Texas Roadhouse, Inc. 2026 Q2 Earnings Call

Thank you, Holly, good evening. By now, you should have access to our earnings release for the second quarter ending June 30th, 2026. It may also be found on our website at texasroadhouse.com in the investor 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 Mike Lenihan, 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, could everyone please limit yourself to 1 question? Now I would like to turn the call over to Jerry.

Thanks, Michael, good evening, everyone. We're excited with our second quarter results as revenue approached $1.7 billion. We continued our top-line momentum with same-store sales increasing 6.2%, including 3% traffic growth. We're especially pleased that our second quarter average weekly sales exceeded $175,000 for the first time in our company's 33-year history. There's a lot to be proud of across our portfolio of restaurants. Each of our brands is at a different point in their journey, I want to take some time to talk about the potential growth each brand has going forward. Texas Roadhouse ended the second quarter with 755 system-wide locations across the U.S. and 10 foreign countries. Average weekly sales at company restaurants were over $183,000.

We are confident in our operators' ability to continue driving sales through traffic growth. The sales volume and consistent growth that our restaurants have delivered over the long term are a testament to the strength of the brand and the commitment of the best operators in the industry. This year, we expect to open approximately 20 Texas Roadhouse restaurants spread throughout the country. With the momentum in our existing locations and a full pipeline of sites under development, the future continues to be incredibly bright for Texas Roadhouse. Bubba's 33 ended the quarter with 59 restaurants in 16 states. Just last week, we celebrated the opening of our 60th location, which is our first in the state of Iowa. Average weekly sales for the brand were over $129,000 in the second quarter, and our recent openings continue to perform very well.

Our expectation is to open at least 10 Bubba's 33 restaurants this year and maintain this low double-digit pace of openings for the next several years. Lastly, Jaggers also continues to perform well. In the quarter, weekly sales exceeded $76,000, and we opened our 11th company location. The remainder of this year's growth of the company side will be focused in our existing markets. We expect a total of four company openings this year. On the topic of development, we remain on track for approximately 35 company-owned openings this year. Nine of these occurred in the second quarter, including five Texas Roadhouses, three Bubba's 33, and one Jaggers. As we mentioned last quarter, our openings this year are heavily weighted toward the end of the year. At this time, six are scheduled for the third quarter. The remainder of the 2026 openings are planned for the fourth quarter.

On the franchise side, our partners opened one international Texas Roadhouse during the second quarter. We expect as many as five more international openings as well as two domestic Jaggers franchise openings in the second half of 2026. Moving on to menu pricing. We remain committed to maintaining our everyday value while also continuing to deliver on legendary food with high-level hospitality. Based on recently completed discussions with our operators, we will take a menu price increase of 1% at the beginning of the fourth quarter. We believe this level of pricing strikes an appropriate balance between helping to offset structural inflation and maintaining our everyday value position. During the first half of 2026, our operators continued to deliver on our mission of providing legendary food and legendary service.

In the second quarter, we saw tremendous demand on Mother's Day and Father's Day, which, along with Valentine's Day, are the three legs of what we call our Triple Crown. 90% of our restaurants set daily sales records this year on one of those three days, and a handful of our restaurants really crushed it with single-day sales exceeding $100,000 on one of those holidays. The trust that our guests show our restaurants on the most important dining occasions is one of our competitive advantages. This trust is earned and something we will not take for granted. Now, Mike will provide some thoughts.

Thanks, Jerry. During the second quarter, guests continued to reward us for their overall experience at our restaurants. Sales and mix trends within our dining rooms were both positive, and we maintained an impressive growth rate in our to-go business during the quarter. These trends continued into the first five weeks of the third quarter, with comparable sales up 6.2% and our restaurants averaging weekly sales of $168,000. Moving on to commodities. While the overall beef supply outlook remains dynamic given a variety of factors, our second quarter commodity inflation came in at 7%, which was at the bottom end of our forecasted range. As previously stated, our second half inflation outlook remains lower than our first half inflation. Based on our updated forecast, we are reducing our full year 2026 commodity inflation guidance from between 6% and 7% to approximately 5%.

We will provide an initial outlook on 2027 commodity inflation during our quarterly call in November. With regards to labor, second quarter inflation of 3.9% was in line with our expectations, and we are maintaining our full year 2026 wage and other labor inflation guidance of 3%-4%. Labor productivity continued its positive trend with labor hours growing at approximately 25% of comparable traffic growth. On the topic of our capital position, we ended the quarter with $202 million in cash. Cash flow from operations for the second quarter was $180 million, which was offset by $191 million of capital expenditures, dividend payments, and share repurchases. Our guidance for 2026 capital expenditures remains unchanged at approximately $400 million. As always, our capital allocation framework prioritizes new restaurant development and maintaining our existing restaurants. Now Michael will provide the second quarter financial update.

Thanks, Mike. For the second quarter of 2026, we reported revenue growth of 11.1%, driven primarily by a 5.9% increase in average weekly sales and a 5% increase in store weeks. We also reported a restaurant margin dollar increase of 6.9% to $275 million and a diluted earnings per share decrease of 0.7% to $1.85. Average weekly sales in the second quarter were over $177,000, with to-go representing more than $25,000, or 14.3%, of these total weekly sales. Comparable sales increased 6.2% in the second quarter, driven by 3% traffic growth and a 3.2% increase in average check. By month, comparable sales grew 6.2%, 6.7%, and 5.7% for our April, May, and June periods respectively. In the second quarter, restaurant margin dollars per store week increased 1.9% year-over-year to over $29,000.

Restaurant margin as a percentage of total sales decreased 66 basis points to 16.4% as compared to the same period last year. Food and beverage costs as a percentage of total sales were 35.4% for the second quarter. The 136 basis point year-over-year increase was primarily driven by 7% commodity inflation. The inflationary pressure was partially offset by the benefit of a 3.2% check increase. Labor as a percentage of total sales improved 40 basis points to 32.5% as compared to the second quarter of 2025. Labor dollars per store week increased 4.7% due to wage and other labor inflation of 3.9% and growth in hours of 0.8%. Other operating costs were 14.2% of sales, which was 28 basis points better than the second quarter of 2025.

The leverage was a result of higher sales combined with a $1.1 million net benefit to our quarterly reserve for general liability insurance. This insurance benefit included a credit of $800,000 this year as compared to $300,000 of additional expense last year. Moving below restaurant margin, G&A dollars increased 15.4% as compared to the second quarter of 2025, came in at 4.3% of revenue for the second quarter. For full year 2026, we continue to forecast a low double-digit percentage increase in our total G&A dollar expense. Depreciation expense increased 15% year-over-year in the second quarter and came in at 3.5% of revenue. For full year 2026, we continue to expect a low teen percentage increase in our total depreciation dollar expense.

Our effective tax rate for the quarter was 13.5%. At this time, we are updating our guidance for the full year 2026 income tax rate from between 14% and 15% to approximately 14%. Lastly, we want to highlight the likely negative impact to same-store sales growth in the fourth quarter from several holiday shifts. Year-over-year, Halloween is shifting from a Friday to a Saturday, and Christmas Day is shifting from a Thursday to a Friday. In total, we estimate an approximately 75 basis point negative impact to fourth quarter same-store sales growth from these shifts. Now, I will turn the call back over to Jerry for final comments.