Texas Roadhouse Keeps Getting Bigger—In More Ways Than One - FSR magazine (2024)

Everything is bigger at Texas Roadhouse these days. Restaurants exited 2023 earning $7.6 million on average, up from $6.7 million last year, $6.364 million the year before, $4.649 million (COVID calendar) in 2020, and, most notably, $5.55 million in 2019. Going back further, AUVs were $5.209 million, $4.973 million, and $4.805 million in 2018, 2017, and 2016, respectively.

In plain terms, across seven years, Texas Roadhouse locations have started to generate about $2.8 million more per restaurant across the country.

But that’s hardly the final kicker. Unlike much of the industry, Texas Roadhouse’s new builds aren’t shrinking—just the opposite. The chain is building larger prototypes modeled to serve this rush of guests and capture a to-go business that’s gone from relatively immaterial pre-COVID (about $8,741 in weekly sales) to a million-dollar business, per restaurant. Texas Roadhouse in Q4 averaged weekly sales north of $141,000. About 12.6 percent, or $18,000, stemmed from to-go. The weekly overall figure is well above 2022’s $130,176 and 2021’s $121,976. In the seven days preceding the pandemic’s onset, Texas Roadhouse collected $113,777.

The addition of dedicated to-go areas (bump outs and cooler expansions) and more back-of-house space needed to deliver against spiking guest volumes has lifted the size of Texas Roadhouse’s current prototype about 10 percent from what was being built in 2019.

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This past year also marked a record run for new store openings as the company brought 30 corporate units to market (franchisees debuted another 15, including the first two franchises of fast casual Jaggers). That broke down as 22 company-run Texas Roadhouse openings, five Bubba’s 33s, and three Jaggers on the corporate side; and three domestic and 10 international Texas Roadhouses alongside those two Jaggers. Texas Roadhouse also acquired eight franchises. The company shut just one location all year.

Texas Roadhouse now has 635 total corporate restaurants (582 Texas Roadhouse, 45 Bubba’s, and eight Jaggers) and 106 franchises (56 domestic and 48 international Texas Roadhouses and two Jaggers) for a total of 741 restaurants. That figure stood at 611 at the end of 2019.

CEO Jerry Morgan told investors Thursday the company expects to open about the same number of restaurants in 2024, but with a more evenly distributed cadence versus this past year, when 50 percent of openings occurred in the last four months.

More widely, the brand revealed last year it could foresee roughly 900 Texas Roadhouse locations globally as it sails toward $8 billion. And there’s nothing to suggest backing off those goals, Morgan said.

The brand was a $2 billion revenue company in 2017 across 549 restaurants. Within five years—pandemic and all—Texas Roadhouse doubled to $4.014 billion. Today, it’s over $4.6 billion.

Fittingly, Texas Roadhouse also plans to outsize its spend in 2024.

The chain ended 2023 with $104 million in cash as it generated $565 million of cash flow from operations. With that, it self-funded $347 million of capital expenditures in addition to $39 million it used to acquire the aforementioned eight franchises. Texas Roadhouse also returned $147 million to shareholders in the form of dividends, completed $50 million of share repurchases, and repaid the final $50 million of bank debt it borrowed when COVID hit.

In 2024, the company expects to drop between $340 million and $350 million. The guidance last year was roughly $265 million. “Those higher numbers really are reflection of the inflation that equipment and labor has seen to get work done over the last several years,” head of investor relations Michael Bailen said. “Coupled with we’re now an older base of restaurants than we were before and we’re busier than we’ve ever been. So we have equipment that needs to be replaced and getting work done, whether that be building a new restaurant or bumping out an existing restaurant costs more than it did in the past.”

Part of the uptick will also owe to the company’s continued rollout of “digital kitchens.” The new kitchen display system costs about $45,000 per store to put in and Texas Roadhouse wants to do 200 of them in 2024—a bill that totals roughly $9 million. That equipment was standardized for new openings at all three brands.

Like all decisions at Texas Roadhouse, Morgan, himself once a managing partner, said the call to ignite KDS, and hopefully cover the entire fleet someday, resulted from store-level feedback. Texas Roadhouse converted 20 in 2023 and is up to “40 or 50” total. Morgan said they reduce commotion in the kitchen (since they’re not firing paper tickets back and forth) and have given restaurants the ability to track cook times. “What I see in those kitchens is communication, consistency,” Morgan said. “It just organizes it so people don’t stress out when you’ve got a whole bunch of tickets in front of you and all of that. And we can clearly monitor how long our cook times are. So that will be a big win for us going forward.”

Bailen added KDS leads to a “happier Roadie [employee],” who has been less likely to seek other employment in those stores. “You’re keeping that efficient, productive employee for longer,” he said.

And for the front of the house, food comes out quicker. Couple that with “Roadhouse Pay,” the brand’s pay-at-the-table device that flows through Ziosk’s Cloud Commerce program, which is speeding up the check and change portion of the dining experience, and table turns are shortening. “Which allows you to quote a shorter wait time to that next guest,” Bailen said. “So by the end of the night, maybe somebody who was previously being told they could be sat at 8:30 is now being told 8:10 or 8:15, and that may make all the difference in their willingness to stay and us getting another table turn in the restaurant.”

The ability to check-in using a waitlist banner in Texas Roadhouse’s app, web, or via text is something Morgan said the brand wants to continue raising awareness of, too. Its digital platforms remain the most efficient way to get a seat as well as place to-go order.

Clearly, however you choose to spin it, despite a higher-cost market and ongoing challenges with inflation, Texas Roadhouse isn’t letting off the accelerator. In Q4, same-store sales climbed 9.9 percent at corporate units and 8.9 percent at domestic franchises. Across the full calendar, comps rose 10.1 percent on top of 2022’s 7.3 percent gain.

More than half of that double-digit performance came from higher guest traffic, Morgan said.

Q4’s comp was driven by 5.1 percent traffic and a 4.8 percent jump in average check. By month, same-store sales lifted 9.2 percent in October and November, and 11.1 percent in December.

Despite a somewhat tepid January (an industry-wide trend thanks to weather), comps are tracking 6.8 percent higher (3 percent traffic) across the first 50 days of the year, with restaurants averaging sales of about $155,000 per week. Assuming that holds, Texas Roadhouse would eclipse $8 million AUVs by the time 2025 arrives.

Morgan said there’s currently a “large group” of restaurants in the system doing “significantly” more than the $7.5 million average. “And so, as I’ve said in the past, they’re the ones leading the way that show us that even our average-unit volumes can increase year-after-year if we continue to execute and do the things that our operators need to be able to get more people through their building,” he said. “And there’s definitely a demand there. We’ve just got to continue to execute [serving] more people, more product, and we’ll be just fine.”

Restaurant margin dollars per store week also increased in Q4 to over $21,600. The 4.8 percent check increase offset 3.2 percent commodity inflation, which came in at 5.6 percent for the year.

Labor dollars per store week increased 7.9 percent due to wage and other labor inflation of 5.5 percent and growth in hours of 2.4 percent. For 2023, wage and other labor inflation clocked in at 6.6 percent.

CFO Chris Monroe said Texas Roadhouse expects further inflationary pressures in 2024, albeit at a lower rate than recent years. The main challenge will be cattle supply, especially in the back half. In turn, Texas Roadhouse expects 2024 commodity inflation of about 5 percent and labor between 4–5 percent. It will take 2.2 percent price in the beginning of Q2.

Texas Roadhouse held about 5.5 percent price in Q4 and should be at about 4.8–4.9 percent through the first three quarters of 2024 and 2.2 percent in Q4. But that remains a fluid reaction. “This process includes looking at traffic trends, state-mandated wage increases and local labor trends as well as comparing our prices to those of other restaurants in their specific community,” Monroe said.

Texas Roadhouse’s philosophy through inflation has been to price for the structural component, largely wage related. And it hasn’t taken price as soon as it feels it. So some of what’s coming is to offset wage pressures that mounted over several years as the brand managed the line. “Still going from a bottom-up approach of talking to each operator and making sure they are absolutely in alignment with what we’re doing,” he said.

Speaking on the health of the overall consumer, Texas Roadhouse witnessed some negative mix in its alcohol category over recent quarters. Customers are also gravitating toward more value-focused offerings on the menu, like the 6-ounce sirloin. Bailen said Texas Roadhouse continues to see guests trading down into the brand from fast casual or other casual peers and, overall, “we feel very happy with the consumer right now.”

“I think our value has always been built into the menu,” Morgan noted. “And the consumer feels very good about our offerings. And from that standpoint, whether it be our steak or our chicken, all of our offerings are country dinners. So we feel very good about where we’re placed.”

Monroe tacked on that turnover for Texas Roadhouse is “at or better” than pre-COVID.

“I think we’re creating an environment where our employees want to work and be a part of something that’s really special,” Morgan said. “So I believe it’s a very positive environment out there and we are benefitting. The longer our folks can stay around and we keep Roadie Nation happy, they’re going to keep taking care of us.”

“Winners win,” Bailen added.