Texas Roadhouse shares fall sharply on rising labor costs

Courtesy of Texas Roadhouse

Texas Roadhouse shares fell 10% in premarket trading Tuesday after the restaurant chain said that higher-than-expected labor cost increases were cutting into profits.

Although first-quarter revenue increased 10 percent, to $690 million, net income fell 7.6%, to $50 million.

“Despite our ongoing sales strength, our profits continue to be pressured by higher labor costs,” Texas Roadhouse President Scott Colosi said in a news release. “Much of the labor increase was driven by wage rate and other labor inflation that currently does not show signs of abating.”

In the first quarter, the company incurred labor costs of nearly $224 million, up 14.2% compared to the first quarter in 2018. Total costs and expenses, at $630 million, were up 12%.

The company also said that it now expects its labor cost per store to increase up to 8%, up from the previous “mid-single digit” expectation.

Tonya Robinson

CFO Tonya Robinson told analysts in an earnings call Monday evening that company officials had hoped the wage pressures would abate somewhat this year.

“Heading into the year back in February with the mid-single-digit guidance, there was some hope that perhaps we’d see a little of that inflation abate a little bit, whether mainly on wage inflation and other inflation.

“And while — maybe we’d end up at a little bit at the higher end of the range early in the year, maybe we’d see some help there. But just based on what we saw in Q1, we’re going to say, ‘Hey, it doesn’t feel like that.’ ”

The Louisville-based company has about 65,000 employees.

The company also said it expects commodity cost inflation of up to 2% this year, and plans to increase prices by about 1.5% at the beginning of the second quarter.

It still expects to open up to 30 restaurants this year.

“While we are certainly facing some challenges in our business right now, I have no doubt that our brand positioning is stronger than ever,” Colosi said.

CEO Kent Taylor said in the release, “I am proud of our operators who continue to be committed to actively protecting the guest experience and taking care of our employees in this very competitive labor market.”

Shortly before markets opened on Tuesday, Texas Roadhouse shares traded for $55, down 9.97%.