10-Q: Texas Roadhouse Q2 Revenue Jumps 12.7%, Net Income Up

Texas Roadhouse, Inc. reported a 12.7% increase in total revenue to $1.51 billion for Q2 2025, driven by store growth and comparable restaurant sales, despite margin compression from inflation.

Summary

• Total revenue for the 13 weeks ended July 1, 2025 (Q2 2025) increased 12.7% to $1,512,054,000 compared to $1,341,202,000 in Q2 2024.
• Net income attributable to Texas Roadhouse, Inc. for Q2 2025 increased 3.3% to $124,085,000 from $120,141,000 in Q2 2024.
• Diluted earnings per share (EPS) for Q2 2025 increased 4.0% to $1.86 from $1.79 in Q2 2024.
• Comparable restaurant sales increased 5.8% in Q2 2025, driven by a 4.0% increase in guest traffic and a 1.8% increase in per person average check.
• Store weeks increased 7.2% in Q2 2025 due to the acquisition of franchise restaurants and new store openings.
• Restaurant margin, as a percentage of restaurant and other sales, decreased to 17.1% in Q2 2025 from 18.2% in Q2 2024, primarily due to commodity inflation of 5.2% and wage and other labor inflation of 3.8%.
• The company completed the acquisitions of 17 domestic franchise Texas Roadhouse restaurants during the 26 weeks ended July 1, 2025, for a total purchase price of $93,878,000.
• A new unsecured revolving credit facility with a borrowing capacity of up to $450,000,000 was entered into on April 24, 2025, replacing the previous credit facility.
• The Board of Directors approved a new $500,000,000 stock repurchase program on February 19, 2025, replacing a previous $300,000,000 program. As of July 1, 2025, $470,000,000 remained authorized.
• The quarterly cash dividend increased to $0.68 per share for Q2 2025, up from $0.61 per share in Q2 2024.

Sentiment

Score: 7

Explanation: The company demonstrated solid revenue and earnings growth, driven by successful expansion and increased guest traffic. However, profitability was somewhat constrained by significant commodity and labor inflation, leading to a decrease in restaurant margin percentage. Strategic acquisitions and a new credit facility enhance future growth potential and liquidity, but cost pressures remain a key challenge.

Positives

• Total revenue increased by 12.7% in Q2 2025 and 11.2% in 2025 YTD, demonstrating strong top-line growth.
• Net income increased by 3.3% in Q2 2025 and 1.9% in 2025 YTD, indicating continued profitability.
• Diluted EPS increased by 4.0% in Q2 2025 and 2.6% in 2025 YTD, reflecting improved earnings per share for shareholders.
• Comparable restaurant sales grew by 5.8% in Q2 2025, driven by a significant 4.0% increase in guest traffic counts, highlighting strong customer demand.
• Store weeks increased by 7.2% in Q2 2025, reflecting successful expansion through new restaurant openings and franchise acquisitions.
• The company acquired 17 domestic franchise restaurants, aligning with its long-term strategy to increase net income and earnings per share.
• A new revolving credit facility provides increased borrowing capacity of up to $450,000,000, enhancing liquidity and financial flexibility.
• The Board approved a new $500,000,000 stock repurchase program, demonstrating commitment to returning capital to shareholders.
• The quarterly cash dividend increased to $0.68 per share, up from $0.61 per share in the prior year, providing increased shareholder returns.

Negatives

• Restaurant margin, as a percentage of restaurant and other sales, decreased to 17.1% in Q2 2025 from 18.2% in Q2 2024, and to 16.9% in 2025 YTD from 17.8% in 2024 YTD, indicating pressure on operational efficiency.
• Commodity inflation was 5.2% in Q2 2025 and 3.7% in 2025 YTD, primarily driven by higher beef costs, impacting food and beverage expenses.
• Wage and other labor inflation was 3.8% in Q2 2025 and 4.2% in 2025 YTD, due to labor market pressures and increases in state-mandated minimum and tipped wage rates, increasing labor costs.
• Interest income, net, decreased to $1,044,000 in Q2 2025 from $1,683,000 in Q2 2024, and to $2,345,000 in 2025 YTD from $3,091,000 in 2024 YTD, due to decreased earnings on cash and cash equivalents.
• Depreciation and amortization expenses, as a percentage of total revenue, increased to 3.4% in Q2 2025 from 3.2% in Q2 2024, and in 2025 YTD, due to newer restaurants and intangible asset amortization from acquisitions.
• General and administrative expenses increased in absolute terms to $62,763,000 in Q2 2025 from $58,148,000 in Q2 2024, and to $118,980,000 in 2025 YTD from $110,743,000 in 2024 YTD, partly due to higher restricted stock expense.

Risks

• Litigation arising in the ordinary course of business, including 'slip and fall' matters, employment-related claims, dram shop statutes related to alcohol service, and claims from guests or employees alleging illness, injury, or food quality/health/operational concerns.
• Reliance on a limited number of beef suppliers, although other suppliers are believed to provide similar products on comparable terms.
• Future capital requirements depend on the number and mix of new restaurants opened, the timing of those openings, the restaurant prototype developed, and potential franchise acquisitions.
• Exposure to market risks, including interest rate risk, as disclosed in the Annual Report on Form 10-K.

Future Outlook

The company expects approximately 5% store week growth across all concepts in 2025, including a 2% benefit from franchise acquisitions. Commodity inflation is anticipated to be around 5% for 2025, with labor costs pressured by approximately 4% wage and other labor inflation. An effective tax rate of approximately 15% is forecasted for 2025. Total capital expenditures for 2025 are expected to be around $400,000,000, which the company intends to fund with cash on hand, net cash provided by operating activities, and, if needed, funds available under its revolving credit facility.

Management Comments

• Management believes the unaudited condensed consolidated financial statements reflect all necessary normal recurring adjustments to present fairly the financial statements for the periods presented.
• Management believes other suppliers could provide a similar beef product on comparable terms, despite a limited number of current beef suppliers.
• Management believes the resulting amount of goodwill from acquisitions reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.
• Management determines the timing and amount of any stock repurchases based on an evaluation of stock price, market conditions, and other corporate considerations.
• Management concluded that disclosure controls and procedures were effective as of July 1, 2025.

Industry Context

The company operates predominantly in the casual dining segment, a competitive industry. Its growth strategy, including new restaurant openings and franchise acquisitions, aligns with efforts to expand market share. The company is navigating industry-wide challenges such as commodity inflation, particularly in beef, and rising labor costs, which are impacting restaurant margins across the sector. Its focus on guest traffic growth and menu pricing adjustments reflects common strategies to offset these pressures.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks or industry standards.

Management Changes

Legal Proceedings

• The company is occasionally a defendant in litigation arising in the ordinary course of business, including 'slip and fall' matters, employment-related claims, dram shop statutes related to alcohol service, and claims from guests or employees alleging illness, injury, or food quality/health/operational concerns.
• Most of these litigation types are covered by insurance with varying retention levels.
• 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 July 1, 2025, four franchise restaurants and one majority-owned company restaurant were owned in part by a current officer of the company.
• Revenue of $600,000 for the 13 weeks ended July 1, 2025, and $1,100,000 for the 26 weeks ended July 1, 2025, was recognized related to these four franchise restaurants.

Stakeholder Impact

• Shareholders: Benefit from increased dividends ($0.68 per share) and ongoing stock repurchase program ($470,000,000 remaining authorization), indicating management's commitment to returning capital.
• Employees: Impacted by wage and other labor inflation (3.8% in Q2 2025), suggesting increased compensation, and continued investment in people.
• Customers: Experienced a 1.4% menu price increase in Q2 2025, contributing to a higher per person average check, but also benefited from increased guest traffic.
• Suppliers: The company primarily buys beef from four suppliers, indicating concentrated purchasing power, but states other suppliers could provide similar products on comparable terms.
• Creditors: The company maintains compliance with all financial covenants under its new $450,000,000 revolving credit facility, indicating strong financial health and ability to meet obligations.

Next Steps

• Assess the impact of new accounting standards ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement Expenses) on future disclosures.
• Continue to execute the $500,000,000 stock repurchase program, with $470,000,000 remaining authorized as of July 1, 2025.
• Pay the third quarter 2025 cash dividend of $0.68 per share on September 30, 2025, to shareholders of record on September 2, 2025.
• Proceed with planned capital expenditures of approximately $400,000,000 in 2025 for new restaurant development, refurbishment, and relocations.

Key Dates

Recommendation

While Texas Roadhouse demonstrated solid revenue and EPS growth driven by successful expansion and increased guest traffic, the significant margin compression due to commodity and labor inflation presents a notable headwind. The company's strategic acquisitions and enhanced credit facility provide a strong foundation for future growth and liquidity. However, the persistent inflationary pressures on core operating costs suggest that profitability may remain challenged in the near term, warranting a 'hold' position until there is clearer evidence of margin stabilization or expansion.

Keywords

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