TXRH Q2 Deep Dive: Inflation Pressures Offset Strong Sales Momentum

August 12, 2025 at 03:25 AM EDT

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Restaurant company Texas Roadhouse (NASDAQ: TXRH) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 12.7% year on year to $1.51 billion. Its non-GAAP profit of $1.86 per share was 2.5% below analysts’ consensus estimates.

Is now the time to buy TXRH? Find out in our full research report (it’s free).

Texas Roadhouse (TXRH) Q2 CY2025 Highlights:

Revenue: $1.51 billion vs analyst estimates of $1.50 billion (12.7% year-on-year growth, 0.6% beat)
Adjusted EPS: $1.86 vs analyst expectations of $1.91 (2.5% miss)
Adjusted EBITDA: $197.1 million vs analyst estimates of $203.2 million (13% margin, 3% miss)
Operating Margin: 9.7%, in line with the same quarter last year
Locations: 797 at quarter end, up from 762 in the same quarter last year
Same-Store Sales rose 6% year on year (8.9% in the same quarter last year)
Market Capitalization: $11.62 billion

StockStory’s Take

Texas Roadhouse’s second quarter saw double-digit revenue growth, but the market reacted negatively as higher costs weighed on profitability. Management highlighted robust traffic growth across all three brands and expanding unit count as drivers of topline momentum. CEO Jerry Morgan noted, “Strong traffic growth throughout the quarter drove a 5.8% increase in same-store sales.” Despite this, persistent commodity inflation, particularly in beef, and slightly higher labor costs limited margin expansion, which management described as a key challenge for the quarter.

Looking ahead, management expects inflationary challenges to persist, largely driven by ongoing beef cost pressures and moderate labor inflation. The company plans a modest menu price increase in the fourth quarter to help offset these headwinds, with CEO Jerry Morgan emphasizing a continued focus on value: “We feel confident this is the right level of pricing to maintain our everyday value while offsetting some of the inflationary pressures we are facing.” Expansion of Bubba’s 33 and Jaggers locations, as well as improvements in off-premise sales and digital ordering, are expected to support growth, although management cautioned that cost pressures could continue to impact margins in the near term.

Key Insights from Management’s Remarks

Management attributed the quarter’s revenue momentum to strong guest traffic and new restaurant openings, but ongoing beef inflation and negative mix in the alcohol category pressured margins and earnings.

Traffic-driven sales growth: Guest visits rose across all brands, with notable momentum in Bubba’s 33 and Jaggers, supporting management’s confidence in multi-brand expansion and the ability to drive higher average weekly sales.
Commodity inflation headwinds: Management cited beef as the primary inflationary driver, with tight supply and resilient consumer demand combining to elevate input costs. Approximately 80% of beef for Q3 is locked in, but guidance calls for up to 7% commodity inflation in the next quarter.
Negative mix in alcohol: The only significant negative mix pressure came from declining alcohol sales, which management described as an industry-wide trend. This was partially offset by positive mix in steak and mocktail categories, reflecting changing consumer preferences.
Labor and operational efficiency: Traffic growth enabled leverage on labor costs, aided by lower employee turnover and ongoing digital kitchen investments, which management believes are boosting productivity and supporting off-premise sales growth.
Expansion and acquisitions: The company opened four new restaurants in Q2, acquired three franchise locations, and is positioned to open approximately 30 company-owned units this year. Strategic acquisitions in California and plans for additional Bubba’s 33 and Jaggers growth were highlighted as key expansion initiatives.

Drivers of Future Performance

Management expects persistent inflation, menu pricing actions, and continued investment in new units to shape performance for the remainder of the year.

Beef inflation remains elevated: Higher beef costs are projected to peak in the third quarter, with up to 7% commodity inflation expected before easing slightly. Management has locked in a portion of supply but remains cautious on volatility.
Menu pricing and value positioning: A 1.7% menu price increase will take effect at the start of the fourth quarter to help offset inflation. Management emphasized maintaining perceived value for guests through portion flexibility and value-focused offerings.
Unit expansion and digital initiatives: The company plans to open more Bubba’s 33 and Jaggers locations, and continue investing in digital kitchen technology and the mobile app. Management believes these initiatives will drive both on-premise and off-premise sales growth, though margin improvements may be limited by ongoing cost pressures.

Catalysts in Upcoming Quarters

Looking to the coming quarters, the StockStory team will be monitoring (1) the trajectory of beef and other commodity inflation and its impact on margins, (2) the effectiveness of the planned menu price increase in maintaining guest value perception and offsetting costs, and (3) the pace and profitability of new Bubba’s 33 and Jaggers openings. Additionally, execution on digital ordering and off-premise sales will be key markers of operational progress.

Texas Roadhouse currently trades at $175.20, down from $185.04 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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