Texas Roadhouse Navigates Growth Amid Rising Costs in Q1 2025

Texas Roadhouse (NASDAQ: TXRH) delivered a quarter defined by resilience but underscored by persistent inflationary pressures. The casual dining chain reported Q1 2025 revenue of $1.45 billion, up 9.6% year-over-year, driven by strong comparable sales and expanding store counts. However, margin contraction and a modest EPS miss highlighted the challenges of sustaining profitability in a cost-squeezed environment.

Top-Line Strength, Operational Momentum
Texas Roadhouse’s revenue growth was fueled by a 3.5% rise in same-store sales, with traffic growth contributing meaningfully to results. Store week sales increased 7.1%, reflecting both volume gains and the early impact of a 1.4% menu price hike implemented in Q2. The company added eight company-owned restaurants during the quarter, maintaining its pace toward 30 openings in 2025. Technology advancements also advanced: 65% of locations now use a digital kitchen system, while 70% have upgraded guest management tools, signaling investments to streamline operations and enhance the customer experience.

Margin Pressures Mount
Despite top-line momentum, restaurant-level margins dipped 77 basis points to 16.6%, squeezed by escalating commodity and labor costs. Commodity inflation rose 2.1%, with beef prices and tariffs contributing to a full-year guidance increase to 4%. Labor costs as a percentage of sales jumped 79 basis points to 33.3%, as wage inflation hit 4.6%. Rent expenses, particularly in California, further weighed on margins, compounding the challenges of managing a labor-intensive business in a high-cost environment.

Financials and Dividend Stability
Texas Roadhouse maintained its dividend at $0.68 per share, reflecting robust cash flow generation. The company ended the quarter with $221 million in cash, while capital expenditures totaled $77.4 million—on track for the $400 million full-year target. EPS rose just 1.0% to $1.70, however, as higher depreciation and administrative expenses offset sales growth. Analysts had expected $1.75, underscoring investor sensitivity to margin trends.

Outlook: Balancing Growth and Costs
Management reaffirmed a 5% store week sales growth target for 2025, supported by planned price increases and operational improvements. Wage inflation is projected to remain between 4% and 5%, while tariffs and commodity costs will require close monitoring. The company also reiterated its capital allocation strategy, prioritizing new restaurant openings, dividends, and share repurchases.

Conclusion: A Resilient Model, but Margins Matter
Texas Roadhouse’s Q1 results reflect a brand that remains popular with diners, evidenced by positive traffic and same-store sales growth. Yet the 9.6% revenue expansion contrasts with the 77-basis-point margin contraction, highlighting the tension between top-line ambition and cost control.

Investors should monitor two critical factors: first, whether the company can sustain traffic growth amid rising menu prices—a key test of its value proposition—and second, its ability to mitigate margin pressures as commodity and labor costs persist. The stock’s recent performance, which has lagged peers amid these challenges, suggests investors are pricing in caution.

With 30 new restaurants planned in 2025 and technology investments bearing fruit, Texas Roadhouse is positioned to grow, but its ability to navigate inflation will determine whether it can deliver the margin stability needed to justify its valuation. For now, the path forward is clear—but the execution remains the hurdle.