Higher than predicted food prices forced Texas Roadhouse’s net income and earnings per share down during the second quarter of 2015.
“While the strength and consistency of our sales growth remained strong, our second quarter profit did not keep pace,” Kent Taylor, Texas Roadhouse’s CEO and founder, said during a conference call with analysts Monday afternoon.
Although revenue rose 15 percent, to $454.7 million, during the second quarter compared to a year ago, food costs during the quarter were up 9.4 percent, mostly driven by high beef prices, according to the company’s most recent earning report.
“We paid more for our beef, and we sold a lot more of it,” said Scott Colosi, president and CFO at the Louisville-based steakhouse chain, on the analysts call.
Texas Roadhouse reported an 8.2 percent increase in same-store sales at company-owned restaurants and a 6.9 percent increase at franchisee-run locations.
Tonya Robinson, Texas Roadhouse’s senior director of investor relations and financial reporting, attributed the increases to a 6.5 percent growth in restaurant traffic and a 1.7 percent rise in the average customer’s check.
Still, net income was down 8 percent, to $21.1 million, during the second quarter compared to the same period a year ago. And earnings per share dropped 9 percent to $0.30 per share during the second quarter. At some point during the analysts call, all three executives — Colosi, Robinson and Taylor — noted that they believe food cost inflation will be significantly lower during the latter half of this year. The company expects 1 percent to 2 percent inflation during the third and fourth quarter of 2015.
They also noted that the company floated much of its food buying this year. That means rather than locking in beef and other food prices with vendors a year or so in advance, Texas Roadhouse took the chance that food would be cheaper when the company went to buy it this year.”There is some risk there,” Colosi said. “We’ve got a very experienced beef buying team in our company, and we’re standing behind their forecast right now.”
The food-buying tactic has worked, for the most part, for the past 10 years, Taylor said. “Three out of four years, we win the way we play the game.”
Texas Roadhouse will begin to look at increasing menu prices during the fourth quarter of 2015.
Although the company has attributed previous menu price increases to food cost inflation, Colosi said recent minimum wage increases and additional employee health care costs will drive executives’ decision this year.
Taylor plans to speak with about 50 Texas Roadhouse operators from around the United States about whether different markets can handle a price increase without negatively impacting its restaurants. The company also will consider raising the price of individual menu items.
The company last raised its menu prices in 2014; prices rose 1.5 percent.