Texas Roadhouse's Q3 2025 Earnings Call: Contradictions Emerge in Beef Inflation, Pricing Strategy, and Beverage Mix

Date of Call: November 6, 2025

Financials Results

• Revenue: $1.4B, up 12.8% YOY
• EPS: $1.25 per diluted share, down 0.8% YOY
• Gross Margin: Restaurant margin 14.3% of sales, down 168 bps YOY

Guidance:

• Full-year 2025 commodity inflation updated to ~6%.
• Initial 2026 commodity inflation guided to ~7%, expected above guidance in H1 and below in H2.
• Wage and other labor inflation: ~4% in 2025; 3–4% guide for 2026 (mandated increases ~1%).
• 2026 capex approx $400M (excludes CA franchise acquisitions); ~35 company-owned openings; ~5–6% store-week growth.
• Income tax rate guidance: ~14.5% for 2025 and ~15% for 2026.
• Estimate ~10% negative YoY EPS impact in Q4 2025 due to lapping a 14-week quarter.

Business Commentary:

• Revenue and Sales Growth:
• Texas Roadhouse, Inc. reported revenue growth of 12.8% in Q3 2025, primarily driven by a 5.5% increase in average weekly sales and 6.8% store week growth.

• The growth was attributed to strong same-store sales and traffic growth, as well as the expansion of the restaurant base.

• Commodity and Labor Inflation:

• The company updated its full-year 2025 commodity inflation guidance to approximately 6% due to higher-than-anticipated beef prices.

• Labor inflation for the third quarter was in line with expectations, with wage and other labor inflation of 3.9%, and full-year 2025 guidance remains unchanged at approximately 4%.

• Menu and Consumer Behavior:

• Consumers continue to favor larger entrees and steaks, contributing to a 1.8% increase in average check.

• The company's beverage strategy, including regional offerings like dirty sodas, is positively impacting sales and consumer engagement.

• Retail and Consumer Awareness:

• Texas Roadhouse expanded its retail presence to over 120,000 retail outlets across the country, supporting brand awareness and engagement.
• The focus on retail items such as butter spreads and steak sauces has seen strong demand, contributing to the company's overall growth.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly emphasized 'strong top line momentum,' 'highest quarterly growth of the year' in revenue, comps and traffic, and healthy demand for steaks and new beverage offerings, while acknowledging commodity headwinds and updated inflation guidance — overall tone upbeat with caution on beef inflation.

Q&A:

• Question from Sara Senatore (BofA Securities): Clarification on next-year beef/commodity inflation (could beef be mid-teens) and whether retail demand is pulling back; plus update on beverage program and impact on mix?
  Response: Expect high single‑digit formula pricing and lapping of favorable contracts drives low‑double‑digit unweighted beef inflation next year; beverage program expanding (mocktails, $5 offers, regional tests) with continued negative alcohol mix partially offset by mocktails/soft beverages.

• Question from Gregory Francfort (Guggenheim): Why management believes current beef price spike is transitory vs structural and how you evaluate that?
  Response: Procurement and industry experts view this as a cattle‑cycle (transitory) event; management will manage through it and avoid presuming permanent structure until cycle ends.

• Question from Jacob Aiken-Phillips (Melius Research): Any differences in traffic by income/age cohorts or bifurcation among consumers?
  Response: No meaningful cohort differences observed—traffic growth is broad by region, daypart and both dine‑in and to‑go, supporting continued value appeal.

• Question from David Palmer (Evercore ISI): How do you weigh pricing decisions against managing partner pay and thoughts on Bubba's deceleration?
  Response: Pricing decisions remain conservative and collaborative with operators to protect guest value and partner economics; management remains confident in Bubba's long‑term prospects despite some deceleration.

• Question from David Tarantino (Robert W. Baird): Appetite for protecting restaurant profit dollars per week via pricing so managers don't see consecutive declines?
  Response: Management monitors partner economics closely, prefers conservative pricing, will consult operators before next pricing (April) while noting restaurant profit dollars remain ~35% higher than 2019 despite some recent giveback.

• Question from Brian Bittner (Oppenheimer): Are you attracting new customers and where are they coming from (QSR, grocery, other restaurants)?
  Response: Hard to precisely measure, but anecdotal and operational indicators suggest Texas Roadhouse is drawing broadly from multiple segments (QSR, casual, at‑home) due to value, experience and steak quality.

• Question from Peter Saleh (BTIG): How much of beef/commodity is locked for next year and KDS rollout impact on table turns/speed?
  Response: About 40% of overall commodity basket is locked for H1; specifics on beef locking withheld; digital kitchen and GMS rollouts provide data to improve speed while maintaining a ~54 minute guest experience target.

• Question from Jeffrey Bernstein (Barclays): Franchise acquisitions cadence and why 2026 capex (~$400M) is similar to 2025 despite more openings and build cost inflation?
  Response: After completing CA acquisition, ~31 franchises remain as potential targets; 2025 included a $23M Support Center acquisition—excluding that item, 2026 capex is comparable given prioritization of openings and maintenance.

• Question from Brian Harbour (Morgan Stanley): Should we expect favorable labor/other op/G&A operating leverage to continue into 4Q and 2026 given staffing performance and extra week effects?
  Response: If top‑line trends persist, management expects continued leverage on labor, other operating and potential G&A benefits into 4Q and possibly 2026 due to productive staffing and favorable hour growth vs traffic.

• Question from Brian Vaccaro (Raymond James): Is grocery steak price 'sticker shock' driving incremental comp benefit versus cooking at home?
  Response: Management believes elevated retail beef prices are contributing to guests choosing restaurant steaks more often, supporting comp strength and loyalty.

• Question from Brian Harbour (Morgan Stanley): On Bubba's openings (10) — any new markets or mostly existing markets?
  Response: Most Bubba's growth will be in existing markets with continued pipeline work; Jaggers growth will focus on a 'Heartland' strategy near Louisville and neighboring states.

• Question from Dennis Geiger (UBS): Any callouts for 'other operating' or G&A for 2026 — any buckets to watch?
  Response: Early view: other operating dollars per store week likely low single‑digit growth; utilities and tariffs could rise modestly but no dramatic moves expected assuming healthy top‑line growth.

• Question from Andrew Barish (Jefferies): Quarter‑to‑date traffic vs 3Q and how pricing timing/ Halloween impacted reported trends; and whether 2015 COGS is a 2026 analog?
  Response: First 5 weeks of Q4 comps +5.4% (adjusted >6% ex‑Halloween); check increase ~2.5–3.1% with traffic over ~3% (3.5% ex‑Halloween); COGS rose in past cycles but management expects COGS to improve rapidly when cycle turns—uncertain beyond 2026.

• Question from Lauren Silberman (Deutsche Bank): Any recent volatility in October trends (government shutdown effects) and are you embedding step‑ups in commodity dollars for 2026 or is it about compares?
  Response: October was stable week‑to‑week aside from Halloween; 2026 commodity outlook reflects a mix of year‑over‑year laps and formula pricing seasonality varying by cut rather than a simple linear dollar step‑up.

• Question from John Ivankoe (JPMorgan): Lease renewals/rent step‑ups and need for major remodel CapEx as restaurants age?
  Response: Reported rent is straight‑lined and broad lease resets would affect a small number of stores; ongoing maintenance and periodic relocations address aging restaurants, keeping major incremental CapEx manageable.

• Question from Andrew Strelzik (BMO): Quantify margin headwind from mix shift to larger steaks (impact in bps) and why pricing increases have stepped up recently while wage guidance is moderating?
  Response: Mix shift to steaks added ~20–30 bps pressure to food & beverage percent but is mostly neutral on absolute profit dollars since higher‑priced entrees drive sales dollars; pricing steps reflect local operator input, competitive context and broader cost pressures beyond wages.

• Question from James Salera (Stephens): Can you quantify the retail business impact and potential size of that segment?
  Response: Retail efforts are primarily brand‑awareness and early retail SKUs (e.g., 'inspired by' rolls) are selling well, but it's early to quantify material revenue contribution—management is encouraged by demand.

• Question from Zachary Fadem (Wells Fargo): If beef inflation becomes extreme, would you pivot menu away from beef or change strategy across concepts?
  Response: Unlikely to pivot away from steak—menu already offers non‑beef options and management believes steak is core to the brand; they will manage mix and pricing rather than abandon core offering.

• Question from Jake Bartlett (Truist Securities): Why guide ~20 Texas Roadhouse openings in 2026 (low end historically) and any capacity/bandwidth constraints across brands?
  Response: Approximate target provides flexibility as deals close; management is comfortable with the pipeline for 2026/2027 and prioritizes disciplined growth to avoid stretching the organization.

Contradiction Point 1

Beef Inflation and Pricing Strategy

It involves differing perspectives on the management of beef inflation and its impact on pricing strategy, which are critical for maintaining profitability and competitive positioning.

Can you explain the implications of high beef inflation and the negative mix impact from younger consumers shifting to non-alcoholic drinks? - Sara Senatore(BofA Securities)

2025Q3: For 2026, we assume high single-digit inflation and lapping some favorable contracts, leading to low double-digit unweighted beef inflation. - Michael Bailen(Head of Investor Relations)

Why is Texas Roadhouse pricing below inflation guidance? What's driving the improvement in mix despite declining alcohol sales? - Sara Senatore(Bank of America)

2025Q1: We feel good about our positioning going into this year and next year and the next couple of years, and we don't think it needs to be done now. We're not going to our pricing based on commodity inflation. - Gerald Morgan(CEO & Executive Vice Chairman)

Contradiction Point 2

Pricing Strategy and Consumer Behavior

It reflects differing views on the company's pricing strategy and its impact on consumer behavior, which are crucial for maintaining market competitiveness and profitability.

Is management willing to let restaurant profits decline for two consecutive years? - David Tarantino(Baird)

2025Q3: We want to maintain a conservative pricing approach to protect the top line and consumer value. - Gerald Morgan(CEO)

Can you explain the mix trends and labor leverage in this quarter? - David Sterling Palmer (Evercore ISI)

2025Q2: Our philosophy is focused on growing sales, profits, and partner compensation. - Gerald Morgan(CEO)

Contradiction Point 3

Mocktails and Beverage Mix

It pertains to the impact of non-alcoholic beverages on the overall sales mix and consumer behavior, which can affect marketing strategies and product offerings.

Could you discuss the implications of high beef inflation and the negative product mix driven by younger consumers preferring non-alcoholic beverages? - Sara Senatore (BofA Securities)

2025Q3: Mocktails and soft drinks are performing well. We are excited about regional beverage offerings like dirty sodas. The focus is on providing quality beverages to cater to consumer preferences. - Gerald Morgan(CEO)

Could you break down the components of the comp (traffic, mix, price)? Are you seeing a positive shift in mix that offsets the move away from alcohol? - Sara Senatore (Bank of America)

2024Q4: We have 7.7% sales growth, traffic of 4.9%, with 30 basis points of negative mix driven by alcohol. Entrees and other items offset negative alcohol mix, but the positive impact is relatively small. We're still seeing some negative alcohol mix, but early indications of positive contributions from mocktails. - Michael Bailen(CFO)

Contradiction Point 4

Labor Productivity and Leverage

It involves differing statements regarding labor productivity and leverage, which are crucial for operational efficiency and profit margins.

How do you manage pricing with inflationary pressures and partner compensation? - David Palmer(Evercore ISI)

2025Q3: Labor hours grew at 35% of comparable traffic growth, which is below the 50% threshold. - Chris Monroe(CFO)

Can you explain the labor leverage in Q1 given a choppy quarter? - David Palmer(Evercore ISI)

2025Q1: Labor hours grew at 35% of comparable traffic growth, which is below the 50% threshold. This marks the sixth consecutive quarter below 50%, indicating high productivity and low turnover rates. - Chris Monroe(CFO)

Contradiction Point 5

Beef Inflation and Mix Trends

It involves differing perspectives on the nature and impact of beef inflation on menu mix trends, which directly affects the company's pricing and operational strategies.

Can you explain the impact of high beef inflation and the negative mix caused by younger consumers shifting to non-alcoholic drinks? - Sara Senatore(BofA Securities)

2025Q3: For 2026, we assume high single-digit inflation and lapping some favorable contracts, leading to low double-digit unweighted beef inflation. - Michael Bailen(CIO)

How is beef inflation expected to trend in Q3 and Q4, and how will the accelerated Bubba's openings impact growth? - David E. Tarantino (Robert W. Baird & Co.)

2025Q2: Beef inflation is expected to peak in Q3 at around 7%, then decrease to 4% to 5% in Q4. - Michael Bailen(CIO)