Q3 2023 Texas Roadhouse Inc Earnings Call
[music].
Good evening and welcome to the Texas Roadhouse third quarter earnings Conference call.
Today's call is being recorded all participants are now in a listen only mode.
After the Speakers' remarks, there will be a question and answer session.
At that time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
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 your conference.
Thank you Anna good evening by now you should have access to our earnings release for the third quarter ended September 26, 2023. 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 filings with the FCC. These documents provided.
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, and Chris Munroe, Our 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. We kindly ask analysts to please limit yourself.
Two one question.
Now I'd like to turn the call over to Jerry.
Thanks, Michael and good evening everyone.
We have nearly completed our annual fall tour, where we visit with more than 700 operators from all three concepts as I mentioned last quarter. This is one of the highlights of my ear as it gives us the opportunity to interact directly with all of our managing partners across the country and stop after start.
We get to see and hear not only the passion they have for our business, but also the ideas they have to make us better the.
The real time feedback we receive is invaluable as we plan for how to continue to improve and take action to support and serve the needs of our managers and roadies.
The hard work of our managing partners and their teams can once again be seen in our strong third quarter performance.
Which includes average weekly sales of approximately $139000 and comparable sales growth at 8.2%.
I believe our operators passion dedication and focus on the success of their restaurants is one of our biggest advantages.
They remain committed to building sales and profits, while sticking to our core values, regardless of the pressures they face.
Topline results continue to tell us that we are delivering on our promise of legendary food and legendary service. We recently completed an independent guest attitude and usage study and we were the casual dining leader in many categories, including overall guest satisfaction food quality and fresh.
<unk> service in the third quarter guest satisfaction helped drive traffic each month compared to 2022.
Moving on to development the third quarter was productive with nine company store openings, including two Bubbas 33 locations. We also opened four franchise restaurants, including three international locations and our first jaggers franchise restaurants.
We expect to open as many as 12 additional company owned restaurants in the fourth quarter, which would give US 27 company owned Texas Roadhouse, and Bubbas 33 openings as well as three jaghirdar jaggers openings for the full year looking.
Looking ahead to 'twenty 'twenty four we have a strong pipeline of new stores and are targeting approximately 30 company owned Texas Roadhouse, and Bubbas 33 openings as well as three jaggers.
We also expect our franchise partners to open at least nine international and domestic locations in 2024, including four jaggers.
Finally, I would like to address increasing external concerns regarding the health of the consumer and the ability of restaurants to navigate uncertain economic times.
Whether it is commodity inflation mandated wage increases student loan payments or other potential issues. The restaurant industry has always been full of challenges. However, we have seen the consumer has remained resilient and their desire to dine at restaurants, especially those like.
Ours that offer a quality product with a high level of value service and hospitality.
Our position remains simple we focus on what we can control, which is providing a legendary experience to each and every guests that visit our restaurants, we will never take for granted that guess give us two of their most valuable commodities their time and their money now Chris will.
Provide some thoughts.
Thanks, Gerry let me start by echoing <unk> comments regarding fall tour.
Still being relatively new it was a great experience for me to meet so many of our operational leaders and listen to their feedback on how to make our company even more legendary the more opportunities I get to spend time with our managing partners. The more I understand how critical they are to our success.
Before Michael provides the detailed update on our third quarter financial results and go forward assumptions.
I would like to offer some color on our results menu pricing and our approach to capital allocation.
We remain extremely pleased with our current top line trends as well as the strength and consistency we have seen on a multiyear basis.
And with regard to profitability, our third quarter comparable results were negatively impacted by several adjustments, which Michael will detail.
Despite this noise, we were able to continue margin dollars, we were able to continue growing margin dollars per store week, while also maintaining year to date double digit EPS growth.
At the beginning of the fourth quarter, we implemented a 2.7% menu price increase this gives us an average five 5% for the full quarter.
As is typical for us this pricing action is primarily meant to offset structural wage pressure, including the impact of upcoming state mandated wage increases.
While costs remain elevated in the third quarter, they continue to pull through to perform largely in line with our expectations.
The rate of year over year wage inflation continues to moderate as we lap significant wage pressure from last year at the same time the <unk>.
<unk> pace of wage increases has stabilized resulting in an expected return to more normalized and manageable rates of increase in 2024.
It's a similar story regarding commodities. This year beef remains the primary driver of this year's inflation with pressure from the rest of the basket moderating or deflating as we have moved through the year inflation.
Inflation for the third quarter was slightly better than we had originally expected as our procurement team is doing a great job with the strategic timing of our contracting and purchasing.
On capital allocation, we will maintain our balanced and disciplined long term approach.
While our pipeline of new store openings over the past several years, including 2023 has been heavily backend loaded. We now expect 2024 openings will be much more evenly distributed throughout the year.
And going forward, it's our expectation that we will maintain a more balanced opening schedule we.
We will also continue to invest in our existing stores. So that they can continue to grow and generate strong profits.
Additionally, we will continue to pursue franchise acquisitions, when those opportunities arise and ensure that we have a deliberate approach to dividend growth.
And that excess cash will be directed towards the repurchase of shares as appropriate.
All of our capital allocation decisions are made through the lens of creating strong shareholder returns for our investors. We believe that the combination of organic growth and returning capital through dividends and repurchases will allow us to continue to deliver robust shareholder returns as we have consistently done throughout our.
History.
Now Michael will provide the financial update.
Thanks, Chris for the third quarter of 2023 revenue grew 12, 9% driven primarily by a seven 8% increase in average unit volume and five 7% store week growth.
Restaurant margin dollars grew seven 1% to $163 million, while earnings were 95 cents per diluted share.
<unk> growth of two 6% for the quarter was significantly impacted by several adjustments in both the current and prior year.
I will provide more detail on these adjustments in a moment.
As mentioned our stores averaged nearly $139000.
Weekly sales in the third quarter and to go represented approximately $17000 or 12, 3% of these total weekly sales. We have now had two consecutive quarters of year over year growth in average weekly to go sales and believe there is an opportunity to further build upon this.
This business going forward.
For the third quarter comparable sales increased eight 2% driven by four 1% traffic growth and a four 1% increase in average check.
By month comparable sales grew 10, 7% seven 8% and six 6% for our July August and September periods, respectively.
On sales and traffic trends have remained strong into our fourth quarter for the first four weeks of Q4 average weekly sales were over $141000 driven by nine 2% same store sales growth, which includes a three 4% traffic increase.
Restaurant margin dollars in the third quarter increased to over $20000 per store week and restaurant margin as a percentage of total sales decreased 80 basis points to 14, 6% the decline in the third quarter margin percentage is primarily due to the approximately 70.
Basis points impact of adjustments to our general liability insurance reserves this year and last year as well as an approximately 30 basis point impact from our gift card breakage adjustment declining from $6 $6 million last year to $3 $7 million this year.
Food and beverage costs as a percentage of total sales were 34, 6% for the third quarter. This was three basis points better than last year, and four 2% commodity inflation for the quarter was offset by the benefit of a four 1% check increase.
Approximately 75% of the overall basket locked for Q4.
We continue to expect full year commodity inflation to be at the higher end of our full year guidance range of 5% to 6%.
Looking ahead to next year, we're projecting commodity inflation of 5% to 6% would be the primary driver.
Labor as a percentage of total sales increased 51 basis points to 34% as compared to the third quarter of 2022.
Labor dollars per store week increased eight 5%, primarily due to wage and other labor inflation of five 6% and growth in hours of three 3%.
Labor growth benefited from the $1 $3 million impact a favorable claims experience related to group insurance and workers' comp our full year 2023 guidance for wage and other labor inflation remains unchanged at between six and 7% with current trends continuing.
<unk> two point towards the midpoint of that range for 2024, we are forecasting wage and other labor inflation of 4% to 5% with upcoming state mandated increases representing approximately 1% of the increase.
Other operating costs were 15, 2% of sales, which was 38 basis points higher than the third quarter of 2022.
Included in the year over year change isn't an approximately 70 basis point negative impact from the aforementioned adjustments to our quarterly reserve for general liability insurance.
These adjustments include $2 9 million of additional expense this year at a $4 4 million credit last year.
Moving below restaurant margin G&A dollars grew year over year by 11, 4% and came in at four 3% of revenue.
Year over year increase includes the impact of lapping a $2 5 million credit in 2022 related to last year's managing partner conference.
Our effective tax rate for the quarter was 11, 9% and we now expect a full year 2023 income tax rate of approximately 13% and our initial forecast for the full year 2024 income tax rate is between 14 and 15% with.
With regards to cash flow. We ended the third quarter was $69 million of cash cash flow from operations was $103 million, which was more than offset by $89 billion of capital expenditures $37 million of dividend payments and $12 million of share repurchases.
At this time, we are raising our full year 2023 capital expenditure guidance to approximately $340 million as Chris mentioned this increase allows us to accelerate the timing of new store openings in 2024, we now expect to open approximately 15 restaurant.
<unk> in the first half of 2024 on top of the 12 restaurants opening in the fourth quarter of 2023.
This high level of construction activity will require a higher than previously planned capital expenditure during the fourth quarter of 2023. Additionally, we are establishing our initial 2024 capital expenditure guidance at between 340 and $350 million.
This amount contemplates a continuation of our balanced opening pipeline going forward.
Finally, as a reminder, 2024 will be a 53 week year for us as.
As such the fourth quarter of 2024, we will have 14 weeks versus our normal 13 weeks, we estimate that the additional week could benefit full year 2024 earnings per share growth by approximately 4% now I will turn the call back over to Jerry for final comments.
Thanks, Michael whether it's in our restaurants or at our support Center, Texas Roadhouse is people first culture is second to none I'm very proud to announce that we were recently named one of America's greatest workplaces by Newsweek.
This award came with additional recognition in the following categories, great workplace for women diversity and job starters. This recognition is a testament to the passion partnership integrity and fun that makes Texas roadhouse, such a legendary place to work and dying.
I am proud to be a partner to all roadies as we continue to build for our future that concludes our prepared remarks operator. Please open the line for questions.
Thank you as a reminder, if you would like to ask a question today Press Star followed by the number one on your telephone keypad.
Your first question comes from the line of Chris <unk> with RBC capital markets. Your line is open.
Hi, Thanks for taking the question and thanks for the initial 2020 for outlook.
My question is on the commodity outlook, specifically for 24 can you just spend a bit more on what youre seeing there, maybe what's specifically driving the 5% to 6% inflation outlook.
Even as it looks like <unk>.
<unk> right now is currently running below those levels. Thanks.
Yes, Chris it's Michael Thanks for the question.
Yes, I mean really as I mentioned.
The inflation for 2024 is as all being.
Pressured by my beef in the rest of the basket is flat to deflationary so.
Beef is the driving force of our.
Expected inflation next year.
Thanks.
Your next question comes from the line of David Palmer with Evercore. Your line is open.
Thanks, I wanted to get your thoughts on how youre thinking about pricing in this environment, it's kind of a mixed bag out there are a lot of people would be looking at the consumer environment and be cautious about pricing, but in the past you've talked about your relative value proposition versus peers and looking at wage inflation.
Which as you've noted it remains mid single digits into 2024 so.
What are the primary governors about how you're thinking about pricing going into this type of environment.
Go ahead Sir.
Well, David its Chris I, just was going to jump in and talk about the fact that we do have we're carrying this five 5% incur.
The increase that I talked about earlier and then.
We do.
Really want to focus on the core wage pressures that are out there and those are mitigating and so we'll be mindful of that but there is also this beef inflation that we have to consider as well. So our price increases, though have typically been focused on the core keeping up with wages.
And that's likely how will focus in the future.
Got it and in the past.
The long term rule of thumb, it's been that labor hour growth can be about 50% of traffic growth do you think you know at times, it's not been like that but is that a good rule of thumb coming into this year or could you find a lot of companies coming out of Covid. There's been if the inefficiencies that have happened in terms.
The number of workers and the amount of hours per worker is getting better now and so with that efficiencies and whatnot I'm wondering if you could find maybe another gear in terms of our labor efficiency beyond that rule of thumb.
Hey, David It's Michael Yeah, I think Thats, something we will be looking at going into next year and into next year. Obviously this year labor hours are operating separately than our traffic growth and I think going into next year.
We may see a return to that normal algorithm that you referred to or we may we may also see that.
With people staying in their jobs longer that productivity.
Productivity improves.
So maybe there's an opportunity.
As you said to get some efficiencies in there and.
Maybe it doesn't grow at that 50% level, we've never been in this.
Situation before coming out of a pandemic coming out of a labor shortage now to a staffing level that we feel very good with.
We've been growing traffic that we have and so want to just have to wait and see what happens, but I think we're optimistic.
Thank you.
Your next question comes from the line of Andy Barish with Jefferies. Your line is open.
Hey, guys.
Just one quick follow up and then.
Second one on that on the beef side of things do you have anything contracted at this point or is it still too early given the some of the premiums out there.
Yeah, Hey, Hey, Andy its Michael we do have some of our beef locked in.
Into the <unk>.
2024, not a I'm not surprisingly not a huge amount of Packers.
Or are.
Nervous to get too far out there, we certainly have a lot of our supply locked up which we think is very important at this point, but as far as fixed price contracts. We do have some I'm not going to get into the specifics.
They are for competitive reasons.
But our purchasing department that has has done a great job.
Where appropriate to to lock in prices, while also making sure we have the supply.
Got it and then just in terms of thinking about 'twenty four.
And some of the drivers other than obviously the things you guys do really well day in and day out.
On the top line.
Is there still kind of bump out a remodel opportunity I think you mentioned to go as an opportunity and then.
On the tech implementation in terms of Roadhouse PE is there something in there that you can get more out of or is it really.
Kind of getting you a faster table turn which is enough to help drive more traffic through the restaurants.
Hey, Andy It's Gary Yeah, I think all of those are factors in our continued growth on the revenue side.
Bump outs, we continue to look at.
Investments in our current and existing buildings to be able to with expansions in different things driving our to go business and continuing to focus on that ease of pickup has always been a factor as we continue to get better at it. So I think all of those factors getting speed at the at the host stand in getting our table turns and like you said all.
Desktop, we just got to keep hustling to drive those topline sales and and Thats kind of a key component for us but thank you.
Thank you.
Your next question comes from the line of Gregory Frankfurt with Guggenheim. Your line is open.
Hey, Thanks, Thanks, I had two questions. The first one just.
I know it gets talked about a lot, but just a question of getting back to 17% margins and something in that range.
You know I think I think over the last four years. Your development costs are up maybe 25% your <unk> are up 40%.
Do you want to target a margin percentage or do you target a return I mean, I guess I.
I would think that you could get to similar returns on lower margins and I'm, just wondering how youre thinking about that thanks.
Yes, Hi, Greg It's Michael Yeah, you are right our investment costs have gone up and as have R. R.
Our sales both on a.
Pricing standpoint, and number of guests served so we do target a mid teen IRR when we're looking at new stores and we are still.
Sheathing and really.
Beating that goal on our openings, even with the higher investment costs.
And with the what we're where margins where profitability is at today. So we feel very good about our opening pipeline, we wouldn't just be opening restaurants for the sake of opening them, we want to make sure. They are doing high volumes and continue to generate great.
Return on investment for us.
And the goal of getting back to 17 plus on the on the margin side. How important is it to show some traction on that over the next 12 months to 18 months do you guys view that as an important component of the story.
Yeah, I mean, we've been talking about that for a little bit and absolutely if beef turns and helps us out that will be a huge piece of it as as we continue to protect those top line sales and target that move in that direction, we need a little bit of help on the beef side, but I think from our sales and all of the other controls.
<unk> that we have in place we will continue to move in that direction.
Thank you guys appreciate it.
Thank you.
Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is open.
Thank you just a quick clarification and a question first upon the clarification I think you said youre running with roughly five 5% menu pricing in Q4.
But what would pricing be in Q1, and Q2 with no additional price increases.
Yeah, Hey, Jeff It's Michael Yes, Q1 will be four 8% Q2, and Q3 would be two 7%. Okay. That's helpful and then.
Bigger bigger picture question. The main question here is that you.
You shared with US your thoughts on the casual dining consumer on the last call sort of some of the pushes and pulls youre seeing in terms of average check and maybe some trade down from from Oh their concepts into the roadhouse concept, but but but what is your updated thinking on the casual dining consumer.
Demand backdrop, what have you seen in terms of either check management at roadhouse or potentially customers from other concepts trading down to a better price value at Texas Roadhouse.
Yeah, I I'd tell you, we're very happy with our sales and the traffic and the sales overall, so we feel like we're very well positioned if we continue to deliver on our on our food promise on our and our service and hospitality that now we're winning that fight our food tastes great I think the consumer is tell.
Is that they want our food from what we can see from our traffic it.
It hasnt slowed down for us technically if you look at the rest of the industry. So we believe that the consumer is telling us to keep doing what we're doing we just need to be able to serve more of them.
All week long and and so that's exciting good news for us and we have people that trade down or we I actually believe that we have a lot of people that trade up from from that that hospitality side of the business. So.
We're positioned very well to continue to maintain those sales yeah, hi, Jeff It's Michael from a mill standpoint, we actually probably saw a little bit of sequential improvement from Q2 to Q3, we had about a four.
<unk> four percentage point of negative mix in Q3 versus about one 2% in Q2, most of that negative mix the majority of it.
Still coming from the alcohol category, probably think that'll be with us through the end of the year.
Alright, thank you.
Your next question comes from the line of Chris <unk> with Stifel. Your line is open.
Thanks, Good afternoon guys.
My question's about the trade off between traffic and profitability and I understand that there were some onetime costs this quarter, but the current flow through rate I guess, it's been lower than prior years and the price increase I think you guys took in October here seems like it's at a level that will probably have a minimal impact on traffic, but also not really provide the margin benefit to get back to that.
Historic level. So I'm just wondering Jerry if there has been a debate internally or consideration for kind of raising prices more or sacrificing some traffic growth because it would seem.
The low flow through rate would would also be a frustrating for operators who appear to be working harder for less.
Yeah, I mean, that's a great question, we do internally think about that the protection of the top line is always a key component, it's a little more expensive to do business again, we do believe at some point the beef deflation, maybe someday will help us in that direction I want to be careful I want us to be seen as a <unk>.
<unk> concept as always as we fight for that segment, but I think overall it is always on our mind in a conversation of how can we be more efficient how can we be more effective on the profitability side, but we have to do right by our employees, our guests and our NR holders, but it is a conversation of depth often.
Your next question comes from the line of Jeff Bernstein with Barclays. Your line is open.
Thanks. This is product on for Jeff just wanted to pivot to Bubba.
Jerry how would you assess.
The current status of the brand and how do you how do you think about the growth in the future they're confident internally about accelerating.
If bubbles is perhaps not the second concept.
Your portfolio would you ever consider M&A for future growth.
Well, we're definitely excited about Bubba is our future and we are absolutely committed to its growth we do view it as our second brand.
We have the right operators have done a lot of work in the last 24 months to put the head of a concept and supporting people around that leader. We just added our first regional partner to the team.
We're very excited about what we're doing on the food and the service environment and the leadership. So we are definitely committed to above as the sales are continuing to show through it is producing the revenue that we're looking for and we know it has the ability to turn a profit that we want so yeah. We're very excited about the above us.
<unk>.
The other question I really can't answer at this time, we are focused on our brands and we'll see what happens in the future.
I appreciate the color. Thanks, so much.
Thank you.
Your next question comes from the line of Andrew <unk> with BMO capital markets. Your line is open.
Hey, good afternoon, thanks for taking the questions.
I guess my question is I was hoping you could talk a little bit more about the broader unit growth environment.
<unk> to accelerate the development pipeline into next year, but.
Things like.
Supply chain and delays in permitting in build costs could you give us a bit of an update of what youre seeing or you see.
Some easing of those factors as well thank you.
Yeah. The supply chain is continuing to stabilize I would say overall.
From that the permitting we've kind of learned and adjusted our timelines to Italo.
It takes it in and part of the plan to spread it out through the year helps us with that and it's taken a significant effort to get to where we can open more restaurants, all throughout the year versus kind of jammed up in the beginning in the end. So yeah, there's been some planning around that but overall, we've got a real.
Strong pipeline for 'twenty, four and into 'twenty five in and we're continuing to look beyond that and we're excited about if you. If we look at what we're doing right now and what we've got on the books for over a 12 month period, it's very exciting.
Great. Thanks, a lot.
Thank you.
Your next question comes from the line of Joshua Long with Stephens. Your line is open.
Great. Thank you for taking the question Hey, Jerry when thinking about the unit development environment.
It's nice to hear that the supply chain clients strengthen normalize or continuing to normalize for either way can you talk about some of the friction points that you are seeing is that some of the permitting side.
Equipment does anything else that you can share in terms of just what drives the ebbs and flows of unit development. As you think about what is otherwise a relatively strong pipeline going out into the out years for pretty good brand.
Well I mean, I think where we're doing good the trades, maybe again just working out the timeline of whats happened in the last couple of years and I think we've done a really good job to get projects lined up and now we know a little bit better of the timeline to get the trade set up to to get the jobs going and done so a lot of work there I feel very <unk>.
Well there are a few things that get a little bit tight on some of the parts of some of the bigger equipment ice machines things like that we get a little bit concerned about but I think right now we've got enough inventory to accomplish all of that even our mill works with us our furniture it can be a little tight at sometimes with this many openings. So we've been working really hard with our vendor.
Partners to make sure we have the materials and the equipment in and the trades to do the job to get these stores open and obviously maintain our existing buildings, we've definitely seen some some service challenges and even parts, but I think we're working through that.
Ted maybe sometimes we have to buy a little more equipment than repair but.
Whatever we got to do to make sure the operators can get their businesses open or we have options and we try to execute it at every level on whatever we need.
Thank you.
Thank you your next your.
Your next question comes from the line of Sara Senatore with Bank of America. Your line is open great.
Great. Thank you and I know, we sound like I'm talking about margins, but I did have a few I guess two follow ups. The first is on you mentioned, you're purchasing department is doing really well with locking in pricing.
Could you give a little more color like what what that weighs on your beef is typically harder to lock in.
The benefits from some of the other commodities in your in your basket and then the second question can you just talk a little bit about the margin structure for pellets or to go versus dine in and it looks like your mix of Macau was pretty stable year over year, and I think part of what has been.
Maybe upward pressure on labor hours, and then shifting back to more dine in but to the extent that that wasn't the case is there anything you can kind of talk to you about what a stable mix might mean going forward in terms of labor hours or so.
Margin structure overall, thank you.
Yeah, Hi, Sarah it's Michael I can I can touch on those so certainly from a.
Yes purchase purchasing standpoint.
It's largely around <unk>, but it is everything.
Knowing when to.
When to lock in and knowing when to be buying on a formula basis.
What weeks to maybe go a little bit heavier into the buying so just the fact that they have there.
<unk> fingers on the pulse of what's going on there and doing everything they can queue.
Two time that as best they can with the knowledge of how busy we are and making sure that the supply is there first and foremost but that goes for all four for all items in the basket and just having those long term relationships with our vendors treating them right being good partners with them through Covid really pays off now.
When it comes to.
Making sure we have what we need.
Going forward and as far as margins in the restaurant dine in versus to go.
I can take expenses.
And allocate them to different areas and give you different answers the easiest way to go about that is if I look at a Texas roadhouse with a busy dining room and look at it.
To go levels pre COVID-19 or today's higher volumes.
Margin dollars, it's a no brainer are much higher and then the margin percentage.
It's slightly higher so it is a benefit from a margin percent you have.
These higher to go volumes Youre getting leverage in different areas. You are right that as we see more of our traffic over the last year shifting back into the dining room. There is a labor component to that and where you have to be staffed to serve those guests and so that also plays into.
What labor May look like going forward, if we grow to go more than diners, maybe you don't knee EBIT, maybe maybe you don't need as much labor.
As you would to serve more dining gas. So those are the things that we again, we look at every restaurant is going to be a little bit different as far as what opportunities they have and the impact of of growth on them.
Thank you so much.
Your next question comes from the line of Dennis CAGR with UBS. Your line is open.
Great. Thank you recognizing it may be early here, but curious if you could comment at all on 24 restaurant margins Directionally at least relative to 'twenty. Three I know you shared some of those comments as we've gone through the year for this year. So curious if any comments there or even specifically the cogs piece in 'twenty four or thinking about.
That relative to 'twenty, three anything to help sort of level set us at this point. Thank you.
Yeah, Hey, Dennis it's Michael it's a hard one to fully answer there's a lot of things at play what you'll what side of the ranges on our inflationary guidance says that where we might land and what type of pricing, we take but if you want to take a assumption of moderate pricing.
Going along with what we already have in a positive macro environment.
I think the.
The math would play out for <unk>.
For some opportunity for overall leverage in.
In restaurant margin percent in the dollar.
Continuing to grow certainly, but the percent moving in the right direction and wherever that.
Every line or.
We shall see and again going back to what level, where those inflationary ranges we might fall.
Appreciate the color thanks, Michael.
Your next question comes from the line of Brian Harper with Morgan Stanley. Your line is open.
Yeah. Thank you.
Maybe just to follow up on that also as you think about G&A next year, you probably don't have a budget yet but any.
Should we expect kind of normal inflation in that line any kind of special projects. You think will will add to that or just any high level comments on that part.
Yeah, Brian It's Michael Yes, you are.
Alright, that's still that's a process that we continue to go through offsetting those G&A budget for the year, but I do think it's a continuation of our our normal plan of wanting those G&A dollars should grow at a lesser rate than our revenue is growing and so you continue to get a little bit of leverage on that <unk>.
<unk> as a percent of revenue maybe not a dramatic change, we've obviously seen a G&A percentage come down.
Quite a bit and that could continue into 'twenty four.
You know as well.
Okay great.
The commodity inflation outlook you laid out for next year how are you.
Visibility on especially the beef side.
I realize the kind of the wildcard in the beef market is just demand and how that plays out but how would you.
Characterize your visibility relative to maybe prior years.
Yes, I think we're taking them a middle of the road conservative.
Look at it a realistic look at what what is going on I think certainly again, our beef experts are giving us their best thoughts on where things go.
We'll be in but you are right. There are a lot of puts and takes that can move things where retail demand.
Comes in I think it's very much clear that supply is moving down we'll just see where the demand goes. So there is a lot that can move around but we've given you are our best realistic thoughts at this time.
Okay. Thank you.
Your next question comes from the line of Jon Tower with Citi. Your line is open.
Okay.
Mr. Terry Your line is now open.
Your next question comes from the line of John F.
Brian Vaccaro with Raymond James Your line is open.
Hi, Thanks, and good evening.
You've taken out.
Yeah, Brian It's Michael I'll tell you when I look at the data.
Region of the country day of the week hours within the day.
Older stores newer stores high volume average stores. It was very consistent as it had been it has been for a while so that.
It makes us feel very good about the trends that we're seeing.
Right now so we just continue to do what we do in <unk>.
The guests continue to reward to reward us for that.
Okay, and then just a quick follow up if I could on technology and I wanted to ask about roadie pay in particular.
How much time is that trending off the typical transaction and have you seen any quantifiable impact and table turns are through but that you might be able to share.
Well.
Yeah, I would tell you that where system wide.
It's a big win for the consumer we believe it's hard to quantify the exact amount, whether it's a minute or two or that I think some people when they are ready to pay I mean that option being right. There on the table. We believe absolutely that it is a a quicker way of going so I believe that it's been positive for us it's been very good.
Feedback not only from our restaurants, and our servers, but from the consumer so yeah that was a really big win for I do believe it does make us faster.
Alright, I'll pass it along thank you.
Thank you.
Your next question comes from the line of Jon Tower with Citi.
Your line is now open.
Hey, just one quick one can you clarify are the pricing waterfall sorted out but exactly what the price number in the third quarter was.
Sure we had five 1%.
In the third quarter of 2023.
And then.
Thinking about price into 2024 is there a way to kind of put guardrails around the earliest that we might see some additional pricing coming through.
We typically.
Take pricing in early part of the second quarter and the early part of the fourth quarter. So I would imagine we will stay true to what we have done in the past years and stay with that schedule.
Great. Thank you that's all for me.
Your next question comes from the line of drew North with Baird. Your line is now open.
Thanks, I had a follow up question on one that was asked earlier related to the 2024 margin outlook. Thank.
Thank you for the perspective on pricing and I recognize the uncertainty on where he may land in the various inflation ranges, but I guess is there a breakeven level on traffic in the positive macro scenario, you mentioned that youre thinking about the hold or expand margins next year.
No you're often focused on growing the margin dollars per week, but how are you thinking about the margin percentage on a year over year basis in that positive macro scenario and specifically the potential traffic needed to reach that level.
Yeah, Hey, Jeremy it's Michael.
Unfortunately, a very tough one one really can't answer because again, there's just too many moving parts.
The level of traffic versus the level of pricing.
That you you need to grow margins and how much are growing margin. So certainly traffic always helps but the pricing flow through whatever additional pricing we take.
Youll plays out a lot of it I don't think you need.
I think longer deals modest traffic along with modest pricing.
Middle of the road guidance should lead the Master plan.
Pay out to show you our restaurant margin expansion on a percentage basis into 'twenty four.
Okay. That's helpful. And then one more from me just looking out to 2024 and beyond do you see opportunity to push that 30 gross openings range higher and maintain a kind of a store week growth and that 6% level for the next several years or how should we be thinking about that I'm just trying.
And to frame up.
The opportunity to push the number of openings higher versus your expectation for that growth rate to moderate over time.
Yeah. Thank you for that we're going to stay focused on building the right number for US I think we we target that high <unk> low <unk> on.
On the two concepts of roadhouse and bubbles that works very well for us in <unk>.
And we can efficiently do that not only for our operators, but just the execution for the yes that are coming in at the beginning but yes, we feel good about the pipeline will stay very true to that same number for the two concepts.
And target that as we as we continue to move forward.
Thank you.
Thank you.
Your next question comes from the line of Jim Sanderson with Northcoast Research. Your line is open.
Hello, Thanks for the question I wanted to focus a little bit more on the issue of mix I think you reported a little bit of progress on mix from second to third quarter. It seems to me that your mix could be.
Flattish almost positive in October is that the right way to look at it.
Based on the pricing and the comp you reported in October.
With the.
With the comp so our pricing, while we are always going to have five 5% pricing for the fourth quarter.
Now our pricing our pricing action. This year occurred three weeks earlier than it did last year. So we add six 9% pricing in the first three weeks of the quarter and we will have four 9% pricing in the last 10 weeks of the quarter, So while mix and probably still is moving in the right direction.
In.
It wasn't that different than what you were seeing in the last several months very.
Very good and just a follow up question on the pricing you took them any feedback on how your competitors either reacted or was this a year over year acting to.
Potentially.
And the Steakhouse category already haven't having taken their prices up just a little bit of texture on the competitive context, yes, yes, Jim I can't tell you necessarily what our competitors have done in reaction to it I mean, we have our pricing conversations several months before we actually take the <unk>.
Pricing, it's a process you have to go through we certainly.
Evaluate the health of our business how are our stores are doing and where we're priced relative to some of our peers. So we take those things into account when we're doing it but as far as others reaction to that.
That I don't know.
Alright, I'll pass it on thank you very much.
Thank you.
Your next question comes from the line of Lauren Lieberman with Deutsche Bank. Your line is open.
Thank you very much I just wanted to clarify on the October trends to what extent did you benefit from price ticking in taken earlier this year at about 200 basis points, just as we think about underlying trends and extrapolate it.
I mean, I think Thats certainly we.
We got the benefit of that pricing for three more weeks so in.
Instead of having.
We will have four 9% the rest of the quarter.
With a 60 basis point benefit on our overall pricing for the quarter.
Okay.
And it looks like compares ease through the quarter with December the easiest lap year over year is there anything we should consider in terms of cadence in the fourth quarter as we think about the lap.
Yes, I mean nothing.
Do much to really point out.
We did talk about last year that.
Late in December of our December period last year, there was that cold weather that impacted much of the U S.
That caused things to slow down so depending upon what happens this year that could be.
An opportunity for us and there is also maybe a slight benefit coming at the end of the year from.
Christmas moving from.
Saturday Sunday, the Sunday Monday, you could get a little bit of a benefit of that in <unk>.
<unk> shouldn't be a huge benefit but it is a positive.
Okay, Great and then just another follow up on the restaurant margin expectation for 'twenty four it sounds like the base case, all else equal is for margin expansion in 'twenty. Four can you just talk a little bit more about the puts and takes across the P&L just a five to six net commodity inflation what are you seeing the opportunity for leverage.
Yes, I think it goes to.
When you talk about the level of pricing we have and.
Guiding to 4% 5%.
Wage inflation, and maybe ours don't grow as dramatically maybe theres some opportunity of labor and then the other operating I think always again.
You get some benefit from that menu pricing in an environment, where a lot of those costs and there are service based cost and it seems like a lot of those have plateaued and so you can get some leverage there as well so.
Labor and then rent always seems to give us a little bit of leverage as well so pretty much in all areas I think that cost of sales.
A little bit of the X factor.
Great. Thank you so much.
Your next question comes from the line of Jake Bartlett with Travis Your line is open.
Hello. Thank you so much for taking the question was about your labor and your approach to labor and this builds on a I think an earlier question as well about your focus on kind of traffic over efficiencies and kind of driving margins, but labor per operating week has been growing a little bit less than traffic, but still growing really.
Really strong is there a point, where you feel like youre going to have caught up.
Have the staffing levels that you need.
So that you can get more leverage maybe leveraged incremental sales a little bit more going forward.
Should we think of.
The labor performance over last year, and even two years as being more of a catch up on on a number of people in the stores and we should get more labor leverage going forward.
Yes, I think this is Chris I do think that Michael's kind of address that a couple of times that we think there is an opportunity there and our turnover is down it's.
To pre pandemic levels and so we feel good about that.
Staffing up we have the right staff levels and.
And we should be able to get some some opportunity there.
Okay, and then I think.
I look at your inflation guidance for 24, 4% to 5% of <unk> trying to marry that with with the uncertain macro background and maybe even I am sorry, I jumped on the call little bit late but.
Does that imply that seems to me it would imply a pretty strong macro environment in 'twenty four is that kind of how you're thinking about I mean, whats the kind of the macro backdrop that you are kind of.
Presenting this guidance problems.
But this is Chris again, I think Jerry spoke to that just in his comments. So you may have missed that but basically yeah.
We're not calling for a recession, we're not seeing anything like that in the future. We this would be a rather benign situation and people are still coming out in spite of.
Whatever has been in front of them the consumer has come out and enjoyed our food and our experience and we're expecting that to continue and Michael you may have some yes. Jake this is Michael So we did say 1% of that is state mandated increases, but also keep in mind any wage increases that have occurred that occurred throughout 2023.
We do have to lap those for a full 12 months you you do feel an impact in the next year in 2024 from things that you've done this year. So maybe the rate of sequential growth continues to decline and wage rates, but you do.
So field raises that youre, giving today for the next 12 months.
Okay and last question and I'm sorry, if it was answered as May FERC first you were but.
It really is more about early 'twenty four.
We think about the <unk>.
Impairs and I think investors are trying to kind of figure out the impact of one year versus looking for over longer time periods, you get an underlying trend, but obviously the first half of 'twenty three was very strong.
Specifically the first quarter boosted.
Boosted by lapping omicron, but in terms of how you view.
Early 'twenty four.
Lapping what was going on in early 'twenty three how do you view that as a difficult compare.
Or.
Not I guess I guess theres some kind of.
Concern that the.
Trends could be much lower than expected in the first quarter, just because what you're lapping against.
Yes, I can give it.
Hardwood to fully answer I mean, our operators, we're going to take the mindset of continuing to serve more gas there theyre going to be well staffed we're going to have the product they need to serve their guests and we will do everything we can to continue.
To grow and that's the mindset, we go into any year with and we will see what happens as that happens and were getting store weeks to from the from the stores that are opening in the fourth quarter and then we talked about a number of stores opening in the first quarter.
Great. Thank you so much.
Thank you.
This concludes our Q&A session for today I would like to turn the call back to Gerry Morgan.
Thank you all for joining US Tonight, we appreciate your time and have a great evening.
This concludes today's conference call. Thank you for attending you may now disconnect.
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