After years of rising food costs, Texas Roadhouse is getting the chance to benefit from commodity deflation this year.
The company originally expected to spend 1 percent to 2 percent less on food in 2016 compared to 2015, but the Louisville-based steakhouse chain has increased its prediction to a range of 2.5 percent to 3 percent. And it expects food costs to continue declining in 2017.
Partly as a result of lower food costs, Texas Roadhouse reported a whopping 59 percent increase in net income to $33.6 million during the second quarter of 2016. Earnings per share rose 58 percent during the quarter to $0.47.
“Commodity deflation has certainly been the biggest contributor in addition to the benefit of sales growth,” Scott Colosi, president of Texas Roadhouse, said during a conference call Monday.
The restaurant chain’s revenues rose 12 percent to $509 million in the second quarter. Same-store sales increased 4.5 percent at company-owned stores during the quarter and 2.6 percent at franchisee-run stores. Mostly, the lower-performing franchised stores are overseas, executives said.
In July, same-store sales system-wide were 3.7 percent, lower than the first half of 2016, Texas Roadhouse CEO Kent Taylor said, adding that the slightly dragging sales aren’t a huge concern — at least yet.
When asked if there was any identifiable reason for the decline in same-store sales last month, Colosi said the reason was anybody’s guess.
“Why sales might be tailing off I think is speculation. Everything from: Is it related to there being a big shooting on TV every other day, it seems like, to the conventions, to the next thing we’ll be talking about (like) the Olympics coming up in Rio,” he said. “I don’t know, but it’s not making us think there’s anything wrong with our model or that we need to do anything differently, at least currently.”
Later, Colosi said the company may look to boost sales and grow its capacity by expanding restaurant kitchens similar to the additional seating its been adding to some Texas Roadhouse’s dining rooms.
“We might experiment with doing some kitchen bump-outs at some point, but our restaurants doing the highest volumes continue to grow sales,” he said.
Meanwhile, Texas Roadhouse also is experimenting with smaller stores to cut back on the operational costs without impacting sales. Just a week ago in Clarksville, Ind., the company opened a Bubba’s 33, a relatively new family sports restaurant concept. The store is 7,700 square feet compared to other Bubba’s, which are 8,900 square feet.
“Its sales are as strong as – for one week only obviously — as we have had at some of our better stores, so very encouraged with that meaning that it’s going to cost less money to build and we’ve found that the kitchen can generate the same volume,” Taylor said. “We’re very pleased with that, and as it relates to next year I can say, we’ll probably open more than we opened this year, but we don’t know that number yet.”
To-date, Texas Roadhouse has opened three Bubba’s 33, with plans to open five more before the end of the year.