Texas Roadhouse (TXRH) Q2 2026 earnings call transcript

Thank you, Holly, and good evening. By now, you should have access to our earnings release for the second quarter and the June 30th, 2026. It may also be found on our website at texasroadhouse. com in the Investor section. I would like to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guaranteed a future performance, and therefore, undue reliance should not be placed upon them.

We refer all of you to our earnings release and our recent filings with the SEC. These documents providing 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 not yet measures. If applicable, reconciliations of the non-GAP measures to the GAP information can be found in our earnings release.

On the call with me today is Jerry Morgan, Chief Executive Officer at Texas Roadhouse and Mike Lenan, our Chief Financial Officer. Following the prepared remarks, we will be available to answer your questions in order to accommodate everyone. I would like to ask a question. Could everyone please limit yourself to one question? Now, I would like to turn the call over to Jerry.

Thanks, Michael. Good evening, everyone. We are excited with our second quarter results as revenue approaches $1.7 billion. We continued our top-line momentum with same-store sales increasing 6.2%, including 3% traffic growth. We are especially pleased that our second quarter average weekly sales exceeded $175,000 for the first time in our company's 33-year history. There's a lot to be proud of across our portfolio of restaurants.

Each of our brands is at a different point in their journey, and I want to take some time to talk about the potential growth each brand has going forward. Texas Roadhouse ended the second quarter with 755 system-wide locations across the United States and 10 foreign countries. Average weekly sales at company restaurants were over $183,000. We are confident in our operator's ability to continue driving sales through traffic growth.

The sales volume and consistent growth that our restaurants have delivered over the long term are a testament to the strength of the brand and the commitment of the best operators in the industry. This year, we expect to open approximately 20 Texas Roadhouse restaurants spread throughout the country. With the momentum in our existing location and a full pipeline of sites under development, the future continues to be incredibly bright for Texas Roadhouse.

Mother 33 ended the quarter with 59 restaurants in 16 states. And just last week, we celebrated the opening of our 60th location, which is our first and the state of Iowa. Average weekly sales for the brand were over $129,000 in the second quarter, and our recent openings continue to perform very well. Our expectation is to open at least 10 of us 33 restaurants this year and maintain this low double digit pace of openings for the next several years.

Lastly, Jagger's also continues to perform well. In the quarter, weekly sales exceeded $76,000, and we opened our 11th company location. The remainder of this year's growth of the company side will be focused in our existing markets. We expect a total of four company openings this year. On the topic of development, we remain on track for approximately 35 company owned openings this year.

Nine of these occurred in the second quarter, including five Texas Roadhouses, three of us 33 in one Jagger's. As we mentioned last quarter, our openings this year are heavily weighted toward the end of the year. At this time, six are scheduled for the third quarter. The remainder of the 2026 openings are planned for the fourth quarter. On the franchise side, our partners opened one international Texas Roadhouse during the second quarter. We expect as many as five more international openings, as well as two domestic Jagger's franchise openings in the second half of 2026.

Moving on to menu pricing, we remain committed to maintaining our everyday value, while also continuing to deliver on legendary food with high level hospitality. Based on recently completed discussions with our operators, we will take a menu price increase of 1% at the beginning of the fourth quarter. We believe this level of pricing strikes an appropriate balance between helping to offset structural inflation and maintaining our everyday value position.

During the first half of 2026, our operators continue to deliver on our mission of providing legendary food and legendary service. In the second quarter, we saw tremendous demand on Mother's Day and Father's Day, which along with Valentine's Day are the three legs of what we call our triple crown. 90% of our restaurants set daily sales records this year on one of those three days, and a handful of our restaurants really crushed it with single day sales, exceeding $100,000 on one of those holidays.

The trust that our guests show our restaurants on the most important dining occasions is one of our competitive advantages. This trust is earned in something we will not take for granted. Now, Mike will provide some thoughts.

Thanks, Jerry. During the second quarter, guests continue to reward us for their overall experience at our restaurants. Sales and mixed trends within our dining rooms were both positive, and we maintained an impressive growth rate in our to-go business during the quarter. These trends continued into the first five weeks of the third quarter with comparable sales up 6.2% and our restaurants averaging weekly sales of $168,000.

Moving on to commodities. While the overall beef supply outlook remains dynamic, given a variety of factors, our second quarter commodity inflation came in at 7%, which was at the bottom end of our forecasted range. As previously stated, our second half inflation outlook remains lower than our first half inflation, and based on our updated forecasts, we are reducing our full year 2026 commodity inflation guidance from between 6% and 7% to approximately 5%. We will provide an initial outlook on 2027 commodity inflation during our quarterly call in November.

With regards to labor, second quarter inflation of 3.9% was in line with our expectations, and we are maintaining our full year 2026 wage and other labor inflation guidance of 3 to 4%. Labor productivity continued its positive trend with labor hours growing at approximately 25% of comparable traffic growth.

On the topic of our capital position, we ended the quarter with $202 million of cash. Cash flow from operations for the second quarter was $180 million, which was offset by $191 million of capital expenditures, dividend payments, and share purchases.

Our guidance for 2026 capital expenditures remains unchanged at approximately $400 million. As always, our capital allocation framework prioritizes new restaurant development and maintaining our existing restaurants. And now Michael will provide the second quarter financial entry.

Thanks, Mike. For the second quarter of 2026, we reported revenue growth of 11.1% driven primarily by a 5.9% increase in average, which we sales and a 5% increase in store weeks. We also reported a restaurant margin dollar increase of 6.9% to $275 million, and the diluted earnings per share decrease of 0.7% to $1.85. Average between sales and the second quarter were over $177,000, with to go representing more than $25,000 or 14.3% of these total weekly sales.

Comparable sales increased 6.2% in the second quarter, driven by 3% traffic growth and a 3.2% increase in average check. By month, comparable sales grew 6.2%, 6.7%, and 5.7% for our April, May, and June periods respectively. In the second quarter, restaurant margin dollars per store week increased 1.9% year over year to over $29,000. Restaurant margin and the percentage of total sales decreased 66 basis points to 16.4% as compared to the same period last year.

Food and beverage costs at the percentage of total sales were 35.4% for the second quarter. The 136 basis point year over year increase was primarily driven by 7% commodity inflation. The inflationary pressure was partially offset by the benefit of a 3.2% check increase.

Labor as a percentage of total sales improved 40 basis points to 32.5% as compared to the second quarter of 2025. Labor dollars per store week increased 4.7% due to wage and other labor inflation of 3.9% and growth in hours of 0.8%. Other operating costs were 14.2% of sales, which was 28 basis points better than the second quarter of 2025.

The leverage was a result of higher sales combined with a $1.1 million net benefit to a quarterly reserve for general liability insurance. This insurance benefit included a credit of $800,000 this year as compared to $300,000 of additional expense last year. Moving below restaurant margin, $DNA increased 15.4% as compared to the second quarter of 2025 and came in at 4.3% of revenue for the second quarter. For full year 2026, we continue to forecast a low double digit percentage increase in our total $DNA expense.

Depreciation expense increased 15% year over year in the second quarter and came in at 3.5% of revenue. For full year 2026, we continue to expect a low teen percentage increase in our total depreciation dollar expense. Our effective tax rate for the quarter was 13.5%. At this time, we are updating our guidance for the full year 2026 income tax rate from between 14 and 15% to approximately 14%.

Lastly, we want to highlight the likely negative impact to same store sales growth in the fourth quarter from several holiday shifts. Year over year, Halloween is shifting from a Friday to a Saturday and Christmas Day is shifting from a Thursday to a Friday. In total, we estimate an approximately 75 basis point negative impact to fourth quarter same store sales growth from these shifts.

Now, I will turn the call back over to Jerry for final comments.

Thanks, Michael. In September, we will begin our annual fall tour where we visit with approximately 800 managing partners across the country. I'm looking forward to listening to the best operators in the business and learning how we can better support them and help them continue to grow our legendary company.

Finally, over the last several months, the world was watching as the U. S. hosted World Cup matches. It was amazing to see the social media posts from visitors who experienced Texas Roadhouse for the first time. These guests fell in love with our high level hospitality, legendary food, especially our fresh baked bread and those free peanuts. These experiences inspire us further as we continue with our purpose of serving of communities across America and the world. Let's go, Roadhouse.

That concludes our prepare remarks. Holly, please open the line for questions.

Hey, thanks, David. This is Jerry. You know, I think we always go into these pricing conversations with a conservative approach. And we've had to make adjustments over the last several years. And I think we look at it from an over an annual basis on what are we facing structurally and then what do we feel like will change. And, you know, we're going to go into it. We're going to talk to our operators. We really want to see what's going on, not only in their communities, but maybe in their state and then try to match it up to what we believe that the company needs. So I think we've always had that approach to keep value into our menu is absolutely critical for us as we continue to try to take care of our staff and our guests and our shareholders.

But understanding that we have a conservative approach, we believe that that strategy and philosophy has paid very well over the years. And we'll continue to look at it on a bi-annual basis, have great conversations with our operators and then make that decision at that time.

Great. Thank you.

Yeah. Hey, David. It's my thanks for the question. You know, it is you hit on it nicely. It is a number of items that are continuing to build on themselves on a quarter to quarter basis. That is driving that momentum. A quieter kitchen is a factor. That is a that's a beneficial beneficial part of the technology investments that we've made.

Importantly, the managing partner staffing for the level of sales that they want. You know, the other thing that helps with that ratio for us is tenure of our roadies being as high as it is. And also the continued growth of the to go business. All of those are working in concert. And so, you know, importantly, it's not a metric that we target our operators with.

And so while we like what we see, we don't target them on it. And we, we do hope that it will continue based on the transfer sand.

It's Michael. So it could be certainly your question correctly. I mean, we we do see a benefit to our traffic. We're seeing a benefit to the state category given the high price of beef at retail.

What what may happen in the world where, you know, beef prices, you know, you'll come down when we see, you know, a change in our traffic trends. Hard to know. I think we certainly over, you know, quite a number of years through multiple beef cycles seeing very strong traffic performance. We do, you know, like you said, tend to outperform in a time of this inflationary beef environment, but certainly would not expect that we won't, you know, be able to continue to grow.

You know, in a lower inflationary environment, times like this, you know, it introduces new people to Texas Roadhouse and we believe once they've come in, they're going to want to come back.

Yeah, exactly. You know, Michael, so our second quarter commodity inflation, you know, was only slightly better than, you know, what we were, you know, maybe internally modeling. So it was not, you know, because we were, you know, well informed on that going into the last call. We did see a continuation, or like, you know, in June, we saw sirloin prices really start to move lower and, you know, and some deflation there.

And that's really been the biggest benefit to, you know, our commodity expectations. So expecting to, you know, see, you know, much lower inflation. In the third quarter, then we had originally anticipated now expecting two to 3% inflation in Q3 before stepping back up to approximately 5% in the fourth quarter. So, you know, it's sirloin is the biggest driver of that improvement.

As far as contracted were about 80 per on our overall commodity basket, we're about 80% locks per Q3 and about 40% locks per Q4. And that's not much different than you would have, you know, seen us having at this time last year for 2025.

Yeah, thanks. Yeah, so I mean, the pipeline is obviously we continue to focus on that 20 ish a year in openings that continue to be very successful all across the country. So, you know, I mean, we've got a full pipeline for 26, 27, 28, we're really working into 29.

So, with that and deal, so working a lot of deals, you know, we've got a full pipeline for 26, 27, 28. We continue to have success. I tell you, wherever we go, we're focused on our food, our service and, you know, all of our restaurant and the volume that we're at is really just hats off to these operators at every level, the single unit, the multi unit, the regionals, everything that commitment, all the coaches and the training manager that it takes to really make a first impression in every community that we open up that. And when you have your reputation out there, even if you're new to the community, there are expectations and I'm really proud of the team and all of our operators that get out there and open the doors and hustle to show our guests in our community.

What legendary food and legendary services about but the pipeline is strong. We continue to focus and we have great success at the openings.

Hey, Lauren, I'll start with the commodity, you know, questions. So again, third quarter right now we, you know, we are seeing some, some good benefit on the sirloin side. You know, we do think again, you know, these cuts move as one moves one way and the other. You know, doesn't move quite as much that will that does change how the retailers look about what what they're going to buy and what they're going to market. So we do think that, you know, as sirloin prices fall, that may, you know, then lead them to purchase more of that into the fourth quarter as something, you know, that they will put, you know, put into their store. So it's our current, you know, it's based upon what we have locked what we're laughing and how we believe the cuts will move over time.

And, you know, also patching in, you know, the, you know, what's going on with supply.

Lauren, this is Jerry just on the overall sales growth. I mean, we obviously are continuing to have momentum on traffic, which means to me that we're opening or operating quality shifts and that we're finding ways to get more people through the dining room and, you know, all of the components of pay at the table. Our guest management system upgrade the digital kitchen, our operators just really focusing on a high level. You know, in the peak times and even in the non peak time. So it just tells me not only growing dining room sales, we're growing our to go traffic because of the ease to order the ease to pick up. Our operators are focused on making sure that we have all the items that the guests has ordered so that when they get home and they open up our food at their own dining room tables, they have everything that they need.

So I think it's just all of us putting this energy in towards getting a great experience for our guests and whether it be through the to go aside of it or to the dining room, but just being energetic when it comes to serving people. I think is really what's paid off for us for a long time.

Yeah.

Hey, Brian, it's Mike. I'll start with the first up pricing and Michael jumping on mix. So with the 1% in Q4, we will have 2.9%. And in Q1 of next year, we'll also have that same 2.9%.

Yeah. And Brian, as far as you know, mix is concerned, you know, in the in the second quarter, you know, we definitely saw, you know, improving trends as we as we moved through the quarter. You know, still about 40 basis points negative overall for mixed with the dining room, you know, mix turned positive, which was, you know, very good to see. And I'll tell you here, you know, in the first 5 weeks, the third quarter, we've seen a continued improvement in those mixed trends with the vast majority of our pricing flowing through. And so that is certainly, you know, beneficial, you know, to your profitability when that happens. We'll see if those trends continue, but, you know, so, so far looking, you know, very positive.

Yeah, Dennis. Yeah, happy to do that. Not sure that much has has changed a recent, you know, there from what we've spoken about, you know, last several quarters. With regards to, you know, beef and cattle supply, demand overall for beef is still very strong. There's certainly at retail still been in some, you know, movements and trade to other proteins and trade within the beef category, to some extent, as well. You know, trends that we talked about, you know, before, you know, there's been the talk, you know, the announcement of the Mexican border reopening. You know, later this quarter, but that's more of an opportunity, if, if any for for next year, it takes a while.

One, it's going to be a very small reopening and that takes a while before you would see any benefit from that.

Hey, Jim, it's Jerry. I don't know that we measure necessarily like that. I mean, we focus on trying to get great experience. By word about they tell others and then we get to try them. But I think once they get in and, you know, when you try make from scratch food and press big bread and hand cut states and all of the things that we do is just kind of work in the word get out. And we continue to exceed people's expectations. And I think that's really what we focus on. We do have a first time guest program. So we absolutely identify guests in the restaurant.

And we try to really create a relationship with all of our guests and especially on their first time in just letting them tell our story who we are, how we do business and how we approach things. And, you know, we just try to knock their socks off with legendary food and high level hospitality and just put a smile on their face. I mean, the worlds are complicated. Our job is to fill their bellies with legendary made from scratch food and put a big smile on their face and just say, thank you for coming to our restaurant and providing us with an opportunity to serve them. So I think that's really how we focus on driving traffic and again on the to go side of just a focus and emphasis on making sure that the guests has everything that they need.

When they get home and they unpack our bag and our food for their family at their dining room table, there's just our operators doing an incredible job of building a strong relationship. You know, we're a nationally known company, but we like to be known as locally owned and operated and our partners really see them owning their communities and food service and community partnership has always been the key to our success.

Thanks, Jim.

Thanks, Sarah. I'll kick off on the, you know, we have up to a couple of years ago to approximately 900 restaurants. I don't think we're going to change anything at this time. We feel confident in what we are game plan currently. We're focused on that, that 20th restaurants a year being highly successful openings. So we won't update that guidance at this time, but we are very confident that America wants more Texas Roadhouses out there, serving them high level hospitality and legendary food.

And Sarah, I'll clarify on the bit in, in the second quarter, we did have about 40 basis points of overall negative mix in the dining room. Mix was just slightly positive offset by the rising, you know, to go mix.

Quarter to day two, three overall mix is flat and dining room has gotten more positive and the to go mix has actually gotten a little bit better, even though the to go is still growing.

Yeah, I'll start off and we'll let Mike answer that part. You know, on the bottom of 33, we continue to focus on the food and the experience and we feel really, really good about the brands. All the openings these last couple of years have done extremely well. We continue to work on it. We've got the right leadership. We've got the focus on the food and the service model. Just being consistent about it is that component. I do think that there's a lot more competition for Bubba 33. It's not as well known. So we got to continue to work hard on our local store marketing side, but we absolutely have great food and the same service model, a lot of excitement and energy around there.

We focus on the burgers, the peaches, the rock and roll, the energy, the sports team, and all of those things are components of what we believe long term. Bubba 33 will continue to have tremendous success in that competitive setting. And jaggers, I think we have had some franchise partnerships. We've really learned a lot with them. We like that learning from that standpoint. And so we'll continue to look at building the company out as well as our few franchise partners, having continued success and growing that side of the business. And then Mike might have a comment.

Yes, sir. Listen on jaggers. I agree. I think there's a place for both franchise partners and company ownership with where the brand sits in its lifecycle. I think importantly, just to piggyback on Jerry's comments around the operating DNA that exists in jaggers, because it's part of the Texas grown house family. Our franchisees are very, very strong operators and we're learning just as much from them as in our own company restaurants.

So for the time period, it is a very beneficial mix for us to have both.

We, you know, like said, it is a micro test of four stores. It is first party delivery. We do third party at jaggers and if above us and also at our new Rochelle location. I think most importantly is having a few conversations with folks is that we want to get educated. We view the test as beneficial to back finding purposes.

We also know there's some operational complexities that we want to know about in case any of our operators ever get curious about it. So I think the micro test is still very early on. I can't say that we've got a lot of learnings to be able to share at this time, but it is a micro test of four restaurants across different parts of the country.

Hey, Karen. It's my guy. I think with Bubba's, I think, again, where it is in its life cycle with, you know, 60 restaurants, you know, the metric that we are more focused on as it relates to performance. Are some of the newer restaurants because they embody some of the learnings that we've got there and then applying it backwards. I think the other really important thing to consider with Bubba's is that we aren't very much taking it with a long term approach and not a quarter to quarter approach.

When we do that and we measure where Bubba's is at 60 restaurants and compare it to where Texas Roadhouse was at 60 restaurants. Some of the metrics are extremely encouraging.

So with that approach and applying some of the learnings to the new ones, that's, that's where we believe the better focus is on same source sales.

Hey, Jim, it's Mike again. I think from a, from a sales impact in Q two, we didn't, we didn't really see anything significant across the system as a whole. We did, we saw certain. Father's restaurants have a bigger impact on an individual basis on game days, but nothing really measurable in the quarter across the portfolio. You did hit on a really positive impact that the World Cup had on us. And that was the social media that we got from people experiencing it for the first time. And, you know, it is very helpful to some of the conversations we're having with some of the folks that posted those internationally and some of our sales efforts there.

All right.

Yeah. I mean, we've got, we've got about 31 franchise locations left on the, on the roadhouse side and we have rolling brights for the majority of those sites. We talk all the time with our franchisees and, you know, they know when they're ready to step back that we're ready to step forward.

Yeah. Thanks, Peter. We have not ever spent any money on national TV advertising. We absolutely believe that local store marketing, grassroots kind of approach, getting out into the local communities, shaking people's hands, delivering some fresh baked bread and just talking about Texas Roadhouse and what we can do for them, for their business, for their family. So we've always taken that approach to, you know, legendary food, legendary service and just high level community engagement and involvement that they need us to do something to help them out in some way, shape or form. We just want to be a go to in that deal and whether it be local hotels, schools, churches, we want to be their partners on any of their needs.

And that's really been our approach, you know, again, just keeping it as a locally owned and operated business. That's just always been our approach and it's worked very well.

Hey, Brian, it's Michael. There's a little bit of an uptick in produce with everything that's gone on there, but nothing.

Nothing significant.

Thank you. Yeah, and we have 20 open. I think we have six in development. You know, we continue to identify markets in California and exercise where we want to go there. We know that there is a lot of sales opportunities in California. We've got some really high volume stores. We believe that over the time we've learned how to manage and control business and work in California, even with all of the complexities that it consistently challenges businesses. But we do know people love to eat and all across there. And there's a lot of folks in California that love hand cut steaks and fresh baked bread and ice cold beer and a legendary margarita and we're going to be available to serve.

Yeah, this is Michael on the labor side. We have no concerns about our ability to staff our existing restaurant staff new restaurants. You know, we new managers for new locations, you know, we don't feel will be an issue. You know, whether that's bringing people promoting from within or bringing in people who are already living in the community that we may expand into. And I don't think we foresee any needed change in our compensation plan. We have a very strong managing partner program and feel very good about that. So no expected changes at this time.

Thank you all very much. Just wanted to say thanks to Roadie Nation for all they do to make our company just stronger and stronger every single day. So have a great summer. Enjoy your evening.