Earnings Call Transcript - TXRH Q1 2023

Operator, Operator

Good evening and welcome to the Texas Roadhouse First Quarter Earnings Conference Call. Today’s call is being recorded. I would now like to introduce Michael Bailen, Head of Investor Relations for Texas Roadhouse. You may begin your conference.

Michael Bailen, Head of Investor Relations

Thank you, Brianna and good evening. By now, you should have access to our earnings release for the first quarter ended March 28, 2023. It may also be found on our website at texasroadhouse.com in the Investors section. I would like to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our earnings release in our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements. In addition, we may refer to non-GAAP measures. If applicable, reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Jerry Morgan, Chief Executive Officer of Texas Roadhouse. Following the prepared remarks, we will be available to answer your questions. In order to accommodate everyone that would like to ask a question, we kindly ask analysts to please limit yourself to one question. Now, I would like to turn the call over to Jerry.

Jerry Morgan, CEO

Thanks, Michael and good evening to everyone. As many of you know, we just returned from our managing partner conference, where we celebrated our 30-year anniversary with our operators. While we took some time to honor our past, our conference messaging was focused on our future, which will continue to be shaped by staying true to our values and our mission of legendary food and legendary service. Our operators' commitment to our mission was evident during the first quarter, which was highlighted by record guest counts and double-digit increases in both same-store sales and earnings. And during the first quarter, our restaurants averaged $148,000 in weekly sales, including more than $19,000 in to-go sales. We are still seeing improvement in year-over-year staffing levels, thanks to our hiring, training and retention efforts. Increased staffing levels allow us to continue our top line momentum and also focus on maintaining our high food quality standards and delivering a legendary guest experience. On the cost side of the business, inflationary pressures are mostly in line with our projections and commodities are performing as we expected. The tightening cattle supply is keeping beef prices elevated, while we are experiencing some moderating inflation in other areas of our overall basket. And on the labor side, wage pressure has been persistent as it remains a competitive hiring environment. As for the first quarter development, we opened 4 company-owned Texas Roadhouses and 2 company-owned Jaggers. In addition, 1 international franchise restaurant opened in the Philippines. We also completed the acquisition of 8 franchise restaurants located in Maryland and Delaware at the beginning of the first quarter. At this time, we continue to expect to open 25 to 30 company-owned Texas Roadhouse and Bubba’s 33 restaurants this year as well as 3 company-owned Jaggers. Our franchise partners are on track to open approximately 10 international and domestic restaurants, including 2 Jaggers. We also continue to invest in technology to improve both our operations and the guest experience. Roadhouse Pay, which is our pay at the table system, has now been rolled out company-wide. In addition to the guests' convenience during the check and change period, Roadhouse Pay also allows us to sell and redeem cards, gift cards and promote sign-ups for our VIP loyalty club. Additionally, we are having great success with our digital kitchen and improving cook times, order accuracy and other operational efficiencies. The majority of our openings this year will include a digital kitchen system and we continue to convert some existing restaurants to the digital format. On capital allocation, our strong cash flow generation during the quarter allowed us to grow our dividend by 20%, continue repurchasing shares, and further strengthen our capital position by repaying the remainder of our debt. Importantly, these actions were taken together with our reinvestment in the business as we spent over $100 million on capital expenditures and franchise restaurant acquisitions. Overall, we believe our ability to reinvest in the business, our strong balance sheet, and our disciplined capital allocation strategy all create a competitive advantage, which will allow us to generate long-term shareholder returns. Finally, I want to give a huge shout out to Brad Apgar, our 2022 Managing Partner of the Year from College Station, Texas. We also named Rob Hall of Colorado Springs, Colorado, our first ever Bubba’s 33 Managing Partner of the Year. I want to congratulate Brad and Rob as well as all the finalists from both concepts for their accomplishments in 2022. And I also want to congratulate Daniel Rivera of Covington, Louisiana, for being named our 2022 Meat Cutter Champion and Steve Zero for being named our Support Center Roadie of the Year. Our conference is a time to celebrate our successes, recognize our top performers, focus on the future and just as importantly, have some fun. After spending a week with our operators, I can tell you that we have already all returned home energized and ready for the remainder of 2023. Now, Michael will walk you through our financial update.

Michael Bailen, Head of Investor Relations

Thanks, Jerry. For the first quarter of 2023, revenue grew 18.9% driven by a 12.5% increase in average unit volume and 6% store week growth. Restaurant margin dollars grew 15.2% to $185.7 million, while earnings per share increased 18.4% to $1.28 per diluted share. Comparable sales increased 12.9% in the first quarter, driven by 7.6% traffic growth and a 5.3% increase in average check. By month, comparable sales grew 20.1%, 10.6%, and 9.3% for our January, February and March periods respectively. And for the first 5 weeks of the second quarter, weekly sales averaged over $145,000 with comparable sales up 8.6%. This includes the benefit of the 2.2% menu price increase that we took at the beginning of the second quarter. For the first quarter, restaurant margin as a percentage of total sales decreased 53 basis points to 15.9%. However, restaurant margin dollars per store week, which we believe is a more relevant metric for us, were up 8.7% and hit an all-time high of over $23,500. Food and beverage cost as a percentage of total sales were 35.2% for the first quarter. This was 78 basis points higher than 2022 driven by 8.9% commodity inflation. As Jerry mentioned, commodity costs have been in line with our expectations so far this year. With approximately 75% of the overall basket locked for Q2 and approximately 40% locked in the back half of the year, our full year guidance for commodities remains unchanged at 5% to 6%. As a reminder, we continue to expect the rate of year-over-year inflation to moderate as we moved through the year. Therefore, second quarter inflation should decline sequentially, but still be above our full year guidance. Labor as a percentage of total sales increased 23 basis points to 33% as compared to the first quarter of 2022. Labor dollars per store week increased 13.1%, primarily due to wage and other labor inflation of 8% and growth in hours of 4.8%. Similar to commodities, we expect that the level of labor inflation to moderate as we move through the year. At this time, our full year 2023 guidance of wage and other labor inflation between 5% and 6% remains unchanged, but current trends would put us closer to the high end of that range. Other operating costs were 14.3% of sales which was 35 basis points lower as compared to the first quarter of 2022. Most of the year-over-year benefit comes from sales leverage due to higher average unit volumes. Moving below restaurant margin, G&A grew year-over-year by 23.8% and came in at 4.2% of revenue. The majority of the $9.6 million increase in year-over-year G&A expense was driven by higher compensation expense, including approximately $2.6 million of one-time costs. Our effective tax rate for the quarter was 13.9% and we continue to expect a full year 2023 income tax rate of approximately 14%. Lastly, with regards to the cash flow, we ended the first quarter with $156 million of cash. Cash flow from operations was $189 million. This was more than offset by $67 million of capital expenditures, $37 million of dividend payments, $50 million of debt repayment, $10 million of share repurchases and $39 million acquisition of 8 franchise restaurants. Our expectation for full year 2023 capital expenditures remains approximately $265 million. Now, I will turn the call back over to Jerry for final comments.

Jerry Morgan, CEO

Thanks, Michael. I want to close the call by thanking the 85,000 plus roadies, who keep our mission alive each and every shift as well as our vendors who have been key partners in our success. I also want to thank our loyal guests, who continue to support our restaurants and allow us to provide them with legendary food and legendary service. Given our industry-leading operational performance and strong balance sheet, we have a lot of flexibility at our disposal to create shareholder value in the future. Speaking of the future, the theme of our recent conference was just getting started. I could promise you that while we will always honor and celebrate our history, we feel like we are just getting started on riding our future. That concludes our prepared remarks. Operator, please open the line for questions.

Operator, Operator

Thank you, Mr. Morgan. Your first question comes from Joshua Long with Stephens. Your line is open.

Joshua Long, Analyst

Great. Thank you for taking my questions. I was curious if you could talk about some of the initiatives at the store level that helped drive the strong traffic during the quarter. Obviously, legendary food, legendary service resonates well with your guests. But curious if some of the menu initiatives or maybe other focus points have allowed you to broaden your reach as value and balancing that overall experiential component that you are well-known for starts to resonate with a broader set of guests going forward? Thank you.

Jerry Morgan, CEO

Yes. Thank you, Joshua. I believe that our focus on executing a great shift will always be key. As we have been able to hire, train, and get staffed up, we are seeing more about retaining our people as they get more experienced. It really comes down to our ability to execute, to get people in, give them the experience they are looking for, and thank them for coming and joining our business that night. Getting staff is a key component to our continued top line success. Thank you.

Operator, Operator

Your next question comes from David Palmer with Evercore ISI. Your line is open.

David Palmer, Analyst

Thanks. Good evening. Jerry, I know you are committed to that long-term framework of margins being in the 17% to 18% range, but I am trying to think through how you might get there. Obviously, we are in a beef cycle and we are probably going to be dealing with above average steak inflation for the next couple of years. Given that, I am wondering if we might just be stuck a little bit below that range for a while, and that’s fine. But I am wondering if there are other offsets you think could happen or that are maybe happening internally that could make you get there with even an inflationary environment like we are likely to see? Thank you.

Jerry Morgan, CEO

Yes, thanks, David. We are always looking at how to get back to that point. We have made some progress, I think from Q4 to Q1. Although we still have some improvements to do, the labor inflation is something we know what it’s looking like going into the rest of the year. Beef inflation, Michael can talk to that, but we hope that our digital technology is teaching us to be a little faster when we expedite our food through the kitchen. Roadhouse Pay is definitely another enhancement to the service level and may speed up table turns. So, we have several initiatives to continue to elevate how many guests we can serve in a day, which will help us as inflationary pressures settle. We are excited about our restaurant margin dollars and our top line continues to really do extremely well for us. So we must continue to focus on the efficiencies of the business and look at what we can learn going forward.

David Palmer, Analyst

Thank you.

Operator, Operator

Thank you. Your next question comes from Brian Towsen with Morgan Stanley. Your line is open.

Brian Towsen, Analyst

Yes, hi there. Good evening. Could you elaborate on that, Jerry? Is there anything you could say about the stores that have Roadhouse Pay? Have you measured faster table turns? And with the digital kitchens, for example, have you seen faster throughput there? I am just curious about some of the specific things you observed as you put some of these technology initiatives in place?

Jerry Morgan, CEO

Yes. On the Roadhouse Pay, there is no doubt that in our opinion, the guests can pay at their convenience. If they are in a hurry, they are not waiting on anyone to come do their check and change; it is on the table, readily available. We have received great feedback from both the guests and our operators. We absolutely believe that guests who want to get in and out have the ability to do that on their own. On the digital kitchen, we have 4 running currently. We had two new store openings and converted two more. This year, it looks like all of the new store openings, approximately 20 or more and then 10 conversions. All indicators suggest that our food is hitting the window in a timely manner, which should save us time. It should save us some minutes, and if we can do that, it can help us increase restaurant turnover during peak hours.

Brian Towsen, Analyst

Thank you.

Jerry Morgan, CEO

Thank you.

Operator, Operator

Your next question comes from Peter Saleh with BTIG. Your line is open.

Peter Saleh, Analyst

Great. Thanks for taking the question and congrats on the quarter. I just want to ask about consumer behavior in general. I think over the past quarter or two, there was some negative mix you guys were seeing in the numbers, maybe soft drinks up, alcohol down. Has there been any change in consumer behavior and how they are spending or using your menu? Are they trading down at all, trading up at all? Just any details around that would be helpful? Thank you.

Michael Bailen, Head of Investor Relations

Hi, Peter. It’s Michael. Thanks for the question. I think a lot of the trends we started to see in February and March have certainly continued into April. I am not really seeing a change in that, but during that time, we have seen that the alcohol mix has remained negative – again steadily negative, not going further, and we are still seeing some negative mix in the entrée category, which can be attributed to a few things. Some guests are perhaps doing a little check management. But, as I also mentioned on the previous call, I think we are seeing new guests coming into Texas Roadhouse and perhaps starting at the lower end of the value side of the menu. So, it has held steady. I don’t think it has anything to do with our menu pricing or the increases we have taken because we’ve seen no change during that period. Our guest volumes tell us that people still want to be at Roadhouse, but we’ve seen maybe a little bit of trade down. However, our mixing is still extremely positive relative to pre-pandemic levels. So, we might just be giving a little bit back now that people are watching their budgets a little more closely.

Peter Saleh, Analyst

Thank you.

Operator, Operator

Your next question comes from Jeffrey Bernstein with Barclays. Your line is open.

Jeffrey Bernstein, Analyst

Great, thank you. The question on beef and the related potential pricing, I am just wondering if you can give a little more color on what you’re locked in specifically on beef as we look to the rest of the year. I feel like in past cycles, maybe management was not keen to take price to mitigate because we know beef goes up and down, and price was really more reserved to offset structural, more labor type inflation. So, I’m wondering if that’s still the sentiment if, as was raised earlier, maybe we should just assume in the short term that you won’t necessarily price to fully offset it and let the margins take a hit to maintain your industry-leading traffic, just trying to get a sense for whether that thesis is unchanged, and specifically around the beef what the outlook is for the rest of this year? Thank you.

Michael Bailen, Head of Investor Relations

Hey, Jeff, thanks for the question. It’s Michael again. I think your thesis is pretty on point. We’re not going to get into the specifics of what percent of our beef is locked or not, but it’s fair to assume with half of our basket being beef that our overall commodity lock must be somewhat in line with what our beef is. Our outlook for beef has really not changed since the last time we spoke with you all. We do think it will drive the majority of our inflation for 2023, and that other items in the basket will see their inflation moderate to bring our overall inflation down. On the last point about menu pricing, this is still the way we think about it. We price for the structural component of inflation, primarily wage inflation. We don’t tend to overreact in price for the cyclical items like commodities. Beef will probably be inflationary for a period, but like I said, we’re feeling some offsetting deflation in other areas. We will focus first and foremost on the guest and driving more people into the restaurant. We will look at menu pricing again later this year, and I would assume we will do something in the October period like we have in the past.

Jeffrey Bernstein, Analyst

Thank you.

Operator, Operator

Your next question comes from David Tarantino with Baird. Your line is open.

David Tarantino, Analyst

Hi, good afternoon. My questions relate to the margin performance. When I step back and look at your traffic trends and overall sales trends, it’s a little surprising that we’re not seeing leverage on labor. I appreciate you have inflation, but the question is what would it take to get leverage on the labor line? Given that when traffic increases, it tends to add hours and lean on execution? What do we need to see to make labor leverage a reality?

Michael Bailen, Head of Investor Relations

Yes, thanks for the question, David. It’s Michael. I think we will need to see some of that wage inflation moderate. The math suggests if we are guiding to 5% to 6% wage and other labor inflation, and our menu pricing is below that overall number, then you need to see traffic growth—it helps us some extent. With traffic comes the need for more staffing, which is why I indicated on our last call that we would not expect to see labor line leverage in the first half of the year. We will assess the second half and what the traffic dynamics look like because we are still learning how that algorithm plays out. It could take time to determine the kind of leverage we might achieve, but again, seeing wage pressure moderate would be a significant component we would need.

David Tarantino, Analyst

Thank you.

Operator, Operator

Your next question comes from Sara Senatore with Bank of America. Your line is open.

Sara Senatore, Analyst

Thank you so much. Just a housekeeping question and then a follow-up. First on the housekeeping, I know you mentioned 2.2 points of menu price. I just wanted to make sure I was understanding what that meant year-over-year—is that sort of in that 6% range in terms of year-over-year pricing, as I tried to think through the margin compression in terms of inflation relative to price increases? So that’s just the housekeeping. And then, in terms of the components, traffic seems to have accelerated pretty meaningfully. I know we might not be talking about pre-COVID anymore, but are you seeing any underlying change in demand, whether it’s different cohorts or relative value propositions being stronger? Just trying to understand this strong traffic number in the context of the environment, with the caveat that I know multi-year comparisons may vary. Thanks.

Michael Bailen, Head of Investor Relations

Yes. Thanks, Sara. Michael here. Regarding pricing, I think what you’re asking about is, what will pricing look like by quarter. For the second quarter, we will see about 5.6% pricing on the menu. But I will mention that given the timing of when pricing was taken last year and when it was taken this year, the five weeks that we have given you a same-store sales number had about 6.2% pricing in it, and the last eight weeks of the quarter will have about 5.2% pricing, which gets you to the 5.6% for the full quarter. For Q3, we expect 5.1% pricing, and before we take anything else in October, we would only have 2.9% in the fourth quarter of 2023. So, that’s the cadence of pricing for the year. Our traffic trends have been very strong and they continue to look healthy on a multi-year basis or year-over-year basis. I think this relates to our operational strategies and ensuring we are sufficiently staffed to meet demand. Additionally, we have seen a bit of negative mix in the entrée category indicating some guests may be trading into us who were not regular casual dining patrons before, leading to positive traffic volumes.

Sara Senatore, Analyst

Thank you very much.

Operator, Operator

Your next question comes from Dennis Geiger with UBS. Your line is open.

Dennis Geiger, Analyst

Thank you. I want to ask about full year expectations for restaurant margins, which I think last quarter, you said you could see the margin percentage improvement year-over-year. Just curious if there’s any update to that. And then also if there’s any update to those assumptions that you’ve got internally, maybe labor, maybe it’s at the upper end of the range, so anything with hours or components may have shifted. Thank you.

Michael Bailen, Head of Investor Relations

Yes, hey, Den, it’s Michael. I really don’t believe much has changed since we last spoke. Some of it will depend where we are on those guidance ranges we discussed, which will depend on traffic performance and sales mix. I think you will see the most opportunity for year-over-year leverage on margin percentages in the latter half of the year, with the fourth quarter showing the most potential. Keep in mind some of these factors will hinge on your projections for top-line growth and customer decisions on that growth angle. The other operating expenses are still our biggest opportunity for leverage, as we noted in Q1, along with managing the cost of goods as inflation moderates and aligns with pricing, which should yield some benefits in the back half of the year.

Dennis Geiger, Analyst

Very helpful. Thanks, Michael.

Operator, Operator

Your next question comes from Jeff Farmer with Gordon Haskett. Your line is open.

Jeff Farmer, Analyst

Thank you. You guys have reported seeing little, if any, uptick in promotional activity or discounting across the segment in recent quarters. A couple of your peers have gotten a little more aggressive with promotions and TV advertising, but what do you see? I know that broader casual dining isn’t exactly head-to-head with steakhouse, but from your perspective, have you seen continued rational behavior as it relates to promotions from your most relevant competitors?

Jerry Morgan, CEO

Yes, I mean, on their side, obviously, they’re being aggressive out there. We don’t technically get into that. We focus on our early dine communication within our local communities and our Wild West Wednesday promotion to give folks a little break on that Wednesday. Those are the two main areas we concentrate on with early dine communication and the 15 menu items that are discounted a bit for that early side. From a seasonal trend, things have been going pretty much according to normal from that standpoint.

Jeff Farmer, Analyst

Okay. Thank you.

Jerry Morgan, CEO

Thank you.

Operator, Operator

Your next question comes from Jon Tower with Citi. Your line is open.

Jon Tower, Analyst

Great, thanks. I guess, I’ll ask on the supply environment or real estate side of the business. Curious if you’re seeing any sort of changes in the backdrop given some of the noise that we’re seeing, certainly in the lending environment, and some of the regional banks. Is that translating yet into perhaps any availability of sites that you might have looked at previously and weren't available because of others? Are you now entertaining discussions with landlords? Also, can you tell us what that $2.6 million charge was in G&A in the quarter? Thanks.

Jerry Morgan, CEO

Yes, no problem. The real estate pipeline, I think with all of that stuff happening recently hasn’t affected us at this time. Depending on developments, our business remains as usual. We’ve got our processes on choosing real estate, and if someone comes to us with a deal, we’re willing to consider it. We have a pipeline deep on real estate developments. The $2.6 million was a one-time executive payout.

Jon Tower, Analyst

Got it. Thank you.

Jerry Morgan, CEO

Thank you, Jon.

Operator, Operator

Your next question comes from an unknown caller. Your line is open.

Unidentified Analyst, Analyst

Great. Thanks. I had just a point of clarification. And then a question about Bubba’s, Michael, I apologize if I missed it, but did you say why the company expects wage inflation to ease? And then Jerry, I wanted to ask about Bubba’s future growth. It looks like the volumes at newer locations are well below Roadhouse, and the investment has been at least half a million higher than Roadhouse. So, on the surface, it seems better to allocate all the capital to Roadhouse development. How are you assessing Bubba’s future potential and how are you thinking about capital allocation above us?

Michael Bailen, Head of Investor Relations

Yes, hey, Chris Lee. I will answer that first question on wages and then hand it over to Jerry. Yes, we expect wage inflation to moderate because much of the wage pressure we feel this year is a result of hiring last year or raises granted last year that must flow through the system over 12 months. Additionally, there are state-mandated wage increases we enacted at the start of this year, but the rate of increase we are experiencing has definitely slowed from what we saw last year as it pertains to average wages. So as we move further into the year, we expect wage pressure to lessen.

Jerry Morgan, CEO

On Bubba’s growth, I will tell you in the last 18 months we have made some leadership changes and adjustments to our strategy, ensuring we have the right people in place. We are beginning to see the results from that in our new store openings. We will open our first one for the year in Avon here in a couple of weeks. We are excited about that. Texas Roadhouse has consistently performed very well for over 30 years, and we are all in on Bubba’s. We believe in the great food, energy, and ambiance we are providing. There have been some reductions in construction costs, which will help as those costs decrease. However, it may take us another 24 to 36 months, but we will eventually get Bubba’s growing at 10% plus, and we feel responsible towards that investment.

Unidentified Analyst, Analyst

Thanks.

Jerry Morgan, CEO

Thank you.

Operator, Operator

Your next question comes from Lauren Silberman with Credit Suisse. Your line is open.

Lauren Silberman, Analyst

Thank you. I just wanted to ask about monthly comps, which decelerated through the quarter. I think you said 20.1% in January to 9.3% in March. Can you unpack what you saw throughout the quarter and what might have driven this step down compared to anything else? Thank you.

Michael Bailen, Head of Investor Relations

Yes, Lauren, it’s Michael. I believe a lot of the deceleration can be attributed to comparisons. Our sales volumes grew as we moved through the quarter and even into April. The outsized January percentage increase was affected by lapping the Omicron variant early in January. When looking at a multi-year perspective, there is no discernible slowdown. I think overall, it is the comparisons that explain that decrease, and we do not feel a slowdown in guests wanting to come to Texas Roadhouse.

Lauren Silberman, Analyst

Great. Thank you.

Operator, Operator

Your next question comes from Brian Vaccaro with Raymond James. Your line is open.

Brian Vaccaro, Analyst

Thanks and good evening, guys. Two quick ones for me. Just on G&A came in quite a bit higher than we were thinking. Could you help us put some guardrails on your annual expectations there? And how much should we pencil in for the GM conference in the second quarter?

Michael Bailen, Head of Investor Relations

Hi, Brian. Yes, I can discuss G&A. G&A is performing similarly to how we described it at the end of the last quarter, where we expected G&A dollars may grow at a faster rate than revenue. So, we may see a little pushback in terms of G&A percentage of revenue. We would not have seen that if not for the one-time costs. I think the level of G&A in Q1 is probably in the right ballpark as we move through the remainder of the year. Regarding the conference, we won’t provide a specific number, but Q2 will be a bit elevated compared to the charges taken in Q2 of last year. You may want to expect Q2 to be higher than Q1.

Brian Vaccaro, Analyst

Alright. Thanks for that. And if I could quickly circle back on the other operating line, if my math is right, it looks like cost per week is up almost 10% year-on-year. Are there any one-time factors worth highlighting in that line? If not, could you elaborate on any new areas of pressure you might be seeing or an update on utilities and R&M? Is there any light at the end of the tunnel that we might start to see some moderation in inflation? Thank you.

Michael Bailen, Head of Investor Relations

Yes, Brian, it’s Michael again. I believe we saw that growth in dollar store operating as a result of higher facility volumes, and we anticipate seeing a slowdown in growth compared to Q4 last year. Operating costs growth could potentially decline moving forward from now on. However, utility costs have not yet moved in our favor. As we progress through the year, we could see some relief, but at this point, the leverage we experience in other operating costs can be attributed to the traffic volumes generated and our overall AUVs.

Brian Vaccaro, Analyst

Alright. Thank you very much.

Operator, Operator

Your next question comes from Andrew Strelzik with Bank of Montreal. Your line is open.

Andrew Strelzik, Analyst

Hey. Good afternoon. Thanks for taking the questions. I was hoping you could help us understand a little better where you’re seeing the strong growth within the week. You spoke about some of the earlier indications; is there anything that really stands out? And relatedly, you’ve seen some small declines in the off-premise average weekly sales. Do you think those folks are going back into dine-in? I know you thought that those were kind of distinct customers; but curious if you think you’re seeing that trend back into dine-in? Thanks.

Jerry Morgan, CEO

Yes. I apologize, Andrew, can you repeat the first part of your question for me?

Andrew Strelzik, Analyst

Sure. Where are you really seeing the growth? Is it during peak weekend or weekdays? Is it earlier?

Michael Bailen, Head of Investor Relations

Right, I appreciate that. It’s Michael. We are seeing growth seven days a week at all times of day, early and late, including during our power hours. It seems like it’s a consistent growth across the board, which I think indicates our guests are learning when they can visit Texas Roadhouse. As far as the decline in to-go, yes, on a percentage basis, that is largely due to the significant increases in dining room traffic and sales. We still did over $19,000 per store week in to-go sales in Q1, which was only a minor drop from last year. Some of those guests are likely now coming dining in, which would not surprise me.

Operator, Operator

Your next question comes from Andy Barish with Jefferies. Your line is open.

Andy Barish, Analyst

Hey guys. Just a couple of housekeeping questions. Michael, on the G&A guide, are you including the 2.6 million? Obviously, on an annualized basis, that would be an additional $10 million or so to G&A?

Michael Bailen, Head of Investor Relations

I think you could probably take that out, and adjust accordingly. We will see how G&A actually trends as we move through the year, but typically, I think it’s fair to assume if you strip that out, it would be more comparable going forward.

Andy Barish, Analyst

Yes, just wanted to make sure. And then did April have some volatility around spring breaks in some of your markets that we have heard from others? And how does average weekly sales seasonality usually progress from 145 in April to May and June?

Michael Bailen, Head of Investor Relations

Yes, I would say there may have been some seasonal movements week to week in those April numbers. However, we still maintain strength overall throughout the month. It’s not that we were strong early and then things declined or vice versa. There probably were mismatches, but we observe strength overall. Typically, moving from April to May, we see strong months with events like Mother’s Day, and into the summer months like June, July, even August, we may see lower transactions than in the initial months, followed by an increase in fall and winter months.

Andy Barish, Analyst

Very helpful. And Jerry, in terms of labor hour increases, I assume that’s both back of house and front. Are there any equipment changes or tools being employed to increase efficiency?

Jerry Morgan, CEO

Andy, how are you? Yes. We are reviewing each component of how to become more efficient. Number one is being fully staffed and retaining our people to maintain productivity. We invest heavily into our employees. The more experienced they get, the more productive they become, reducing labor hours functionality. We should see dividends from these investments as we have ramped up staffing substantially over the last years to elevate our service levels.

Andy Barish, Analyst

Thank you very much.

Jerry Morgan, CEO

Thank you.

Operator, Operator

Your next question comes from Jim Sanderson with Northcoast Research. Your line is open.

Jim Sanderson, Analyst

Thanks for the question. I wanted to return to labor. Just to confirm, the growth in labor hours reported in Q1, is that a rate that will continue? Is it slightly higher than you would normally expect during the recovery phase relative to last year in COVID disruptions, the 5%?

Michael Bailen, Head of Investor Relations

Yes, hey Jim. This is Michael. I would say Q1 is the anomaly given we are lapping Omicron the previous year in Q1. Our staffing levels last year were particularly low early in the quarter. So, I think the percentage growth you observed is at an unusually high level for the year. You aren’t getting much improvement in labor hours because 4.8% growth in labor hours corresponds with 7.6% traffic growth. So, if we see ongoing traffic growth moving forward, we will likely continue to see labor hour growth. Nonetheless, Q1 should be the peak point for the year.

Jim Sanderson, Analyst

Alright. Thank you for that. And just a quick follow-up on pricing. It looks as if pricing will maintain mid-single digits until the fourth quarter. How does that stack up against your competitors in the steak segment or casual dining? Is the gap with competitors similar or narrowing?

Jerry Morgan, CEO

Yes. Regarding the pricing in October, we will reassess it. I would expect to initiate some adjustments at that time, which could make the 2.9% more in line with the other quarters. I believe NAP information indicates our pricing is below that of our competitors. We’ve done what we deemed appropriate for our business by adjusting for structural inflation we’ve been experiencing while ensuring our guests feel they receive value at Texas Roadhouse. Overall, I would assert that our pricing actions have been lower than those assumed by our competitors.

Jim Sanderson, Analyst

Alright. Thank you very much.

Operator, Operator

There are no further questions at this time. I will now turn the call back over to Jerry Morgan.

Jerry Morgan, CEO

Thank you very much. I appreciate you all being with us. I want to close by thanking all of the roadie nation as we celebrated our 30-year anniversary and the tremendous success we’ve had, it’s because of each and every one of you who is committed to legendary food and legendary service. Everyone, have a great evening, and thank you for your time.

Operator, Operator

This concludes today’s conference call. You may now disconnect.