Q2 2023 Texas Roadhouse Inc Earnings Call
Okay.
Good evening and welcome to the Texas Roadhouse second quarter earnings Conference call.
This 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.
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 Michael Balan head of Investor Relations for Texas Roadhouse, you may begin.
Thank you Emma and good evening by now you should have access to our earnings release for the second quarter ended June 27 2023.
You can 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 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. In addition, we may refer to non-GAAP measures if applicable reconciliations of the non-GAAP measures to the GAAP information can be.
We found in our earnings release.
On the call with me today is Gerry Morgan, Chief Executive Officer of Texas, Roadhouse, and Chris Monro, our newly appointed Chief Financial Officer.
Following the prepared remarks, we will be available to answer your questions in order to accommodate everyone that would like to ask a question.
Kindly ask analysts to please limit yourself to one question and now I'd like to turn the call over to Jerry.
Thanks, Michael and good evening everyone.
Before we begin our formal remarks I want to welcome Chris Monroe to Texas Roadhouse.
I am thrilled to have Chris join the Texas Roadhouse family and I look forward to working closely with him to make us bigger faster and stronger I am confident that Chris is going to add value to our leadership team, our finance Department and our company.
I want to thank Keith topic, and our amazing financial team for stepping up and ensuring that we did not miss a beat over the last six months.
Moving on to our quarterly results. We are pleased with our strong sales and profit growth in the second quarter.
Our sales momentum carried over from the first quarter as we averaged nearly $147000 in weekly sales with comparable sales up over 9%.
There is no doubt that our guests continue to support our commitment to serving made from scratch food in a fun and friendly atmosphere.
On the cost side commodities have performed largely in line with our expectations and beef remains the primary driver of inflation.
On the labor front, we remain committed to ensuring we are properly staffed to provide a legendary experience for every guest.
We are encouraged by our outlook for the remainder of the year as we continue to expect strong margin dollar growth, which is central to how we run our business.
We will soon begin the normal process with our operators to determine the level of menu pricing to take in October .
It's typical for us our pricing decisions will focus on maintaining our value proposition. While also looking to offset the impact of wage inflation, including any state mandated wage increases.
On the development front, we opened two company owned Texas Roadhouse is and one Bubbas 33 during the second quarter. In addition, our franchise partners opened three restaurants, including two international locations.
For the full year, we expect to open as many as 28 company owned Texas, Roadhouse, and Bubbas 33, restaurants as well as three jaggers.
At this time, all remaining restaurants in the class a 2023 are under construction.
Lastly, we expect our franchise partners to open as many as 13 international and domestic restaurants, including three jaggers.
Last week I attended the opening of our first Jaggers franchise restaurant and Jacksonville, North Carolina. It was great to see the passion that our franchise partner.
As for the brand and.
And we look forward to seeing how they will build upon our foundation.
Finally, we continue to reinvest in the business through our new store pipeline.
<unk> of our existing restaurant base and technology initiatives, we believe our capital investments will enable future growth and contribute to improved operating results.
With a healthy balance sheet and an expectation of continued growth in cash flow. We will continue to focus on long term sustainable growth, which has enabled us to generate consistent total returns for our shareholders throughout our history.
So Chris you have been on the team for a month, mostly training in our restaurants can you share your initial thoughts on what you have experienced.
Thanks, Gerry I couldnt be more excited about joining the company and the opportunities ahead of us.
I have been well aware of and impressed by the Texas Roadhouse leadership team and the brand for quite some time.
As Jerry mentioned most of my time, so far has been spent in a restaurant learning about our operations. After working alongside several of my fellow Roadies and witnessing firsthand the commitment and discipline. It takes to deliver on the promise of legendary food and legendary service I now have an even greater appreciation for the brand.
And the passion of our people I am looking forward to bringing my experience to the company and helping to build upon its success for many years to come.
And now Michael will provide the financial update.
Thanks, Chris for the second quarter of 2023 revenue grew 14, 3% driven by an eight 7% increase in average unit volume and five 6% store week growth.
Restaurant margin dollars grew eight 3% to $182 $8 million, while earnings per share increased 14, 7% to $1 22 per diluted share as Jerry mentioned, our stores averaged nearly $147000 in weeks.
Sales in the second quarter and to go represented approximately $18500 or 12, 6% of the total weekly sales.
But to go sales were especially encouraging given this was the first quarter since the reopening of our dining rooms that average weekly to go sales dollars increased on a year over year basis.
Comparable sales increased nine 1% in the second quarter, driven by four 7% traffic growth.
Four 4% increase in average check by month comparable sales grew eight 7% eight 8% and nine 7% for our April may and June periods, respectively.
And for the first four weeks of the third quarter weekly sales averaged over $140000 with comparable sales up 10, 7% I will point out that the four week comp number benefited by approximately one 4% from the timing of the July 4th holiday.
Great.
For the second quarter restaurant margin dollars increased to nearly $23000 per store week restaurant margin as a percentage of total sales decreased 88 basis points to 15, 7%.
Second quarter margins were negatively impacted by approximately 35 basis points from one time adjustments most of which I will detail in a moment.
Food and beverage costs as a percentage of total sales were 34, 5% for the second quarter. This was 37 basis points higher than 2022, driven by 6% commodity inflation.
Overall commodity costs were in line with our expectations for the first half of the year with approximately 75% of the overall basket locked for Q3 and approximately 35% locked for Q4, we now expect full year commodity inflation to be on the higher end of our full year.
Guidance range of 5% to 6%.
Labor as a percentage of total sales increased 90 basis points to 33, 6% as compared to the second quarter of 2022.
Labor dollars per store week increased 11, 3%, primarily due to wage and other labor inflation of 7% and growth in hours of three 5% LAE.
Labor growth was also negatively impacted by the $2 7 million dollar net impact of unfavorable.
Verbal claims experience related to group insurance and workers' comp.
Net impact includes $1 $8 million of additional claims expense this year and the overlapping of a 0.8 million dollar favorable adjustment in the prior year.
Similar to commodities, we expect the level of labor inflation to moderate as we move through the year that said, we have seen marginally more wage pressure in the first half of the year than we originally contemplated.
Such we have updated our full year 2023 guidance for wage and other labor inflation to between six and 7% with current trends pointing towards the midpoint of that range.
Other operating costs were 14, 7% of sales, which was 29 basis points lower as compared to the second quarter of 2022 a.
The year over year benefit of sales leverage was partially offset by the negative impact of a $1 6 million dollar adjustment to our quarterly reserve for general liability insurance.
Moving below restaurant margin G&A dollars grew year over year by three 6% and came in at four 4% of revenue. The primary driver of the $1 8 million dollar year over year increase was higher compensation expense.
Our effective tax rate for the quarter was 12, 7% and we now expect a full year 2023 income tax rate of between 13 and 14%.
Lastly, with regards to the cash flow we ended the second quarter with $107 million of cash cash flow from operations was $99 million. This was more than offset by $88 million of capital expenditures.
$37 million of dividend payments and $23 million of share repurchases.
We are increasing our expectation for full year 2023 capital expenditures to approximately $300 million. This.
Greece is driven by several factors.
<unk> the cost of new locations currently under construction and are higher than originally forecasted reinvestment at existing restaurants.
Now I will turn the call back over to Jerry for final comments. Thanks, Michael.
A few months, we will start our annual fall tour, which is one of my favorite times each year during the six week tour, our senior leadership team visits with every managing partner together feedback and to hear what is top of mind for them.
This is a great opportunity for us to listen and learn how we can better serve and support our managing partners I have no doubt that our operators will have some ideas to drive our business forward and enable us to continue generating strong shareholder value that can come.
<unk> our prepared remarks, operator, please open the line for questions.
Thank you.
As a reminder, if you'd like to ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Brian Bittner with Oppenheimer.
Your line is open.
Right.
Mr. Bittner your line is open.
Sorry can you hear me.
Yes, Hello, sorry, sorry about that guys.
Wanted to I wanted to ask a question about your sales trends.
Your third quarter is obviously off to a fabulous start your your headline same store sales up over 10%.
When we look back to last year your comparisons got a lot more difficult in August and September versus July by around 700 basis points and the question is should we take that into account when modeling the rest of the quarter I just kind of want to get us all on the same page or should we focus on the fact that your average weekly sale.
Or in that $140000 range, which if we carry that forward.
It's a continuation of a very strong headline comps for the rest of the quarter.
Yeah, Hey, Brian It's Michael Thanks for the question.
I do think you are correct that our our year over year trends did pick up you know so.
But I do think the more important thing is to look at where we're currently trending this year and how normal seasonality plays out year over year. So I think we are lined up for continued strong sales growth and but I will leave you with all of the others too.
Some of what those copper sense Yo Yo might be but I do think we would think normal seasonality is back in our business.
Okay I'll stick to one question. Thanks.
Okay.
Your next question comes from the line of David Tarantino with Baird.
Your line is open.
Hi, good afternoon, congratulations on the sales strength.
My question relates to the margin outlook.
As you think about the second half of the year given the inflation outlook you just shared.
I guess, what's your thoughts on your ability to grow restaurant margin percentage I know I know you've mentioned you're set up to grow the margin dollars per week, but I guess, how are you thinking about the percentage on a year over year basis. When you think about the next few quarters.
Hey, David It's Michael I don't think are the way, we're looking at it as changed much with with the guidance that we have out there.
On the cost of sales side, it would imply that our commodity inflation would be at the lower end of our 5% to 6% range in Q3, and then below that.
The low end of the range in Q4 and with with the pricing and you know that we have that would probably imply that cost of sales as you know for the most part are fairly flat in Q3, and we should be able to get some leverage in the fourth quarter or that's what the math would say.
Rents and other operating or I would expect under the current trends that we see more of the same of what we saw in Q1 and Q2 of being able to get some leverage on that line.
Labor is probably that one that still remains a headwind for us.
We'll leave that to you again, you all for modeling purposes, but certainly third quarter would could see that as a headwind in <unk> and then maybe flattening out in the fourth quarter. So really that leaves a lot of the.
Potential restaurant margin expansion for Q4.
That's what that's what our guidance would imply.
Got it and then I guess.
I wanted to revisit as a follow up.
You've talked about 17% to 18% of the long term target clearly this year it looks like youre going to be well below that.
I guess, what's your updated thoughts on how you get to 17 to 18 presented is it just a matter of the.
Commodity cycle needing to go your way or is there some strategy or initiatives you have that are going to get you there regardless of the commodity cycle.
Well I mean, the commodity cycle.
He is going to continue to be our challenge, we're going to continue our focus on attacking the topline sales in and grow in the restaurant margin dollars and then we will continue to see what we need to do to try to get back there. We knew it was going to take a little time for us to accomplish that but we are and as we adjust to the labor and to the.
<unk>, knowing that or expecting one day that the beef will.
Start to slow down a little bit and give us a chance to catch up but you know we really do believe that that is a spot. We can achieve we're just waiting for a few things to turn our way to help us there.
Great. Thank you very much.
Thank you I appreciate the shout out to.
Yeah.
Your next question comes from the line of Peter Saleh with P. P. I G. Your line is open.
Great Thanks, and congrats Chris on the new role.
I just wanted to ask on the consumer overall I think in the past maybe a quarter or two you were talking about seeing trade up into your brand or maybe even some trade down can you give us a little bit of color on what you're seeing today is there any change in behavior on the menu. What are you seeing on the value Entre mix does that continue.
To tick up any thoughts there would be helpful.
Yes, Michael I would say, it's really been a lot of the same of what we've seen I mean continue to see strong consumer demand to come to Texas Roadhouse the mix.
Kind of trends have continued where we're seeing some alcohol negative mix and the rest is coming from the entre category and with the the strong guest counts that we're seeing.
It would appear to us that we are seeing people trading in <unk> roadhouse, but the value side of the menu there could be certainly some people who are doing some check management as well.
And our trading down our menu, but we feel very good about the value proposition that we're offering and continuing to see very strong trends within our restaurants.
Great and then just on the labor side I know, there's a modest increase in your outlook in terms of inflation for the year can you just elaborate a little bit on what what changed versus your prior guidance. What are you seeing on the field that made you feel like you need to take it up just slightly.
Yeah. It is a combination of.
The wage inflation, maybe just being a little bit stronger in the first and second quarter, which then compounds on itself throughout the year that adds a little bit too to see that overall wage pressure and then the strong top line that you know that we have.
<unk>.
Certainly has seen us growing our our hours, which.
Which isn't a direct component of the wage and other inflation, but the payroll taxes that didn't come with the higher wages and more hours are the other component of that wage and other and we've seen that tick up a little bit so those two things combined.
Just moved enough to where we felt the the guidance didn't need to be updated.
Thank you very much.
Your next question comes from the line of Chris <unk> with Stifel. Your.
Your line is open.
Great. Thanks, Hey, guys. This is Patrick on for Chris.
Jerry I believe the company has historically targeted labor hour growth, that's roughly 50% to 55% of traffic growth and it looks like this quarter remained quite a bit above that so I'm just curious if youre looking at ways to improve later labor productivity and if so what actions do you believe you can take that can improve the flow through on your <unk>.
Sales growth.
Yeah. Thanks, Patrick I believe that obviously as we focus on our top line sales and Michael and I were doing some reviewing their definitely a uptick in hours in the front of the house and the back of the house and I believe some of the hours that we might be seeing in our key employee side as it is.
Bleed purposely to give our managers a little quality of life. So I think there is some investment on our side and the labor pool to maybe try to identify ways to to have quality of life too. So that is an investment, but I believe to be able to attack our execution at the highest level right now that's costing.
A few extra hours to be able to execute there with the escalated volume on the top line, but I feel real comfortable overall with where we're going I think we can improve and will continue to look at ways to get better at that Patrik and I would just add onto that that again I do think that historical algorithm is still you know maybe not at play.
That we are rebuilding from being understaffed last year and so our labor hours are growing.
As we feel very good about our staffing now and that those hours that were growing or.
Or just not exactly correlated right now to the traffic growth, we're seeing and I, probably would have seen those hours growth, even if traffic had been a little bit higher or lower than what we reported.
Got you that's helpful. Thanks.
Thank you.
Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is open.
It looks like the Texas Roadhouse concept put up a nine 4% comp with Bob was a little bit lower at three 9%, but can you help us understand what's what's going on there is that traffic menu pricing mix, what what's driving that.
Pretty healthy spread between the core Roadhouse concept and brothers as it relates to same store sales.
Yeah, I mean, certainly roadhouse is leading the charge on the.
The comp growth that we're seeing.
Simply because of the size of the company Yeah, I mean, we feel very good with that.
We are seeing at baba's overall in the menu pricing can be a little bit different at different cards at each concept.
And the traffic trends can be a little bit different as well, but again.
Our our new bubbles are opening well and we're feeling very good overall about our sales performance.
And then just on just one quick follow up the effective menu pricing into core roadhouse in Q3, what are you thinking that's going to be right now.
Yes, five 1% will be our third quarter pricing okay. Thank you.
Yes.
Your next question comes from the line of Jake Bartlett with tourists Securities. Your line is open.
Great. Thanks for taking the question. My question is about G&A and trying to kind of just understand the correct run rate of G&A for the third and fourth quarter I believe that the second quarter would've had the conference.
Cost in it maybe correct me I'm wrong, but I think you overall was much lower than we were expecting one.
The Street was expecting maybe that conference with less expensive, but any detail on how much. The conference was and then the right run rate for the next couple of quarters.
Yeah, I would say, we're not going to get into the exact numbers on the on the conference expense it was probably a little bit less than.
We expected it to be and that was one of the components, maybe help G&A in the second quarter coming out a little bit better than what we may have discussed on the on the last call and certainly are we're doing the best we can of managing those costs and making sure when we're spending G&A dollars it's for summer.
Important to.
To your question about looking.
Through the remainder of the year I think.
Maybe starting with.
Q1 of this year, which was just under $50 million and if you back out the one time charge that we had talked about at about $2.4 million that gets you to about $47 $5 million, that's probably the best way. We can give you as a starting point to look at where G&A maybe.
The third and fourth quarters of this year, maybe we see a little bit of growth on top of that through the remainder of the year and depending upon.
How the year continues to progress there can always be the need to take some more compensation expense, but I think starting with your Q1 of this year. Adjusted number is your is your starting point for looking at G&A.
Thank you.
Your next question comes from the line of Brian <unk> with Morgan Stanley Your.
Your line is open.
Yeah. Thanks, Good evening I was just curious about the capital budget actually you know how much of that was from new locations is you know some of that related more to 2024 units and then.
What what is that reinvestment focused on in and I know that you've also talked.
<unk> talked about perhaps some technology initiatives I don't know if that's part of it could you just elaborate on the capital budget.
Yes, it's a mixture of all those things that you commented around it.
The cost of the New road, new buildings that we're building this year, we're seeing slightly higher.
And what were maybe originally forecasted for some of those and that will factor into as we start building later this year or some of our 2024.
Class openings.
You'll see some expense from that so that is as a component of the technology initiatives as we continue to look at.
Digital kitchen that that can be you know a.
A small component of it budget, but also really that maintenance capex.
Has been elevated and that goes to the.
The better conditions that we're seeing out there.
Supply chain opening up our ability to get more projects done, we'll probably we're targeting 20 bump outs. This year, which we haven't been able to do for quite a few years and getting some projects done in our restaurants.
Building outs doing some kitchen, remodels and cooler additions given these restaurants, some more capacity to handle these high volumes all great shareholder.
Right from a total return standpoint. So we are excited that we are going to be able to invest this money in.
Keep fees restaurants, fresh and ready to serve more guests.
Thank you.
Your next question comes from the line of Sara Senatore with Bank of America. Your line is open.
Thank you just a quick housekeeping and then and then a question. Please.
To confirm in terms of the amount of price you had on the second quarter.
It was 556% I'm just trying to think through the escrow are negative okay. Thank you. So.
So you had a little bit of negative mix in the second quarter, which we hadn't seen.
We haven't seen for a while now and I was just curious is that what you talked about with the value and the less attach or is there something else going on there.
Okay.
Yes.
Actually happens in that negative mix for a little while I think we had about 80 basis points of negative mix in the first quarter. It did step up a little bit here.
In the second quarter to about 120 basis points of negative mix I will tell you that we saw it start to.
Come down a little bit here in June and July so it does seem like maybe the worst of some of that negative mix is behind us and the majority of that is coming from.
Alcohol so.
Yes, we are seeing a little bit of negative mix.
It does seem that.
It's not necessarily because of the menu pricing, we've taken given the alcohol and the remainder of it is in that Entre category, which is part of why we think that some of our guests new guest traffic is coming from people trading up to us, but hitting the value side of the menu.
Got it thank you.
Then the question was to follow up on on the labor.
And he said here.
We expect labor flatten out into our Q I think that's sort of a wage rate comment, but as you know you talk about the idea of needing to staff up and at what point does that do.
The restaurants fully staffed and I think off premise mix has been fairly stable. So from that perspective, you know ear to ear on premise dining.
You know it has is more consistently.
The last couple of quarters. So when do you get to a point, where restaurants are fully staffed and especially you could get back to that historical.
Algorithm.
Yeah sure I do think we feel very good about our staffing levels right.
Right now, it's a matter of lapping.
Oh, the understaffing from from last year and throughout last year, we talked about each quarter, we felt better and better sequentially about those staffing levels. So theoretically the hours growth should come down as we move through the year and we talked about the the level of wage inflation should.
Come down as we move through the year, because again a lot of the wage pressure, we're feeling is from.
<unk> increases that we saw last year that you have to lap for a full 12 months. So.
The expectation is that you see the level of hours growth moderate as we continue to move through the year because it should not be require as many hours to get us to that.
Level that we're at right now.
So you sort of buy.
By the end of last year had kind of been approaching being fully staffed as is or how to think about it.
At the end of last year early this year, Yeah, we did have a little bit of a you know with the weather in late December last year, a little bit of a step back in late December but other than that other than that yes, we were starting to feel pretty good about our our staffing levels as we were exiting last year and entering this year.
Thank you very much very helpful.
Your next question comes from the line of Andy Barish with Jefferies.
Your line is open.
Hey, guys good evening.
There seems to be a growing view that may be higher for longer I'm wondering Jerry if you've.
Kind of thought about the.
You know kind of a contingency plan if that is the case do you go to menu breadth.
Do you use price a little bit more is there something else, we should be thinking about.
As we start to size up 'twenty four 'twenty five.
Yeah.
Thanks, Annie good to hear from you Budd.
I will tell you we will consider some of those things obviously, we still want to be very we don't know what's going to happen in beef. Obviously as it continues there is a lot of chatter out there we will continue to monitor it its a big part of our menu it.
It is the cost of doing business right now, we do need to be very cautious and careful on the pricing to make sure that we are continuing to drive our value component and then deliver on the experience and I think in the long run we will still win with that strategy, but we will always look at several factors of what we could do the question is will we do that.
But we're going to continue to focus on the long term run and taking great care of our guests and in our business.
Definitely makes sense.
Thank you.
Thank you.
Your next question comes from the line of Brian Vaccaro with Raymond James Your line is open.
Hi, Thanks, and good evening listen I have asked that this was going to ask on the other operating cost line and it looks like cost per week is still running up in the sixes, which is an improvement versus closer to 10 in the first quarter, but still up in the sixes and I guess could you remind us what what percentage of that basket of cost is fixed versus variable.
Variable these days and are there any categories worth highlighting where there is some relief on the horizon or would you say expect a pretty similar level of inflation in the second half as <unk> been recently, saying.
Yeah, Hey, Brian It's Michael Yeah, Im not sure I have my fingertips, what is fixed versus variable within there and you could argue.
Most things they had you could can go away, but what I will tell you I think.
We saw just with what we expected to happen happened that that that level of operating dollars per store week did slow as you said from around 10% to a little over 6% and I think the expectation is you'll probably see that continued.
Slow down to that rate of increase it would on a year over year basis, and some of that is coming from.
The traffic growth in the menu pricing that we have but it's really that a lottery items in that basket.
Which were a lot of services being provided went up dramatically last year and now youre seeing.
Not a lot of additional.
Upward pressure on them just flattened out at these levels and you were able to get the leverage from the higher volumes right. Now. So other operating is align all else being equal that we should continue to hopefully see some some leverage on as we move through the remainder of the year.
Alright, thanks, very much I'll pass it along.
Your next question comes from the line of Gregory Thank Frank for it with Guggenheim.
Your line is open.
Hey, Thanks for the question, maybe just going back to the alcohol mix I think you guys.
Last year actually had alcohol mix above where it was before COVID-19 and a lot of your peers were down a point or two in mixed use a sense for why that wasn't as maybe some of this <unk>, giving that back versus versus some of your peers that maybe lawsuit over the last couple of years instead.
Yeah.
Don't have the exact numbers right in front of me, but I do think.
Over the last year last year, you had what I would call that you for consumer who was happy to be back out there who have some extra money in their pocket, whether that is hidden from stimulus or just not having other places suspended and they were maybe getting a drink because they were not.
Historically getting or getting a second drink and now you're maybe seeing a little bit more of a return to normalcy as.
As far as what people.
Our ordering from that alcohol standpoint, and again, obviously with our to go business being a bigger component.
Of the overall sales.
Versus pre pandemic, our alcohol sales are going to be a little bit lower but in the dining rooms, I think we still feel very good about where we are now but yes. You are right. We are lapping probably that you for consumer from last year.
Okay. Thank you I appreciate it.
Your next question comes from the line of Dennis Geiger with UBS your.
Your line is open.
Thank you could you please a little bit more about the food inflation breakdown, perhaps any updates on the breakout between beef and non beef inflation expected for the year and then Julien and it gives us some comments on <unk>.
John what's kind of been mentioned already is there anything else to share kind of on beef consideration was looking ahead.
Any kind of softness in demand out there at retail et cetera.
Mike.
How do you think about 24, thank you.
Hey, this is Michael I'll start and if Jerry wants to add anything he can I think again I'll go back to our prepared remarks, and we said.
The majority if not all of the inflation that we expect to feel this year is coming from beef. So we have other items in the basket pork chicken that we would expect to be overall deflationary on a full year basis that are offsetting maybe still some pressure.
In some grocery items and some of the protos items, but for the full year beef is driving it.
The overall inflation and I think that goes to that conversation about.
What what the future might hold yes beef.
<unk> has the potential to be a pressure point again in next year or too soon to know what that means but we havent another half of our baskets that could potentially offset some of that pressure and so that's why we arent going to overreact until we know at any point, but we don't have a full picture yet.
What 2024 might bring.
I'll start.
That might offset some of the continued beef supply constraints.
Thanks, Michael appreciate it.
Sure.
Your next question comes from the line of Jeffrey Bernstein with Barclays. Your line is open.
Hi, This is on Asia that Arthur Jaffray Bernstein I wanted to ask if you could give some more color on recent trends, that's our guidance relative to the Texas Roadhouse brand name is in tandem or is one better positioned in a slowing macro and perhaps if you could provide an update on your confidence and publish new unit openings during the ultimate slowdown at Texas Roadhouse.
You start.
Yeah, Yeah. Thanks for the question I mean, I think ray from a standpoint of openings again, we feel very good about our opportunity to get some baba's opened this year we've talked about.
This year, probably say five bobbins openings and the.
The next couple of years won't be in that five to seven bubbas openings with a maybe next goal after that getting closer to 10 openings.
Again, the slowdown in our number of openings for this year has nothing to do from anything on our side of our excitement for any of our concepts at it as more of an issue of things that are out of our control getting.
Permanent power to UA restaurant site and the timing of work getting getting done. So we are excited about getting all getting restaurants opened from all of our concepts.
At this point and you know our overall trends in the.
The different concepts are all still very strong we think we are set up for great success.
Across all the brands and certainly bubbles with less of a focus on stakes as is not feeling the level of inflation that a roadhouse is so everyone has different things going on that makes us feel very good about.
You know what the future holds for each concept.
Awesome. Thank you.
Your next question comes from the line of Jon Tower with Citigroup.
Your line is open.
Great. Thanks, just I guess circling back to the pricing thoughts again I'm just curious if you can elaborate on what sorts of tools.
Managing partners have at their stores in terms of thinking about overall pricing in general are they considering what obviously the market competitive set is doing but also what's happening at the grocery store when it comes to beef prices and then how they weave that into labor.
And there is distinct market like can you help us just walk through how the buildup to a labor expectation should be an inflation expectation for the year to come and then therefore the decision on pricing.
Yeah. So our pricing process is very similar we.
Ask the managing partners for inputs on what's going on in their local area computer.
From a competition standpoint from a retail grocery and they share that with US and then we obviously talk to the multi units that kind of share a bigger picture of what might be going on in their turf in their markets. Obviously state by state. We all on our side, we know a lot more of the details overall.
All on some mandates. So it's it's an extensive process that we go through to try to get it right for every store, but also by market and by region and company.
So it's a complicated formula for sure, but there's a lot of thought put into it on every level so that with the inputs from our operators and from the knowledge that we have from the company stand we tried to make the absolute best decision literally by store by market by state and for the company.
And in the overall number rose up to them, but those conversations that we have with our partners are valuable in the decision making process.
Got it and then just I guess, Chris Youre coming in with a fresh set of eyes to the company. Obviously its been a very successful company for a very long time, but I'm curious to get your perspective, perhaps with this fresh set of eyes do you see anything that you feel like could be a new opportunity for the brand or perhaps areas, where do you believe there could.
B improvement on the business.
Well, thank you John for the question and.
These are these are early days I must say and so it's probably not time for me to opine on any sort of changes that we might consider but.
There is there is a great tradition here.
A very successful brand that's nationwide and it's doing very well and and of course.
We'll be reviewing a number of things along with Jerry and the rest of the team here, but but.
Pretty early for me to opine on some sort of change process.
Got it thanks for taking the questions.
Your next question comes from the line of Andrew <unk> with BMO. Your line is open.
Hey, Thanks for taking my question I, just wanted to ask about the unit openings for the rest of the year, how should we think about the cadence between <unk> and <unk> and <unk>.
There's risk that some of those get pushed further.
Over the next year and then to the extent that some have gotten pushed on where do we think about next year is the makeup here or there.
You can just stick to kind of your normal framework of openings.
The entire kind of timeline gets pushed.
Hey, Thanks, Andrew it's Gerry.
I said, we have every store that scheduled to open this year under construction. We do know there's a couple in December that a little concerned about we have had some utility issues, but we're monitoring it closely but we're pretty confident we'll be at that number are extremely close and if not then.
It will push into next year and go from there, but our pipeline for next year will be very consistent to what we've done in the past we have a strong pipeline. We will continue to stay focused on the growth and development of of all three brands pretty much as we have in the past and really focused on doing it right and doing it well as we go through there so still a lot.
It'll early in the year to be concerned yet, but they are under construction. We are moving forward and we will keep monitoring throughout the year and give you an update on the next go round.
Great I look forward to it thanks.
Thank you.
Your next question comes from the line of Elliot Simon with Evercore. Your line is open.
Hey, guys. Thanks for the question I'm.
In the prepared remarks, you mentioned pricing decisions are based on wages as well as the value proposition clearly the wage side is giving you a green light to take some price in October , but how would you characterize the value proposition today said differently your price gaps to steak peers as well as other casual dining peers outside the state segment, which may not.
Basis much inflation when you say they are narrower the same or wider than historical levels.
Yes, that's a great question Elliot. Thank you I believe that we focus on it we watch it very closely and to see knowing where our gap is that I think it has changed a little bit it probably has gotten a little tighter, but I think in general we try to focus on what we're doing.
And what's right for our business and others have to make their own decision. So if we look at labor or look at any other costs that are that are part of our decision, making we try to encompass all of the information and really try to make a decision that we feel is right for our business going forward to protect our.
<unk> and to protect our menu that's built in with that value to our consumer and to really protect those top line sales. So.
There's a lot of work put into it and we've been conservative we probably will stay in that direction, but we also have proven if we need to we can use that leverage.
Great. Thanks, and just a quick follow up I mean as he talks about protecting the top line I'm curious Jerry if you can kind of boil down the secret sauce to one or two things that really differentiate yourself versus competitors what are the big value proposition. The service you provide or something else.
Well I think it's.
All of it to be honest with you I think we work really really hard to present, an environment. Our made from scratch food are handmade all of that adds value. When you walk into that restaurant and you smell that fresh baked bread and you know that we're cooking that state to order for you in.
And we've got this friendly individually, we're still hungry to serve people and an extremely high level and when I look at the lines that are waiting at our restaurants. It tells me that we need to continue to focus on doing the things that we do and they are loving the food. They are loving the service, we need to be able to execute to get them in the rest.
Strong provide them with an experienced thank them for coming to our business because it's still important for us to serve them at a high level and we're trying to earn their business every single day somebody woke up this morning, thinking about where they were going to dinner and I want them thinking about Texas Roadhouse Bubbas 33 in jaggers.
All day long to choose to walk through our doors. So we're hungry for it.
Sorry, Dude got me excited.
No no no I really appreciate it thanks, guys and best of luck.
Thank you very much.
Your next question comes from the line of Jim Sanderson with Northcoast research.
Your line is now open yes. Thank you for the question I just wanted to follow up a little bit more on capital expenditures I think that went up to 300 million from.
265, if I'm not mistaken just wondering if that elevated level is causing fundamental or permanent changes in returns on store development or if that's causing you to rethink the cadence of development over the next three to four quarters.
Hey, Jim Thanks for the question no. It really is not changing any of our thought I mean, there is a piece of it that that is related to.
New store development, but you know our our internal model models are still generating returns above our target levels. So we still feel very comfortable.
With the ability to open restaurants and have.
I have no plans to slow that down at this time.
Thank you.
Your next question comes from the line of John Park with Wells Fargo.
Your line is open.
Hey, good evening guys just on the quarter to date acceleration you spoke to the calendar benefit.
Potentially getting a little bit.
And Jack asked the point to that's kind of driving that acceleration youre seeing.
I would say the only other thing is the continued improvement in our staffing levels and your ability to serve the demand that is out there. So.
Our restaurants are open they are well staffed and there's strong demand.
<unk> come to them and it's really as simple as that.
Got it best of luck guys.
Thank you very much.
There are no further questions at this time I will now turn the call back over to Gerry Morgan.
Thank you all very much for your time today, and we wish you the best of the weeks coming to finish your summer and <unk>.
Thank you.
This concludes today's conference call. Thank you for attending you may now disconnect.
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