Q3 2024 Texas Roadhouse Inc Earnings Call
Speaker Change: Good evening and welcome to the Texas Roadhouse 3rd Quarter earnings conference call. Today's call is being recorded.
Speaker Change: All participants are now in A-Listen Only Mode. After the speaker's 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.
Speaker Change: I would now like to introduce Michael Bailen, head of investor relations for Texas Roadhouse. You may begin your conference.
Michael Bailen: Thank you, Rob, and good evening. By now you should have access to our earnings release for the third quarter and it's September 24th, 2024. It may also be found on our website, texasroadouts.com in the Investor section.
Michael Bailen: I would like to remind everyone that part of our discussion today will include forward-looking statements.
Michael Bailen: 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 in our recent filings with the SEC.
Michael Bailen: These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements.
Michael Bailen: In addition, we may refer to non-gap measures. If applicable, reconciliation of the non-gap measures to the gap information can be found in our earnings release.
Speaker Change: On the call with me today is Jerry Morgan, Chief Executive Officer of Texas Roadhouse, and Chris Monroe, our Chief Financial Officer.
Speaker Change: Following the prepared remarks, we will be available to answer your questions.
Speaker Change: In order to accommodate everyone that would like to ask a question, could everyone please limit yourself to one question?
Speaker Change: Now, I would like to turn the call over to Jerry.
Jerry Morgan: Thanks, Michael, and good evening, everyone. We are pleased to report strong third-quarter results, which were highlighted by 8.5% same-store sales growth and approximately $1.3 billion of revenue.
Jerry Morgan: These results are a testament to our operators continuing to create an environment where roadies want to work and our guests want to dine.
Jerry Morgan: Since last quarter, I've had the opportunity to visit with managers and roadies at a number of our international franchise restaurants.
Jerry Morgan: Also, over the past five weeks, I have been traveling the country meeting with our managing partners during our annual fall tour.
Jerry Morgan: Both internationally and domestically, I can tell you the pride and passion our operators have for running their restaurants have never been higher.
Jerry Morgan: As always, the feedback we receive from managing partners during these listening sessions is extremely beneficial as we learn what our owner-operators need to run their business.
Jerry Morgan: On the development front, we opened seven Texas Roadhouse company-owned locations in the third quarter.
Jerry Morgan: For the full year, we expect to open approximately 30 restaurants across all brands.
Jerry Morgan: Our franchise partners opened three international Texas Roadhouse restaurants during the quarter.
Jerry Morgan: This puts them on track for a total of 14 openings this year, including three Jaggers.
Jerry Morgan: I also want to call out the recent October opening of our first international Jaggers location on a U.S. military base in South Korea. This marks our fifth franchise restaurant location on a U.S. military base.
Jerry Morgan: Looking ahead to 2025, we are targeting approximately 30 company-owned restaurant openings across all brands.
Jerry Morgan: Additionally, we have a tentative agreement with one of our largest domestic franchisees to acquire 13 Texas Roadhouse restaurants at the beginning of 2025.
Jerry Morgan: Our International Texas Roadhouse Franchise Partners are currently expecting seven openings next year, while our Domestic Jaggers Franchise Partners are targeting three new locations.
Jerry Morgan: During the third quarter, we also completed our normal review of menu pricing with our operators. As a result, we rolled out new menus at the beginning of the fourth quarter.
Jerry Morgan: which included a price increase of less than 1%. We remain proud of our everyday value proposition and believe this is the appropriate level of pricing.
Jerry Morgan: Also, our technology initiatives continue as planned, and we remain encouraged by the positive feedback we are receiving, with over 200 digital kitchen conversions completed so far this year.
Jerry Morgan: We feel confident in achieving our target of over 250 conversions by the end of this year. We also remain on track to convert nearly all of our restaurants to a digital kitchen by the end of 2025.
Jerry Morgan: Additionally, we are making progress on the upgrading of our restaurant guest management system.
Jerry Morgan: Finally, October has been a very rewarding month for our company.
Jerry Morgan: In addition to Fall Tour, we had the privilege of celebrating 20 years as a public company by ringing the closing bell at NASDAQ.
Jerry Morgan: We are very proud of the growth we have seen as a public company. We have expanded from one brand to three.
Jerry Morgan: We have increased our footprint from just over 175 restaurants to nearly 775. And we have grown Rhody Nation from over 10,000 employees to nearly 100,000.
Jerry Morgan: Also, we were named the 2024 Brand Icon by Nation's Restaurant News. We are truly humbled to be the first casual dining restaurant to receive this award.
Jerry Morgan: All of these events were even more special because we were surrounded by the best operators and support team in the industry. Now Chris will provide some thoughts. Thank you, Jerry.
Chris Monroe: You know, fall tour is quickly becoming one of my favorite times of the year. The conversations with our operators have proven to be really important and help us all perform our best.
Chris Monroe: And the NASDAQ bell ringing was such a special moment for all of us. It was especially meaningful that we had 50 of our managing partners on stage with us. We were able to demonstrate in a visible and tangible way just how important our managing partners are to the success of our company.
Speaker Change: Now moving to the third quarter, weekly sales averaged $153,000 at Texas Roadhouse, $117,000 at Bubba's 33, and $72,000 at Jagger's, our quick service brand.
Speaker Change: We were especially encouraged to see that all three brands delivered positive traffic and sales growth, and this momentum has carried forward into the beginning of our fourth quarter.
Speaker Change: As we look forward to the remainder of this year and into next year, we believe the 0.9% menu price increase will allow us to maintain our value proposition and our traffic and mix levels.
Speaker Change: Additionally, we continue to see a steady to more positive outlook for inflation within commodities and labor.
Speaker Change: Commodity inflation, driven by lower than forecasted beef costs, was once again below our guidance in the third quarter.
Speaker Change: This has also resulted in an improvement in our outlook for fourth quarter commodity inflation and factors into our initial expectations for next year's inflation.
Speaker Change: At this time, we are updating our full-year commodity inflation guidance to less than 1%.
Speaker Change: This adjustment reflects both the impact of lower than initially forecasted inflation in the third quarter and our current expectation of relatively flat commodity price levels in the fourth quarter.
Speaker Change: Also, we are establishing our initial 2025 Commodity Inflation Guidance at 2-3%.
Speaker Change: Wage and other labor inflation during the third quarter remained in line with our guidance and we believe this trend will continue in the fourth quarter. We were also pleased to see that our labor-hour growth relative to traffic growth remained well below our historical levels.
Speaker Change: As we approach the end of the year, we are narrowing our full year 2024 labor inflation guidance to approximately 4.5 percent.
Speaker Change: For 2025, we are forecasting wage and other labor inflation of 4 to 5 percent, with mandated increases representing as much as 1.5 percent of the increase.
Speaker Change: With regard to cash flow, we ended the third quarter with $189 million of cash.
Speaker Change: Cash flow from operations was $139 million, which was offset by $141 million of capital expenditures, dividend payments, and share repurchases.
Speaker Change: As Jerry mentioned, we do have a tentative agreement in place to acquire 13 franchised restaurants at the beginning of 2025. Included in this acquisition will be seven restaurants in Indiana and Ohio and six in California.
Speaker Change: Our current expectation is to fund this acquisition through existing cash on hand.
Speaker Change: Finally, for 2025 we are establishing our initial capital expenditure guidance at approximately $400 million excluding the aforementioned franchise restaurant acquisition costs.
Speaker Change: This should provide sufficient capital to build new restaurants, maintain, expand, or relocate our existing restaurants, and invest in our various technology initiatives.
Speaker Change: As always, we believe these investments are a great use of our capital and should result in further shareholder value creation.
Speaker Change: And now, Michael will walk us through the third quarter results.
Michael Bailen: Thanks, Chris. For the third quarter of 2024, we reported revenue growth of 13.5%, driven by a 7.5% increase in average unit volume and 5.8% store week growth.
Michael Bailen: We also reported a restaurant margin dollar increase of 24.1% to $202 million and a diluted earnings per share increase of 32.5% to $1.26.
Michael Bailen: Average weekly sales in the third quarter were $149,000 with to-go representing $19,000 or 12.7% of these total weekly sales.
Michael Bailen: Comparable sales increased 8.5 percent in the third quarter driven by 3.8 percent traffic growth and a 4.7 percent increase in average check.
Michael Bailen: By month, comparable sales grew 8%, 8.1%, and 9.3% for our July, August, and September periods respectively.
Michael Bailen: And comparable sales for the first four weeks of the fourth quarter were up 8.3%, with our restaurants averaging sales of over $151,000 per week during that period.
Michael Bailen: In the third quarter, restaurant margin dollars per store week increased 17.3% to nearly $24,000.
Michael Bailen: Restaurant margin as a percentage of total sales increased 137 basis points to 16 percent.
Michael Bailen: The year-over-year improvement in the restaurant margin percentage was negatively impacted by approximately 30 basis points
Michael Bailen: due to the change in our annual gift card breakage adjustment.
Michael Bailen: to $0.6 million this year.
Michael Bailen: from $3.7 million last year.
Michael Bailen: Food and beverage costs as a percentage of total sales were 33.5% for the third quarter.
Michael Bailen: The 107 basis point year-over-year improvement was primarily driven by the benefit of a 4.7% check increase offsetting the 1.3% commodity inflation for the quarter.
Michael Bailen: Labor, as a percentage of total sales, decreased 18 basis points to 33.8% as compared to the third quarter of 2023.
Michael Bailen: Labor dollars per store week increased 6.7% primarily due to wage and other labor inflation of 4.7% and growth in hours of 1.1%.
Michael Bailen: The remaining 0.9% increase was due to the $3.5 million net impact from adjustments related to group insurance and workers' comp claims experience.
Michael Bailen: This includes $2.2 million of unfavorable claims experienced this year and the lapping of last year's $1.3 million favorable claims adjustment.
Michael Bailen: Other operating costs were 15.1% of sales, which was eight basis points better than the third quarter of 2023.
Michael Bailen: Higher operator bonuses as a percentage of sales, resulting from increased year-over-year restaurant-level profitability at a 30 basis point negative impact.
Michael Bailen: This was largely offset by the 23 basis points positive net year-over-year impact from general liability insurance reserve adjustments.
Michael Bailen: which includes a 0.4 million dollar unfavorable adjustment this year and the lapping of a 2.9 million dollar unfavorable adjustment from last year.
Michael Bailen: Moving below restaurant margin, G&A dollars grew 15.6% year-over-year and came in at 4.3% of revenue for the third quarter.
Michael Bailen: The majority of the year-over-year dollar increase was due to higher compensation and benefit expense, including the $2.1 million impact of the timing of our change from quarterly to annual equity grants.
Michael Bailen: Our effective tax rate for the quarter was 16.7 percent.
Michael Bailen: The higher tax rate was driven by an increase in our profitability outlook for the full year. Based on this outlook, we are updating the guidance for our full year 2024 income tax rate to approximately 15%.
Michael Bailen: And our initial forecast for the full year 2025 income tax rate is between 15 and 16 percent.
Michael Bailen: Finally, as a reminder, 2024 is a 53-week year for us.
Michael Bailen: As such, the fourth quarter 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%.
Speaker Change: Now, I will turn the call back over to Jerry for final comments.
Jerry Morgan: Thanks, Michael. There's no doubt that reflecting on 20 years as a public company fills us with great pride and gratitude.
Jerry Morgan: Speaking of 20 years, we also just celebrated our 20-year partnership with Homes for Our Troops.
Jerry Morgan: which provides custom-built homes for severely injured post-911 veterans. We recently had the privilege of funding their 400th home for Lance Corporal Alberto Flores in New Bronzeville, Texas.
Jerry Morgan: Partnering with such a great organization is what Texas Roadhouse is all about as we strive to serve communities across America and the world.
Jerry Morgan: Finally, as I have said before, we will always honor our past, but our focus will remain on the future. At 31 years young, we are just getting started.
Jerry Morgan: That concludes our prepared remarks. Rob, please open the line for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Sarah Senator from Bank of America. Your line is open.
Sarah Senator: Michael, you spoke a little bit about some of the claims and adjustments that were in that number, so I just want to get a sense for how much longer we should be considering those adjustments in that labor line going forward, and is there a point at which they are no longer a headwind?
Michael Bailen: Yeah, hi Catherine, it is Michael and you know a lot of those adjustments have to do with insurance and you know how those claims come in and so that's something that you know
Chris Monroe: You really never know how they may affect us one way or another, but that is separate from the labor productivity that we are seeing, which I think can continue certainly through the end of this year. And Catherine, this is Chris. I mean, I think we're...
Chris Monroe: We're comfortable being self-insured and and that's why we report those numbers every quarter But also the the productivity levels that we talked about Have them have continued to improve we were in in terms of
Chris Monroe: hours of labor versus traffic growth, we're well below our 50% historical averages and again in Q3 we were you know we were below 30% so we've had five straight months of that metric improving.
Speaker Change: Great, okay, thank you. And then I just want to move to the commodity inflation guidance, which continues to surprise to the downside, and it seems like next year's inflation assumption or something, excuse me, doesn't anticipate a real like step up in inflation, despite concerns about the size of the beef herd. So can you talk about what you're seeing there, what's embedded in that inflation guidance?
Speaker Change: Sure, I mean, you know, obviously, you know, our purchasing department has
Speaker Change: have been hard at work in determining what levels of cost we're going to have in 2025, and we're not going to get into the specifics of what's going to happen.
Speaker Change: It does include a combination of locked prices and assumptions. And the majority of that inflation guide is coming from beef, similar to this year.
Speaker Change: Thank you.
Speaker Change: Our next question comes from a line of Jake Bartlett from Truist Securities. Your line is open.
Speaker Change: Great. Thanks for taking the question. You know, mine was another one on the commodity outlook in beef.
Speaker Change: You know one thing about the beef picture it seems like when there's good news in one year it can be bad news for for the next so you know supply has been a little less bad this year and my impression was that means that
Speaker Change: you know that supply next year you know kind of kicking the can down the road so a little surprised to see kind of two decent years in a row expected within beef costs and so you know I guess
Speaker Change: The question is why but but but also just if you can help us understand just what your beef inflation is expected to be In 24 and what's it expected to be in 25? Just want to make sure I understand what the beef expectations are, you know in those two years for the commodity guidance
Chris Monroe: Jake, it's Chris. You know, beef is roughly half of our basket and so it drives a lot of the commodity increase.
Chris Monroe: And you're correct in that this year has been a surprise that we didn't see the amount of inflation driven primarily by beef that we expected.
Chris Monroe: And, look, we think that there's a lot going on in that. There's supply and demand, and these ranchers are just business people, and they're looking at the price they're able to get for their cattle and what it costs them to raise the cattle.
Chris Monroe: So, and as interest rates come down, as there's perhaps more rain, as grain prices have come down, you know, that may inspire there to be more breeding and to rebuild the herd, but it is a challenged environment for sure in beef.
Chris Monroe: We just haven't seen it come to fruition because of the demand side, at least this year, and at least what we can see so far into 2025. Michael, did you have something to add? And Jake, to your question of, you know, what kind of is embedded in the 2024 and 2025 overall inflation from beef, and this year in 2024, you know, everything and then some is coming from beef with other items.
Chris Monroe: being flat to deflationary for 2025, beef is driving the majority of our assumed inflation, with most other items flat to maybe a touch of inflation.
Speaker Change: Okay, and just in terms of those other items, and I know we always focus on these, but there is 50% that's the other. Do you have visibility on that portion? You know, I assume there's maybe a little ability to contract for that portion, but how confident are you in the kind of the flat, you know, I think you meant flat for the for that other 50% of your
Speaker Change: to modern needs.
Speaker Change: You know, there are certain items that we're probably, you know, more locked into than others, you know, there's no one item that
Speaker Change: is a huge component of our overall basket.
Speaker Change: You know, the potential for those costs to be higher or lower than what we expect, but they would have to really be dramatically different to play a big part in the numbers.
Speaker Change: All right, thank you very much.
Speaker Change: Our next question comes from the line of Brian Bittner from Oppenheimer. Your line is open.
Brian Bittner: Thanks. I wanted to ask a question about pricing.
Brian Bittner: the 0.9% price increase in September and I think that
Brian Bittner: for 2025. So how does that inform you about your pricing strategy next year relative to this kind of 3%-ish run rate you're taking into the new year? And how do you want us analysts thinking about pricing for 2025?
Brian Bittner: And I'll start off.
Speaker Change: Basically we have the same process that we've used. We will again look at pricing and have conversation with all of our operators after the first of the year, you know, and then as we kind of make that decision based on the environment that we're in at that time, we get feedback from our operators.
Speaker Change: We talked amongst ourselves, and then we will decide on what we believe is the best long-term decision for the business. So I guess from a bigger picture standpoint, it's still early to decide, but we will continue to use the process we've used for multiple years of evaluating, talking with our partners, and then making a decision based on that current event, which is...
Speaker Change: many months from now.
Michael Bailen: And Brian, this is Michael. Your math is correct. We will have 3.1%
Michael Bailen: We'll have that same 3.1 for the first quarter, and then we would have 2.2% rolling off, and we will go through our normal conversations to see what we may or may not do come the beginning of the second quarter.
Brian Bittner: got it got it so when that 2.2 rolls off for instance you would have to take say 1.6 at that point to be at that two and a half percent price range until you lap the 0.9 you just took right just confirming that
Speaker Change: Yes, the 1.6 combined with the .9 will give you 2.5.
Speaker Change: Okay, great. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Eric Gonzalez from Key Bank. Your line is open.
Eric Gonzalez: Chris Monroe, Michael Bailen, David Palmer, Michael Bailen, David Palmer, Michael Bailen,
Speaker Change: That being said, you know, our 17 to 18 percent goal is always out there and we're interested in hitting it consistently.
Speaker Change: And we've already talked about pricing having another component to it, you know, and starting in the second quarter.
Speaker Change: It really is going to depend on how all of those things come together. We've been very pleased with our ability to expand the margin this year, but we'll just have to look at all those elements as they come together in 2025.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Jim Salera from Stevens. Your line is open.
Jim Salera: Hey guys, thanks for taking our question. Maybe a two-part question on mix. Part one, if you could just kind of give us an update on, you know, the mix contribution in the quarter and particularly on kind of alcohol versus the add-ons.
Jim Salera: And then part two is, if we think about where you took pricing across the menu, is it basically that 0.9% kind of evenly across, or are there any particular parts of the menu, whether it's...
Jim Salera: appetizers or desserts that saw a little bit more or less price and just how you think about that as it impacts mix.
Speaker Change: Yeah, you know, maybe I'll touch on the mix here to start. I'll tell you, our mix in the third quarter was very similar to what we had seen in the second quarter. Still seeing positive entree mix, positive soft beverage mix.
Speaker Change: and positive add-ons, that alcohol mix is remaining negative, it hasn't gotten any worse, but it is the, you know, it's...
Speaker Change: It's really what's driving that slight negative mix, we're probably around 20 basis points.
Speaker Change: of negative mix in the third quarter. So, you know, to me, you know, we're seeing good results from our guests, not hearing of any pushback.
Speaker Change: on the menu pricing that we have taken, so I believe we're still screaming value.
Speaker Change: And Jim, I'll say, on the point nine.
Speaker Change: across the board, there's probably, I don't have it right here in front of me, but I think in general as we look at the overall menu, that's how we come up with that. You know, so it would be hard for me to break it down at this point now that we're five weeks into it on that side, but typically it is spread out through the menu.
Speaker Change: Okay, great. I'll hop back into the queue.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from a line of Brian Harper from Morgan Stanley. Your line is open.
Speaker Change: Yeah, thanks. Good afternoon, guys.
Speaker Change: Yeah, I'm sure there's an aspect of that that sort of improves the employee experience, but do you think
Speaker Change: You know, is that starting to contribute to
Speaker Change: Thanks for joining us. I'm Chris Monroe. We'll see you next time.
Speaker Change: you know table turns is it is it sort of showing in other ways that
Speaker Change: we might sort of observe from the outside.
Speaker Change: You know, I would say it is still a little early for that, but the indicators are good. And obviously, the number one reason is the experience of our employee and our managers and really just the cadence that we use in the kitchen and the communication. I do believe that there are going to be some other benefits as we get more and more stores on the program and on the digital kitchen. So, you know, it's hard for me to quantify that at this time, but the indicators are showing that we should expect some of that return also.
Speaker Change: Thank you.
Speaker Change: You're welcome. Your next question comes from a line of Dennis Geiger from UBS. Your line is open.
Dennis Geiger: Great, thanks guys. Wondering if you could speak a little more to labor hours perhaps into next year after another really strong quarter of managing hours this year. Anything to kind of give on how we should think about the labor hours dynamic heading into next year again relative to the gains that we saw this year? Thank you.
Michael Bailen: Hey Dennis, it's Michael, you know...
Michael Bailen: You know, as I said a little bit earlier, I do think we have the opportunity to see that.
Michael Bailen: algorithm of, you know, labor hours, the traffic growth, you know, be below that 50% level to the end of this year. And maybe as I've, you know, talked about in the past...
Michael Bailen: Going into 2025, it's something we're probably going to be learning together as we enter 2025 as a well-staffed restaurant, doing high volumes, but lapping being a well-staffed restaurant with growing volumes.
Michael Bailen: So, what we'll be learning is 50% kind of still the expectation, or maybe something lower can be had. Our operators are going to be focused on doing what's right for their restaurants, and they know being well-staffed helps them.
Michael Bailen: to help some grow and certainly our turnover continues to trend in the right way and that should
Michael Bailen: help with training and tenure matters. The more experienced you are, the better you are at the job. So hopefully we can continue to improve our productivity, but we'll be learning that together in 2025.
Speaker Change: Sounds good. Thanks, Michael. Congrats to the team.
Michael Bailen: Thank you.
Speaker Change: Your next question comes from a line of David Tarantino from Baird. Your line is open.
David Tarantino: Hi, good afternoon and congrats on delivering such strong momentum in your business. I wanted to ask about unit growth. I think the guidance for next year is
David Tarantino: There's 30 openings, which is for company operated, and it's similar to what you did this year. And I guess as the numbers creep up, I think in the past you've talked about
David Tarantino: Kind of a 5%-ish unit growth number, but as the base starts to get bigger...
David Tarantino: at 30 openings, you're going to start to fall below that. So I was just wondering kind of what is your philosophy?
David Tarantino: around unit growth as you look even beyond 2025? Is it to stay at the mid-single-digit or 5% level? Or is that going to come down as the base scales?
Jerry Morgan: David, this is Jerry. I don't think we've ever really targeted a percentage.
Jerry Morgan: We've always looked at the number of openings for Texas Roadhouse Bubba's and now as we add Jagger into the mix about doing it right.
Jerry Morgan: and Balanced for our operations and I think we will continue to evaluate whether what is the right number for us and and to do it right you have to
Jerry Morgan: Send 25 trainers out on the road. You got to hire 200 plus people. We're opening at really high volumes So we've got we believe that if we continue to do these openings properly That they hold their sales in our operational focus and and if we stretch that too far
Jerry Morgan: then I think that risked that. So I guess from my standpoint is I'm very comfortable in that 30-ish range as we go, and I would like to climb it up a little bit, but I'm not trying to hit a percentage. I'm really just trying to do it right for our operators and for our guests.
Chris Monroe: from a business perspective is kind of our philosophy. And David, it's Chris, and always good to talk to you. You know, don't forget we're adding 13 via acquisition this year, so it's a 43-unit increase this year.
David Tarantino: Understood. Thank you very much.
Speaker Change: Thank you for the kind words. We appreciate it.
Speaker Change: Your next question comes from the line of Peter Salih from BTIG. Your line is open.
Peter Salih: Great, thanks and congrats on another great quarter. Just maybe a question and then one clarification just on the question in terms of
Speaker Change: The same sort of sales trajectory, you know, September and into the beginning of October, there was some pretty nasty weather, but that doesn't seem to be
Speaker Change: at least in the southeast, that doesn't seem to be reflected in your comp numbers. Did you guys see any impact on weather? I know you guys don't like to talk about it, but with 9.3% and 8.3% comps, just wondering if you had any sort of impact on weather at the end of September and beginning of October? And then I just had a quick follow-up.
Speaker Change: Yeah, and Michael may clean this up for me, it's Chris here, but basically what we've seen, and we had, you're correct, there were a number of storms that came through. We've seen, we had stores closed for a couple of days, we were able to get them, most of them reopened, if not all of them reopened very swiftly.
Speaker Change: And then we experienced a bounce back at those stores. So we got, you know, there were sales lost for the couple of days we were closed. We saw more people coming to us.
Speaker Change: first responders and people in the community looking to to dine with us and so you're right the numbers are you know look very consistent but there there definitely was was impact but it was it was masked by the fact that hey if we lost a couple days we got we got some nice bounce back in the weeks following
Speaker Change: Yeah, and I'll just chime in for a second on that. You know, obviously in the big machine, it may not look like it impacted, but our owner operators that are in those communities and affected, you know, we just, our thoughts go out to them and how hard they work to get their restaurants back open and take care of their communities. So, I just want to say thank you to the operators and the partners out there, because it did have a significant impact in many of our communities across that region of the country, and we just continue to think about them and be here to support them.
Speaker Change: Great, and then just as a quick follow-up, I just want to understand the message on the labor hour growth into next year, into 2025.
Speaker Change: Michael, I think you said, you know, potential to be, you know, 50% or below, you know, the last, I think, couple quarters, you've been below that 50% hour growth versus traffic. I'm just...
Speaker Change: Just want to make sure I understand that we're not talking about a situation where you're growing labor hours, you know above 50% Just just trying to understand the message. Maybe I'm missing something there. Thank you
Speaker Change: Yeah, you know, no real message there. It's more of, you know, we, you know, I we don't have a
Speaker Change: You know a labor model that we push down to the restaurants. They are going to staff the restaurants They feel the way they feel is appropriate and certainly they are not looking to use more hours than they need But you know, they do know that staffing the restaurants
Speaker Change: well, helps them grow and some of the benefit we are seeing this year is because of what we're lapping from the previous year and so we'll be well-staffed going up against well-staffed.
Speaker Change: and doing higher volumes than we've ever done before and all I think we're trying to say is we'll pop you know we'll be learning together.
Speaker Change: What that ratio may look like and we can't sit here today and tell you it's going to be 30% or 40% but we're also not trying to tell you that it's going to be something about 50%. It's something we'll be learning as we go.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.
Jeffrey Bernstein: Great, thank you very much. Just a bigger picture question, Jerry, just wondering as you've kind of traveled the countryside, and Chris it sounds like you're along for the ride, I'm just wondering, you mentioned in the press release that from a macro perspective it's an extremely competitive environment.
Jeffrey Bernstein: I'm just wondering what you're seeing or what you're learning from your operators. Maybe is there any response you guys implement when you see a more aggressive competitive environment to protect your own share? Again, it doesn't seem like you're seeing much impact.
Jeffrey Bernstein: So just curious in terms of, you know, some qualitative commentary behind what you're seeing in terms of an extremely competitive environment, whether it's in the state category, whether it's by maybe local operators. And is there anything we should make of?
Jeffrey Bernstein: the fact that the comp slowed from the 9.3 in September to 8.3 in October, is there anything to make of that or is that more just comparisons and perhaps a little bit of weather just trying to clarify? Thank you.
Speaker Change: Hey Jeffrey, number one thank you very much for that. I will tell you that from talking with the operators
Speaker Change: Again, we feel like our operational excellence focus, our
Speaker Change: things that we've got going on. But when it comes to the operation and creating a guest experience, man, we are laser focused on our food, our service, and our community partnership.
Speaker Change: I agree with all that, and Jeffrey, before Mike will get you in to talk about the
Speaker Change: sequential performance.
Speaker Change: I just wanted to add to Jerry's comment, you know, when we do talk with, it could be an individual situation.
Speaker Change: I know you're aware that we have our local store marketing.
Speaker Change: We try and own the communities that we're in, and so when there's specific competition or something going on in a market,
Speaker Change: That reaction is coming from the operators in the market. They're not waiting for us to come over the top with some sort of program. They're reacting to that, and they're competing every day in their community.
Speaker Change: And Jeff, this is Michael. With regards to that comp from September to October, I think what you're maybe not fully contemplating is the amount of pricing we had in the menu. In September, we still had 4.9%, October, 3.1%. So our traffic actually accelerated from something in the mid-4% range in September to in the mid-5% range in October. So we actually saw an acceleration in our traffic trends from September to October.
Jeffrey Bernstein: Incredible. I didn't fully appreciate that. Thank you. And just to clarify that the 30 units that you talked about for next year
Jeffrey Bernstein: First of all, I guess that the three jaggers are incremental to that. So we're talking about 30 core units of Texas and Bubba's, and if that's the case, I'm just wondering roughly how many Texas and how many Bubba's would you think within that 30 for next year? Thank you.
Jeffrey Bernstein: Thank you. Bye.
Speaker Change: Yeah, you know, it'll probably be, you know, again, if that number could move a little bit, but I would say in the mid.
Speaker Change: may be at the 20 to 20-ish on Roadhouse and then obviously the rest will be Bubba's and Jagger's.
Speaker Change: And Jeff, just to clean that up a little bit, we have set approximately 30 restaurants across all the brands. When we talked about the three Jaggers, that those were franchise locations. So you may see a couple of Jaggers, as Jerry said, probably low 20s on Roadhouse and six, seven, eight Bubba's in there.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from a line of Lauren Silberman from Deutsche Bank. Your line is open.
Lauren Silberman: It seems like traffic, I guess, is closer to 5%, which is better than you guys have done all year. What do you think is driving that momentum building?
Michael Bailen: Hey Lauren, it's Michael. I would say as far as the third quarter, you know, and kind of any regional differences, I would tell you, you know, North, South, East, West, we saw strong comp performance, nothing that would say one area was
Michael Bailen: Meaningfully outperforming another or anyone was was lagging. So, you know, very strong performance
Michael Bailen: not only regionally, but by day of the week and by shift. So, a very strong performance there. And you are right, our comp in October included over five percent.
Michael Bailen: traffic growth and you know that that is a little bit of an excuse to be a little bit of an acceleration and I think it's just a continuation of us
Michael Bailen: Our operators doing what they always do and making sure that we are providing a legendary experience and being well staffed and priced accordingly and delivering on our promise and that consistency that we've always delivered to them, we're being rewarded for that.
Speaker Change: Great. Do you think there's anything we should consider in terms of comparers getting tougher through the fourth quarter?
Speaker Change: I mean nothing you know you know we'll see how it all you know plays out and you know you know the
Speaker Change: The comps, you know, are...
Speaker Change: We're strong in November and December, but whether it's looking at one year or multi-year to maybe see what the right trend is, I'll kind of leave that up to you. But we know we're ready to serve the guests, and we believe there's a lot of demand out there for our product.
Speaker Change: Great. Thank you guys so much.
Speaker Change: Your next question comes from a line of Jeff Farmer from Gordon-Haskett. Your line is open.
Jeff Farmer: Thank you. Just following up on Jeff's Managing Partner Tour question, I'm curious what were some of the more interesting or I guess unexpected things you guys heard from managers and specifically as it relates to pricing power which you touched on but also demand across the customer income levels?
Speaker Change: Well, our conversations are, like I said, a lot of the internal we've got to.
Speaker Change: A couple of things that are going on that we're trying to adjust on the system side.
Speaker Change: You know, pricing, we've already had those conversations, so we haven't seen any or heard any negative on the 0.9 that we took at the end of the, or the start of the fourth quarter. So I think that most of the conversations are really good.
Speaker Change: right now, which is because obviously we're having some real success and exciting to share that with the operators. And they love what they're doing. They just want to keep getting better at it.
Speaker Change: Okay, thank you
Speaker Change: You're welcome. Thank you.
Speaker Change: Your next question comes from the line of John Tower from Citi. Your line is open.
John Tower: Hey, thanks for taking the question. I appreciate it. Maybe just on the inflation outlook for labor next year, Chris I think you had mentioned that state mandated increases is going to add about a point and a half to that of the four to five percent that you outlined for 25. Just curious if you could get into what the balance of that
John Tower: Maybe come down a little bit certainly versus what we've been seeing in in recent years So just kind of curious to get flesh out. What has is driving the balance of that? increase
Speaker Change: The acquisition will add a little bit of pressure with adding some California stores into the mix there, and those are probably the lion's share of what we're expecting there.
Speaker Change: Okay, cool. And maybe just pivoting to CapEx, you know, the number for next year, the number of stores sitting similar to this year at roughly 30, and I think you're going to have more of the KDS development. So is that kind of the difference between the, you know, 360, 370 this year and the 400 you're targeting next year?
Chris Monroe: Hey John, it's Chris. Yeah, you have it right there. And again, we're focused on putting money into our stores. Some of them are getting older, we want to make sure that they look fresh, that they're inviting to our guests.
Chris Monroe: and they're great places to work as well.
Chris Monroe: And then we are investing, as we discussed in previous quarters, we're investing in bump-outs.
Chris Monroe: Kitchen Expansions, and other things that will provide value as well. And keep in mind, those investments are in stores that are doing well. So you're expanding somewhere where you already have great business.
Chris Monroe: and you're just creating some capacity there. So we feel like that increase makes a lot of sense.
Speaker Change: Got it. And then just lastly, I'm curious if you could add any color on how the bun and butter rollout is going at Walmart so far.
Speaker Change: Well, thanks for asking. It's still pretty early. Indications are it's exceeding our expectations.
Speaker Change: But it's still, all the retail business is really to drive awareness of our brands and have some fun with it and see if it's a demand on the consumer side. We've learned a lot.
Speaker Change: Since we've kind of gotten into that segment over the last several years, but it's still pretty new But you know, it's exciting to see that there is still a demand for anything inspired by Texas Roadhouse
Speaker Change: Awesome. Thanks for the questions.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of David Palmer from Evercore ISI. Your line is open.
David Palmer: Thanks guys and congrats.
David Palmer: I wanted to ask you about pricing versus wages and how you're thinking about that. In recent years, I was beginning to think that you would generally price towards wages rather than towards food inflation cycles.
David Palmer: that you would sort of price to the consumer, that would be sort of represented by the type of wages that you'd be paying your own people.
David Palmer: This next year, it feels like we're navigating towards the twos type of price increases.
David Palmer: Your wage rate will be going up roughly...
David Palmer: twice that level so
Speaker Change: I'm wondering if you're consciously thinking that way that you're either making an investment in labor right now that ways that you think are appropriate or maybe opportunistic or are you making investments in value to the consumer that reflect some realities that you see out there I'm just wondering how you're thinking about that
Michael Bailen: Hey David, it's Michael. I think you kind of hit it on the nose there at the end. We are certainly, you know, viewing this as we are, you know, investing, you know, you know, in the gas. This is not any kind of
Speaker Change: Thank you so much for joining us today, and we hope that this brief leap of correlating the pricing that we're taking to the level of commodity pressure that we may be feeling, you know, would probably not be an accurate, you know, thought, you know, the pricing discussions were happening well before we had a, you know,
Speaker Change: current picture of what we expected for 2025. So the pricing reflects what we think was, you know, and, you know, with collaboration of our operators, what we all think is appropriate for the business right now. And, you know, make making sure that we, you know, continue, you know, to, you know, deliver on that value proposition that has been so important for us for 30 plus years.
Speaker Change: you know part of the reason I'm asking about that is in the past call it you know seven to...
Speaker Change: to 10 years, there have been eras where you were either investing in hours, and I think a little bit before COVID, and then you started also doing some wage adjustments that you thought appropriate in the business, too.
Speaker Change: You know you guys have been very thoughtful in certain eras about your investments and things and maybe this there's something opportunistic I mean your your hours are are so efficient versus you know year-over-year basis
Speaker Change: There's maybe something of a good timing in terms of the wages outpacing what is typically what we're seeing out there elsewhere. So, I'm wondering how you're thinking about that.
Speaker Change: Yeah, man, again, we're just running the business the way we always have, really, you know, no change. We're going to do what's right.
Speaker Change: for the operators, what's right for the restaurants, and what's right for our guests. If that means adding people, we want them adding people, but we're going to always be very careful on the pricing side.
Speaker Change: you know, erring on the side of making sure we're screaming value.
Speaker Change: Thanks guys.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Chris O'Call from Stiefel. Your line is open.
Chris O'Call: Hey guys, thanks for taking the question.
Chris O'Call: Jerry, it looks like the newer Bubba locations are running at significantly higher volumes than the older store cohorts. I realize you only have three stores open in the last six months, but is there something special about those stores or are higher volumes from new units something we can expect from Bubba's?
Jerry Morgan: Well, thank you for noticing. We appreciate that. You know, I think it could be somewhat of where they're opening at, but we are very happy with the success.
Jerry Morgan: that we've had in our new store openings over the last 18 months and it does seem to be elevating and you know again as we continue to look at opening these stores with the right amount of support and with Operational excellence in mind that could be is that we're executing at a higher level There's definitely a demand when we open the store So the more efficient that we can be of getting folks in and getting them taken care of and and having a memorable Experience could be rewarding us from from that side of it so it just tells me we need to continue to to put the effort into getting these openings done and and And executing at a high level because the demand is there and and so that's very exciting news from our standpoint
Speaker Change #100: Great. Thanks, guys.
Speaker Change #101: Thank you.
Speaker Change #102: Your next question comes from the line of Andrew Strelzick from BMO Capital. Your line is open.
Andrew Strelzick: Hey, good afternoon. Thanks for taking the questions. Just two quick ones from me. Can you share how the volumes and margins of the stores that you're acquiring for the franchisee, how those compare to the
Andrew Strelzick: the rest of the company's stores. And then my second question, and I feel a little silly asking this, I think I know the answer, but we've seen most of the delivery holdouts, I guess, have evolved their thinking around third-party and found structures that work for them. Has your thinking evolved at all, or do you think there's ever a structure that you could find that might make sense for your brand? Thanks.
Michael Bailen: Hey Andrew, it's Michael. I'll address the first one and then I'll let Jerry chime in on the delivery. As far as those acquisition stores...
Michael Bailen: they actually will drive some nice volume increases for us. Our average weekly sales as you're modeling that for 2025, you probably want to add about a half a percent evenly mixed between traffic and check, growth coming from what those 13 stores will deliver volume-wise. They're probably about neutral to margins, maybe a slight increase in margin dollars coming from them.
Michael Bailen: And then on the third party, you know, we do utilize it at Jaggers.
Michael Bailen: We also have it in most of our Bubba's stores.
Michael Bailen: and one roadhouse in New York City.
Michael Bailen: that it does make sense in. So I think our stance is still the same. We will continue to evaluate if it will at this time.
Michael Bailen: add any value to the business. We're comfortable where we're at now and you know we are paying attention to what's going on out there at all levels of third-party involvement but right now I feel very comfortable with us not having to rely on that to grow sales.
Michael Bailen: We really like to try to do it through our dining room and through our to-go business first.
Speaker Change #104: Great, thank you very much.
Speaker Change #105: Thank you.
Speaker Change #106: Your next question comes from the line of Raul Katsapali from J.P. Morgan. Your line is open.
Raul Katsapali: Good afternoon, guys. Thanks for all the color today. I wanted to touch back on the steak consumption trends. It was discussed the demand side of the equation was one of the factors for beef inflation outlook. How do you internally think about the risk of grocery pricing or discounting for beef products in this environment and in case at the margin if it becomes more attractive for consumers to cook steak at home? And I have a follow-up.
Raul Katsapali: Yeah, hey Raul, it's Chris, and I'll take the first before you get to your follow-up. That's absolutely what I was talking about. There is a retail demand element to this.
Raul Katsapali: that just wasn't there, at least so far this year. And part of that is we haven't seen the discounting that we might have seen in previous years.
Raul Katsapali: from some of the major retailers, particularly on cuts of stake that would compete with where we are. So, yeah, that's a risk. If they were to start that, then that would bring demand up from that cohort, and that is something we would have to think through.
Speaker Change #108: Anything you guys noted in the past cycles when it comes to food traffic trends, November, December, and then also this year there is a shorter holiday period gap between Thanksgiving and Christmas. Is there any positive or negative impact we should be thinking about from these factors? Thank you.
Speaker Change #108: Yeah
Speaker Change #108: You know
Speaker Change #109: First on the election, obviously 2020 isn't going to be much help to us in looking at any trends, but...
Speaker Change #110: 2016-2012, can't recall there being much of an impact from the election cycle. And we also did look back at that shorter time frame between Thanksgiving and Christmas. I believe 2019 was the last time we had that. There was a lot of noise in there, but didn't see anything significant that would say that we'd be experiencing any issues during that time frame.
Speaker Change #111: Perfect. Thanks for the update, guys.
Speaker Change #112: Thank you.
Speaker Change #113: Our next question comes from a line of Brian Vaccaro from Raymond James. Your line is open.
Brian Vaccaro: Hi, thanks. Just two quick ones for me if I could. On that labor question and just thinking about the hours next year, can you help us frame what you're seeing currently from an hourly turnover or retention perspective, any perspective on the absolute levels or how that might compare to whatever you view as a normal level, and what other dynamics beyond retention and turnover sort of might cause that relationship to move higher into next year versus what you saw in 24?
Brian Vaccaro: Yeah, hey Brian, it's Michael. I would tell you, you know, we don't share a
Michael Bailen: that turnover number, just because everyone calculates it differently. We do look at it on a 12-month basis, and it continues to trend in the right direction below historical, certainly back to, you know,
Michael Bailen: historical low levels. And so we're very pleased to be seeing that. And it just goes to show when we provide a great experience for our employees and give them the hours that they're looking for and those in the kitchen a calmer experience. It has them, you know, sticking with us.
Michael Bailen: As far as what could cause that to change in the 25, I don't know if I really have anything you know.
Michael Bailen: You know, there to add, unfortunately.
Speaker Change #115: Okay, okay, well, fair enough, that's helpful. And I guess one, just following up on the commodity outlook next year, do you expect much of a difference in your year-on-year inflation in the first half versus second half at this point?
Speaker Change #115: Yeah, Brian, it's Michael again. Maybe a little bit more commodity inflation in the back half of the year, probably just from the standpoint of what we're lapping this year versus last year, but nothing at this point that would say it's dramatically different in the back half of the year than the first half.
Brian: All right, thanks very much.
Brian: Thank you.
Speaker Change #117: Our next question comes from a line of Gregory Frankfurt from Guggenheim Securities. Your line is open.
Gregory Frankfurt: Hey guys, thanks for the question. Maybe just the franchise acquisition that happened, how did that come about? And I guess as you think about the rest of your franchise base, is that something you're looking to do more of?
Speaker Change #119: Thanks for the question. Yeah, we, you know, we talk to our franchise partners regularly, and they've been with us a very long time. And, and we started this conversation a few years back, and we were able to get a deal done through a lot of partnership and hard work. And we're very excited. And, you know, in a lot of these cases, it was always kind of the intention, you know, 2025 years ago when these groups came with us, so we were able to get the terms, we were able to get a heck of a deal for them and for us. And, and it just the timing worked out perfectly and how we like to see it roll out at the start of 2025. And, and so it's a very, very exciting transaction for us at Roadhouse. And we will continue to talk to others that are out there if anything ever comes through.
Speaker Change #119: fruition. We'll keep you guys posted.
Speaker Change #120: Thank you guys, appreciate it.
Speaker Change #121: Thank you.
Speaker Change #122: Our next question comes from a line of Jim Sanderson from North Coast Research. Your line is open.
Jim Sanderson: Hey, thanks for the question. I had a couple of quick follow-ups on capital expenditures. What do you expect build-out costs to be in 2025? Are they relatively stable or any type of relief, so to speak, relative to past inflationary years?
Speaker Change #124: Yeah, I think they're relatively stable. I think you're just looking at a normal kind of a year in terms of build out of the buildings.
Speaker Change #125: All right, and for fourth quarter, I don't know if you tracked this or not, but any feedback on whether your advanced bookings on holiday parties or special banquet events in the fourth quarter are where they should be, where you would expect, or potentially any pickup in demand that you could comment on?
Chris Monroe: Hey Jim, it's Chris here and we don't we don't really play in that game so that that's not going to be something that we see.
Speaker Change #126: All right. Thank you very much.
Speaker Change #127: And that concludes our question and answer session. I will now turn the call back over to Jerry Morgan for closing remarks.
Jerry Morgan: Thank you very much and I appreciate all your time and being with us tonight and thank you for all of those that spoke out on our positive quarter. So with rowdy enthusiasm I bid you a good night. Let's go, Roadhouse!
Speaker Change #128: This concludes today's conference call. Thank you for your participation. You may now disconnect.