Yahoo Finance Texas Roadhouse, Inc. (NASDAQ:TXRH) Q1 2024 Earnings Call Transcript
Texas Roadhouse, Inc. (NASDAQ:TXRH) Q1 2024 Earnings Call Transcript May 2, 2024
Texas Roadhouse, Inc. beats earnings expectations. Reported EPS is $1.69, expectations were $1.65. Texas Roadhouse, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good evening, and welcome to the Texas Roadhouse First Quarter Earnings Conference Call. Today’s call is being recorded. All participants are now in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce Michael Bailen, Head of Investor Relations for Texas Roadhouse. You may begin your conference.
Michael Bailen: Thank you, Brianna, and good evening. By now, you should have access to our earnings release for the first quarter ended March 26, 2024. It may also be found on our website at texasroadhouse.com in the Investors section. I would like to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our earnings release and our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements. In addition, we may refer to non-GAAP measures.
If applicable, reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Jerry Morgan, Chief Executive Officer of Texas Roadhouse; and Chris Monroe, our Chief Financial Officer. Following the prepared remarks, we will be available to answer your questions. In order to accommodate everyone that would like to ask a question, we kindly ask analysts to please limit yourself to one question. Now, I’d like to turn the call over to, Jerry.
Gerald L. Morgan: Thanks, Michael, and good evening, everyone. There is no doubt that 2024 is off to a great start with first quarter revenue over $1.3 billion and same-store sales growth of 8.4%. Our strong results continue to reflect our operators’ commitment to the consistency and quality of the food, the hospitality they provide, and our everyday value. The benefit of our long-term approach to the business and our focus on always prioritizing the guest experience is evident in the record sales, margin dollars, and net income for the first quarter. While the Texas Roadhouse brand generated average weekly sales of over $163,000 in the first quarter, I want to also highlight the progress our operators are making at Bubba’s 33 and Jaggers.
Bubba’s 33 averaged over $120,000 in weekly sales during the first quarter, with four locations scheduled to open this year and a growing pipeline for the coming years, we remain confident in the future for Bubba’s 33. Jaggers, our quick service brand, is also experiencing momentum and delivered nearly $68,000 in average weekly sales. We continue to expect a mix of company and franchise Jaggers over the coming years, and the first international franchise in South Korea is scheduled to open later this year. Our investment and commitment to opening new restaurants at a more even pace has been successful. In the first quarter, we opened nine company-owned Texas Roadhouses. We currently expect to open an additional six company-owned restaurants during the second quarter.
For the full-year, we remain on-track to open approximately 30 company-owned restaurants across the three brands. Our franchise partners opened two International Texas Roadhouse locations and a domestic Jaggers during the first quarter. We continue to expect as many as 14 franchise openings this year, including four Jaggers. On the technology front, our conversion to Digital Kitchens is going as planned with 30% of the approximate 200 scheduled conversions completed so far. The feedback from our operators remains highly positive. In addition to kitchen efficiencies, our operators also appreciate the calmer kitchen and less stressful execution during power hours. Also on the technology front, we are preparing to go live during the second quarter with a new people system, which we call Roadie-First Technology.
The system will provide our employees with a more user-friendly platform for easier access to their data and records. It should also improve the recruiting and employee management processes for our managers. The Roadie-First Technology name reflects our commitment to enhancing the Roadie experience at all levels, which will allow us to continue hiring, training, and retaining the best people in the industry. Finally, we just returned home from our Annual Managing Partner Conference in Austin, Texas. It was a great week celebrating our operator success in 2023, planning for the future, recognizing our top talent, and having a little fun. We also unveiled our first purpose statement, which is, ‘Serving communities across America and the world’.
We believe our purpose builds clarity for our roadies and will inspire them for our journey ahead. Speaking of inspiration, I want to congratulate Casey Cohen from Turnersville, New Jersey as she was named our Texas Roadhouse Managing Partner of the Year. I also want to congratulate Vanessa Blanco Quezada from Albuquerque, New Mexico for being named our Bubba’s 33 Managing Partner of the Year. Additionally, I want to recognize Benito Galindo of Covington, Louisiana for being named our National Meat-Cutting Champion, and Frank Fernandez for being named Our Support Center Roadie of the Year. And lastly, I would like to congratulate and thank our award finalists for their contributions and accomplishments. Now, Chris will provide some thoughts.
Christopher Monroe: Thanks, Jerry. I want to echo your comments regarding what an impactful time we shared with our managing partners in Austin. They are doing a fantastic job and it was great to be a part of celebrating the best of the best. Having an operator mentality and focus on the guest experience continues to pay financial dividends for us. While it’s only been five weeks since we implemented a 2.2% menu price increase, we are encouraged by the traffic and mix trends we’ve seen so far. In fact, our mix trends improved as we move through the first quarter and into the beginning of the second quarter. We’ve always taken a long-term approach to pricing with the goal of driving sustainable traffic growth. We believe our guests continue to reward us for this approach by choosing to come to our restaurants more often.
Commodities, more particularly beef, have performed better than we’d expected. We’re benefiting from the improved cost environment as only a small portion of this year’s beef purchases have been made through fixed price contracts. While we still expect beef inflation to increase as we move through the year, we now expect full-year 2024 commodity inflation will be approximately 3%. Currently, we expect to be above the full-year inflation forecast in the back-half of the year. Labor is benefiting from improved productivity as our hiring efforts have resulted in well-staffed restaurants with longer tenured roadies. This is allowing our managers to staff their restaurants more efficiently and focus on the employee experience. So far this year, wage and other labor inflation has played out as anticipated.
As such, we continue to expect 4% to 5% inflation for the full-year. Our cash flow from operations continues to support our balanced approach to capital allocation. We’re pleased with the returns we are generating from our ongoing investments in the business, including new store openings, bump-outs, kitchen expansions and digital kitchen conversions. During the first quarter, we generated over $240 million of operating cash flow, which was used to fund over $125 million of capital expenditures, dividend payments and share repurchases. As we’ve done throughout our history, we will continue to return capital to shareholders and invest in growth projects. And now, Michael will walk us through the first quarter results.
Michael Bailen: Thanks, Chris. For the first quarter of 2024, we reported revenue growth of 12.5%, driven by a 7.7% increase in average unit volume and 4.9% store week growth. We also reported a restaurant margin dollar increase of 23% to $228 million and a diluted earnings per share increase of 31.4% to $1.69 Average weekly sales in the first quarter were over $159,000 with to-go representing approximately $21,000 or 13.1% of these total weekly sales. Comparable sales increased 8.4% in the first quarter, driven by 4.3% traffic growth and a 4.1% increase in average check. By month, comparable sales grew 4.2%, 10.4% and 10.2% for our January, February March periods respectively. And comparable sales for the first five weeks of the second quarter were up 9.3% with our restaurants averaging sales of approximately $158,000 per week during that period.
In the first quarter, restaurant margin dollars per store week increased 17.3% to over $27,500. Restaurant margin as a percentage of total sales increased 148 basis points year-over-year to 17.4%. Food and beverage costs as a percentage of total sales were 33.9% for the first quarter. The 131 basis point year-over-year improvement was driven by the benefit of a 4.1% check increase offsetting the 0.9% commodity inflation for the quarter. Labor as a percentage of total sales decreased 51 basis points to 32.5% as compared to the first quarter of 2023. Labor dollars per store week increased 5.7% due to wage and other labor inflation of 4.3% and growth in hours of 1%. The remaining 0.3% increase in labor dollars per store week was primarily driven by a $0.7 million net unfavorable adjustment to our quarterly insurance reserve.
Other operating costs were 14.7% of sales, which was 39 basis points higher than the first quarter of 2023. Higher operator bonuses as a percentage of sales resulting from an increased year-over-year restaurant level profitability drove 23 basis points of the increase. Also included in the year-over-year change is an approximately 35 basis point negative impact from adjustments to our quarterly reserve for general liability insurance. These adjustments include $3.5 million of additional expense this year and a $0.8 million credit last year. Moving below restaurant margin, G&A dollars grew 5.5% year-over-year and came in at 4% of revenue for the first quarter. G&A dollar growth benefited from lapping an approximately $2.6 million one-time cost related to an executive retirement.
Our effective tax rate for the quarter was 13.9%. Our expectation for the full-year 2024 income tax rate remains unchanged at approximately 14%. Finally, as a reminder, 2024 is a 53 week year for us. As such, the fourth quarter will have 14 weeks versus our normal 13 weeks. We estimate that the additional week could benefit full-year 2024 earnings per share growth by approximately 4%. Now, I will turn the call back over to, Jerry for final comments.
Gerald L. Morgan: Thanks, Michael. The theme of our Managing Partner Conference was Buckle Up. It is a fitting message as we prepare for our journey ahead. At conference, I encouraged our operators to buckle-up and double-down on our mission, our core values, and our purpose of serving our communities across America and the world. Last, but certainly not least, we are honored to have Casey and Vanessa, our Managing Partners of the Year, with us for the call today. Congratulations again to both of you. That concludes our prepared remarks. Brianna, please open the line for questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from David Palmer with Evercore ISI. Please go ahead.
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