Texas Roadhouse and Brinker International Have the Recipe Rivals Are Missing
The restaurant sector has been a mixed bag so far in 2026. Commodity prices like beef and oil have been a major pressure point, and several fast casual chains like Sweetgreen Inc. (NYSE: SG) and Papa John’s International Inc. (NASDAQ: PZZA) recently reported disastrous earnings. But the industry has its fair share of winners as well, and the following two companies are pulling off an impressive double-feat: growing comps and margins. With commodity pressures (hopefully) in the rearview and consumer sentiment bouncing off historic lows, these three restaurant stocks look like good candidates for a strong second-half finish.
Texas Roadhouse: Margins Expected to Improve as Commodity Pressures Fade
Texas Roadhouse Inc. (NASDAQ: TXRH) was hit hardest by soaring beef prices, and its stock went nearly two years between all-time highs. The company sells its steaks at thinner margins than most casual chains and makes up the difference by upselling add-ons, sides, and drinks. This strategy gave them little room to absorb soaring beef costs, which peaked in Q4 2025 when the company reported 9.5% commodity inflation in its quarterly earnings. At the time, management gave commodity guidance of 7% for fiscal 2026, which was expected to pressure margin growth through the rest of the year.
But when the company released its fiscal Q2 2026 results on Aug. 6, some of those fears were put to rest. The commodity inflation outlook was lowered to 5% for fiscal 2026, with a predicted decline to 2%-3% by Q3. Beef relief is the primary reason investors remain committed to the company despite negative year-over-year (YOY) earnings growth. Margin rates have yet to reflect these falling costs, but Q2 saw sales outgrow the commodity pressure, which helps explain why profitability eroded despite 6.2% comps and 11.1% revenue growth. However, declines in margin rates are slowing, and food and beverage costs as a percentage of sales should turn negative YOY if current pricing trends hold. The stock received several price target boosts following the earnings report, including a new Street-high target of $235 from Robert Baird and Royal Bank of Canada.
TXRH shares are now up nearly 30% year-to-date (YTD), with nearly half the gain coming in the last six weeks. The stock broke above the 50- and 200-day moving averages in June as the Relative Strength Index (RSI) crept into bullish territory. A Golden Cross confirmed the breakout, and the stock made its first new all-time high since 2024 on July 29. With cost relief in sight and consumer sentiment improving, the stock may have further upside.
Brinker International: 2027 Guidance Boost Pops Stock Another 10%
Brinker International Inc. (NYSE: EAT) has been one of the industry's surprise turnaround stories, driven mostly by growth in its flagship Chili’s restaurants. And unlike Texas Roadhouse, the company began seeing its margins expand before cost relief entered the picture, which is why its stock chart looks more like that of an AI hyperscaler than a casual sit-down dining chain. Shares are up 80% in the last three months alone, and got yet another bump following the company’s latest numbers.
Brinker International reported its fiscal Q4 2026 results before the bell on Aug. 12, with fairly milquetoast headline numbers: earnings per share (EPS) of $3.07, slightly below consensus, and revenue of $1.54 billion, slightly above consensus. But the proof was in the composition, which again shows very strong underlying economics. Same-store sales at Chili’s grew 5.6%, which helped offset a 2.5% comp decline from Maggiano’s. Restaurant operating margins grew 40 basis points YOY and 20 basis points sequentially, indicating that dollar economics were improving even at the zenith of commodity pressure. Maggiano’s remains an anchor, with foot traffic declining 5.3%, but it accounts for less than 10% of total company sales.
It was the full-year fiscal 2027 guidance boost that sent the stock soaring after the release. Management guided annual revenue of $6.2 billion to $6.3 billion, and EPS of $12.60 to $13.40. At the midpoint, these figures represent YOY growth of 6.9% and 21%. However, there’s a caveat: a 53rd week, which should be removed for a complete comparison. Without the 53rd week, revenue growth estimates are 4.9%, and the EPS range is $11.90 to $12.70. Still impressive growth, but not as shocking as the headline figures.
The EAT stock chart reflects the margin gains TXRH has yet to achieve. An 80% gain in a quarter has already baked in much of the cost relief, and EAT faces less pressure from beef prices anyway. The long-term uptrend remains healthy, with price firmly above the 50- and 200-day moving averages, which formed a bullish Golden Cross in June. But a short-term pullback wouldn’t be surprising with the RSI above 75, which indicates an overbought stock. However, if investors take profits over the next few sessions, the pullback could create a better entry point for new investors, especially since the stock still trades at a discount to TXRH at 24 times earnings.
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The article "Texas Roadhouse and Brinker International Have the Recipe Rivals Are Missing" first appeared on MarketBeat.
