Restaurant company Texas Roadhouse (NASDAQ: TXRH) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 12.8% year on year to $1.44 billion. Its GAAP profit of $1.25 per share was 2.9% below analysts’ consensus estimates.

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

StockStory’s Take

Texas Roadhouse’s third quarter results were met with a negative market reaction, as revenue outpaced Wall Street expectations but earnings per share fell short. Management attributed the strong sales growth to higher guest traffic and a robust consumer response to menu items, particularly steaks and larger entrees. However, rising beef costs and ongoing commodity inflation pressured margins, with CEO Jerry Morgan noting, “Inflation in the third quarter was above our expectation due to higher-than-anticipated beef prices in the back half of the quarter.” The company also highlighted continued investments in technology and expansion across all three brands, but acknowledged the margin headwinds from commodity and labor expenses.

Looking forward, Texas Roadhouse’s guidance is shaped by persistent commodity inflation, especially in beef, and a cautious approach to menu pricing. Management expects inflation to remain elevated into next year, with roughly 7% commodity inflation anticipated for 2026. CFO Keith Humpich emphasized, “We will maintain our focus on driving top line through a combination of guest traffic growth and the expansion of our restaurant base.” The company plans to continue expanding its footprint and investing in operational efficiencies, while balancing value for guests and profitability amid inflationary pressures.

Key Insights from Management’s Remarks

Management identified strong guest traffic, menu innovation, and technology adoption as key contributors to top-line growth, while commodity inflation and evolving customer preferences shaped profitability and operational focus.

• Traffic and menu mix: Management reported healthy guest traffic growth, with a higher percentage of customers opting for steaks and larger entrees, which supported sales but put pressure on food costs due to beef inflation.
• Menu pricing strategy: A 1.7% menu price increase was implemented at the start of the fourth quarter, with leadership emphasizing a conservative approach to pricing to balance consumer value and margin protection. Future price adjustments will consider local market conditions and competitor actions.
• Commodity inflation impact: Elevated beef prices were the primary driver of higher food costs, with the company projecting ongoing volatility in commodity markets. Management described the current beef inflation as cyclical but acknowledged the potential for some structural changes if high prices persist.
• Technology rollout: The near-complete adoption of digital kitchen and guest management systems is expected to improve operational efficiency and guest experience, with 95% of locations using the new systems and full rollout anticipated by year-end.
• Brand and retail expansion: Texas Roadhouse expanded its presence through new restaurant openings across its three brands and continued growth in retail products, such as rolls and steak sauces, now available in over 120,000 retail outlets. The company acquired additional franchise restaurants and signaled further expansion in both company-owned and franchise units.

Drivers of Future Performance

Management expects persistent commodity inflation and disciplined pricing strategies to shape results in the coming quarters, amid continued store expansion and evolving consumer behavior.

• Commodity and wage inflation: The company anticipates ongoing headwinds from commodity inflation, particularly in beef, projecting about 7% inflation for 2026. Wage and labor cost inflation is expected to moderate, with management guiding for 3% to 4% in the coming year, including mandated increases.
• Menu pricing and value focus: Management will continue a cautious approach to menu pricing, aiming to protect guest value while offsetting cost pressures. Pricing decisions will be made twice yearly and tailored to local market dynamics and competitor actions, with a focus on maintaining traffic.
• Store and brand expansion: Texas Roadhouse plans to open approximately 35 company-owned restaurants and acquire additional franchises in 2026, supporting 5% to 6% store week growth. Expansion of Bubba’s 33 and Jaggers, as well as continued investment in retail product distribution, are expected to be key growth drivers.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will be monitoring (1) the trajectory of commodity and wage inflation and Texas Roadhouse’s ability to offset these pressures through pricing and operational efficiency, (2) the pace and performance of new store openings and franchise acquisitions across its brands, and (3) the rollout and impact of digital kitchen and guest management systems on both guest experience and cost structure. Additional drivers include continued momentum in retail product distribution and the response of guests to further menu innovation.

Texas Roadhouse currently trades at $161.80, in line with $160.66 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

Our Favorite Stocks Right Now

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.