Texas Roadhouse is augmenting its Texas Roadhouse restaurants, while seeing just how small it can make its Bubba’s 33.
Texas Roadhouse now operates nine Bubba’s 33 stores and plans to open several more this year. Executives are hesitant to offer too much commentary on how the burgers-and-pizza sports bar concept is faring.
“It’s a relatively new concept,” said Kent Taylor, founder and CEO of Texas Roadhouse, during a conference call with analysts. “We are very encouraged by the results so far.”
This summer, the company is opening a smaller Bubba’s 33 to see if they can cut down on some costs without cutting into the margins, which Texas Roadhouse president Scott Colosi said are high.
“The margins are substantially better than Texas Roadhouse,” he said, noting that Bubba’s 33 sells more alcohol and has lower food costs. “We need to have higher margins at Bubba’s because the investment costs is roughly $1 million more than a Texas Roadhouse.”
Meanwhile, the company is slowly expanding the square footage at its more than 450 Texas Roadhouse restaurants via bump-outs. The company completed 15 bump-outs last year, and Texas Roadhouse leaders have approved 60 bump-outs this year, but they anticipate it will finish 20 to 25 this year, Colosi said.
“A lot of our managing partners, they want to get bump-outs,” he said, but they have to meet certain metrics for the company to approve the bump-out. “They go out and get after it. And if those guys keep qualifying for it, we will keep approving bump-outs.”
Texas Roadhouse is also renovating the bars at Texas Roadhouse stores and expect to complete 100 bar upgrades in 2016. The company hasn’t studied the impact of the bar renovation on its bottom line yet, Colosi said.
Another way that Texas Roadhouse trying to continue to improve its revenues is through technology. The restaurant chain was one of the first to test tabletop tablets, but they did not last.
“The tablets just really weren’t that friendly, and they didn’t do a good job up-selling our guests,” Taylor said.
Instead, the company is going the way fast-food restaurants have by introducing an application where customers can place themselves on Texas Roadhouse’s waiting list, pay the bill and place to-go orders. However, Texas Roadhouse will stick to its tried and true service method of giving each server only three tables to take care of at a time.
“We are still going to have three-table stations. We very much want our servers in front of our guests,” Colosi said. “We are selling a lot of hospitality. We have a high service component.”
Although Texas Roadhouse is still finding its footing with Bubba’s 33 and struggled in the past with high beef prices, the company continues to perform well financial quarter after financial quarter.
The company reported a 4.6 percent increase in same-store sales at company-owned stores and a 3.1 percent rise in franchise-owned stores during the first quarter of 2016. Texas Roadhouse also reported that during the first four weeks of of the second quarter, same-store sales at company-owned restaurants jumped 5.1 percent.
Revenues during the first quarter increased 12 percent to $516 million. Net income rose 10 percent to $35.6 million.
The company expected 1 percent to 2 percent deflation to help throughout the year, but rising employee costs are still a trouble spot. Labor costs rose more than 12 percent during the first quarter of 2016 compared to the same period a year ago.
“Labor is definitely going to be a headwind,” said Tonya Robinson, Texas Roadhouse’s senior director of investor relations. The increase was attributable to wage rate inflation and higher turnover because of the tightening labor market.
Labor costs will be a factor in Texas Roadhouse’s decision whether to increase menu prices later this year.