Texas Roadhouse gets a pass from Wall Street. What’s next might be out of its control
Texas Roadhouse missed Street estimates on both the top and bottom lines in the fourth quarter as high beef prices weighed on profits. But the restaurant chain’s strong comparable restaurant sales through the first seven weeks of the first quarter of 2026 paired with no change in management’s commodity inflation outlook for the year are keeping shares afloat Thursday evening. Revenue in the quarter ending Dec. 30 increased 3.1% year over year to $1.48 billion, missing the LSEG-complied Wall Street consensus estimate of $1.496 billion. Earnings per share dropped 26% on an annual basis to $1.28, missing expectations of $1.51, LSEG data showed. TXRH YTD mountain Texas Roadhouse YTD Shares of Texas Roadhouse rose about 2.5% in after-hours trading to around $187 per share. The move would erase Thursday’s regular-hours trading losses. The stock was already off to a good start to 2026, gaining about 10% as of Thursday’s close. Bottom line This was a weak quarter from Texas Roadhouse, but the market was giving it a pass because everyone knew beef costs were going to be an issue. On the surface, we were a little underwhelmed by the comp sales growth this quarter. After delivering 6.1% comp growth in the third quarter and guiding 5.4% growth through the first five weeks of the fourth quarter, sales growth slipped back to 4.2% for the entire quarter, missing analyst forecasts of about 5.2%. The 4.2% increase was driven by a 1.9% increase in traffic and 2.3% increase in average check. The results lagged due to a slowdown as the quarter progressed, with comps sales up 6.1%, 4.8% and 2.2% in October, November, and December, respectively. Adverse weather in December may have weighed on the results. Management also called out a negative impact from the timing of Christmas. Usually, this cadence would spell trouble for a restaurant chain or retailer. Positively, though, sluggishness was a temporary trend. One of the best things that came out of this earnings release was the company disclosing that comp sales increased 8.2% through the first seven weeks of the first quarter. Why we own it Texas Roadhouse is a casual steak chain that offers quality food at an affordable price in a fun atmosphere, creating one of the more compelling value propositions for consumers in the full-service dining category. Competitors: Darden (Olive Garden, LongHorn Steakhouse), Brinker (Chili’s and Maggiano’s), Bloomin’ Brands (Outback, Carrabba’s Italian Grill, Bonefish Grill) Portfolio weighting: 0.93% Most recent buy: Dec. 17, 2025 Initiated: Feb. 4, 2025 In an economy where the consumer remains selective, restaurant goers flocked to Texas Roadhouse where they know they will get served a good meal at a great price. Menu price increases have been surgical and well below competitors’ and costs. This may be squeezing margins, but Texas Roadhouse is building customer loyalty. We’ve seen too many full-service and quick-service restaurants hurt their reputation by raising prices too high too fast. The bet is that if and when beef prices fall, the combination of strong traffic growth with falling input prices will lead to a significant increase in margins. The issue remains: when will beef prices fall? While the company hesitated to predict what will happen in 2027 – and we don’t blame them – we’ve recently grown increasingly concerned that inflation will persist into 2027 due to tight cattle supply. We’ve sold this position multiple times this year in the $180s, including a large sale at $188 on Wednesday, because we are simply losing patience on the beef cycle and don’t want to give back our hard earned profits. That’s why we are reiterating our hold-equivalent 2 rating on Thursday. Due to these sales, Texas Roadhouse is now the smallest position in Jim Cramer’s Charitable Trust with a less than 1% portfolio weighting. What we learned from the results Thursday evening is that the market is willing to give Texas Roadhouse a pass as long as the inflation outlook doesn’t worsen and the steak and comfort food chain continues to post enormous comp sales growth. For these reasons, we are increasing our price target to $195 per share from $185. Commentary During the fourth quarter, Texas Roadhouse opened nine company-owned restaurants and one franchise location, bringing its total for all of last year to 28 company restaurants and four franchise openings. For 2026, the company continues to expect to open 35 company-owned restaurants. As management deals with higher pricing, it announced Thursday evening a 1.9% menu price increase in April. As for cash returns to shareholders, the company bought back $50 million worth of stock in the quarter. That’s higher than the $40 million repurchased in the third quarter. The company also announced it is raising its quarterly dividend payment by 10% to 75 cents per share. That brings the dividend yield to 1.64% based on Thursday’s closing price of $182.53. Guidance Texas Roadhouse had provided preliminary 2026 guidance alongside its third quarter results — and all of the key inputs were left unchanged Thursday evening. The biggest sigh of relief came from management reiterated commodity inflation of about 7%. For comparison, commodity inflation for full year 2025 was 6.1%. Given the stubbornness of beef prices, some investors may have feared inflation was running even hotter. Some other aspects of guidance were as follows: positive comp restaurant sales growth, including the benefit of menu pricing actions, store week growth of 5% to 6%, including the benefit from franchise acquisitions, and wage and other labor inflation of 3% to 4%. Total capex is planned for $400 million. (Jim Cramer’s Charitable Trust is long TXRH. 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