Texas Roadhouse on Thursday evening reported a mixed third quarter as stubbornly high beef prices continued to weigh on profitability, overshadowing what was otherwise the highest quarterly revenue, same-store sales, and traffic growth of the year. Revenue in the quarter ending Sept. 30 increased 12.8% year over year to $1.44 billion, exceeding the LSEG-complied Wall Street consensus estimate of $1.43 billion. Earnings per share dipped 1% on an annual basis to $1.25, missing expectations of $1.28, LSEG data showed. TXRH YTD mountain Texas Roadhouse YTD Shares of Texas Roadhouse slipped a little more than 1% in after-hours trading, bringing them back near their lowest levels since April. Management's updated guidance on beef inflation may pressure shares further. The stock has dropped more than 11% year to date compared to the S & P 500's more than 14% gain. Bottom line Texas Roadhouse isn't having any problem getting customers into its restaurant and spending money on quality food at value prices. Comparable restaurant sales increased 6.1% -- the best quarterly result this year – driven by a 4.3% increase in traffic and a 1.8% increase in average check. By month, comparable sales, a key restaurant industry metric, increased 5% in July, 7% in August, and 6.1% in September. Comp growth sustained through the first five weeks of the current fourth quarter, increasing 5.4%, according to the company. While that might be below Q4 estimates of 5.6%, it must be much better than feared because October was viewed as a weak month for most consumer-related things. Between the longest government shutdown in history and job cuts last month hitting their highest level in any October in 22 years, consumers are pulling back and becoming more choosy. Also, the timing of Halloween, moving from a Thursday last year to a Friday this year, negatively impacted those first five-week comps by over 60 basis points. Fridays are an important night in the restaurant industry, and if lots of families were trick-or-treating, they probably did not go out to eat. Why we own it: Texas Roadhouse is a casual steak chain 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 of its 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: 2.27% Most recent buy: April 9, 2025 Initiated: Feb. 4, 2025 Texas Roadhouse's comp sales growth has been resilient despite an industry slowdown, but the problem remains beef prices. Once again, commodity inflation weighed on the quarterly results, and management's outlook for the rest of the year and through the first half of 2026 suggests it will continue to get a little worse. In the restaurant industry, where margins are already tight, that leaves management with little wiggle room. Management put in a 1.7% menu price increase at the beginning of the quarter, and on the earnings call, the team said that it hasn't led to any noticeable change in guest behavior. Texas Roadhouse has been surgical with its price increases, recognizing the delicate balance between protecting margins and risking alienating customers. We've seen too many full-service and quick-service restaurants hurt their reputation by raising prices too quickly and too far. Still, this position remains a quandary for us in the Club portfolio. On one hand, Texas Roadhouse consistently posts strong comp sales and is expanding its footprint with a solid number of new stores each year. The traffic growth suggests the value proposition is fantastic. On the other hand, beef has been a big issue for the past couple of quarters, and this problem isn't getting any better. Sure, live cattle prices have dropped 15% since hitting record highs in mid-October, and President Donald Trump has made noise lately about bringing beef prices down. However, the beef cycle has not yet turned. @LC.1 YTD mountain Live cattle prices YTD There will be upside to Texas Roadhouse's numbers once there is true relief in the beef market — and beef prices could quickly move lower to more manageable levels when that happens – but the timing is tough to predict. That's why two weeks ago, we downgraded the stock to our 2 rating and are keeping it as a hold. To reflect the ongoing pressure that beef prices have on earnings, we are lowering our price target to $185 per share from $195. Commentary During the third quarter, Texas Roadhouse opened seven company-owned restaurants, including two Bubba's 33 locations and one Jagger's, and two franchise restaurants. That brings the total through the first 39 weeks of the year to 19 company restaurants and three franchise restaurants, keeping them on track to open 30 restaurants in the year. For 2026, the company is planning to open 35 company-owned restaurants, including 20 Texas Roadhouses, 10 Bubba's, and as many as five Jagger's. Additionally, management said that on the first day of the fourth quarter, it completed the acquisition of three domestic franchise restaurants for $12.7 million. They also have a deal in place to buy five more domestic restaurants at the beginning of the 2026 fiscal year. Both of these moves were mentioned on the previous earnings call. The company buys back these franchised locations from time to time, and we generally think this is a good use of cash. Bringing franchised locations under the corporate umbrella gives management more control and typically leads to stronger operating results. As for cash returns to shareholders, the company bought back $40 million worth of stock in the quarter. That's a step up from the $9.8 million worth of shares repurchased in the second quarter. Guidance For the full year 2025, management now expects commodity inflation of approximately 6%. That's up from its guide of 5% inflation last quarter and 4% two quarters ago. The rest of the outlook was reiterated. The company expects positive comparable restaurant sales growth, store week growth of 5%, wage and other labor inflation of approximately 4%, and total capital expenditures of $400 million. Texas Roadhouse also provided its initial view of 2026. The big watch item was commodity inflation, which is expected to be 7%, with inflation running higher in the first half of the year versus the second half. That's a tough result to digest, but management left the door open to inflation easing if there's a moderation or change in inflation expectations. Other aspects of 2026 guidance include positive comparable restaurant sales growth, including the benefit of 2025 menu pricing actions, store week growth of 5% to 6%, wage and other labor inflation of 3% to 4%, and capex of $400 million. Achieving those would be similar to what management is predicting for the full-year 2025. (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.
