Texas Roadhouse Balances Strong Growth With Margin Pain
Texas Roadhouse ((TXRH)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Texas Roadhouse’s latest earnings call painted a cautiously optimistic picture, as management celebrated robust sales growth, record unit volumes, and strong cash generation while openly acknowledging sharp margin pressure and a notable EPS decline in the fourth quarter. Executives struck a confident tone on long-term expansion and investment, but investors were reminded that beef inflation, mix shifts, and rising costs will weigh on profitability in the near term.
Revenue Growth and Comparable Sales Momentum
Full-year 2025 revenue climbed to nearly $5.9 billion, supported by a 4.9% increase in comparable same-store sales that was driven primarily by 2.8% traffic growth rather than just pricing. This combination of higher guest counts and positive comps underscored solid brand health and demand resilience despite a choppy cost environment.
Record Unit Volumes and Weekly Sales Strength
Consolidated average unit volume surpassed $8.4 million, highlighting strong restaurant-level performance across the portfolio. Average weekly sales topped $166,000 at Texas Roadhouse, reached $122,000 at Bubba’s 33, and approached $73,000 at Jaggers, with Q4 averaging above $160,000 and the first seven weeks of Q1 stepping up to roughly $170,000 per week.
Accelerating Unit Growth and Strategic Acquisitions
The company added 48 company-owned restaurants in 2025, including 28 new openings and the acquisition of 20 franchise locations, bringing the system to 800 restaurants. Looking ahead, management plans about 35 company openings in 2026 and has already closed the purchase of five California franchise units for roughly $72 million.
Robust Cash Generation and Shareholder Returns
Operating cash flow exceeded $730 million in 2025, enabling Texas Roadhouse to end the year with more than $130 million in cash despite heavy reinvestment. The company funded $388 million of capital expenditures, spent $108 million on franchise acquisitions, returned $180 million via dividends, repurchased $150 million of stock, and lifted its quarterly dividend by 10% to $0.75.
Technology Investments and Operational Upgrades
Management completed the rollout of a digital kitchen platform and upgraded guest management systems by late 2025, aiming to sharpen execution and throughput across the chain. In 2026, the company is continuing tests of handheld ordering to further boost order accuracy, speed of service, and to-go capabilities in an increasingly convenience-oriented environment.
Top-Line Strength Carrying Into 2026
Momentum has continued into the new fiscal year, with comparable sales up 8.2% in the first seven weeks of Q1 despite some weather and calendar headwinds. Management emphasized that guest traffic remains a key driver of this growth, suggesting that demand has not been materially dented by recent price increases or macro uncertainty.
Brand Reach and Community Engagement
Texas Roadhouse celebrated its 60th consecutive quarter of comparable restaurant sales growth when excluding 2020, reinforcing its track record of consistency. The company also purchased its Louisville support center and highlighted community initiatives, including more than $40 million raised for local causes, 1.2 million meals provided to veterans and military, and a tinnitus fundraiser that generated over $1.1 million.
Unit Build Costs and Return Targets
New-build economics remain a focus as construction costs evolve, with the average all-in cost for a Roadhouse expected to rise to about $8.9 million. By contrast, Bubba’s 33 prototype costs are projected to decline to roughly $8.4–8.5 million, and management continues to target mid-teen internal rates of return on new restaurants, noting that the existing portfolio meets or exceeds that hurdle.
Q4 Margin Compression and EPS Decline
Fourth quarter profitability disappointed, with diluted EPS falling 26.1% to $1.28 and restaurant margin dollars decreasing 15.6% to $205 million. Restaurant margin dollars per store week dropped 15.1% to $22,200, signaling that the cost surge more than offset the solid sales base in the period.
Margin Percentage Under Pressure
Restaurant margin as a percentage of sales declined 309 basis points year over year to 13.9% in Q4, including the impact of lapping an extra week that previously added about 45 basis points. Management signaled that margin percentages are likely to remain under pressure in 2026 even if absolute margin dollars grow, given the current inflation backdrop.
Elevated Commodity and Beef Costs
Food and beverage costs in Q4 rose to 36.4% of sales, up 281 basis points from a year earlier, driven by about 9.5% commodity inflation with beef as the primary culprit. For the full year, commodity inflation was 6.1%, and the company now expects roughly 7% inflation in 2026, front-loaded into the first half and still heavily beef-driven.
Impact of Lapping an Extra Week
The comparison against a prior year that contained an extra operating week had a notable mechanical impact on reported results. Management estimated that lapping the additional week reduced Q4 revenue growth by about 9% and earnings growth by roughly 12%, dampening headline trends even as underlying demand remained healthy.
Labor, G&A, and Other Cost Headwinds
Labor as a percentage of sales edged up 18 basis points to 33.2% in Q4, with wage and other labor inflation running 3.7% for 2025 and forecast at 3%–4% for 2026. General and administrative costs are also expected to rise by a low double-digit percentage, and other operating expenses were pressured by a higher reserve for general liability insurance.
Mix Shifts, To-Go Business, and Margin Drag
To-go orders accounted for about 13.8% of weekly sales in Q4, or roughly $22,000 per week, but this channel can carry a lower average check, pressuring product mix and margins. Management also cited entree mix shifts toward steak, along with an estimated 10–15 basis points of cost pressure from usage dynamics, as contributors to higher cost of goods sold.
Insurance Reserves and Incremental Borrowing
Other operating costs rose partly because the company booked a higher quarterly reserve for general liability insurance, increasing expense by $3.5 million versus $2.7 million a year earlier. To facilitate the acquisition of additional franchise restaurants, Texas Roadhouse also drew $50 million on its credit facility, modestly leveraging its balance sheet to support growth.
Ongoing Risk to Restaurant-Level Margins
Management acknowledged that with expected commodity inflation around 7% and a measured pricing strategy, it may be difficult to gain leverage on cost of sales in 2026. As a result, restaurant margin percentages could stay compressed even if rising volumes and pricing allow total restaurant margin dollars to increase.
Guidance and Outlook for 2026
For fiscal 2026, Texas Roadhouse plans approximately 35 new company-owned restaurants plus additional international Texas Roadhouse and domestic Jaggers franchise openings, backed by about $400 million in capital expenditures. The company expects around 7% commodity inflation, 3%–4% wage and labor inflation, a 1.9% menu price increase at the start of Q2, low double-digit G&A growth, a 14%–15% tax rate, and labor hours run below 50% while it continues a 10% higher dividend.
The earnings call left investors with a clear message: demand and unit growth remain robust, but the cost side of the ledger is likely to stay challenging in the short term. Texas Roadhouse is leaning on pricing, technology, and disciplined development to protect returns, and if inflation moderates as management anticipates, the company appears well positioned to translate its strong top line into improving profitability over time.
