Earnings Call Transcript
Texas Roadhouse, Inc. (TXRH)
Earnings Call Transcript - TXRH Q2 2023
Operator, Operator
Good evening and welcome to the Texas Roadhouse Second Quarter Earnings Conference Call. Today’s call is being recorded. All participants are in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. I would now like to introduce Michael Bailen, Head of Investor Relations for Texas Roadhouse. You may begin.
Michael Bailen, Head of Investor Relations
Thank you, Emma. And good evening. By now, you should have access to our earnings release for the second quarter ended June 27, 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 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 Chris Monroe, our newly appointed 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, we kindly ask analysts to please limit yourself to one question. Now, I'd like to turn the call over to Jerry.
Jerry Morgan, CEO
Thanks, Michael and good evening, everyone. Before we begin our formal remarks, I want to welcome Chris Monroe to Texas Roadhouse. I am thrilled to have Chris join the Texas Roadhouse family, and I look forward to working closely with him to make us bigger, faster and stronger. I am confident that Chris is going to add value to our leadership team, our finance department and our company. I also want to thank Keith Humpich and our amazing financial team for stepping up and ensuring that we did not miss a beat over the last six months. Moving on to our quarterly results. We are pleased with our strong sales and profit growth in the second quarter. Our sales momentum carried over from the first quarter as we averaged nearly $147,000 in weekly sales with comparable sales up over 9%. There is no doubt that our guests continue to support our commitment to serving made-from-scratch food in a fun and friendly atmosphere. On the cost side, commodities have performed largely in line with our expectations, and beef remains the primary driver of inflation. On the labor front, we remain committed to ensuring we are properly staffed to provide a legendary experience for every guest. We are encouraged by our outlook for the remainder of the year as we continue to expect strong margin dollar growth, which is central to how we run our business. We will soon begin the normal process with our operators to determine the level of menu pricing to take in October. As is typical for us, our pricing decisions will focus on maintaining our value proposition while also looking to offset the impact of wage inflation, including any state-mandated wage increases. On the development front, we opened two company-owned Texas Roadhouses and one Bubba's 33 during the second quarter. In addition, our franchise partners opened three restaurants, including two international locations. For the full year, we expect to open as many as 28 company-owned Texas Roadhouse and Bubba's 33 restaurants as well as three Jaggers. At this time, all remaining restaurants in the class of 2023 are under construction. Lastly, we expect our franchise partners to open as many as 13 international and domestic restaurants, including three Jaggers. Last week, I attended the opening of our first Jaggers franchise restaurant in Jacksonville, North Carolina. It was great to see the passion that our franchise partner has for the brand. And we look forward to seeing how they will build upon our foundation. Finally, we continue to reinvest in the business through our new store pipeline, maintenance of our existing restaurant base and technology initiatives. We believe our capital investments will enable future growth and contribute to improved operating results. With a healthy balance sheet and an expectation of continued growth in cash flow, we will continue to focus on long-term sustainable growth, which has enabled us to generate consistent total returns for our shareholders throughout our history. So Chris, you have been on the team for a month, mostly training in our restaurants, can you share your initial thoughts on what you have experienced?
Chris Monroe, CFO
Thanks, Jerry. I couldn't be more excited about joining the company and the opportunities ahead of us. I have been well aware of and impressed by the Texas Roadhouse leadership team and the brand for quite some time. As Jerry mentioned, most of my time so far has been spent in a restaurant learning about our operations. After working alongside several of my fellow roadies and witnessing firsthand the commitment and discipline it takes to deliver on the promise of legendary food and legendary service, I now have an even greater appreciation for the brand and the passion of our people. I'm looking forward to bringing my experience to the company and helping to build upon its success for many years to come. And now Michael will provide the financial update.
Michael Bailen, Head of Investor Relations
Thanks, Chris. For the second quarter of 2023, revenue grew 14.3%, driven by an 8.7% increase in average unit volume and 5.6% store week growth. Restaurant margin dollars grew 8.3% to $182.8 million, while earnings per share increased 14.7% to $1.22 per diluted share. As Jerry mentioned, our stores averaged nearly $147,000 in weekly sales in the second quarter and to-go represented approximately $18,500 or 12.6% of the total weekly sales. The to-go sales were especially encouraging, given this was the first quarter since the reopening of our dining rooms that average weekly to-go sales dollars increased on a year-over-year basis. Comparable sales increased 9.1% in the second quarter, driven by 4.7% traffic growth and a 4.4% increase in average check. By month, comparable sales grew 8.7%, 8.8%, and 9.7% for our April, May, and June periods respectively. And for the first four weeks of the third quarter, weekly sales averaged over $140,000 with comparable sales of 10.7%. I will point out that the four-week comp number benefited by approximately 1.4% from the timing of the July 4 holiday. For the second quarter, restaurant margin dollars increased to nearly $23,000 per store week. Restaurant margin as a percentage of total sales decreased 88 basis points to 15.7%. Second quarter margins were negatively impacted by approximately 35 basis points from one-time adjustments, most of which I will detail in a moment. Food and beverage costs as a percentage of total sales were 34.5% for the second quarter. This was 37 basis points higher than 2022 driven by 6% commodity inflation. Overall, commodity costs were in line with our expectations for the first half of the year. With approximately 75% of the overall basket locked for Q3 and approximately 35% locked for Q4, we now expect full-year commodity inflation to be on the higher end of our full-year guidance range of 5% to 6%. Labor as a percentage of total sales increased 90 basis points to 33.6% as compared to the second quarter of 2022. Labor dollars per store week increased 11.3% primarily due to wage and other labor inflation of 7% and growth in hours of 3.5%. Labor growth was also negatively impacted by the $2.7 million net impact of unfavorable claims experience related to group insurance and workers' compensation. This net impact includes $1.8 million of additional claims expense this year and the overlapping of a $0.8 million favorable adjustment in the prior year. Similar to commodities, we expect the level of labor inflation to moderate as we move through the year. That said, we have seen marginally more wage pressure in the first half of the year than we originally contemplated. As such, we have updated our full-year 2023 guidance for wage and other labor inflation to between 6% and 7%, with current trends pointing towards the midpoint of that range. Other operating costs were 14.7% of sales, which was 29 basis points lower as compared to the second quarter of 2022. The year-over-year benefit of sales leverage was partially offset by the negative impact of a $1.6 million adjustment to our quarterly reserve for general liability insurance. Moving below restaurant margin, G&A dollars grew year-over-year by 3.6% and came in at 4.4% of revenue. The primary driver of the $1.8 million year-over-year increase was higher compensation expense. Our effective tax rate for the quarter was 12.7%, and we now expect a full-year 2023 income tax rate of between 13% and 14%. Lastly, with regards to cash flow, we ended the second quarter with $107 million of cash. Cash flow from operations was $99 million. This was more than offset by capital expenditures of $37 million, dividend payments of $23 million, and share repurchases of $23 million. We are increasing our expectation for full-year 2023 capital expenditures to approximately $300 million. This increase is driven by several factors, including the cost of new locations currently under construction and a higher than originally forecasted reinvestment at existing restaurants. Now I will turn the call back over to Jerry for final comments.
Jerry Morgan, CEO
Thanks, Michael. In a few months, we will start our annual fall tour, which is one of my favorite times each year. During the six-week tour, our senior leadership team visits with every managing partner to gather feedback and to hear what is top of mind for them. This is a great opportunity for us to listen and learn how we can better serve and support our managing partners. I have no doubt that our operators will have some ideas to drive our business forward and enable us to continue generating strong shareholder value. That concludes our prepared remarks. Operator, please open the line for questions.
Operator, Operator
Thank you. Your first question comes from Brian Bittner with Oppenheimer. You may go ahead, Mr. Bittner.
Brian Bittner, Analyst
Sorry, can you hear me?
Michael Bailen, Head of Investor Relations
Yes. Hello.
Brian Bittner, Analyst
Sorry about that, guys. I wanted to ask a question about your sales trends. Your third quarter is obviously off to a fabulous start. Your headline same-store sales up over 10%. When we look back to last year, your comparisons got a lot more difficult in August and September versus July by around 700 basis points. And the question is, should we take that into account when modeling the rest of the quarter? I just kind of want to get, is all on the same page? Or should we focus on the fact that your average weekly sales are in that $140,000 range, which if we carry that forward, that suggests a continuation of very strong headline comps for the rest of the quarter.
Michael Bailen, Head of Investor Relations
Yes, Brian is Michael. Thank you for the question. You are right that our year-over-year trends have improved, but the more crucial aspect is to consider our current trends this year and how typical seasonality develops year-over-year. I believe we are positioned for continued strong sales growth, but I will leave it to you and others to determine what those comparisons might be. However, I do believe we are seeing seasonality return to our business.
Brian Bittner, Analyst
Okay, I'll stick to one question. Thanks.
Operator, Operator
Your next question comes from the line of David Tarantino with Baird. Your line is open.
David Tarantino, Analyst
Hi, good afternoon. Congratulations on the sales strength. My question relates to the margin outlook. As you think about the second half of the year, given the inflation outlook you just shared. I guess what's your thoughts on your ability to grow restaurant margin percentage? I know you mentioned you're set up to grow the margin dollars per week, but I guess, how are you thinking about the percentage on a year-over-year basis when you think about the next few quarters?
Michael Bailen, Head of Investor Relations
Yes, David, it's Michael. I don't believe our perspective has shifted significantly regarding our current guidance. Concerning the cost of sales, we anticipate commodity inflation to remain at the lower end of the 5% to 6% range in Q3 and then fall below that range in Q4. Given our pricing strategy, we expect the cost of sales to be relatively stable in Q3, and we should see some leverage in Q4, as the numbers suggest. Regarding rent and other operating expenses, I expect to see similar trends to what we experienced in Q1 and Q2, allowing us to gain some leverage in that area. Labor costs, however, continue to pose a challenge. We'll leave it to you for modeling purposes, but the third quarter might experience that challenge, potentially stabilizing in Q4. Overall, this creates significant opportunities for restaurant margin expansion in Q4, as indicated by our guidance.
David Tarantino, Analyst
Got it. And then, I guess, I wanted to revisit as a follow-up. You've talked about 17% to 18% as the long-term target. Clearly, this year, it looks like you're going to be well below that. I guess, what's your updated thoughts on how you get to 17% to 18%? Is it just a matter of the commodity cycle needing to go your way? Or is there some strategy or initiatives you have that are going to get you there regardless of the commodity cycle?
Jerry Morgan, CEO
The commodity cycle remains a challenge for us. We will focus on increasing top-line sales and restaurant margin dollars. Achieving our goals will take some time, but we are adjusting to labor and commodity conditions. We anticipate that beef prices will eventually stabilize, allowing us to catch up. We genuinely believe we can reach our target; we just need a few favorable changes to assist us.
David Tarantino, Analyst
Great. Thank you very much.
Jerry Morgan, CEO
Thank you. I appreciate the shout out, too.
Operator, Operator
Your next question comes from the line of Peter Saleh with BTIG. Your line is open.
Peter Saleh, Analyst
Thank you, Chris, and congratulations on your new role. I wanted to ask about consumer behavior overall. In the past couple of quarters, you mentioned observing some trade-ups to your brand, as well as potential trade-downs. Can you provide some insights into what you're seeing now? Is there any change in menu behavior? How is the value of the entrée mix looking? Is it continuing to trend upwards? Any thoughts you have on this would be appreciated.
Michael Bailen, Head of Investor Relations
Yes, it's Michael. I'd say, it's really been a lot of the same of what we've seen. I mean, we continue to see strong consumer demand to come to Texas Roadhouse. The mix kind of trends have continued, where we're seeing some alcohol negative mix and the rest is coming from the entree category. And with the strong guest counts that we're seeing, it would appear to us that we are seeing people trading into Texas Roadhouse, but the value side of the menu, there could be certainly some people who are doing some check management as well and are trading down our menu, but we feel very good about the value proposition that we're offering and continue to see very strong trends within our restaurants.
Peter Saleh, Analyst
Great. And then just on the labor side. I know it's a modest increase in your outlook in terms of inflation for the year. Can you just elaborate a little bit on what changed versus your prior guidance? What are you seeing on the field that made you feel like you need to tick it up just slightly?
Michael Bailen, Head of Investor Relations
Yes, it is a combination of the wage inflation, maybe just being a little bit stronger in the first and second quarter, which then compounds on itself throughout the year that adds a little bit to that overall wage pressure. And then the strong top line that we have delivered certainly has seen us growing our hours, which is a direct component of the wage and other inflation, but the payroll taxes that didn’t come with the higher wages and the more hours are the other component of that wage and other, and we've seen that tick up a little bit. So those two things combined just need is enough of where we felt the guidance did need to be updated.
Peter Saleh, Analyst
Thank you very much.
Operator, Operator
Your next question comes from the line of Chris O’Cull with Stifel. Your line is open.
Unidentified Analyst, Analyst
Thanks. Hey guys, this is Patrick on for Chris. Jerry I believe the company has historically targeted labor hour growth that's roughly 50% to 55% of traffic growth. And it looks like this quarter remained quite a bit above that. So I'm just curious if you're looking at ways to improve labor productivity? And if so, what actions do you believe you can take that can improve the flow through on your sales growth?
Jerry Morgan, CEO
Yes. Thanks, Patrick. I believe that, obviously, as we focus on our top line sales, and Michael and I were doing some reviewing, there is definitely an uptick in hours in the front of the house, in the back of the house. And I believe some of the hours that we might be seeing in our key employee side is probably purposely to give our managers a little quality of life. So I think there is some investment on our side in the labor pool to maybe try to identify ways to have quality of life, too. So that is an investment. But I believe to be able to attack our execution at the highest level right now, that's costing us a few extra hours to be able to execute there with the escalated volume on the top line. But I feel real comfortable overall with where we're going. I think we can improve, and we'll continue to look at ways to get better at that.
Michael Bailen, Head of Investor Relations
Yes. Patrick, I would just add on to that, that again, I do think that historical algorithm is still maybe not at play that we are rebuilding from being understaffed last year. And so our labor hours are growing as we feel very good about our staffing now and those hours that were growing are just not exactly correlated right now to see the traffic growth we're seeing and probably will see those hour growth even if traffic had been a little bit higher or lower than what we reported.
Unidentified Analyst, Analyst
Got you. That's helpful. Thanks.
Michael Bailen, Head of Investor Relations
Thank you.
Operator, Operator
Your next question comes from the line of Jeff Farmer with Gordon Haskett. Your line is open.
Jeff Farmer, Analyst
Thank you. Looks like the Texas Roadhouse concept put up a 9.4% comp with Bubba's a little bit lower at 3.9%. But can you help us understand what's going on there? Is that traffic, menu pricing mix? What's driving that pretty healthy spread between the core Roadhouse concept and Bubba's as it relates to same-store sales?
Jerry Morgan, CEO
Yes, Roadhouse is driving the comp growth we are experiencing due to the company's size. We are optimistic about what we are seeing at Bubba's overall, although the menu pricing and traffic trends vary between each concept. Nonetheless, our new Bubba's locations are performing well, and we are confident in their sales performance.
Jeff Farmer, Analyst
Okay. Just one quick follow-up. What is your current outlook on the impact of menu pricing for the core Roadhouse in Q3?
Jerry Morgan, CEO
Yes. 5.1% will be our third quarter pricing.
Operator, Operator
Your next question comes from the line of Jake Bartlett with Truist Securities. Your line is open.
Jake Bartlett, Analyst
Thank you for the question. I'm looking to clarify the appropriate run rate for General and Administrative expenses in the third and fourth quarters. I think the second quarter included conference costs, but I might be mistaken. Overall, the expenses appeared to be lower than anticipated by the market, possibly due to the conference being less costly than expected. Could you provide details on the expenses related to the conference and what the appropriate run rate might be for the upcoming quarters?
Jerry Morgan, CEO
Yes. I mean, I would say we're not going to get into the exact numbers on the conference expense. It was probably a little bit less than what we expected it to be, and that is one of the components that maybe helped G&A in the second quarter coming a little bit better than what we may have discussed on the last call and certainly we’re doing the best we can to manage those costs and making sure when we're spending G&A dollars, it's for something important. And to your question about looking through the remainder of the year, I think maybe starting with Q1 of this year, which was just under $50 million. And if you back out the one-time charge that we had talked about is about $2.4 million, that gets you to about $47.5 million. That's probably the best way we can give you is a starting point to look at where G&A may be in the third and fourth quarters of this year. Maybe we see a little bit of growth on top of that through the remainder of the year and depending upon how the year continues to progress. There can always be the need to take some more compensation expense. But I think starting with your Q1 of this year adjusted number is your starting point for looking at that G&A.
Jake Bartlett, Analyst
Thank you.
Operator, Operator
Your next question comes from the line of Brian Harbor with Morgan Stanley. Your line is open.
Brian Harbor, Analyst
Yes. Thanks. Good evening. I was just curious about the capital budget actually. How much of that was from new locations is some of that related more to 2024 units? And then, what is that reinvestment focused on? And I know that you've also talked about perhaps some technology initiatives. I don't know if that's part of it. Could you just elaborate on the capital budget?
Jerry Morgan, CEO
Yes. It is a combination of several factors. We are experiencing slightly higher costs for the new buildings we are constructing this year compared to our initial forecasts, which will impact some of our 2024 openings. Additionally, our technology initiatives, particularly related to digital kitchens, play a minor role. However, maintenance capital expenditure has increased significantly due to improving conditions, the supply chain easing, and our capacity to complete more projects. We are aiming for 20 bump-outs this year, something we haven't been able to accomplish in several years. We are also completing various projects in our restaurants, including kitchen remodels and cooler additions, which will enhance their capacity to accommodate high volumes. This is positive from a shareholder perspective and beneficial for total returns. We are excited about the opportunity to invest this money to keep our restaurants updated and ready to serve more guests.
Brian Harbor, Analyst
Thank you.
Operator, Operator
Your next question comes from the line of Sara Senatore with Bank of America. Your line is open.
Sara Senatore, Analyst
Thank you. Just a quick housekeeping and then a question, please, so just to confirm, in terms of the amount of price you had on the second quarter, is it thought is 5.6%. I'm just trying to sort of think through the…
Jerry Morgan, CEO
That's correct.
Sara Senatore, Analyst
Thank you. So there was a slight negative mix in the second quarter, which we haven't experienced for a while now. I was wondering if that is related to the value and the lower attachment levels you mentioned, or if there's something else affecting the situation.
Jerry Morgan, CEO
Well, we actually haven't seen that negative mix for a little while. I think we had about 80 basis points of negative mix in the first quarter. It did step-up a little bit here in the second quarter to that 120 basis points of negative mix, but that's behind us. And the majority of that is coming from alcohol. So yes, we are seeing a little bit of negative mix. It does seem that it's not necessarily because of the menu pricing we've taken, given is alcohol and the remainder of it is in that entree category, which is part of why we think that some of our new guest traffic is coming from people trading up to us, but hitting the value side of the menu.
Sara Senatore, Analyst
Got it. Thank you. And then the question was to follow up on the labor. You said you expect labor to flatten out in 4Q. I think that's sort of a wage rate comment. But as you talk about the idea of needing to staff up, at what point do the restaurants look fully staffed? I think like off-premise mix has been fairly stable. So from that perspective, your on-premise dining is more consistent of in the last couple of quarters. So when do you get to a point where the restaurants are fully staffed such that you could get back to that historical algorithm?
Jerry Morgan, CEO
We are currently satisfied with our staffing levels and are focused on moving past last year's understaffing. Over the past year, we have consistently improved our staffing levels each quarter. As we progress through the year, we anticipate a decrease in hours growth and wage inflation, as the wage pressures we experienced last year will need to be addressed for a full year. Therefore, we expect that hours growth will moderate as we continue, since maintaining our current level won't require as many hours.
Sara Senatore, Analyst
So you sort of by the end of last year, had kind of been approaching being fully staffed is there of how to think about it?
Jerry Morgan, CEO
Yes, end of last year, early this year, we did have a little bit of with the weather in late December last year, a little bit of a step back in late December. But other than that, yes, we were starting to feel pretty good about our staffing levels as we were exiting last year and entering this year.
Sara Senatore, Analyst
Right. Thank you very much. Very helpful.
Operator, Operator
Your next question comes from the line of Andy Barish with Jefferies. Your line is open.
Andy Barish, Analyst
Hi, everyone. Good evening. There seems to be an increasing belief that beef prices may remain high for an extended period. I'm curious, Jerry, if you've considered a contingency plan in that scenario. Will you adjust the menu? Will you increase prices a bit more? Is there anything else we should consider as we begin to plan for 2024?
Jerry Morgan, CEO
Thank you, Andy. It's great to hear from you. We will consider some of those factors as we move forward. As you know, the situation with beef is uncertain and there’s a lot of discussion around it. We will keep monitoring it closely since it represents a significant portion of our menu. Managing this cost is essential for our business, and we need to be cautious with our pricing to ensure we maintain our value proposition and deliver a positive experience. I believe our long-term strategy will ultimately lead to success. However, we will keep evaluating various options. The question remains whether we will implement those changes, but our primary focus will continue to be on taking excellent care of our guests and our business in the long run.
Andy Barish, Analyst
Got you. Makes sense. Thank you.
Jerry Morgan, CEO
Thank you.
Operator, Operator
Your next question comes from the line of Brian Vaccaro with Raymond James. Your line is open.
Brian Vaccaro, Analyst
Hi, thanks and good evening. I was just gonna ask, but I just was going to ask on the other operating cost line. It looks like cost per week is still running up in the 6s, which is an improvement versus closer to 10% in the first quarter, but is still up in the 6s. And I guess, could you remind us what percentage of that basket of cost is fixed versus variable these days? And are there any categories worth highlighting where there is some relief on the horizon? Or would you expect a pretty similar level of inflation in the second half as you've been recently seeing?
Michael Bailen, Head of Investor Relations
Hey Brian, it’s Michael. I'm not entirely sure about the specifics of what's fixed versus variable in that context. You could argue that many things could change. However, we did see what we anticipated, which is that the level of operating dollars per store per week slowed from around 10% to just over 6%. The expectation is that this slowdown in the rate of increase may continue on a year-over-year basis. Some of this is stemming from the growth in traffic and our menu pricing, but the substantial increase in various services we saw last year has levelled off. There's not much additional upward pressure on those costs now, which has allowed us to benefit from the higher volumes. We hope to see continued leverage in the other operating line as we progress through the remainder of the year.
Brian Vaccaro, Analyst
All right. Thanks very much. I'll pass along.
Operator, Operator
Your next question comes from the line of Gregory Francfort with Guggenheim. Your line is open.
Gregory Francfort, Analyst
Hey. Thanks for the question. Maybe just going back to the alcohol mix. I think you guys last year, actually noted the alcohol mix above where it was before COVID and a lot of your peers were down 1-point or 2 in mix. Do you have a sense of why that was and maybe just some of this is you're giving that back versus some of your peers that maybe lost it over the last couple of years instead?
Jerry Morgan, CEO
Yes. I mean, I don’t have the exact numbers right in front of me, but I do think over the last of last year, you have what I would call that of consumer who was happy to be back out there who had some extra money in their pocket, whether that have been from stimulus or just not having other places to spend it. And they were maybe getting a drink that they were not historically getting or getting a second drink. And now, you're maybe seeing a little bit more of a return to normalcy as far as what people are ordering from that alcohol standpoint. And again, obviously, with our to-go business being a bigger component of the overall sales versus pre-pandemic or alcohol sales are going to be a little bit lower. But in the dining rooms, I think we feel very good about where we are now. But yes, you are right, we are lapping probably that before consumer from last year.
Gregory Francfort, Analyst
Thanks, Jerry. Appreciate it.
Operator, Operator
Your next question comes from the line of Dennis Geiger with UBS. Your line is open.
Dennis Geiger, Analyst
Thank you. Could you speak a bit more about the food inflation breakdown, perhaps? Any updates on the breakout between beef and non-beef inflation expected for the year? And then Jerry gave some comments on beef, is there anything else to share kind of on beef consideration looking ahead, seeing any kind of softness in demand out there at retail, etc., that might impact how you think about 2024? Thank you.
Michael Bailen, Head of Investor Relations
Hey Dennis. This is Michael. I'll begin, and Jerry can chime in if he has anything to add. Referring back to our prepared remarks, we mentioned that most, if not all, of the inflation we foresee this year is tied to beef. There are other items like pork and chicken that we expect to be generally deflationary for the year, which may counterbalance some ongoing pressures in certain grocery and produce items. However, for the full year, beef is the main driver of overall inflation. This is relevant to discussions about future expectations. Yes, it has the potential to create pressure again next year, but it's too early to determine what that will entail. Nonetheless, we do have other parts of our product range that could help mitigate some of that pressure. That's why we're not going to overreact at this point, as we still lack a complete view of what 2024 may hold and how it might alleviate some of the ongoing challenges regarding beef supply.
Dennis Geiger, Analyst
Thanks, Michael. Appreciate it.
Operator, Operator
Your next question comes from the line of Jeffrey Bernstein with Barclays. Your line is open.
Anisha Datt, Analyst
Hi, this is Anisha Datt on for Jeffrey Bernstein. I wanted to ask if you could give some more color on recent trends at Bubba’s relative to the Texas Roadhouse brand. Do they move in tandem? Or is one better positioned in a selling macro? And perhaps if you could provide an update on your confidence in Bubba’s new unit openings showing the ultimate slowdown of Texas Roadhouse?
Jerry Morgan, CEO
You start.
Michael Bailen, Head of Investor Relations
Thank you for the question. We feel optimistic about our ability to open some Bubba's locations this year, with an expectation of about five openings. In the forthcoming years, we're aiming for five to seven openings, with a long-term goal of reaching closer to ten. The reduction in our openings this year is not due to any lack of enthusiasm for our concepts but rather due to factors beyond our control, such as securing permanent power for restaurant sites and the timing of construction work. We are looking forward to opening restaurants across all our concepts, and we are seeing strong trends in each. We believe we are well-positioned for success across all our brands. Notably, Bubba's, with a reduced focus on steaks, is not experiencing the same inflation levels as Texas Roadhouse, which contributes to our positive outlook for each concept's future.
Anisha Datt, Analyst
Awesome. Thank you.
Operator, Operator
Your next question comes from the line of Jon Tower with Citigroup. Your line is open.
Jon Tower, Analyst
Thanks for the opportunity to revisit the topic of pricing. I’m interested in understanding the tools that managing partners have in their stores regarding overall pricing strategies. Are they taking into account not only the competitive landscape but also grocery store beef prices, and how do they integrate that with labor costs in their specific markets? Could you explain how they establish their expectations for labor and inflation for the upcoming year and how these factors influence their pricing decisions?
Jerry Morgan, CEO
Yes. So our pricing process is very similar. We ask the managing partners for inputs on what's going on in their local area from a competition standpoint, from a retail grocery and they share that with us. And then we obviously talk to the multi-units that kind of share a bigger picture of what might be going on in their markets. Obviously, state by state, we know a lot more of the details overall on some mandates. So it's an extensive process that we go through to try to get it right for every store, but also by market and by region and company. And so it's a complicated formula for sure. But there is a lot of thought put into it on every level so that with the inputs from our operators and from the knowledge that we have from the company stand, we try to make the absolute best decision literally by store, by market, by state and for the company and the overall number rolls up to it. But those conversations that we have with our partners are valuable in the decision-making process.
Jon Tower, Analyst
Got it. Thank you. And then just, I guess, Chris, you're coming in with a fresh set of eyes to the company. Obviously, it's been a very successful company for a very long time. But I'm curious to get your perspective, perhaps with this fresh set of eyes, do you see anything that you feel like could be a new opportunity for the brand or perhaps areas where you believe there could be improvement on the business?
Chris Monroe, CFO
Well, thank you, John, for the question. And these are early days, I must say. And so it's probably not time for me to opine on any sort of changes that we might consider. But there is a great tradition here. There is a very successful brand that's nationwide and it's doing very well. And of course, we'll be reviewing a number of things, along with Jerry and the rest of the team here. But pretty early for me to opine on some sort of change process.
Jon Tower, Analyst
Got it. Thanks for taking the questions.
Operator, Operator
Your next question comes from the line of Andrew Strelzik with BMO. Your line is open.
Andrew Strelzik, Analyst
Hey, thanks for taking the question. I just wanted to ask about the unit openings for the rest of the year. How should we think about the cadence between 3Q and 4Q? And do you think there's risk that some of those get pushed further into next year? And then to the extent that some have gotten pushed or more due, do we think about next year as a makeup year? Or do you think you'll stick to kind of your normal framework of openings and the entire timeline gets pushed?
Jerry Morgan, CEO
Thanks, Andrew, it's Jerry. Like I said, we have every store that is scheduled to open this year under construction. We do know there are a couple in December that are a little concerning, but we're monitoring it closely. We're pretty confident we'll be at that number or extremely close, and if not, then it will push into next year and go from there. But our pipeline for next year will be very consistent to what we've done in the past. We have a strong pipeline. We will continue to stay focused on the growth and development of all three brands pretty much as we have in the past. And really focused on doing it right and doing it well as we go through there. So still a little early in the year to be concerned yet, but they're under construction. We are moving forward, and we'll keep monitoring throughout the year and give you an update on the next go-round.
Andrew Strelzik, Analyst
Great. I look forward to it. Thanks.
Jerry Morgan, CEO
Thank you.
Operator, Operator
Your next question comes from the line of Elliott Simon with Evercore. Your line is open.
Elliott Simon, Analyst
Hey, guys. Thanks for the question. On the prepared remarks, you mentioned that pricing decisions are based on wages as well as the value proposition. Clearly, the wage side is given you a green light to take some price in October. But how do you characterize the value proposition today? Is that different like your price gaps? The stake peers as well as other casual dining peers outside of the state segment, which may not have faced as much inflation. When you say they are narrower, the same or wider than historical levels?
Jerry Morgan, CEO
Thank you for your question, Elliot. We monitor our pricing closely to understand where our gaps are, and it seems to have changed somewhat, likely becoming a bit tighter. In general, we concentrate on our own operations and what suits our business best, while others will make their own choices. When considering labor or any other costs in our decision-making, we aim to include all relevant information to ensure we reach the best decision for our business moving forward, safeguarding our value and the menu that provides that value to our consumers, while also protecting our top-line sales. A considerable amount of effort goes into this process, and we've maintained a conservative approach, which we plan to continue, but we have also demonstrated that we can utilize leverage when necessary.
Elliott Simon, Analyst
Great. Thanks. And just a quick follow-up, I mean, as you talked about protecting the top line. I'm curious, Jerry, if you can kind of boil down the secret sauce of one or two things that really differentiate yourself is competitors, is what is the big value proposition, the service you provide or something else?
Jerry Morgan, CEO
Well, I think it's all of it, to be honest with you. I think we work really, really hard to present an environment are made from scratch food or handmade, all of that adds value. When you walk into that restaurant and you smell that fresh baked bread and you know that we're cooking that steak to order for you, and we've got this friendly individual. We're still hungry to serve people at an extremely high level. And when I look at the lines that are waiting at our restaurants, it tells me that we need to continue to focus on doing the things that we do. And they're loving the food, they're loving the service. We need to be able to execute to get them in the restaurant, provide them with an experience to thank them for coming to our business because it's still important for us to serve them at a high level. And we're trying to earn their business every single day. Somebody woke up this morning thinking about where they were going to dinner, and I want them thinking about Texas Roadhouse, Bubba's 33 and Jaggers all day long to choose to walk through our doors. So we're hungry for it. Sorry dude got me excited.
Elliott Simon, Analyst
No, no, no. I really appreciate it. Thanks, guys, and best of luck.
Jerry Morgan, CEO
Thank you very much.
Operator, Operator
Your next question comes from the line of Jim Sanderson with Northcoast Research. Your line is open.
Jim Sanderson, Analyst
Yes. Thank you for the question. Just wanted to follow-up a little bit more on capital expenditures. I think that went up to $300 million from $265 million, if I'm not mistaken. Just wondering if that elevated level is causing fundamental or permanent changes in returns on store development or if that's causing you to rethink the cadence of development over the next three to four quarters?
Jerry Morgan, CEO
Yes. Hey Jim, thanks for the question. No, it really is not changing any of our thought. I mean there is a piece of it that is related to new store development. But our internal models are still generating returns above our target levels. So we still feel very comfortable with the ability to open restaurants and have no plans to slow that down at this time.
Jim Sanderson, Analyst
All right. Thank you.
Operator, Operator
Your next question comes from the line of Jon Park with Wells Fargo. Your line is open.
Jon Park, Analyst
Hey, guys. Good evening. Just on the quarter-to-date acceleration, you spoke to the calendar benefit and is potentially getting a little bit better. But I guess is there anything else to point to that's kind of driving that acceleration you're seeing?
Jerry Morgan, CEO
I would say the only other thing is the continued improvement in our staffing levels and our ability to serve the demand that is out there. So our restaurants are open. They are well staffed, and there is strong demand to come to them, and it's really as simple as that.
Jon Park, Analyst
Got it. Thanks a lot, guys.
Jerry Morgan, CEO
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 all very much for your time today, and we wish you the best of the weeks coming to finish your summer, and thank you.
Operator, Operator
This concludes today's conference call. Thank you for attending. You may...