Earnings Call Transcript - TXRH Q3 2025

David Palmer, Head of Investor Relations

Thank you, Julianne, and good evening. By now, you should have access to our earnings release for the third quarter ended September 30, 2025. 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 and 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; and Keith Humpich, our Interim Chief Financial Officer. Following the prepared remarks, we will be available to answer your questions. In order to accommodate everyone that would like to ask a question, could everyone please limit yourself to one question. Now I'd like to turn the call over to Jerry.

Gerald Morgan, CEO

Thanks, Michael, and good evening, everyone. Before we begin our formal remarks, I want to take a moment to recognize Michael Bailen on his promotion to Vice President of Investor Relations. As many of you know, he has played a pivotal role in shaping our investor outreach and communicating the company's financial strategy. Congratulations, Michael, I am very proud of all you have done for Texas Roadhouse, and I'm excited to see you continue to grow our Investor Relations program. Moving on to our quarterly results. Our strong top line momentum continued in the third quarter with revenue topping $1.4 billion. Through the relentless efforts of the best operators in the business, we achieved our highest quarterly growth of the year in revenue, same-store sales, and traffic. There's no doubt there is a healthy demand for our brands. Our people-first focused value proposition and operational excellence continue to be a winning formula to drive our long-term success. On the development front, we opened 7 company-owned locations in the third quarter, including 2 Bubba's 33 restaurants and 1 Jaggers. We remain on track to open approximately 30 restaurants across the 3 brands in 2025. We have also acquired 20 franchise restaurants this year, including 3 purchased at the beginning of the fourth quarter. Our franchise partners opened 2 international Texas Roadhouse restaurants during the third quarter. We expect they will open one more franchise location in the fourth quarter. Looking ahead to 2026, we expect to open approximately 35 company-owned restaurants, including approximately 20 Texas Roadhouses, 10 Bubba's 33 and as many as 5 Jaggers. Additionally, as mentioned on last quarter's earnings call, we have an agreement in place to acquire our 5 remaining California franchise locations at the beginning of 2026. On the franchise side, our partners are planning to open 10 new restaurants, including 6 international Texas Roadhouses and 4 domestic Jaggers. Regarding consumer behavior in the third quarter, we are pleased with what we saw from our guests visiting our restaurants, as they continue to favor steaks in larger sized entrees. In addition, we haven't seen any noticeable change in guest behavior since our 1.7% menu price increase at the beginning of the fourth quarter. The guest is also responding positively to our newer offerings on the beverage side. In addition to mocktails and our $5 all-day everyday beverage specials, we are also having success with our regional approach to the beverage menu and offerings. For example, we are testing dirty sodas in Utah and Idaho, which have been well received by our guests. The regional approach allows us to be more receptive and responsive to local tastes and potential trends. Our To-Go business continues to show solid momentum. Our operators have done a great job focusing on speed and order accuracy. This focus has improved the overall guest experience and as we become more efficient, our operators can take more orders per hour. Outside the 4 walls of our restaurants, we are also very excited about the retail segment of our business. Our retail strategy is about building guest awareness and engagement. Over the past several years, we have introduced many roles, buttery spreads, steak sauces, and dips. We are excited that between our gift cards and retail items, we have a presence in over 120,000 retail outlets across the country. We believe having our logo in the grocery store aisles helps keep Texas Roadhouse top of mind to our current and potential guests. Our success would not be possible without the partners of our vendors. We just recently held our annual Vendor Partner Summit. During this event, we met with many of our key suppliers. There were a number of takeaways around how we continue to work together to strengthen our partnership and ultimately better support our operators. Moving on to technology. Approximately 95% of our restaurants are currently using a digital kitchen and upgraded guest management system. We expect the rollout of both systems to be completed by year-end. As we look to next year, our operating philosophies remain unchanged. Despite the current inflationary environment, we will maintain our focus on driving top line through a combination of guest traffic growth and the expansion of our restaurant base. We'll remain an industry leader in offering high-level hospitality and everyday value to our guests and continue to invest in our Roadies to ensure we remain an employer of choice. And finally, we will stay true to our mission, values, and purpose for the long-term health of the business. This is what has made us successful for over 30 years, and what we believe best sets us up for further success going forward. Now Keith will provide some thoughts.

Keith Humpich, Interim CFO

Thanks, Jerry. As Jerry mentioned, our operators drove strong sales performance in the third quarter with all 3 brands delivering same-store sales growth. Weekly sales averaged nearly $162,000 at Texas Roadhouse, $119,000 at Bubba's 33, and over $75,000 at Jaggers. On commodities, inflation in the third quarter was above our expectations due to higher-than-anticipated beef prices in the back half of the quarter. These higher prices have persisted and have impacted our forecast for beef inflation over the remainder of the year. As a result, we are updating our full-year 2025 commodity inflation guidance to approximately 6%. As everyone is aware, there is certainly significant volatility and multiple unknowns related to beef prices. With that said, we are setting our initial 2026 commodity inflation guidance at approximately 7%. At this time, we expect to be above the guidance in the first half of the year and below the guidance in the second half of the year. Moving on to labor. Wage and other labor inflation for the third quarter was in line with our expectations. Our operators continue to execute at a very productive level as labor hours grew at approximately 35% of comparable traffic growth. Our full-year 2025 wage and other labor inflation guidance remains unchanged at approximately 4%. And for 2026, we are guiding to wage and other labor inflation of 3% to 4%, with mandated increases representing approximately 1% of the increase. With regard to capital allocation, we ended the third quarter with a cash balance of $108 million. Cash flow from operations was $144 million, which was offset by $214 million of capital expenditures, dividend payments, and share repurchases. Also, as previously mentioned, we acquired 3 franchise restaurants at the beginning of the fourth quarter, and we will be acquiring 5 California franchise restaurants at the beginning of 2026. Finally, with regard to capital expenditures in 2026, we will continue to prioritize new store development and maintaining our existing restaurants. With approximately 35 new store openings and 5 restaurants being acquired at the beginning of the year, we are expecting 5% to 6% store week growth in 2026. And we are establishing our initial 2026 capital expenditure guidance at approximately $400 million. This excludes the cost of acquiring the California franchise restaurants. And now Michael will walk us through the third quarter results.

Michael Bailen, Vice President of Investor Relations

Thanks, Keith. For the third quarter of 2025, we reported revenue growth of 12.8%, primarily driven by a 5.5% increase in average weekly sales and 6.8% store week growth. We also reported a restaurant margin dollar increase of 1.1% to $204 million and a diluted earnings per share decrease of 0.8% to $1.25. Average weekly sales in the third quarter were over $157,000, with to-go representing approximately $21,500 or 13.6% of these total weekly sales. Comparable sales increased 6.1% in the third quarter, driven by 4.3% traffic growth and a 1.8% increase in average check. By month, comparable sales grew 5%, 7%, and 6.1% for our July, August, and September periods, respectively. And comparable sales for the first 5 weeks of the fourth quarter were up 5.4% with our restaurants averaging sales of nearly $160,000 per week during that period. In the third quarter, restaurant margin dollars per store week decreased 5.3% to approximately $22,500. Restaurant margin as a percentage of total sales decreased 168 basis points year-over-year to 14.3%. Food and beverage costs as a percentage of total sales were 35.8% for the third quarter. The 224 basis point year-over-year increase was driven by 7.9% commodity inflation, combined with shifts within the on-trade category, which was partially offset by the benefit of a 1.8% check increase. Labor as a percentage of total sales decreased 18 basis points to 33.6% as compared to the third quarter of 2024. Labor dollars per store week increased 5.2% due to wage and other labor inflation of 3.9% and growth in hours of 1.3%. Other operating costs were 14.7% of sales, which was 40 basis points better than the third quarter of 2024. The improvement was driven by leverage on operator bonuses, partially offset by changes in our quarterly reserve for general liability insurance. These insurance adjustments include $1.7 million of additional expense this year as compared to $400,000 of additional expense last year. Moving below restaurant margin, G&A dollars declined 1.4% year-over-year and came in at 3.8% of revenue for the third quarter. The decline was primarily driven by lower incentive compensation and lapping the additional expense from our change to annual equity grants. Our effective tax rate for the quarter was 13.1%. Based on our outlook for the remainder of the year, we are updating the guidance for our full year 2025 income tax rate to approximately 14.5%. We are also setting our guidance for the full year 2026 income tax rate at approximately 15%. Finally, as a reminder, in the fourth quarter of 2025, we will be lapping a 14-week quarter from last year. We estimate that this will have an approximately 10% negative year-over-year impact on fourth quarter EPS growth. Now I will turn the call back over to Jerry for final comments.

Gerald Morgan, CEO

Thanks, Michael. We just completed our 20th annual fall tour, where we traveled to 28 cities over a 6-week period gathering feedback from nearly 800 managing partners. While it is called fall tour, it is really about listening to and engaging with our managing partners to learn how we can better support them. There's nothing that feeds my soul more than spending time with the best operators in the industry who continue to create a place where Roadies want to work and our guests want to dine. And speaking of guests, I want to give a big shout out to some of our raving fans, Mike and Judy McNamara, who have just completed their 530th store visit. We are proud to have Mike and Judy as a part of Roadie Nation.

Michael Bailen, Vice President of Investor Relations

That concludes our prepared remarks. Julianne, please open the line for questions.

Operator, Operator

Our first question comes from Sara Senatore from Bank of America.

Sara Senatore, Analyst

I guess, maybe one question and one clarification. I'll start with a clarification. As you think about the outlook for beef inflation or commodity inflation, I think the implication is that beef inflation might be up kind of mid-teens if your commodity basket is up high single digits. Could you just talk a bit about what you're seeing that's leading you to draw that conclusion? I guess I thought maybe we would start to see some pullback in demand at retail. Just given where prices have gone, it sounds like perhaps that's not the case. And then I guess the question was more about your beverage program. I know that's something that you've been working on for a while, kind of mocktails and shifting perhaps to address the fact that younger consumers maybe aren't drinking alcohol. Could you talk a little bit about whether you're continuing to see that trend in terms of negative mix?

Michael Bailen, Vice President of Investor Relations

Sara, this is Michael. I'll start with your commodity question. Were you referring to fourth quarter of this year or next year commentary?

Sara Senatore, Analyst

Next year. Next year, please.

Michael Bailen, Vice President of Investor Relations

Yes. So for next year, we are assuming high single-digit inflation when it comes to formula pricing. We also will be lapping some favorable contracts from this year. So the combination of those two things is what gets us into low double-digit unweighted beef inflation.

Gerald Morgan, CEO

And then I'll, Sara, this is Jerry, talk about the beverage program. I really am excited the last couple of years as we've rolled out our $5 all-day, everyday, which is a 10-ounce margarita, a value pint beer, and some other things there. And the mocktails have gone very well. Dirty sodas we're testing in Utah and Idaho. And there's a lot of our consumers out there that beverage is a different category for them. And I think us being aware of consumer trends and how that applies and I think people want a good beverage, maybe not as much the beer and margarita anymore, but they want to have a quality beverage option and so whether it be liquor beer and wine, whether it be soft or iced teas and sodas or mocktail or a dirty soda. And I think we're learning that the better the offering, the more options the guests and the consumer has the better it is for us. So I think the overall blend of the beverage category has clearly been a focus of ours for the last 18 to 24 months, and I'm excited to see that continue to expand.

Sara Senatore, Analyst

Okay. Great. Very helpful. And just impact on mix, anything to say there on the check mix?

Michael Bailen, Vice President of Investor Relations

We are still experiencing a consistent negative trend in alcohol mix this year, which accounts for most of our negative mix. However, this decline is being partially balanced by a positive mix in mocktails, while soft beverages have remained stable compared to last year.

Operator, Operator

Our next question comes from Gregory Francfort from Guggenheim.

Gregory Francfort, Analyst

I guess I'm curious, maybe not to hammer on beef, but what gives you guys the confidence that this is transitory versus structural? And I guess how are you evaluating the structural nature of what's going on versus maybe not pricing against it because it's transitory?

Michael Bailen, Vice President of Investor Relations

Thanks for the question, Greg. I believe that industry experts and our purchasing department agree we are experiencing a cattle cycle that is temporary. While cattle cycles can last for an extended period, typically, when they end, prices settle at a higher point than before. As we consider pricing alongside ongoing inflationary pressures, like wages, it helps mitigate any structural costs associated with commodities. We aren't going to speculate on what aspects are structural versus transitory when the cattle cycle concludes, and if the industry had a different outlook, we would discuss that separately. However, as of now, our understanding is that this situation is cyclical, and it's something we need to navigate carefully.

Operator, Operator

Our next question comes from Jacob Aiken-Phillips from Melius Research.

Jacob Aiken-Phillips, Analyst

I just wanted to ask on your take on the consumer. I know traffic was strong, but are you seeing any differences by income cohort, age cohort? And then like other restaurants have said that there's been a bifurcation among consumers and how you manage your menu and your pricing architecture to appeal to both sides of...

Gerald Morgan, CEO

Thanks, Jacob, this is Jerry. I'll kick it off, and then I think Michael will have a comment. But there's nothing significant that we can see. We're excited about our traffic growth and our sales growth and our menu has always had value built into it, and we have some offerings on our early dine. And so I think we've always been focused on that from the very beginning. And we do have some larger stakes and some entrees that can go to that side of the menu, but there's also a lot of entrees with our country dinners, our 6-ounce sirloin with 2 sides are still extremely value-oriented. And I do believe that, that is what allows our menu to be very favorable for all consumers. So we feel like we're in a great position to be able to pride folks. And when we talk about our beef selection, and we have 4 cuts of sirloin that you can choose a 6 and 8, 11, or 16, so that you have options on how much you want to spend and how much you want to eat. And I really do believe that that's always been our philosophy, and it's really served us extremely well.

Michael Bailen, Vice President of Investor Relations

Yes. And Jacob, this is Michael. When I look at our mix trends from the third quarter and the first part of the fourth quarter, I'm really not seeing anything different than what we've been seeing all year. We don't spend a lot of time separating out income or consumer by cohorts. But there's nothing in there that tells me that we aren't continuing to see a guest that appreciates the value that we're offering. When I look by region, I'm seeing strong results. When I look 7 days a week, I'm seeing strong results. And when I look by daypart, I'm seeing strong results, and that goes for both our dine-in business and our to-go business. So we're very happy with what we're seeing from the consumer and believe that just goes to the value that we offer and the overall experience that we're offering and the guest still is enjoying what they're getting from us.

Operator, Operator

Our next question comes from David Palmer from Evercore ISI.

David Palmer, Analyst

Great. Congratulations, Michael, on the promotion, Crazy, well deserved.

Michael Bailen, Vice President of Investor Relations

Thank you, David.

David Palmer, Analyst

Yes, 2 questions. Jerry, I was just wondering philosophically about pricing. And I'm wondering how you weigh the potential impact of pricing or not pricing or underpricing the inflation on managing partner pay. You were one in the past and you manage a ton of them now. And then if this is going to be a year where we're getting a spike in beef? And I'm not saying you should chase that with pricing because it won't last forever, but I do wonder how you manage that in a year like what we might be having in '26? And then separately, I just wanted to ask about Bubba's. The same-store sales, it decelerated a bit, 2.5 points or so, not a massive slowdown, but obviously, Texas Roadhouse really didn't slow at all, it actually accelerated a little bit. So any theories about why those would have been different in terms of the sequential growth?

Gerald Morgan, CEO

Thank you, David. Regarding the MP compensation, it has been structured around the partnership aspect. As sales, profits, and paychecks increase, this approach proves effective. We keep an eye on restaurant store margins, which determine compensation. A thriving business that performs well, while increasing sales, profits, and personnel, will naturally see compensation rise, which we believe in strongly. For those facing difficulties, we will engage in constructive discussions about any necessary adjustments. Overall, the system functions exceptionally well. When stakeholders are invested and share ownership, we recently concluded our fall tour, addressing individual challenges and exploring ways to assist in overcoming them, whether related to sales, profits, or operational health for the long term. Business has its ups and downs, which is part of the partnership. While we can't fix everything immediately, we are dedicated to supporting growth in that area. As for Bubba's, we maintain our enthusiasm. Significant efforts have been made in recent years concerning leadership and menu engineering amid competitive pressures. We have confidence in what Bubba's offers, including burgers, pizzas, and wings, along with its sports and rock and roll themes.

Michael Bailen, Vice President of Investor Relations

Rock and roll.

Gerald Morgan, CEO

Yes. So we like what we got going on in Bubba's. It's always been a great. It's our second brand. We believe in it completely. So we'll continue to watch and see if there's anything we need to do differently. But we still have a lot of faith and confidence in Bubba's 33.

Operator, Operator

Our next question comes from David Tarantino from Baird.

David Tarantino, Analyst

I wanted to follow up on the last question about the restaurant profit dollars. And if I look at restaurant profit dollars per location or per operating week, which is, I guess, a proxy for the metric that you pay the store managers on, it's been a really long time since that metric has declined in 2 consecutive years. So this year looks like a year where we're going to see a decline. So I'm just wondering, Jerry, if you could comment specifically on the appetite for letting that decline in 2026, given all this inflation or perhaps is there a thought to around the time you make your next pricing decision to price in a manner that would protect that line specifically so that you don't have 2 years in a row of declines in pay?

Gerald Morgan, CEO

Yes, David, thank you. We will continue to evaluate our pricing philosophy. We have always aimed for a conservative approach, which we believe helps safeguard our revenue and our consumers. We recognize that beef prices are influencing many of our results. We have initiated our pricing strategy for the fourth quarter with a 1.7% increase. As we approach the year's end, our next pricing adjustment will occur in period 4, starting in April. We will engage in discussions with our team and operators to understand the competition they face in their respective markets before making any decisions. Ultimately, we strive for a conservative approach, which has proven beneficial for us. We will also consult our partners prior to making such a decision.

Michael Bailen, Vice President of Investor Relations

And David, this is Michael. Our partners take a long-term view just like we do. When we look back, we see that restaurant margin dollars per store week are still about 35% higher than they were in 2019. While we may have given up a bit, and we need to monitor what happens next year, the profit dollars accumulated over the past 5 or 6 years remain quite impressive.

Operator, Operator

Our next question comes from Brian Bittner from Oppenheimer.

Brian Bittner, Analyst

Clearly, you're seeing really resilient traffic trends in an environment where most are seeing choppier or softer trends and that's not surprising based on your track record. But my question is, based on the data and insights you guys have, do you see new customers coming through the door? Are you picking up new customers right now? And if so, where are you stealing those customers from? Are they trading up from QSR? Are you stealing them from the grocery store? How would you frame that up?

Gerald Morgan, CEO

I'll start off by saying that it's challenging to quantify. We aim to establish a strong reputation in our communities and become a point of conversation. This enthusiasm is what truly drives us. When you visit a Texas Roadhouse and see a bustling parking lot with vibrant energy and bright lights, that reflects our appeal. In contrast, other businesses might lack similar excitement, yet we believe we attract a diverse customer base, whether from higher-end steakhouses or quick-service restaurants. Our food, made from scratch and our own hand-cut steaks, combined with the lively atmosphere in our restaurants, resonates well with customers. I think consumers, both in America and globally, appreciate our energetic approach, hospitality, and the quality of our food. Our reputation and standing in communities are things we take immense pride in, and we strive diligently to provide an excellent experience for our employees and guests.

Operator, Operator

Our next question comes from Peter Saleh from BTIG.

Peter Saleh, Analyst

Maybe 2 quick questions. Just one on the beef side. Just curious if you can comment a little bit on how much of this beef is already locked for next year, if we do see a rolling over, which I don't think anybody expects of beef. Could there be some moderation in your inflation targets for 2026? And then just secondly, on the KDS, 95% of the units now have it. Can you talk about what you're seeing on table turns and just how you try and balance speed of going fast, maybe getting a couple of table turns, but not going too fast and not destroying the overall guest experience?

Michael Bailen, Vice President of Investor Relations

Peter, this is Michael. I'll definitely take the first one. On the commodity basket, I will tell you that the overall commodity basket is approximately 40% locked in the first half of the year. For competitive reasons, we're not going to get into specifics on what percent of the beef has been locked, but I think it's fair to say if there's moderation or a change in expectations, then that could certainly move the needle on our forecast for overall inflation in 2026.

Gerald Morgan, CEO

We expect to have the digital kitchen and guest management system fully implemented by the end of the year. Indicators show that it will provide us with more insights for better decision-making. We aim to maintain a balance in our pace, with the guest experience averaging around 54 minutes, which we find optimal. It's important for guests to feel valued and that we're attentive without creating a sense of rush. The enhancements will help us ensure a great experience from greeting to drinks, appetizers, salads, entrees, and the Roadhouse Pay system, which allows guests to pay at their convenience without waiting on us. Overall, if technology improves the guest experience, we support it, and we will share our findings with our operators to enhance service speed if necessary.

Operator, Operator

Our next question comes from Jeffrey Bernstein from Barclays.

Jeffrey Bernstein, Analyst

Great. My question is on the uses of cash. I guess it's a two-part question. The first part, just on the franchise acquisitions. It seems like a clear ramp in activity over the past few years. Just wondering what those conversations are like. Presumably, these are very profitable units. I'm just wondering how many are still outstanding, which could be potential targets for 2026? And then to balance that, I guess, on the CapEx side, I think you mentioned for '26, it's going to be $400 million, which is similar to '25, but I know you're opening up more new units, and I'm sure there's inflation on the cost to build and there's larger boxes. So I'm just wondering the offset there, why we're not seeing an increase in that CapEx, whether it's you found a way to be more efficient with the openings or maybe Bubba's is much lower cost to build? Just trying to figure out the balance of CapEx between the 2 years despite greater openings.

Keith Humpich, Interim CFO

Yes, Jeff, this is Keith. Thanks for the question. On the franchise acquisition side, after we complete the California acquisition at the beginning of the year, we will have approximately 30 franchises left. I think it's actually 31 is the exact number. And we just continue to have ongoing conversations with all of our franchise groups. We still have, I'd say, 3 large franchise groups left after this. And we continue to have ongoing conversations with them. And I think you can expect to see other franchise acquisitions in the future. On the CapEx, I think you have to factor in that this year, we had the Support Center acquisition, which was part of our number. So I think you kind of have to back that out. And when you do that, I think the numbers become a little bit more comparable.

Jeffrey Bernstein, Analyst

How much was that acquisition?

Keith Humpich, Interim CFO

$23 million.

Operator, Operator

Our next question comes from Brian Harbour from Morgan Stanley.

Brian Harbour, Analyst

I guess I think the beef side is pretty clear. I guess I'm just curious, as you think about sort of labor lines, OpEx lines, which were a bit favorable in the quarter, G&A as well. Is that something you still expect to continue in 4Q? And some of those, I assume, were affected by the extra week. So how should we think about that?

Michael Bailen, Vice President of Investor Relations

Yes, in the fourth quarter, if the top line trends continue as they have in the first five weeks, I expect to see improvements in labor, other operating expenses, and general and administrative costs. These areas could also experience some benefits into 2026, assuming the top line remains strong. Our operators are effectively staffing the restaurants, resulting in favorable labor hour growth in relation to traffic. We are also continuing to see benefits in other operating expenses, and we will have to see how general and administrative costs develop.

Operator, Operator

Our next question comes from Brian Vaccaro from Raymond James.

Brian Vaccaro, Analyst

Congrats, Michael. I wanted to ask you about the sticker shock effect in grocery stores. In my local market, Ribeye is over $23 a pound. For just $6 or $7 more, I could have your team cook it perfectly and provide great service, plus you would even do the dishes for me. So my question is, are you hearing that sentiment from your customers? Do you think this is contributing to an increase in your sales? Is there any way you can provide data on this or is there any decline in demand you're noticing in grocery stores? I don't think I've ever seen such a pronounced effect like this, even 10 or 12 years ago. It just seems particularly intense right now.

Michael Bailen, Vice President of Investor Relations

Brian, it's Michael. I certainly do think that people are aware of what it cost to buy beef in the grocery store. And while maybe we weren't seeing as much retail demand degradation over in the second quarter, in third quarter, we've heard that maybe you're seeing a little bit more of that now. And we certainly have seen this year that more of our guests when they come in are getting a steak when they order from Texas Roadhouse than what we had seen in years past. So I think they are recognizing the value of our stake offerings relative to what they can do at home. And as a company that prepares a tremendous steak, I think that creates loyal guests for us for years to come. So we are aware of that, and I think it is helping us.

Brian Harbour, Analyst

All right. That's helpful. And then just on the unit growth side, I was going to touch on maybe both Jaggers and Bubba's. But Bubba's is opening 10 units, and I think you said 5 on Jaggers. But on Bubba's specifically, maybe, can you talk about any new markets that you're going into? Or is it mostly existing markets? Maybe just elaborate on sort of the growth and how it's accelerating at Bubba's?

Gerald Morgan, CEO

Yes, Brian, this is Jerry. I believe this year we'll achieve 7 units, compared to the 4 units we garnered in previous years. We've been effectively managing our pipeline and prioritizing our current market partners. While we focus on future growth, I would note that most of it is occurring in established markets. For Jaggers, we have a strategy centered around the Heartland, which includes Ohio, Indiana, Kentucky, Tennessee, and Georgia. Our company-side stores will be located near our Louisville base, and this is our current approach. We're excited about the growth opportunities, particularly in Tennessee and the Nashville area, with plans to explore further south and potentially into Ohio. Overall, our strategy for Jaggers is to maintain a close presence in Kentucky and the two adjacent states, which we refer to as the Heartland strategy for the company side.

Operator, Operator

Our next question comes from Dennis Geiger from UBS.

Dennis Geiger, Analyst

Great. Michael, I'll echo the congrats, well-deserved. I always appreciate all of your help for sure. Great detail on the inflation on your key cost items for '26. Just curious if you would comment at all on thinking about that other OpEx line item looking to '26 G&A. Any notable call-outs there? I know the other OpEx has a gazillion buckets in it, and we're not in '26 yet, but any call-outs on those other items as we're just kind of trying to get a full picture of how the P&L looks in the next year?

Michael Bailen, Vice President of Investor Relations

Den, this is Michael. I appreciate the kind comments. It's certainly early, but as we think about other operating for next year, it could look to grow in a similar fashion to what we've seen this year, low single-digit growth in other operating dollars per store week. We have heard that utility costs are going up and tariffs would be something that maybe flow through there, but not expecting anything dramatic on that line as we know it right now. So assuming our top line continues to grow at a healthy traffic pace, right now, I'm expecting low single-digit dollar per store week growth.

Operator, Operator

Our next question comes from Andy Barish from Jefferies.

Andrew Barish, Analyst

I wanted to provide some clarity on the current quarter. With the pricing changes you've made, it appears that traffic is likely operating at about half the rate compared to the third quarter. Is that an accurate assessment? What factors, aside from comparisons or other external influences, could account for this?

Michael Bailen, Vice President of Investor Relations

Andy, it's Michael. Yes. We reported a 5.4% for the first five weeks. The timing of Halloween moving from a Thursday to a Friday had over a 60 basis point negative impact on that number. If you adjust for that, we would be running over 6%. Within that 5.4%, pricing is probably a little over 2.5%. We're seeing traffic over 3% at this point, but that 3% would likely be over 3.5% if we exclude the Halloween adjustment.

Andrew Barish, Analyst

Okay. So your menu price kind of layered in through the month?

Michael Bailen, Vice President of Investor Relations

The 3.1% pricing was fully in effect from day one, but we are still experiencing some negative mix, roughly 50 to 60 basis points. Therefore, you're seeing a check increase of 2.5% to 2.6%, with the remainder coming from traffic.

Andrew Barish, Analyst

Okay. Got it. Got it. And then yes, with the beef side of things, I mean, 2015 was your previous high on COGS at 36%. Is that kind of the analog with hopefully, the peak in the cattle cycle, at least the low in the cattle cycle driving peak prices for 2026, at least what we know today in terms of what you've laid out?

Michael Bailen, Vice President of Investor Relations

Andy, it's Michael again. It's hard to pull. You are right, 2015, I think it was 35.9% and that was the end of the cycle. And the next year when things did turn, we were 200 basis points lower. So we do obviously expect that percentage to increase in 2026. We will see what happens beyond that. But again, we know when the cycle does turn and you get that year of less inflation or deflation that, that COGS line does improve very quickly. And so that's why we're remaining patient. But too early for us to guide and predict what will happen beyond 2026.

Operator, Operator

Our next question comes from Lauren Silberman from Deutsche Bank.

Lauren Silberman, Analyst

A couple of follow-ups. I wanted to also ask on the quarter-to-date side. There's been a lot of noise around October industry-wide, it's been pretty volatile in recent weeks. It sounds like things have slowed given pressure from the government shutdown. Outside of what you saw with the Halloween, are you seeing any volatility in trends at all more recently? Or it's been pretty stable?

Michael Bailen, Vice President of Investor Relations

So Lauren, this is Michael. I would say, as I look at each week of the October period, outside of Halloween, it was very stable and consistent. So we saw a strong performance throughout the month of October.

Lauren Silberman, Analyst

That's great. And then on the commodity guide, are you guys actually embedding a step-up in underlying costs on a dollar basis in '26? Or is this more about compares? I guess I'm just thinking through commodities up 8%, 9% in the second half of '25. And I guess your guide would imply close to mid-single digit in the back half of next year as well. So just trying to understand that point.

Michael Bailen, Vice President of Investor Relations

Yes, Lauren, it is a mixture of that. I mean beef does go through cycles of prices or there is seasonality in beef prices. So it is not on every cut that the dollar cost is going straight up from where it was in the third quarter. In some cases, it may be lower in the fourth quarter and then it could go higher and so things move around. So it is not a linear assumption in there. Our procurement experts in the beef area spend a lot of time thinking about how this will play out, and it varies by cut. So a lot of this inflation, certainly in the first half of the year, is simply the fact that formula-based pricing was much lower and really escalated in the back half of the year. So some of this is just the year-over-year lap even if it comes down from where we were in the third quarter.

Operator, Operator

Our next question comes from John Ivankoe from JPMorgan.

John Ivankoe, Analyst

I had to remind myself when your IPO took place, which I believe was in 2004. Shortly after, your unit growth noticeably accelerated as a public company. In this industry, restaurants that are 20 years old can influence lease renewals. Could you comment on whether there are any increases in rent as you transition from the first 20 years to the second? Additionally, regarding the asset itself, do you have opportunities or needs to consider that remodeling a restaurant can only be cosmetic to a certain degree? Should we expect more extensive renovations to take place over the next 20 years of the restaurant's life, and is that something we should factor into the future capital expenditure cycle?

Michael Bailen, Vice President of Investor Relations

Yes, John, it's Michael. First on the rent, we do straight line on the rent. So we report similar rent numbers, and so there wouldn't be the step-up there. It is certainly possible if we came to the end of the negotiated lease term with a restaurant, whether that's 20 or 30 years or with the landlord, excuse me, that there is a reset that could be higher, but that was going to be on a smaller number of stores, so probably wouldn't have a huge impact on that rent number. As far as the need for investing in our restaurants, I mean, we continually maintain our restaurants. And certainly, there have been some that we have relocated that maybe in the early days that Texas Roadhouse wasn't the first restaurant to be in that building, and it wasn't something where you could not continue to just take care of the building and we did relocate. And you'll have cases like that, but the fact that we take care of these restaurants, I think prevents us from having any major concern about a huge step-up in the CapEx needs because we're taking care of them year in and year out.

Keith Humpich, Interim CFO

And John, this is Keith. I would just add on the CapEx side, we do have an aging restaurant base now. And that is why you have seen kind of the uptick in the last couple of years as all the projects that we have been doing to maintain our restaurants. So I think you can expect to see it kind of like a level that we've been at going forward.

Operator, Operator

Our next question comes from Andrew Strelzik from BMO.

Andrew Strelzik, Analyst

I have a follow-up and a question. The follow-up concerns the shift towards larger entrees and steaks. Can you provide details on how much of a margin challenge this has caused? Additionally, regarding pricing, your recent price increases have been gradually rising, but not significantly. Simultaneously, your wage growth expectations have decreased from 4% to 5% to 4%, now down to 3% to 4%. In discussions with operators, what are they citing as the reasons for this increased pricing in the last few rounds?

Michael Bailen, Vice President of Investor Relations

Andrew, I'll start on the mix shift. Certainly, the higher percentage of guests ordering a stake has had a little bit of a negative impact on our food and beverage as a percentage of sales, maybe 20 to 30 basis points of impact on that percentage. But I'll tell you it's net neutral by and large, to our profit dollars. Those stakes tend to be or larger entrees come at a higher sales price, so we get more sales dollars and their profit dollars are probably equal to what the guests maybe would have ordered otherwise. So from a margin dollar standpoint, not having a huge impact, but you definitely do see a little bit of extra pressure on the food and bev percent line.

Gerald Morgan, CEO

And Andrew, yes, this is Jerry. On the pricing, I think we have really candid conversations about what's going on in their local community, what's going on in their state whether it be labor or continued commodity and utilities and all the other factors that come into running a profitable business and then make those decisions based off of that. And sometimes it is about a store or a market or a state, but overall for the company, it's what we feel comfortable with. And it is a little bit about what our competitors are doing. We try to get as educated as possible when we make those decisions twice a year on where we're at and what we're comfortable with. We're not going to be able to price for every beef inflation as of right now. But we want to make sure that we protect the value side of our business and our menu and our perception.

Operator, Operator

Our last question comes from Jim Salera from Stephens.

James Salera, Analyst

Jerry, if you're looking for a place for new Jaggers in Ohio, I recommend the west side of Cleveland if the real estate team needs some site selection help.

Gerald Morgan, CEO

Thank you.

James Salera, Analyst

I wanted to ask a little bit about the retail piece of the business that you guys had mentioned earlier. Do you able to quantify how much of an impact that is? I would think given the really strong brand equity that you have, that can potentially be a way to access kind of a whole new group of consumers that I would think is a decent margin for you. But just any color you can offer there? And if you have any thoughts around maybe the potential size of that business?

Gerald Morgan, CEO

Thank you. All of our retail initiatives focus on increasing brand awareness and presence in grocery stores. When consumers see our logo, it brings a smile to their faces, reminding them of their local Texas Roadhouse and everything we aim to achieve. The inspired by roles are particularly popular and selling well at retail locations. We're thrilled about this, and our vendor partner shares our excitement. It's still early in the year, and we're eager to see the revenue generated from this product. There is definitely demand for it, and we're committed to ensuring its availability. Although we've faced challenges keeping up with demand, it's thrilling to see Texas Roadhouse inspired by many roles flying off the shelves. We're very proud of that, and I will make sure the real estate team is informed about this selection.

Operator, Operator

Our last question comes from Zach Fadem from Wells Fargo.

Zachary Fadem, Analyst

So on the inflation front, you see competitors trying to shift the mix to chicken or less inflationary items, either via promo or other avenues. So philosophically, curious if there's a point where beef inflation gets to so high where you would consider either a menu pivot at the core business or Bubba's, et cetera. Any thoughts there?

Gerald Morgan, CEO

Yes. We're kind of a steakhouse, and I think that it would be hard. We have a lot of offerings with our chicken and pork and salmon and the country dinners with our country fried chicken and all those things. So I think we have a lot of other offerings, but America really does believe that we cook a great steak. We serve a great steak and we provide a great steak. And that's what they crave. So we're not going to take that away from them.

Operator, Operator

Our last question comes from Jake Bartlett from Truist Securities.

Jake Bartlett, Analyst

Mine was about your pace of development, and it's nice to see the increase in '26, which is really driven by Bubba's 33. My question pertains to the growth at Texas Roadhouse. You've consistently shown discipline in managing your team, but the 20 openings you've planned are the fewest since COVID or just after it, falling on the low end of your historical range. Why is it so low? Are there any headwinds or factors that might explain why it couldn't be slightly higher? I realize you're very mindful of bandwidth, but I would assume that as you introduce different brands, the bandwidth impacts are more concept-specific. Any insights on this would be appreciated.

Gerald Morgan, CEO

Yes. I think we said approximately. So that gives us some wiggle room. Some of these deals take a little longer. But I'll tell you, I feel great about the pipeline for '26 and '27 for Texas Roadhouse, for Bubba's and Jaggers. We obviously know that that Roadhouse is what drives a big part of the business. So we feel very comfortable at approximately 20. I can't commit too far past that. It's a little early, but I do believe that we will be north of that number.

Operator, Operator

We have no further questions. I would like to turn the call back over to Jerry Morgan for any closing remarks.

Gerald Morgan, CEO

Thank you, everyone. Congratulations, Michael, for all your hard work with everyone, and we appreciate the support. It's been a heck of a year. And let's go Roadhouse.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.