Texas Roadhouse gets a pass from Wall Street. What’s next might be out of its control
Texas Roadhouse missed the Street’s estimates on both its top and bottom lines as higher beef prices weighed on profits in the fourth quarter. But the restaurant chain’s strong comparable restaurant sales in the first seven weeks of the first quarter of 2026 and no change to management’s commodity inflation outlook for the year are keeping shares afloat Thursday evening. Revenue rose 3.1% year over year to $1.48 billion in the quarter ended Dec. 30, missing the LSEG-compliant Wall Street consensus estimate of $1.496 billion. Earnings per share fell 26% year over year to $1.28, below expectations of $1.51, according to LSEG data. TXRH YTD mountain Texas Roadhouse YTD Texas Roadhouse shares were up about 2.5% in after-hours trading, to about $187 per share. The move will erase Thursday’s regular-hour trading losses. The stock is already off to a good start in 2026, gaining nearly 10% as of Thursday’s close. In Summary This was a weak quarter for Texas Roadhouse, but the market allowed it because everyone knew beef costs would be an issue. On the face of it, we were slightly impacted by PC sales growth this quarter. After delivering 6.1% growth in the third quarter and guiding for 5.4% growth in the first five weeks of the fourth quarter, sales growth slowed to 4.2% for the full quarter, missing analysts’ estimates of about 5.2%. The 4.2% increase was driven by a 1.9% increase in traffic and a 2.3% increase in average checking. Results were lagged by a slowdown as the quarter progressed; commercial sales increased 6.1%, 4.8% and 2.2% in October, November and December, respectively. Adverse weather conditions in December may have negatively affected the results. Management also noted that the timing of Christmas had a negative impact. Often this rhythm means trouble for a restaurant chain or retailer. But on a positive note, the slowdown was a temporary trend. One of the best things to come out of this earnings release was that the company announced that PC sales rose 8.2% in the first seven weeks of the first quarter. Why we have it Texas Roadhouse is a casual steakhouse chain that offers quality food at affordable prices in a fun atmosphere, creating one of the most compelling value propositions for consumers in the full-service dining category. Competitors: Darden (Olive Garden, LongHorn Steakhouse), Brinker (Chili’s and Maggiano’s), Bloomin’ Brands (Outback, Carrabba’s Italian Grill, Bonefish Grill) Portfolio weight: 0.93% Last purchase: December 17, 2025 Start: February 4, 2025 In an economy where consumers remain selective, restaurant patrons have flocked to Texas Roadhouse. They know they will be served a good meal at a great price. The increases in menu prices have been surgical and are well below competitors and costs. This may be squeezing margins, but Texas Roadhouse is creating customer loyalty. We’ve seen too many full-service and quick-service restaurants damage their reputations by raising prices too quickly. The bet is that if and when beef prices fall, the combination of strong traffic growth and falling input prices will lead to a significant increase in margins. The question remains: When will beef prices drop? While the company is hesitant to predict what will happen in 2027 – and we don’t blame them – we have recently become increasingly concerned that inflation will continue into 2027 due to tight cattle supplies. We’ve sold this position multiple times this year for $180, including a big sell at $188 on Wednesday because we’re losing patience in the beef cycle and don’t want to give back our hard-earned profits. Therefore, we reiterate our rating of 2 equivalent on Thursday. Because of these sales, Texas Roadhouse is currently the smallest position in Jim Cramer’s Charitable Trust, with a portfolio weight of less than 1%. What we learned from Thursday evening’s results is that the market is willing to let Texas Roadhouse ride as long as the inflation outlook doesn’t worsen and the steak and casual dining chain continues to post tremendous on-merchandise sales growth. For these reasons, we are increasing our price target per share from $185 to $195. Statement In the fourth quarter, Texas Roadhouse opened nine company-owned restaurants and one franchise location, bringing last year’s total to 28 company restaurants and four franchise openings. The company continues to expect to open 35 company-owned restaurants by 2026. As management grapples with higher pricing, it announced Thursday evening a 1.9% increase in menu prices in April. In terms of returning cash to shareholders, the company repurchased $50 million worth of shares in the quarter. This is up from the $40 million recovered in the third quarter. The company also announced that it will increase its quarterly dividend by 10% to 75 cents per share. This brings the dividend yield to 1.64% based on Thursday’s closing price of $182.53. Guidance Texas Roadhouse had filed preliminary 2026 guidance alongside its third-quarter results, and all key inputs were left unchanged Thursday evening. The biggest relief came from the administration reiterating that commodity inflation was around 7%. By comparison, commodity inflation for the whole of 2025 was 6.1%. Given the stubbornness of beef prices, some investors may have feared inflation would rise even further. Some other aspects of the directive were: positive restaurant sales growth, including the benefit from menu pricing actions, 5% to 6% store week growth, including the benefit from franchise acquisitions, and 3% to 4% wage and other labor inflation. Total investment expenditure is planned to be 400 million dollars. (Jim Cramer’s Charitable Trust is long TXRH. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
