Texas Roadhouse’s momentum in April blunts inflation risk nipping at its heels

Texas Roadhouse on Thursday evening reported a disappointing first quarter, with inclement weather dragging down comparable store sales. However, early signs of a stronger second quarter were giving investors hope, nudging the stock modestly higher in after-hours trading. Revenue in the quarter ended April 1 increased 9.6% year over year to $1.45 billion, exceeding the LSEG-complied Wall Street consensus estimate of $1.44 billion. Earnings per share increased 1% to $1.70, missing the $1.76 expected. TXRH YTD mountain Texas Roadhouse YTD Bottom Line Once again, the Texas Roadhouse results were a tale of two halves. The company entered 2025 with tons of momentum and high single-digit comparable store sales, or comps, driven by a healthy blend of traffic and average check growth. This strength continued through January with comparable sales up 5.5%. However, the company navigated through a significant slowdown in February as rainy, snowy, and cold weather kept people indoors and away from restaurants, leading to comp sales growth of just 0.5%. Texas Roadhouse’s trends improved as the first quarter progressed, with March comps increasing to 4.6%. But if we take the full three-month period together, comparable store sales growth slowed to 3.5%, driven by a 1.1% increase in traffic growth and a 2.4% increase in average check. It may not be the high single-digit growth Texas Roadhouse investors were accustomed to, but it was still a little better than the 3.1% consensus estimate, according to Bloomberg. All three brands delivered positive comps and tariff growth during the quarter. In addition to Texas Roadhouse, the company owns the casual dining chains Bubba’s 33 and Jaggers. Looking forward, we were encouraged to learn that top-line trends returned to normalized levels in March, April, and May. In fact, the company pointed out that its average weekly sales for March hit all-time highs at all three brands. Through the first five weeks of the second quarter, Texas Roadhouse said its comparable sales at company restaurants increased 5% year over year. This puts the company on pace to exceed the second quarter consensus estimate of 4.28%, according to Bloomberg. The company’s quarter-to-date disclosure should help ease some investor concerns about how the uncertain macroenvironment may hurt restaurant sales and force people to trade down to other options or cook more at home. In many ways, this update holds more weight with investors than the reported results, explaining why the shares were higher despite the earnings miss. However, the increase in the full year commodity cost inflation outlook shouldn’t be ignored either. Those higher expected costs will squeeze margins a little bit for the rest of the year. Our takeaway from the evening is that the March rebound and strength through April show that Texas Roadhouse is a loved restaurant chain because of the value and fun experience it offers its customers. Its brand keeps them well equipped to handle any negative twists and turns in the economy and consumer spending. For that reason, we’re reiterating our 1 rating. However, in recognition of commodity inflation driving margin pressure, we’re reducing our price target to $195 per share from $205. Commentary Texas Roadhouse opened eight company restaurants in the quarter, seven of which were under the namesake brand. The other one was a Bubba’s 33, which marked that chain’s 50th location. With another 15 restaurants already open or under construction, the company is on track to open 30 company-owned restaurants this year. Management spent $78.3 million buying 14 Texas Roadhouse franchises. They plan to acquire another three restaurants in the second quarter. This is a good use of cash because bringing franchise locations under the corporate umbrella gives the company more control over everything in its restaurants and typically lead to better operating results. Texas Roadhouse has implemented several initiatives to enhance the efficiency of its restaurants. One such effort is the rollout of a digital kitchen system, designed to streamline kitchen operations and reduce stress for staff. Around 65% of the company’s locations have already adopted the system, with the remaining locations expected to make the transition by year’s end. Additionally, the company has advanced its guest management system, enabling operators to provide more accurate wait times and optimize floor plan management. As for cash returns to shareholders, the company bought back $50.2 million worth of stock in the quarter. That’s about one-tenth of the $500 million share repurchase program it announced back in February. It also represents an increase from the $35.1 million repurchase in the fourth quarter, a sign that management is willing to step in and buy when the stock is volatile. Why we own it Texas Roadhouse is a fast-casual steak chin that offers quality food at an affordable price in a fun atmosphere, creating one of the more compelling value propositions for consumers in the full-service dining category. A substantial majority company’s stores are company-owned stores, with only a small proportion as franchise locations. Competitors: Darden (Olive Garden, LongHorn Steakhouse), Brinker (Chili’s and Maggiano’s), Bloomin Brands (Outback, Carrabbas Italian Grill, BonefishGrill) Portfolio weighting: 2.8% Most recent buy: April 9, 2025 Initiated: Feb. 4, 2025 Guidance As mentioned earlier, Texas Roadhouse comparable sales at company restaurants increased 5% year over year through the first five weeks of the second quarter. The increased comps were driven by 3.1% traffic growth and a 1.9% increase in pricing. Those sales got a boost from a menu price increase of approximately 1.4% in early April, which is something management previously said they would do. The company also called out improvement in mix (items sold) trends, specifically in the entree and appetizer categories. Interestingly, the company saw some more guests trade up from a chicken or seafood entree into steak. Alcohol sales are negatively impacting mix by a little over half of a percentage point. Management has been adding mocktails as a way to improve mix of higher margin items. For 2025, management reaffirmed most of its outlook. On what didn’t change, management still expects full-year positive comparable sales growth, store week growth of 5%, wage and other labor inflation of 4% to 5%, total capital expenditures of $400 million, and an effective tax rate of 15% to 16%. On what did change, the company raised its commodity cost inflation outlook to approximately 4%, which is the high end of its previous guidance of 3% to 4%. For some perspective, when the company first gave a 2025 outlook last October, it said it expected commodity cost inflation of 2% to 3%. But that was raised last quarter, primarily due to an update on cattle supply expectations. The company’s margins are highly sensitive to beef prices. The updated commodity cost inflation outlook was due to an increase in beef costs expected for the rest of the year and a 30-basis-point full-year impact from tariffs. On tariffs, seafood is the most impacted portion of its commodity basket since Texas Roadhouse buys most of this category from countries that don’t fall under the 2020 United States-Mexico-Canada Agreement. Outside of seafood, the company said there are no other significant components of its commodity basket purchased outside North America. Tariffs are also expected to have an impact on other items, including supplies like disposable and flatware. Unplanned equipment replacement could be impacted by tariffs, too. (Jim Cramer’s Charitable Trust is long TXRH. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A woman enters a Texas Roadhouse restaurant in Arvada, Colorado, on Friday, March 11, 2011.

Matthew Staver | Bloomberg | Getty Images