. Thank you I just wanted to go back to the unit growth question.
I think you said just sort of on the margin maybe you'll see him.
The units in the following year in January from December and yes. So the Capex guide is unchanged and I guess I wanted to ask on that you know are you still seeing relatively high inflation and build cost there.
Is there sort of fair.
More of a prepare or I should call back.
Updating maintenance capex that you're spending on or if any of that kind of deferred.
During the third.
Pandemic and a related note you know the other operating expenses like you said repair maintenance and more high so.
Is that also kind of part and parcel of what we're seeing broadly which is kind of some of the.
These elevated still elevated cost just trying to understand you given how strong the volumes are.
Whether or not it's sort of marginal returns are higher as you would think they should be or maybe the cost of building has gone up sufficiently that.
Offsetting some of that.
Yeah, Hey, ferrous, Michael I'd say first on the Capex question.
We are still going to be building those restaurants that.
That arent going to open late this year. So the main reason like the Capex number didn't change isn't because of a increase in our assumption for the costs, It's just simply that.
Even though our store may not open until January or February of next year, it'll probably be.
For the most part and built by the end of this year. So the Capex number did not need to move as far as other operating yet we continue to feel those pressures and they are a lot of services.
Go into into the other operating.
Part of their part of the business a lot of a lot.
Lot of supplies. The utility has continued to be a pressure point and repair and maintenance are still elevated and theres also other new fees that go in there that we really haven't talked a lot about in the future and arent huge driving forces, but when we roll outs.
New technology, there are costs associated with that and whether that's or renting equipment or are paying for installations. There are some costs that continue to.
Pressure that line so.
With the growth in our volumes were certainly seeing.
More use of those different other operating items, but were also seeing some new items introduced into that area I'm optimistic that we won't see it grow the way. It has are I'm hopeful that we won't see it grow on a dollar per store week the way we have in <unk>.
More potential on that line for some leverage in 2023, but we will we will wait and see exactly how that all plays out.
Okay. Thanks, and then just if you can give me a little bit of sense on that.
Capex I know it makes sense.
The opening most of the work's being done before it opened.
How much have inflation have you seen on those cost rectal versus pre COVID-19, just so I can get a sense of like where where things stand versus maybe they were a couple of years ago.
Yeah, and you know Theres a few things that go into that Theres, obviously, the building cost there there's the the rent.
And everything else, but we've probably seen it.
And you can't just look at the total costs and do the math one over the other because again, where the restaurants open one year versus the next can have an impact on <unk>.
On building costs and rents, but to you probably have seen.
Ballpark.
10% to 15% increases in the cost of.
Building a restaurant, but we're also embedded in that is we're building a bigger restaurant than we have in the past so it's hard to separate those those two items out.
Understood. Thank you.
Yeah.
We'll take our next question now from Dennis Geiger of UBS.
Great and thanks, and congrats to everyone on your promotions and expanded roles.
I wanted to ask on G&A, you called out a couple of items contributing to the G&A levels in the fourth quarter, but curious if you could provide any thoughts on G&A in 'twenty three anything on investment there, whether it's as a percentage of sales G&A or maybe growth year over year any color on what to expect this year.
Yeah.
Yeah. Thanks, Dan This is Keith.
For G&A.
Always targeted to keep G&A growth.
Sure then our revenue growth and I think in 23 might be a year, where we get a little bit of that leverage back.
We have a couple of G&A growth challenges in 'twenty three one of those as we've talked about this is our 30 year anniversary and we're getting ready to have our annual managing partner conference and with it being our 30th anniversary, it's going to be.
Quite the event and so I think you can definitely look to see us having elevated elevated conference costs. This year and that will be a big driver. Some of it we also have.
Our new human capital management system, that's going in so we're going to have.
Several non capitalized cost.
We have been incurring this year, so that's going to be a big factor and then the other piece is really going to be with the pandemic slowdown we've kind of been gradually recovering on a lot of things, but I think this is going to be the year, where youre going to see a slowly recovering and even in some cases catching up on things like travel and training and really investing in our people too.
So I think those are going to be your main drivers this year.
I appreciate that color Keith one more quick one just as it relates to pricing.
As it relates to the current levels and then what you are taking in March could you just help kind of level set us on what the effective pricing by quarter, maybe it looks like over the next couple of quarters given given the moves there thanks very much.
Yes. This is Michael I can I can help you without cells first.
<unk> first quarter with the two 2% and that's assuming we don't take any pricing in October we will have about five 9% pricing for the first quarter five 6% in the second quarter five 1% in the third quarter and then two nine in the fourth quarter and again, we will be look.
At menu pricing.
Most likely taking something in October , but that's the cadence without any additional pricing.
Thanks, Michael appreciate it.
Sure.
Yeah.
Thank you. We'll go next now to Andrew <unk> at BMO capital markets.
Hey, good afternoon, thanks for taking the questions I had two.
The first one I believe you said that you're pretty comfortable with the <unk>.
One for new stores over the next three years. So it does feel like we hear from almost everyone that they are looking to accelerate unit growth, even those that don't really grow unison I'm curious as you're building that pipeline further out do you see.
See that show up at all more competition higher cost any of those types of things would be the first question and the second question is just on the.
Wired franchise units any color around.
Volumes your margins or potential investments to get those to where you want to be relative to your to your system average.
I'll take that first part and I think Michael grabbed that second part.
I I do obviously, there is competition out there and I think there are but where you have our targeted markets and states in growth areas and we've been working this plan for quite a while and it's been very successful for us for Roadhouse and bubbles and then obviously as we're incorporating our strategy on how to grow jaggers.
<unk>, probably keeping it a little closer to hear in the Kentucky basin, or the heartland and and knowing that around it but there is a there's always competition and there is real estate to be had out there I think the well I'm not sure what others are doing but we are very focused on our strategy and our focus on how to continue to do.
Do it right. We do have some relocations that we are also incorporating into the system in which is really helping us in a different way, but that also adds to us looking for more real estate other than new store openings, but but be able to take a store relocate it put a bigger they're parking spot in in in a bigger.
<unk>, which we need for our volume whether it be cooler expansions or bump outs or extra dining rooms, as we look forward to it where we're excited about some opportunities to do some things a little bigger as they say in Texas going forward.
Yeah, Andrew on those franchise acquisitions I would say those are pretty average performing stores from a sales and profit standpoint, So I don't think youre going to see.
Any kind of movement in our overall company numbers because of that and from a capex requirement.
There is some capex needed and that's built into our $265 million estimate for the year.
Great. Thank you very much.
Yes.
We'll go next now to Joshua long of Stephens.
Great. Thank you for taking my question first of all I wanted to see if you might be able to provide a little bit more color on some of the underlying trends understand the strong trends here in the first part of the year.
And sort of context, you can provide as we think about on a con impact from January but Theres also a calendar shift last year were from Valentine's day, and Super Bowl, just sort of trying to get at the underlying trend here for the first part of the year would be my first one and then secondarily. It sounds like your human capital is in a solid spot. But then also just thinking about the growth.
And.
All the work you've done to maintain that that gap between other peers in the industry seem to everyone is really focused on the human capital aspect going forward are the key.
You know pillar for how they're going to get out there growth you've done that really well historically just curious how you think about human capital into investments into that roadie culture over the next year.
Q3, four 510 years kind of that next chapter to get out some of that doubling of revenue that you talked about earlier on the call.
Hey, Josh it's Michael maybe I'll start with the first question about the first seven weeks and really don't have a lot of numbers to call out for you I'll tell you there's always a lot of.
Different things going on whether it be the lapping of all micron and winter weather this year or winter weather last year or the timing.
Valentine's is Super Bowl.
I'll tell you we've seen.
We've seen strength throughout the seven weeks of the year, So theres really.
Not any kind of number I would call out and say, hey, you need to adjusted upwards or downwards.
Cause of something.
I think it would be unfair do.
Take to have you all add something to it without.
Back in with something off and like I say I'd say, it's been a pretty consistently strong performance throughout the seven weeks.
And on the staffing side I would tell you that I think in the last 18 months on the on the human capital side with that or does that wasn't done workday or all that part of it no. So on the staffing side now we have been very aggressive the last 18 months in and we feel really good about our position on the people side in our restaurants and the <unk>.
The house and the back of the house and our management team. So that piece of it has been a big investment. So we're hoping obviously this year as we settle in and we reduce our turnover and we really focus on keeping our folks and connecting with our folks that will be that will be an investment that we see a return on this year would be our hope.
Thank you.
Thank you.
We'll go next to Andy Barish of Jefferies.
Okay.
Okay.
Hey, guys. Thanks, two quick ones from me.
On the margin performance in the in the <unk> can you help us level set I mean, it's unusual to see margins kind of go down from the <unk> to the <unk> was there something about.
December flowed through that wasn't quite what you expected or any help there just as we we look to.
To build off of.
That 14, 5% restaurant level margin.
Yeah, Hey, Andy its Michael it's actually more to do with the third quarter. If you may or may not recall when we.
On our third quarter earnings we called out the $6.6 million of breakage benefit that we received.
In our other sales as well as a $4 4 million dollar benefit to our other operating for a general liability reserve adjustments. So those two numbers and the benefit of those in the third quarter had caught up probably 1% one 1%.
Benefit to our Q3 restaurant margin so really on an adjusted basis, we will garner from a mark of 14 three in Q3 up to that 14 five in Q4. So it really had more to do with those beneficial items last quarter.
Okay. Thank you I appreciate that and then on.
On profit growth at these kind of volume numbers, I mean, Gary maybe <unk> Gina.
I mean, it is phenomenal at it obviously gets a little tougher in execution.
Legendary food legendary service continues to be the hallmark, but are there other things we should be thinking about you know as you've mentioned tack, a few times or roadhouse pay or remodels bump outs.
Thing you'd like to call out is as we try to.
Figure out traffic growth for 'twenty, three and beyond.
Yeah, well we are.
We are absolutely are always looking at speed in our restaurants and roadhouse pay is one of those items.
Items that we've recently put in where the guests can pay at the edge.
You know in a timely manner and we can turn our tables faster, which is what we've seen we are putting <unk> in some of our.
Kitchens.
Which helps our ticket times, so we really look at from a technology standpoint.
Any piece that can help the speed of our restaurants, which obviously increases the traffic growth.
So we look at that.
And there may be some other you know as our operators and we've said this.
You know as our staffing levels have come up and we've gotten staffed and we get the tenure in our restaurants and people are more experience, obviously, the productivity goes up and they become more efficient and faster in their roles. So all of that leads to a stronger.
Stronger traffic.
And I'll just expand on that digital kitchen, a little bit you know roadhouse pay we have an almost 615 stores now has been a huge win last year. We are still testing tablets. So that we can do.
Mobile handheld ordering piece of it we're working on our software as we go we want to make sure. It's perfect. When we get it out there to execute in and then fryers of digital kitchen, we have <unk>.
Converted two of our restaurants and opened two new stores and are probably committed to 30 restaurants this year moving to the.
Digital kitchen, which is obviously very exciting we are fine. We just opened one restaurant a high volume store that we relocated and it has been very successful. The operators are excited about it. So we're excited to invest in and seeing some real rewards as we move forward. This will be a big year for us when it comes.
To opening new stores with the digital kitchen, and even converting some existing stores. So I'm kind of kind of definitely going to be leaning on some technology to help us get faster and.
Really we want to complement our service with technology.
Very helpful. Appreciate it.
We'll go next to John <unk> of Jpmorgan.
250, Texas Roadhouse is over the next 10 years round numbers I suppose but is your site profile changing are you seeing new areas.
Where Texas Roadhouse can be successful, maybe even closer to some of the major cities you know maybe it would come at a higher cost, but maybe also much higher sales just how the overall site profile.
Is a merck is emerging or evolving for the next chapter.
Yeah, I would tell you will probably stay pretty tried and true to our philosophy of the suburbs, but we do have a restaurant in New York City in New Rochelle that we've looked at we are starting to look a little bit more in a in a city area are higher traffic, which could be so.
So we've got a couple of those so we are expanding a little bit we've had some success in some smaller communities are lower.
<unk> areas that we can go into so we've got a broad scope of mining at looking at every option and I think in a at a company our size and what we want to accomplish we got to stay true, but we have to test and try some new things that might might help us in because we're looking at Bubba and we're looking at.
<unk>, we're probably expanded and are looking at areas that that would help all three brands. So I think our real estate team clearly understands what we're trying to do with all three but we have opened the scope of where we will go and what we will try so that we can expand and have a lot of success.
And in that side of it. So there is a couple of things that we're working on that are a little different than what we've done in the past and we're excited to see how they turn out for us.
That's great. Thank you and secondly, and related I suppose on development or are there still significant bump out opportunities.
For the chain or have you done basically what you can do at this point you've mentioned relocations, how significant of an opportunity is relocations for the Texas Roadhouse brand.
Well, we like them, they're so far proven out pretty well I would say that over the last five years, we probably have a dozen and every one of them have proven to see a real bump in sales. So that's exciting and whereas people term out on their 20 year lease that's when we start looking at what is our opportunity to reinvest or to may.
We relocated the energy moved or something so I think thats, a smart strategy from a business standpoint.
And so from that as far as bump outs, Michael I think has a couple of stats on that yeah, Yeah, John I think on bump outs I'd say there still is opportunity in really every year theres, new restaurants to kind of start to qualify as potentials potential ones for us to look at it where they've grown their volumes enough she'd be considered or are there.
<unk> been open long enough.
For 2023, I wouldn't be surprised to see US open I don't know tend to bump out 10 to 12 restaurants, and we probably have on top of that another 20, plus that are already in the pipeline for 2024 and beyond sometimes they take a little a little bit more work on the legal side of getting all the approvals.
Get them done, but we definitely have a lot of restaurants still interested in them and new ones.
Every year, but kind of qualify and get on our radar to be considered for bump out.
Thank you.
Thank you we'll go next to Jon tower of Citigroup.
Great. Thanks for taking the question and I'll try and make a quick.
Previous quarters, you've talked about a nice little mixed up in the menu. This quarter. It looks like mix was flat kind of curious to get your perspective are you just not seeing as much trade up on the menu is there anything else going on perhaps in the fourth quarter.
Yeah, John It's Michael Yeah.
It's interesting question or one that we've been looking at I'd say so.
So far this year.
We're seeing this tremendous traffic growth, but you are right we are seeing.
A little bit of negative mix coming in it and what we don't know because we certainly lapped.
The move up to a higher check that our guest has.
And to do and even with this little bit of negative mix that we're now seeing we're still well above where we were pre pandemic, but what what we're still.
Looking at and trying to determine is what is driving a little bit of negative entre mix that we're seeing right now because we're not seeing it and appetizers were not seeing it.
In other add ons, we're not seeing it in soft beverage, but we've seen a little bit of that in that entre and <unk>.
It could be some of our some customers trading down a little bit but honestly. It could also be a somebody trading up to us that now sees the relative value of a Texas roadhouse as compared to going to a fast casual restaurant for a very similar price they can.
Be seated and waited upon and so maybe some of those people are now coming in and driving some of this traffic growth, but maybe they are.
Coming in at some of our lower price points on the menu. So it's something we're watching but it's the the unique thing over the last <unk>.
Handful of weeks as we're seeing it just a little bit in the entre category, but but not in the rest of the of the menu. We are still seeing a little bit on the alcohol mix, but we were already seeing that that maybe people moving from alcohol to soft bad.
Because we are seeing a soft bev mix move up a little bit.
Got it I appreciate that color.
And then just lastly for me I think you.
This maybe earlier in the call, but new store productivity.
Roadhouse has been phenomenal I think it's up.
The average weekly sale up 8% versus the comp store base in 'twenty, two and maybe you answered. This earlier in the form of building bigger stores, but is there anything else going on that would be driving that acceleration youre seeing in new store productivity versus the past.
Yeah.
Yeah, Matt. This is Michael nothing that I can think of that would that would be driving that I don't know.
Jim if there's anything you would.
See there.
Not.
Nothing I can think of.
Alright, thank you.
Thank you. We'll go next now to Brian Vaccaro of Raymond James.
Hi, Thanks, Good evening, just two quick ones first on labor of genome, whereas hourly turnover sort of trending over the last few quarters can you just ballpark that for us and maybe give us some perspective on how that compares to pre COVID-19 levels.
Yes sure.
I will tell you that.
We are seeing the turnover number going down.
Consistently over.
<unk> over quarter.
We are seeing more.
Location flow, which is good for us and you.
As we like I said before it's the quality of people that really makes a difference and once we get those quality of people and with the experience. We can we can keep them longer.
And that really really helps with that turnover piece. So we continue to see it go down which is which is really promising.
Yes, Brian This is Michael I can just put a few numbers to that you are and again remember every company, maybe calculates turnover a little bit differently, but we've seen our number which again, we look at it over a last 12 month period. So it's a slow moving number but all but were down in the high 100, Twenty's right now middle of 'twenty.
We were in the mid one <unk>, so we've definitely seen that.
<unk> down and I would say pre pandemic.
We were somewhere probably in that one five to 110.
So we still have a little room to go but we're getting better.
Okay, Great. That's helpful and then just last one.
Just sort of near term store margin expectations, and just sort of in the spirit of getting everyone. On the same page in an environment, where sales are so strong in the first quarter. It can be a little disorienting. So I guess could you provide any guardrails on first quarter store margin expectations is there a historical perspective maybe versus.
Q4, I think it seems that we have about 200 bps is that reasonable or maybe there is something in the current environment, where that wouldn't be the case this year.
Yeah, Hey, Brian , it's Michael I'm, not going to get too deep into that one, but I think what you spelled out is certainly possible.
Our our margin percents are certainly typically is our highest in Q1 and Q2, because our sales volumes are typically at their highest so yeah, what you're talking about.
Something to that magnitude could be the case I'm not going to say, whether its a 200 basis.
Move or not but we would expect.
You see some higher margins in the first half of the year just as we saw we saw higher margins in the first half of last year, and we said hey, there is a potential to see some overall margin improvement year over year. So you would kind of.
Lead something like that to happen.
Okay, Alright fair enough. Thank you very much.
Okay.
Thank you and our final question will come from Nick <unk> at Wedbush.
Okay.
Thank you.
Just a couple of questions for me.
I wanted to walk through maybe just the Cogs dynamic in Q4, and perhaps in Q1 and if we assume.
Similar commodity inflation in Q1 as we saw in Q4, that's off of a lower base in Q1 of 'twenty two.
So presumably sequentially the Cox percentage should be down.
From Q4 to Q1 is that fair.
Yes.
From so from Q4 to Q1.
Yes is that what you said essentially.
Being fairly similar.
Whether it's up or down again, it depends on where within our.
Our numbers, but they probably are going to be in the same ballpark as each other.
Given given the numbers that we've called out and you know where our costs our underlying cost structures are.
Okay fair enough.
And then just remind us historically in terms of seasonality what March looks like in terms of average weekly sales versus January and February .
Yes March tends to be a very strong month.
<unk> for Us if we were to go back and maybe look at I don't know 2019 give me a second.
Pull that up in front of me.
Period wanted to bounce around 105000 weekly sales in our in our March period were 110 to 111000, a week in sales. So we do tend to see a little.
Little bit of a increase in that in that March period.
Great. Thank you very much.
Thank you that does conclude our question and answer session. This afternoon, Mr. Morgan I'd like to turn things back to you for any closing comments you may have.
Yes. Thank you very much I just wanted to say.
30 years ago Tomorrow, we opened our very first Texas Roadhouse and I couldnt be more excited and proud of what this company has accomplished is were over 700 restaurants and three concepts and we appreciate everyone's support and partnership.
Throughout this journey, but it's very exciting to see what this company has accomplished that couldn't be more proud to celebrate with all of our folks here in Louisville Tomorrow, and our partners. When we have our conference in April . So thank you all for your support and partnership we will continue to perform at a high level.
Thank you Mr. Morgan, ladies and gentlemen that will conclude today's Texas Roadhouse fourth quarter earnings Conference call again, Mike I think you have so much for joining us and wish you all a great. Thank you very much.
[music].