Texas Roadhouse Navigates Inflation with Strong Sales Growth in Q1 2025

Texas Roadhouse, Inc. (NASDAQ: TXRH) delivered a resilient first quarter of fiscal 2025, balancing robust top-line growth with margin pressures amid rising inflation. The company reported a 9.6% year-over-year revenue surge to $1.447 billion, driven by comparable sales gains and aggressive store expansion. However, margin compression and escalating input costs underscored the challenges of sustaining profitability in a high-cost environment.

Financial Highlights: Revenue Growth Amid Margin Headwinds

Texas Roadhouse’s Q1 revenue growth outpaced expectations, fueled by a 3.5% rise in comparable restaurant sales. Average weekly sales climbed to $163,071, with to-go sales contributing $22,146—up 6% from the prior year. Despite strong sales, net income grew only 0.4% to $113.66 million, as labor and commodity inflation squeezed margins.

The reflects investor confidence in the company’s growth strategy, with shares rising steadily since late 2024. This momentum aligns with management’s focus on disciplined capital allocation and shareholder returns.

Operational Strength and Expansion Momentum

The company opened eight new company restaurants in Q1, including the milestone 50th Bubba’s 33 location, a casual dining brand targeting younger demographics. Total system-wide restaurants reached 792, with franchise units declining slightly to 104 due to strategic acquisitions and divestitures. Notably, franchise-acquired restaurants rose by 14 to 688 company-owned units, signaling confidence in long-term control over key markets.

Management highlighted Q2’s strong start, with comparable sales growth accelerating to 5% in the first five weeks—a 1.5-percentage-point improvement over Q1. A 1.4% menu price increase in early April further positions Texas Roadhouse to offset inflation, though the timing of these hikes relative to cost pressures remains critical.

Margin Pressures and Cost Management

Restaurant margins fell 77 basis points to 16.6%, primarily due to a 2.1% rise in commodity costs and 4.6% labor inflation. While sales growth partially offset these costs, management now projects commodity inflation of ~4% for 2025—up from earlier estimates—due to tariff impacts. Wage inflation is expected to remain between 4–5%, requiring ongoing operational efficiency to protect margins.

CEO Jerry Morgan emphasized maintaining labor discipline, stating, “Roadies want to work,” and focusing on employee retention through competitive wages and benefits. This approach aims to mitigate turnover costs, a significant factor in labor inflation.

Capital Allocation Priorities: Expansion and Shareholder Returns

Texas Roadhouse allocated $78.3 million to franchise acquisitions, signaling a strategic shift to consolidate brand control. Capital expenditures of $77.4 million in Q1 align with the $400 million full-year projection for new store development and maintenance.

Shareholders benefited from a 11.5% dividend hike to $0.68 per share, alongside $50.2 million in share repurchases. This balanced approach underscores management’s commitment to rewarding investors while maintaining financial flexibility.

Outlook and Risks

Texas Roadhouse remains on track to achieve its 5% store week growth target for 2025, with system-wide sales momentum strong across all three brands. The company’s effective tax rate of 15–16% provides a stable backdrop for earnings growth, while cash reserves of $221.1 million support ongoing initiatives.

However, risks persist. Tariffs and supply chain disruptions could amplify commodity inflation beyond current projections, while labor shortages remain a threat to operational efficiency. Management acknowledged these challenges but highlighted Texas Roadhouse’s track record of adapting to macroeconomic shifts through pricing, menu innovation, and cost controls.

Conclusion: Resilience and Growth Amid Challenges

Texas Roadhouse’s Q1 results demonstrate its ability to navigate inflation through strategic pricing, disciplined expansion, and robust sales execution. With Q2 sales accelerating to 5% and a 50th Bubba’s 33 location milestone achieved, the company is well-positioned to capitalize on consumer demand for casual dining.

While margin pressures remain a concern, the 1.4% menu price increase and operational improvements provide a buffer against rising costs. Additionally, the 11.5% dividend hike and share repurchases signal confidence in long-term cash flow.

Investors should monitor Texas Roadhouse’s ability to sustain comparable sales growth beyond Q2 and manage labor costs amid tight labor markets. If the company can maintain its current trajectory, the stock could continue its upward trend, supported by a compelling valuation and a proven model for unit-level profitability.

In a sector still recovering from pandemic disruptions, Texas Roadhouse’s focus on traffic growth, brand diversification, and shareholder returns positions it as a resilient player in the casual dining space.