Texas Roadhouse Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 17 speakers on the call.

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. I would now like to introduce Michael Bailin, Head of Investor Relations for Texas Roadhouse.

Operator

You may begin your conference.

Speaker 1

Thank you, Brianna, and good evening. By now, you should have access to our earnings release for the Q1 ended March 28, 2023. 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.

Speaker 1

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 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.

Speaker 1

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 would like to turn the call over to Jerry.

Speaker 2

Thanks, Michael, and good evening to everyone. As many of you know, we just returned from our Managing Partner Conference, where we celebrated Our 30 year anniversary with our operators. While we took some time to honor our past, our conference messaging was focused on our future, Which will continue to be shaped by staying true to our values and our mission of legendary food and legendary service. Our operator's commitment to our mission was evident during the Q1, which was highlighted by record guest counts And double digit increases in both same store sales and earnings. And during the Q1, our restaurants averaged $148,000 in weekly sales, including more than $19,000 in to go sales.

Speaker 2

We are still seeing improvement in year over year staffing levels, thanks to our hiring, training and retention efforts. Increased staffing levels allow us to continue our top line momentum and also focus on maintaining our high food quality standards And delivering a legendary guest experience. On the cost side of the business, inflationary pressures are mostly in line with our projections And commodities are performing as we expected. The tightening cattle supply is keeping beef prices elevated, While we are experiencing some moderating inflation in other areas of our overall basket and on the labor side, wage pressure has been persistent as it remains a competitive hiring environment. As for the Q1 development, we opened 4 company owned Texas Roadhouses And 2 company owned Jaggers.

Speaker 2

In addition, 1 international franchise restaurant opened in the Philippines. We also completed position of 8 franchise restaurants located in Maryland and Delaware at the beginning of the Q1. At this time, we continue to expect to open 25 to 30 company owned Texas Roadhouse and Bubba's 33 restaurants this year as well as 3 company owned Jaggers. Our franchise partners are on track to open approximately 10 international And domestic restaurants, including 2 Jaggers. We also continue to invest in technology to improve both our operations And the guest experience.

Speaker 2

Roadhouse Pay, which is our pay at the table system, has now been rolled out company wide. In addition to the guest convenience, during the check and change period, Roadhouse Pay also allows us to sell and redeem cards, Gift cards and promote sign ups for our VIP loyalty club. Additionally, we are having great success with our digital kitchen In improving cook times, order accuracy and other operational efficiencies. The majority of our openings this year will include A digital kitchen system and we continue to convert some existing restaurants to the digital format. On capital allocation, Our strong cash flow generation during the quarter allowed us to grow our dividend by 20%, continuing repurchasing of shares And further strengthen our capital position by repaying the remainder of our debt.

Speaker 2

Importantly, these actions were taken together with our reinvestment In the business as we spent over $100,000,000 on capital expenditures and franchise restaurant acquisitions. Overall, we believe our ability to reinvest in the business, our strong balance sheet and our disciplined capital allocation strategy All create a competitive advantage, which will allow us to generate long term shareholder returns. Finally, I want to give a huge shout out to Brad Apgar, our 2022 Managing Partner of the Year from College Station, Texas. We also named Rob Ah of Colorado Springs, Colorado, our first ever Bubba's 33 Managing Partner of the Year. I want to congratulate Brad and Rob as well as all the finalists from both concepts for their accomplishments in 2022.

Speaker 2

And I also want to congratulate Daniel Rivera of Covington, Louisiana for being named our 2022 Meat Cutter Champion And Steve Ziro for being named our Support Center Roadie of the Year. Our conference is a time to celebrate our successes, Recognize our top performers, focus on the future, and just as importantly, have some fun. After spending a week with our operators, I can tell you that we have already all returned home energized and ready for the remainder of 2023. Now Michael will walk you through our financial update.

Speaker 1

Thanks, Jerry. For the Q1 of 2023, Revenue grew 18.9 percent driven by a 12.5% increase in average unit volume and 6% store week growth. Restaurant margin dollars grew 15.2 percent to $185,700,000 While earnings per share increased 18.4 percent to $1.28 per diluted share, comparable sales increased 12.9% In the Q1, driven by 7.6 percent traffic growth and a 5.3% increase in average check. By month, comparable sales grew 20.1%, 10.6% And 9.3% for our January, February March periods, respectively. And for the 1st 5 weeks of the second quarter, Weekly sales averaged over $145,000 with comparable sales up 8.6%.

Speaker 1

This includes the benefit of the 2.2% menu price increase that we took at the beginning of the second quarter. For the Q1, restaurant margin as a percentage of total sales decreased 53 basis points to 15.9%. However, restaurant margin dollars per store week, which we believe is a more relevant metric for us, were up 8.7% And hit an all time high of over $23,500 Food and beverage costs as a percentage of total sales We're 35.2 percent for the Q1. This was 78 basis points higher than 2022, Driven by 8.9 percent commodity inflation. As Jerry mentioned, commodity costs have been in line With our expectations so far this year, with approximately 75% of the overall basket locked for Q2 And approximately 40% locked in the back half of the year, our full year guidance for commodities remains unchanged at 5% to 6%.

Speaker 1

As a reminder, we continue to expect the rate of year over year inflation to moderate as we move through the year. Therefore, 2nd quarter inflation should decline sequentially, but still be above our full year guidance. Labor as a percentage of total sales increased 23 basis points to 33% as compared to the Q1 of 2022. Labor dollars per store week increased 13.1%, primarily due to wage and other labor inflation of 8% and growth in hours of 4.8%. Similar to commodities, we expect the level of labor inflation to moderate as we move through the year.

Speaker 1

At this time, our full year 2023 guidance of wage and other labor inflation between 5% 6% Remains unchanged, but current trends would put us closer to the high end of that range. Other operating costs were 14.3 percent of sales, which was 35 basis points lower as compared to the Q1 of 2022. Most of the year over year benefit comes from sales leverage due to higher average unit volumes. Moving below restaurant margin, G and A grew year over year by 23.8% and came in at 4.2% of revenue. The majority of the $9,600,000 increase in year over year G and A expense was driven by higher compensation expense, including approximately $2,600,000 of one time costs.

Speaker 1

Our effective tax rate for the quarter was 13.9% And we continue to expect a full year 2023 income tax rate of approximately 14%. Lastly, with regards to cash flow, we ended the Q1 with $156,000,000 of cash. Cash flow from operations was $189,000,000 This was more than offset by $67,000,000 of capital expenditures, $37,000,000 of dividend payments, dollars 50,000,000 of debt repayment, dollars 10,000,000,000 of share repurchases And the $39,000,000 acquisition of 8 franchise restaurants, our expectation for full year 2023 capital expenditures remains approximately $265,000,000 Now I will turn the call back over to Jerry for final comments.

Speaker 2

Thanks, Michael. I want to close the call by thanking the 85,000 plus roadies who keep our mission alive each and every shift As well as our vendors who have been key partners in our success. I also want to thank our loyal guests who continue to support our restaurants And allow us to provide them with legendary food and legendary service. Given our industry leading operational performance And strong balance sheet, we have a lot of flexibility at our disposal to create shareholder value in the future. Speaking of the future, the theme of our recent conference was just getting started.

Speaker 2

I can promise you that while we will always honor And celebrate our history, we feel like we are just getting started on writing our future. That concludes our prepared remarks. Operator, please open the line for questions.

Operator

Thank you, Mr. Morgan. Your first question comes from Joshua Long with Stephens. Your line is open.

Speaker 3

Great. Thank you for taking my question.

Speaker 1

I was curious if we

Speaker 3

could talk about some of the initiatives at the store level that helped drive the strong traffic during the quarter. Obviously, legendary food, legendary service Resonates well with your guests. But curious if some of the menu initiatives or maybe other focus points have allowed you to broaden your reach as Value and balancing that overall experiential component that you're well known for, starts to resonate with a broader set of guests going forward. Thank you.

Speaker 2

Yes. Thank you, Joshua. I believe that our focus on executing a great shift will always be and as we I've been able to hire and train and get staffed up and more about the retention of our people as they get more experience and more reps on running shifts and Whether it be front of the house or back of the house, I just believe that really and truly it comes down to our ability to execute, to get people in, Get them the experience that they're looking for and thank them for coming and joining our business that night is the real focus. We are very much on

Operator

Your next question comes from David Palmer with Evercore ISI. Your line is open.

Speaker 4

Thanks. Good evening. Jerry, I know you're committed to that long term framework of margins being In the 17% to 18% range, but I'm trying to think through how you might get there. Obviously, we're in a beef cycle and we're going to be probably dealing with above average stake inflation for the next couple of years. Given that that's the case, I'm wondering we might just be stuck a little bit below that range for a while and that's fine.

Speaker 4

But I'm wondering if there's other offsets that you think could happen or that you think or maybe happening internally that could make you get there with Even an inflationary environment like we're likely to see? Thank you.

Speaker 2

Yes. Thanks, David. We're always looking at how to get back To that point, we've made some progress, I think, from quarter 4 to quarter 1, although we still have some improvements to do. The labor inflation, We know what it's looking like going into the rest of the year. Beef inflation, Michael can talk to in a little bit.

Speaker 2

That is kind of Holding up in that area that's a little higher, but we hope that our digital technology is teaching us To be a little faster when we expedite our food through the kitchen, Roadhouse Pay is definitely another enhancement to the service level and maybe even A little bit of the speeding of the table turn. So we have several things that are doing to allow us to continue to elevate how many guests we can get through the building In any given day, which as obviously the inflationary pressures settle, we will help us get back to that. We are excited about our restaurant margin dollars and our top line continues to really do extremely well for us. So we're going to Have to continue to focus on the efficiencies of the business and what we can learn going forward.

Speaker 1

Thank you. Thank you.

Operator

Your next question comes from Brian Tausen with Morgan Stanley. Your line is open.

Speaker 5

Yes. Hi there. Good evening. Could you elaborate on that, Jerry? Is there Anything you could say about the stores that have Roadhouse Pay, have you in fact measured kind of faster table turns?

Speaker 5

And then like with the digital kitchens, for example, have you seen faster throughput there? I'm just curious about some

Speaker 6

of the specific things you observed as you put

Speaker 2

Yes. On the Roadhouse pay, there is no doubt that in our opinion, The guests can pay at their convenience. So if they're in a hurry, they're not waiting on anyone to come do their check and change. It is on the table. It is readily available.

Speaker 2

We have gotten great feedback not only from the guests, but from our operators. So we absolutely believe The guests that want to get in and out, they definitely have the ability to execute that on their own. On the Digital We have 4 up and running currently. We had 2 new store openings and we converted 2. And like we said, this year, It looks like we will do all of the new store openings, approximately 20 or more and then 10 conversions.

Speaker 2

And All the indicators right now, Brian, are that we are going to see our food hitting the window in a timely manner, which should save us All of the indications right now and it's very early that it should save us some minutes. And if it can do that, then that can really help us And our power hours might even turn the restaurant another half a time to a hold time. So that's what we're seeing. The efficiencies on the back of the house side of a digital kitchen is more about the production seats and how we do some of that. But The technology from what we are seeing right now is very encouraging as to how it will help us be more efficient business

Operator

Your next question comes from Peter Saleh with BTIG. Your line is open.

Speaker 7

Great. Thanks for taking the question and congrats on the quarter. I just wanted to ask about the just Consumer behavior in general, I think over the past quarter or 2, there was some negative mix that you guys were seeing in the numbers, Maybe soft drinks up, alcohol down. Has there been any change in consumer behavior and how they're spending or using your menu? Are they Trading down at all, trading up at all, just any details around that would be helpful.

Speaker 7

Thank you.

Speaker 1

Hey, Peter, it's Michael. Thanks for the question. I think a lot of the trends that we were starting to see in February March I've certainly continued into April and not really seeing any change in that. But during that time period, we have seen that alcohol mix Has remained negative, again, steadily negative, not going further. And we're still seeing Some negative mix in that entree category, which can be a few things.

Speaker 1

There's certainly some guests who may be doing a little bit of check management. But as I also mentioned on the previous call, I think we are seeing new guests coming in to Texas Roadhouse and maybe Starting at the lower on the value side of the menu. So it has held very steady. I don't think it has anything To do with our menu pricing or the menu price increases that we have taken because we've seen no change during that period. And Certainly, our guest volumes tell us that people still want to be at Roadhouse, but We've seen maybe a little bit of trade down, but I'll end with a comment of our mix is still extremely positive Relative to pre pandemic levels, so we might just be giving a little bit back now that people are watching their pocketbook a little bit more.

Speaker 7

Thank you.

Operator

Your next question It comes from Jeffrey Bernstein with Barclays. Your line is open.

Speaker 8

Great. Thank you. A question on beef and the related potential pricing. Just wondering if you can give a little bit more color on what you're locked in specifically on beef As we look to the rest of the year, I feel like in past cycles, maybe management was not keen to take price to mitigate because We know beef goes up and down and price was really more reserved to offset structural, more labor type inflation. So I'm wondering if that's still The sentiment, if as was raised earlier, maybe we should just assume in the short term that, you won't necessarily price to fully offset it and let the margins take a hit so that you can Kind of maintain your industry leading traffic.

Speaker 8

Just trying to get a sense for whether that thesis is unchanged and specifically around the beef, what the outlook is for the rest of this year? Thank you.

Speaker 1

Hey, Jeff. Thanks for the question. It's Michael. I think your thesis is pretty on point. We're not going to get into the specifics of what Percent of our beef is locked or is not locked, but it's fair to assume with half of our baskets Being beef that our overall commodity lock has to be somewhat in line with what our beef is.

Speaker 1

I'll tell you our outlook for beef has really not changed since the last time we spoke to you all. We do think it will drive the majority Of our inflation for 2023 and that other items in the basket will see The inflation moderates to bring our overall inflation down. On the last point you brought up about menu pricing, that is still The way we think about it, we price for the structural component of inflation, which tends to be wage inflation, and we don't tend to overreact And price for the cyclical items like commodities, beef will probably be inflationary for a period of time. Like I said, we're feeling some offsetting deflation in other areas, and We will focus 1st and foremost on the guests and driving more people into the restaurant, but we will look at menu pricing again Later this year, and I would assume we will do something in that October period like we have done in the past.

Speaker 8

Thank you.

Operator

Your next question comes from David Tarantino with Baird. Your line is

Speaker 9

open. Hi, good afternoon. My question is related to the margin performance. And I guess, when I step back and look at the strength in your traffic trends and your overall sales trends, It's a little bit surprising that we're not seeing leverage on labor, and I appreciate you have inflation. But I guess the question is, what would it take to get leverage on the labor line, Given that when traffic increases, you tend to add hours and lean in on execution.

Speaker 9

So I guess What do we need to see leverage come to fruition on that line?

Speaker 1

Yes. Thanks for the question, David. It's Michael. I think we will need to see some of that wage inflation Moderate, I mean, the math would say if we have if we're guiding to 5% to 6% wage and other Labor inflation, and we said we're probably going to be on the high end of that. So if we have 6% for the year and your menu pricing is below that Overall number, then you need to see some you certainly would need traffic, which helps to some extent, but With traffic comes the need for more staffing.

Speaker 1

So that's why we had said on our last call that First half of the year would not expect to be seeing leverage on that labor line and we'll see what happens in the back half of the year. We're still learning What that kind of algorithm will be of do labor hours grow at 50% of traffic or There's something else happen there. So things still to learn there to determine what kind of Leverage, we might be able to get, but again, seeing that wage pressure moderate, would certainly be a big component that we would need to see.

Speaker 6

Thank you.

Operator

Your next question comes from Sara Senatore with Bank of America. Your line is open.

Speaker 10

Thank you so much. Just, I guess, a housekeeping question and then a follow-up. First on the housekeeping, I know you mentioned 2.2 points of menu price. I just wanted to make sure I was understanding what that meant year over year. Is that Sure.

Speaker 10

In that 6% range in terms of year over year pricing as I try to think through the margin compression in terms of inflation relative Price increases. So that's just sort of the housekeeping. And then, I guess in terms of The components, traffic seem to have accelerated pretty meaningfully and candidly, I know we might not be Talking about versus pre COVID anymore, but any sort of stack comparison, are you seeing any underlying Change in demand, whether it's different cohorts or the relative value proposition being stronger, just trying to sort of Understand again this very strong traffic number in the context of the environment with the caveat that I know Multi year comparisons vary. Thanks.

Speaker 1

Yes. Thanks, Sarah. It's Michael. First on your question about pricing, I think what you're asking is What will pricing look like by quarter? For the Q2, we'll have 5.6% pricing in the menu.

Speaker 1

But I will mention that given the timing of when pricing was taken last year and when it was taken this year, The 5 weeks that we have given you a same store sales number on had about 6.2% Pricing in it in the last 8 weeks of the quarter will have about 5.2% pricing in it and then that gets you to the 5.6 For the full quarter and then Q3, we'll have 5.1% pricing and before we take anything else In October, we would only have 2.9% in the Q4 of 2023. So that's the cadence of Pricing for the year. As far as traffic, yes, I think our traffic trends have been very healthy and continue To look very strong, whether you look at them on a multiyear basis or year over year basis. And I think that again goes to us The way we operate the business and making sure we are staffed to serve the demand that is out there And we are careful on those menu prices and we are seeing a little bit of that negative mix in the entree category, which I believe it's showing that some guests are maybe trading into us who were not casual dining guests on a regular basis before and And our coming in is one of our value items.

Speaker 1

So I think we are continuing to gain new guests in this High cost environment and our traffic trends are feeling the benefit of that.

Operator

Thank you very much. Your next question comes from Dennis Geiger with UBS. Your line is open.

Speaker 11

Thank you. I want to ask about full year expectations for restaurant margins, which I think last quarter you said you could see The margin percentage improvement, I think, year over year. Just curious, any update to that? And then also if there's any update So those assumptions that you've got internally maybe, labor maybe is at the upper end of the range, the range is sort of unchanged though, Anything without words, any components of that, that may have changed if you're able to just touch on that high level? Thank you.

Speaker 1

Yes. Hi, Dennis. It's Michael. I really don't think much has changed since we last spoke. I do think the Some of it will depend where we are on those guidance ranges that we talked about.

Speaker 1

Some of it will depend upon your assumptions for Top line performance on traffic and what mix might look like, but I do think we continue to have opportunity From the margin percent line to see some improvement, I think you will see the most opportunity for year over year Leverage on those margin percents in the back half of the year and probably the Q4 having the most opportunity They are for that, but again, some of that has to do with your personal decisions on top line growth. And just like we said the last call, I think the other operating is your biggest opportunity to see some leverage just As we saw that in Q1 and again that cost of sales as we move through the year and see moderating levels of inflation And put that up against the pricing we just talked about that should start to see some benefit in the back half of the year, just the pure math would say you're going to see Some benefit on the cost of sales line.

Speaker 11

Very helpful. Thanks, Michael.

Operator

Your next question comes from Jeff Farmer with Gordon Haskett. Your line is open.

Speaker 11

Thank you. You guys in recent quarters have Reported seeing little if any uptick in any type of promotional activity or discounting across the segment. A couple of your peers have gotten a little bit more aggressive with promotions and TV advertising, but what are you seeing? I know that broader casual dining is not exactly Head to head with Steakhouse, but from your perspective, your most relevant competitors, have you seen a continued rational behavior as it relates to promotions?

Speaker 2

Yes. I mean, on their side, obviously, they're being pretty aggressive out there. We don't technically get into that. We focus on our early dine communication within our local communities and Wild West Wednesday is one of those promotions that we do To kind of give folks a little bit of a break on that Wednesday, but those are really the two things that we focus on our early dine communication and We do a lot of that in our local store community. We have our local store marketers that are out there working the communities and really just letting them know That we're present and we're available to serve them and here's what some discounting that we do and it's all been very consistent Over the years with our early dine messaging and about 15 of our menu items that are discounted a little bit for that early side and then Wild West Wednesday.

Speaker 2

But From a seasonal trend for us, things seem to be going pretty according to normal from that standpoint.

Speaker 12

Okay. Thank you.

Speaker 3

Thank you.

Operator

Your next question comes from Jon Tower with Citi. Your line is open.

Speaker 6

Great. Thanks. I guess I'll ask on the supply environment or real estate side of the business. Curious if you're seeing any sort of changes in the backdrop given some of the noise that we're seeing Certainly in the lending environment and some of the regional banks, is that translating yet into perhaps any availability of sites that you might have Looked at previously and weren't available because of others coming in and now they're opening up in your discussions with landlords. And then the other follow-up question I have is, can you just tell us what that $2,600,000 charge was in G and A in the quarter?

Speaker 6

Thanks.

Speaker 2

Yes, no problem. The real estate pipeline, I think with all of that stuff happening recently, hasn't changed or affected us in any way at this Time depends on where it all goes, but we're business as usual. We've got our processes on picking real estate. If somebody comes to us with a deal, we'll definitely we're going to entertain any and all, but we've got a pipeline for 2.5 years deep on real estate that we're working at Different levels all through the system. The $2,600,000 was a one time executive payout.

Speaker 1

Got

Speaker 13

it. Thank you.

Speaker 2

Thank you, John.

Operator

Your next question comes from Chris O'Cull with Stifel. Your line is open.

Speaker 14

Great, thanks. I had Just a point of clarification and then a question about Bubba's. Michael, I apologize if I missed it, but did you say why the company expects wage inflation to ease? And then Jerry, I wanted to ask about Bubba's future growth. It looks like the volumes at newer locations are well below Roadhouse And the investment, I think, has been at least $500,000 higher than Roadhouse.

Speaker 14

So on the surface, it would seem better to allocate all the capital to Roadhouse Development. So I'd love to hear how you're assessing Bubba's future potential and how you're thinking about capital allocation to Bubba's?

Speaker 1

Yes. Hey, Chris, Lee, I'll answer that first question on wages and then hand it over to Jerry. Yes, we do expect Wage inflation to moderate. Again, a lot of the wage pressure that we're feeling this year has to do with Hiring people from last year are giving raises last year that have to flow through the system for 12 months. So There is that is a big component of the wage inflation.

Speaker 1

There's obviously state mandated increases That we took at the beginning of this year, but just the rate of increase that we're seeing is has certainly slowed From what we were seeing last year as it pertains to average wage rates. So as we're Moving further into the lap of last year, we just expect that wage pressure to abate.

Speaker 2

And then Chris, on Bubba's growth, I'll tell you in the last 18 months, We've made some leadership changes and adjustments to the strategy of how we do that. And we've really put the right people in place 1st and foremost. And We are seeing the fruits of that labor in the new store openings. And as we got our I think our very first one for the year will be opening in Avon here in a couple of So we're excited about that. Obviously, the Roadhouse focus has been 20 to 25 a year.

Speaker 2

We know what we have there. We've had a lot of success, Very consistent performance for over 30 years and that's very exciting. We are all in on Bubba's. We've got Great food there. We've got a great energy and environment and ambiance that really does fit with what we're trying to accomplish.

Speaker 2

We've got some cost out of the building. I think that will flow through eventually as some of the construction costs come down and We're holding we've done some things on our end to bring that down, but we'd like to get and it may take us another 24 to 36 months, but We will eventually get Bubba's growing at 10 plus and feel very good about the responsibility to the investment there. Thanks.

Speaker 1

Thank you.

Operator

Your next question comes from Lauren Silverman with Credit Suisse. Your line is open. Thank you. So I just wanted to ask about monthly comps. They decelerated through the quarter.

Operator

I think you said 20.1% in Right at 9.3 in March. Can you just help us unpack what you saw throughout the quarter and what might have been the driver of the step down as it just compares or anything else? Thank you. Yes.

Speaker 1

Hi, Lauren, it's Michael. Yes, I really do think a lot of it is compares because again our Sales volumes grew as we move through the quarter and even into April. So obviously, the lapping of omicron Early in January caused that outsized January percentage increase. But when I look at it on a multiyear basis, which again also has noise in it, you really don't see a slowdown In there, so again, I do think it's the comparisons and certainly we're not feeling like we are seeing a slowdown In the number of guests wanting to come to Texas Roadhouse.

Operator

Great. Thank you. Your next question comes from Brian Vaccaro with Raymond James. Your line is open.

Speaker 15

Thanks and good evening guys. 2 quick ones for me. Just on G and A, came in quite a bit higher than we were thinking. Could you help us put some guardrails on your annual And how much should we pencil in for the GM conference in the second quarter?

Speaker 1

Hey, Brian. Yes, I can talk a little bit about the G and A. Obviously, again, G and Forming kind of how we described at the end of the last quarter where this was a year where we expected the G and A dollars May grow at a faster rate than what revenue grows and therefore we may see as a percentage of revenue giving a little bit back On G and A and that is what we saw in the Q1. We would not have maybe seen that if we didn't have the one time cost in there. I think, excluding we'll come back to the conference here in a second.

Speaker 1

I think the level of G and A you're seeing in the Q1 It's probably in the right ballpark of what you may could potentially see As we move through the remainder of the year and with regards to conference, we're not going to get into a specific number As to the conference, but it will have it will be a little bit elevated as compared to The charges that we took in the Q2 of last year, so I would expect Q2 to be a little bit higher than Q1. All right.

Speaker 15

Thanks for that. And then if I could just quickly circle back on the other OpEx line. If my math is right, it looks like Cost per week up almost 10% year on year. Just are there any one timers worth highlighting in that line? And if not, could you elaborate on any new areas of Pressure you might be seeing or and maybe an update on what you're seeing in terms of utilities and R and M, is there any light at the end of the tunnel That we might start to lap some of those and inflation could moderate.

Speaker 15

Thank you.

Speaker 1

Yes, Brian, it's Michael again. The other operating that growth in dollar per story, I believe we saw a Slow down in that as compared to what it did in Q4 of last year versus the prior year. And I think we may see have the potential to see Some continued slowdown, again, this Q1 lapping the unusualness of the Omicron from last year. So there was With the volumes that we were doing on the top line, you would expect to see some larger growth in the other operating Category, not seeing a ton of relief on many items at this point, but not seeing a big step up On items, and that was kind of what we were expecting to happen. So utilities haven't Started to move in our favor as of yet, maybe that does happen as we move through the year, and maybe we see some relief in some other areas.

Speaker 1

But right now, again, I think the leverage that we got on the other operating is coming because of The traffic volumes that we've been able to generate and the overall AUVs that we have.

Speaker 15

All right. Thank you very much.

Operator

Your next question comes from Andrew Strelzik with Bank of Montreal, your line is open.

Speaker 12

Hey, good afternoon. Thanks for taking the questions. I was just hoping that you could maybe help us understand a little bit better where Seeing the strong growth within the week or you spoke about maybe some of your earlier reading occasions. Is there anything that stands out really driving that growth? And then Relatedly, you've seen some small declines in the off premise on an average weekly sales basis.

Speaker 12

Do you think those folks are going Back into dine in or I know you thought that those were kind of distinct customers, but curious if you think you're seeing that trade back into dine in? Thanks.

Speaker 1

Yes. Sorry, Andrew, just repeat the first part of the question real quick for me. I apologize. You're still there?

Speaker 12

Yes, sure. Yes, absolutely. So where are you really seeing the growth? Is it in peak weekend? Is it during the week?

Speaker 12

Is it earlier? Yes.

Speaker 1

Appreciate that. It's Michael. As I look at it, we're seeing growth 7 days a week. We're seeing it early in the day. We're seeing it late at night.

Speaker 1

We're seeing it during our power hours. So really strong growth throughout All days of the week, maybe it's a little bit stronger on weekends, on a percentage basis, but very pleased To see that it's coming across the board, which again, I think that's guest learning Where there's opportunity to get into a Texas Roadhouse and managing your schedules there. As far as the Decline in to go, yes, down a little bit on a percentage basis, but that is largely due to the increase Our dining room visits and our dining room sales, we still did over $19,000 per store week in to go sales in Q1, which was Only down a few $100 versus Q1 of last year. And yes, probably some of those guests are now coming

Operator

Your next question comes from Andy Barish with Jefferies. Your line is open.

Speaker 13

Hey, guys. Just a couple of housekeeping and maybe an operational question. Just Michael, on the G and A guide, are you Including the 2.6 the 2.6 one timer, I mean, obviously, on an annualized basis, that would be An additional $10,000,000 or so to the G and A?

Speaker 1

I think you could probably take that out And then make it be more in line again. We'll see what where the actual G and A comes in. But Typically, I think it's fair to assume if you strip that out, then that would be the more comparable Number to use as you move through the year?

Speaker 13

Yes. Just wanted to make sure. And then Did April have some of the volatility around calendar spring breaks in some of your markets that we've heard from others? And How does average weekly sales seasonality usually progress from the $145,000,000 in April to May June?

Speaker 1

Yes, I mean, there may have been some seasonal movements from week to week In those April numbers, but we still saw strength, overall strength throughout the month. And so it's not That we were strong early on and then things fell off or vice versa. So there were mismatches, but still Felt like we saw strength throughout. If you typically now moving obviously April It tends to be a very strong month for us. And then May could be a strong month as well with Mother's Day, June, July, August, even into September, those summer months, We see the seasonality come in and maybe our volumes are a little bit lower than what you would see early in the year and then they begin to climb Back up into the fall and winter months.

Speaker 13

Very helpful. And then, Jerry, on the labor hour increases, I'm assuming that's both back of house and front. Are there some things You can look at in terms of I know the kind of the KDS that you're looking at, anything equipment wise or changes in the Fact that may help as well?

Speaker 2

Andy, how are you doing? Yes. I think we're looking at every component as to how to become more efficient. The number one thing is being fully staffed And really holding on to our people and keeping that tenure, so their productivity really increases. And maybe you can use a less component on a prep or that because of their efficiency.

Speaker 2

So we'll continue to look at that as We've really ramped back up our staffing. Our component is a heavy staffing. We have made from scratch food, Homemade, obviously, from that side of it, we have a lot of commitment to legendary food and legendary service. And as the more experience that they get, The more efficient and productive they can be and we should see that continue to pay dividends for us as we've invested heavily Over the last couple of years to get to that level that we really want to be executing at a high level always. And that is obviously driving our top line mentality and

Speaker 13

Thank you very much.

Speaker 2

Thank you.

Operator

Your next question comes from Jim Sanderson with Northcoast Research. Your line is open.

Speaker 16

Thanks for the question. I wanted to go back to labor Just to make sure I understand the incremental or the growth in labor hours reported in the Q1, is that a rate that will continue? It's going to be a little bit higher And you would typically see as you get to a recovery phase relative to last year in COVID disruptions, The 5%.

Speaker 1

Hey, Jeff, this is Michael. I would say Q1 is the anomaly with, again, 1, the lapping of Omicron and our staffing levels in 'twenty two were at their lowest in Q1 of last year, So it's early in the quarter. So I think your biggest guest hour I'm sorry, labor hours growth It was in that Q1, but I'd also point out you are that 4.8% traffic goes along with 4.8% labor hour growth Goes along with 7.6 percent traffic growth. So the ratio there is not that far off of what we We'll try to get to in the past, but as we move through the year, again, a piece of it will have to do with What happens on the top line, but if traffic remains healthy, we continue to grow, I would expect you will continue to see Some labor hour growth, not necessarily at that rate. If you think about how we talked about the business Over the course of 2022, on the calls, we would say, hey, our staffing has gotten better, but there are still some pockets of opportunity.

Speaker 1

And a quarter later, we'd say those pockets have become smaller. So we still have to lap that this year with what we think are Getting to be some very strong staffing levels, but the year over year comparisons will result in some labor hour growth, Again, assuming the business continues to move in the right direction, but Q1, should absolutely be the highest point for the year. All right.

Speaker 16

Thank you for that. And just a quick follow-up question on pricing. I think you've outlined how it looks to me as if pricing will be pretty much mid single digits Until Q4, how does that compare or stack up against your competitors in the steak segment or casual dining? Is the gap with competitors similar? Is it narrowing?

Speaker 16

Just how you look at that?

Speaker 1

Yes. And first, just on that Q4, we will look at pricing again. I would expect we do something in that October period, which Again, I would expect we do something in that October period, which would make that 2.9 maybe potentially be We're in line with those other quarters, but we'll see what we do. I would say that we think our pricing, if you look at NAF information, I think our pricing is below what others have done. We've done what we felt is right for our business, focusing On taking pricing to offset some of the structural inflation that we're feeling and We're keeping the guests at top of mind and making sure they still feel like they're getting a value when they're coming into Texas Roadhouse.

Speaker 1

So I would say that Our pricing actions have been below our competitors and think some of the NAP data would confirm that.

Speaker 16

All right. Thank you very much.

Operator

There are no further questions at this time. I will now turn the call back over to Jerry Morgan.

Speaker 2

Thank you very much. Appreciate you all being with us. And I just want to close in thanking all of Brody Nation out there As we celebrated our 30 year anniversary and the tremendous success that we've had, it's because of each and every one of you committed To Legendary Food and Legendary Service, everyone have a great evening and thank you for your time.

Operator

This concludes today's conference call. You may

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Earnings Conference Call
Texas Roadhouse Q1 2023
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