10-K: Texas Roadhouse Navigates Inflation with Revenue Growth, Profit Dip

Texas Roadhouse reported a 9.4% revenue increase to $5.9 billion in 2025, but net income and diluted EPS declined due to higher commodity and labor costs.

Summary

• Total revenue increased by 9.4% to $5.9 billion in 2025, up from $5.4 billion in 2024.
• Net income decreased by 6.5% to $405.6 million in 2025, down from $433.6 million in 2024.
• Diluted earnings per share (EPS) decreased by 5.8% to $6.10 in 2025, compared to $6.47 in 2024.
• Company restaurants saw a 5.0% increase in store weeks and a 4.9% increase in comparable restaurant sales in 2025.
• Guest traffic counts increased by 2.8%, and the per-person average check increased by 2.1% in 2025.
• To-go sales constituted 13.6% of restaurant sales in 2025, up from 12.8% in 2024, with average weekly to-go sales of $21,973.
• Restaurant margin, as a percentage of restaurant and other sales, decreased to 15.5% in 2025 from 17.1% in 2024.
• Commodity inflation was 6.1% and wage and other labor inflation was 3.7% in 2025.
• The company opened 28 new company restaurants and acquired 20 domestic franchise Texas Roadhouse restaurants in 2025.
• A quarterly cash dividend of $0.75 per share was declared on February 18, 2026, representing a 10% increase from the prior year.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a neutral-to-slightly-negative report. While revenue growth and expansion are positive, the decline in net income and restaurant margin due to persistent inflation indicates significant operational headwinds impacting profitability.

Positives

• Total revenue grew by 9.4% to $5.9 billion in 2025, demonstrating strong top-line performance.
• Company restaurants experienced solid growth with a 5.0% increase in store weeks and a 4.9% rise in comparable restaurant sales.
• Guest traffic counts increased by 2.8%, indicating continued customer demand.
• To-go sales continued to grow, reaching 13.6% of restaurant sales and average weekly sales of $21,973.
• The company opened 28 new company restaurants and acquired 20 domestic franchise restaurants, expanding its footprint.
• A 10% increase in the quarterly cash dividend to $0.75 per share signals confidence in future cash flow generation.
• The Board approved a new $500.0 million stock repurchase program, replacing the previous $300.0 million program, with $380.0 million remaining authorized as of December 30, 2025.

Negatives

• Net income decreased by 6.5% to $405.6 million in 2025, primarily due to lower restaurant margin dollars and higher depreciation and amortization expenses.
• Diluted earnings per share decreased by 5.8% to $6.10 in 2025, partially impacted by the additional week in 2024.
• Restaurant margin, as a percentage of restaurant and other sales, declined to 15.5% in 2025 from 17.1% in 2024.
• Commodity inflation of 6.1% and wage and other labor inflation of 3.7% significantly impacted restaurant profitability in 2025.
• Cash and cash equivalents decreased by $110.5 million in 2025, primarily due to increased investing and financing activities.

Risks

• Growth strategy depends on opening profitable new restaurants, which is subject to factors like site availability, construction costs, labor, and timely governmental approvals.
• Changes in food and supply costs, particularly beef, and product availability could adversely affect operating results, with commodity inflation expected to continue into 2026.
• Fluctuations in average unit volume or comparable restaurant sales due to consumer awareness, competition, economic conditions, weather, and menu pricing strategies.
• Failure to protect brand reputation from negative publicity or events (food quality, safety, employee relations, security breaches) could damage guest traffic and sales.
• Development and/or acquisition of additional restaurant concepts (Bubbas 33, Jaggers) may not contribute to growth as successfully as the Texas Roadhouse concept.
• Acquisitions of existing restaurants from franchisees or other strategic initiatives may have unanticipated consequences, including integration risks and capital improvement costs.
• Geographic concentration in Texas and Florida (approximately 21% of company restaurants) makes the company susceptible to adverse trends and economic conditions in those states.
• Expansion into international markets presents increased economic, political, regulatory, and cultural risks, including currency fluctuations and compliance with foreign laws.
• Actions by independent franchisees inconsistent with company standards could harm brand image and reputation.
• Decreased cash flow from operations or inability to access credit could negatively affect business initiatives and capital allocation strategies.
• Risks associated with long-term non-cancelable leases, including renewal challenges and obligations for closed restaurants.
• Inability to enforce trademarks or other proprietary rights could adversely affect competitive position and brand value.
• Requirement to record impairment charges in the future if actual results differ from estimates or assumptions for long-lived assets and goodwill.
• Changes in consumer preferences and discretionary spending, including shifts due to medical treatments like GLP-1 agonists, could reduce demand.
• Increasing legal complexity and potential litigation (class actions, employment claims, dram shop, data privacy) could adversely affect the business and incur significant costs.
• Current insurance may not provide adequate coverage against claims, and unanticipated changes in self-insurance losses could increase expenses.
• Changes in tax laws and unanticipated tax liabilities could adversely affect financial results.
• Corporate responsibility matters (ESG) could adversely affect brand, business, and financial condition due to evolving consumer/investor preferences and potential 'Anti-ESG' activism.
• Failure to retain key management personnel, execute succession planning, or attract qualified personnel could harm the business.
• Increased labor costs or labor shortages due to competition, minimum wage increases, or benefit costs could adversely impact operating expenses.
• Heavy reliance on information technology, with any material failure, weakness, or cybersecurity breach potentially disrupting operations and damaging reputation.
• Outsourcing certain business processes to third-party vendors subjects the company to risks of business disruptions and increased costs.
• Inability to respond to or effectively manage social media could lead to negative publicity and declines in guest traffic.

Future Outlook

Management expects store week growth of 5% to 6% across all concepts in 2026, including franchise acquisitions. Commodity inflation is anticipated to be approximately 7% for the year, with wage and other labor inflation projected at 3% to 4%. A menu price increase of approximately 1.9% is planned for Q2 2026. The effective tax rate is expected to be between 14% and 15%. Capital expenditures are projected to be approximately $400 million in 2026. Average capital investment for new Texas Roadhouse restaurants is expected to increase to $8.9 million, while Bubbas 33 is expected to decrease to $8.5 million due to a smaller prototype.

Management Comments

• We continue to focus on driving comparable restaurant sales to maintain or improve restaurant level profitability.
• Our pricing strategy balances the impacts of inflationary pressures with our long-term value positioning.
• We remain focused on encouraging repeat visits by our guests and attracting new guests through our continued commitment to operational standards relating to food and service quality.
• We continue to look for opportunities to increase our dining room capacity by adding on to our existing building and/or to increase our parking capacity by leasing or purchasing property that adjoins our site.
• We continue to evaluate opportunities to return capital to our shareholders, including the payment of dividends and the repurchase of common stock.

Industry Context

StockSavvy.ai notes that Texas Roadhouse operates in an intensely competitive casual dining segment, facing pressure from established chains, independent operators, fast-casual, quick-service, meal kit delivery, and supermarkets. The company's strategy of offering high-quality, freshly prepared food at attractive price points, coupled with a focus on service and community engagement, aims to differentiate it. The reported decline in net income and restaurant margin percentage, despite strong revenue growth, reflects broader industry challenges with commodity and labor inflation, which many restaurant companies are currently navigating. The company's proactive approach to menu pricing and digital enhancements aligns with industry trends to manage costs and improve guest experience amidst these pressures.

Comparison to Industry Standards

• The filing does not provide specific comparable company data or industry benchmarks for direct comparison of financial performance or operational metrics.

Management Changes

Corporate Governance

Legal Proceedings

• The company is occasionally a defendant in litigation arising in the ordinary course of business, including 'slip and fall' accidents, employment-related claims, dram shop statutes related to alcohol service, and claims alleging illness, injury, or food quality/health concerns.
• Most of these types of litigation are covered by insurance.
• As of the report date, the company is not party to any litigation believed to have a material adverse effect on its business.

Related Party Transactions

• As of December 30, 2025, current officers of the company held ownership interests in five franchise restaurants and one majority-owned company restaurant.
• Revenue recognized from these five franchise restaurants amounted to $2.5 million in 2025.
• Gerald L. Morgan, CEO and Executive Vice Chairman, holds ownership percentages in Roadhouse of McKinney, Ltd. (2.0%), Roadhouse of Temple, Ltd. (2.0%), Texas Roadhouse of Brownsville, Ltd. (3.06%), TXRH El Cajon, LLC (2.0%), and TXRH Oceanside, LLC (2.0%).
• L. Paul Marshall, Chief Growth Officer, holds an ownership percentage in Roadhouse of Temple, Ltd. (2.0%).
• Subsequent to fiscal year-end, a current officer had a 2% ownership interest in two of the five domestic franchise restaurants acquired on December 31, 2025.

Stakeholder Impact

• Shareholders: Impacted by decreased net income and diluted EPS, but also by increased dividends and ongoing share repurchase programs. The decline in stock performance relative to the S&P 500 and industry sub-index may concern investors.
• Employees: The company emphasizes a 'People-First' culture, competitive compensation, comprehensive benefits, and training/development opportunities. Increased labor costs due to market pressures and minimum wage changes could affect employment strategies or pricing.
• Customers: Benefit from continued focus on high-quality, freshly prepared food, value pricing, and enhanced digital experiences (online ordering, waitlists, contactless payments). However, menu price increases are planned to offset inflation.
• Franchisees: Benefit from company support and training, but are contractually obligated to operating standards. Acquisitions of franchise restaurants by the company impact the overall franchise landscape.
• Suppliers: The company relies heavily on a few key beef suppliers, creating a risk of supply shortages or higher costs if these vendors fail to meet obligations. The company emphasizes building long-term partnerships and adherence to Vendor Partner Expectations.
• Creditors: The company maintains compliance with financial covenants under its revolving credit facility, indicating sound financial management relative to debt obligations.

Next Steps

• Implement a menu price increase of approximately 1.9% in Q2 2026.
• Continue evaluating opportunities to develop restaurants in new and existing domestic and international markets.
• Continue pursuing opportunities to acquire domestic franchise locations to expand the company restaurant base.
• Focus on driving comparable restaurant sales to maintain or improve restaurant level profitability through pricing strategy, operational standards, localized marketing, speed of service, and digital enhancements.
• Leverage scalable infrastructure to grow general and administrative costs at a slower rate than revenue.
• Continue evaluating opportunities to return capital to shareholders through dividends and common stock repurchases.
• Complete preliminary purchase price allocations for the December 31, 2025 acquisition in the first quarter of fiscal year 2026.

Key Dates

Recommendation

While Texas Roadhouse demonstrates strong revenue growth and continued expansion, the decline in net income and diluted EPS, coupled with a significant drop in restaurant margin percentage, indicates that the company is facing substantial inflationary pressures on commodity and labor costs. The planned menu price increases and anticipated continued inflation in 2026 suggest that profitability will remain a challenge. The company's commitment to returning capital to shareholders through increased dividends and share repurchases is positive, but the underlying operational headwinds warrant a 'hold' recommendation. Investors should monitor the company's ability to effectively manage these cost pressures and restore profitability margins in the coming quarters.

Keywords

Restaurant, Casual Dining, Texas Roadhouse, Bubbas 33, Jaggers, SEC Filing, 10-K, Financial Performance, Revenue Growth, Earnings Per Share, Inflation, Commodity Costs, Labor Costs, Restaurant Expansion, Franchise Acquisition, Stock Repurchase, Dividends, Cybersecurity, Corporate Governance, Risk Factors, Consumer Spending, Supply Chain