Texas Roadhouse Inc

NASDAQ:TXRH

Earnings Call Analysis

Texas Roadhouse Reports Strong Growth and Strategic Acquisitions for 2025

In the third quarter of 2024, Texas Roadhouse experienced remarkable revenue growth of 13.5%, increased same-store sales by 8.5%, and reported earnings per share of $1.26, a 32.5% rise. They are planning to open 30 new company-owned restaurants in 2025 and have agreed to acquire 13 franchise locations. Commodities inflation is now guided at 2-3% for 2025, while wage inflation is projected at 4-5%. The recent price increase of less than 1% is expected to support their value proposition amidst ongoing cost pressures. The company's operational strategies continue to yield positive results, reinforcing their market position.

Strong Revenue Growth and Sales Momentum

In the third quarter of 2024, Texas Roadhouse reported a notable revenue increase of 13.5%, culminating in approximately $1.3 billion. This momentum was primarily driven by a 7.5% rise in average unit volume along with a 5.8% increase in store week growth. Same-store sales also surged by 8.5%, bolstered by a 3.8% increase in customer traffic and a 4.7% rise in average check size. Notably, sales continued to accelerate into the fourth quarter, with early October showing comparable sales up 8.3% and average weekly sales climbing to over $151,000 per restaurant.

Improved Margins Despite Cost Pressures

The company showcased strong operational efficiency with restaurant margin dollars per store week increasing 17.3% to nearly $24,000. The overall restaurant margin as a percentage of total sales increased to 16%, up by 137 basis points year-over-year. Though margin improvements were slightly impacted by changes in gift card breakage adjustments, efficiencies in food costs were evident, decreasing to 33.5% of total sales—an improvement due to offsetting commodity inflation and price increases.

Future Guidance and Cost Outlook

Looking ahead to 2025, Texas Roadhouse set specific guidance indicating a combination of labor and commodity inflation. The expected wage and other labor inflation is projected at 4% to 5%, with mandated increases accounting for approximately 1.5% of this rise. For commodities, particularly beef—which represents a significant portion of costs—the company is anticipating a relatively modest inflation of 2% to 3%. These projections appear to be underpinned by recent lower-than-expected commodity cost fluctuations, particularly in beef.

Investments in Growth and Shareholder Value

Texas Roadhouse is poised for substantial growth with plans to open around 30 company-owned locations across all brands in 2025. This includes acquiring 13 franchise restaurants, which should be funded through existing cash on hand. The capital expenditure for the year is aimed at maintaining and expanding operations, set at approximately $400 million. Such investments aim not only to enhance the company’s infrastructure but to subsequently drive shareholder value.

Strong Cash Flow and Financial Health

The company concluded the third quarter with $189 million in cash, demonstrating robust cash flow from operations at $139 million. Despite significant capital expenditures, dividend payments, and share repurchases totaling $141 million, the strong cash position indicates financial stability, providing room for continued investment and growth strategies.

Commitment to Community and Corporate Responsibility

Texas Roadhouse continues to position itself as a community-oriented brand, emphasizing partnerships like the one with Homes for Our Troops, which recently celebrated a significant milestone. The company has articulated its ethos of serving communities and maintaining a commitment to its employees, which is reflective in its operational strategies and performance.

Earnings Call Transcript 2024-Q3

[Operator]

Good evening, and welcome to the Texas Roadhouse Third Quarter Earnings Conference Call. Today's call is being recorded. [Operator Instructions]

I would now like to introduce Michael Bailen, Head of Investor Relations for Texas Roadhouse. You may begin your conference.

[Michael Bailen, executive]

Thank you, Rob, and good evening. By now, you should have access to our earnings release for the third quarter ended September 24, 2024. 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 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 would like to turn the call over to Jerry.

[Gerald Morgan, executive]

Thanks, Michael, and good evening, everyone. We are pleased to report strong third quarter results, which were highlighted by 8.5% same-store sales growth and approximately $1.3 billion of revenue. These results are a testament to our operators continuing to create an environment where Roadies want to work and our guests want to dine.

Since last quarter, I had the opportunity to visit with managers and Roadies adding a number of our international franchise restaurants. Also over the past 5 weeks, I have been traveling the country meeting with our managing partners during our annual Fall Tour. Both internationally and domestically, I can tell you the pride and passion our operators have for running their restaurants have never been higher. As always, the feedback we received from managing partners during these listening sessions is extremely beneficial as we learn what our owner operators need to run their business.

On the development front, we opened seven Texas Roadhouse company-owned locations in the third quarter. For the full year, we expect to open approximately 30 restaurants across all brands. Our franchise partners opened three international Texas Roadhouse restaurants during the quarter. This puts them on track for a total of 14 openings this year, including three Jaggers. Other one to call out the recent October opening of our first international Jaggers location on a U.S. military base in South Korea. This marks our fifth franchise restaurant location on a U.S. military base.

Looking ahead to 2025, we are targeting approximately 30 company-owned restaurant openings across all brands. Additionally, we have a tentative agreement with one of our largest domestic franchisees to acquire 13 Texas Roadhouse restaurants at the beginning of 2025. Our International Texas Roadhouse franchise partners are currently expecting seven openings next year, while our domestic Jaggers franchise partners are targeting three new locations.

During the third quarter, we also completed our normal review of menu pricing with our operators. As a result, we rolled out new menus at the beginning of the fourth quarter, which included a price increase of less than 1%. We remain proud of our everyday value proposition and believe this is the appropriate level of pricing.

Also, our technology initiatives continue as planned, and we remain encouraged by the positive feedback we are receiving with over 200 digital kitchen conversions completed so far this year. We feel confident in achieving our target of over 250 conversions by the end of this year. We also remain on track to convert nearly all of our restaurants to a digital kitchen by the end of 2025. Additionally, we are making progress on the upgrading of our restaurant guest management system.

Finally, October has been a very rewarding month for our company. In addition to Fall Tour, we had the privilege of celebrating 20 years as a public company by ringing the closing bell at NASDAQ. We are very proud of the growth we have seen as a public company. We have expanded from one brand to three. We have increased our footprint from just over 175 restaurants to nearly 775. And we have grown Roadie Nation from over 10,000 employees to nearly 100,000. Also, we were named the 2024 brand icon by Nation's Restaurant News. We are truly humbled to be the first casual dining restaurant to receive this award. All of these events were even more special because we were surrounded by the best operators and support team in the industry.

Now Chris will provide some thoughts.

[David Monroe, executive]

Thank you, Jerry. Fall Tour is quickly becoming one of my favorite times of the year. The conversations with our operators have proven to be really important and help us all perform our best, and the NASDAQ Bell Ringing was such a special moment for all of us. It was especially meaningful that we had 50 of our managing partners on stage with us. We were able to demonstrate in a visible and tangible way, just how important our managing partners are to the success of our company.

Now moving to the third quarter. Weekly sales averaged $153,000 at Texas Roadhouse, $117,000 at Bubba's 33 and $72,000 at Jaggers, our quick service brand. We were especially encouraged to see that all three brands delivered positive traffic and sales growth, and this momentum has carried forward into the beginning of our fourth quarter. As we look forward to the remainder of this year and into next year, we believe the 0.9% menu price increase will allow us to maintain our value proposition and our traffic and mix levels.

Additionally, we continue to see a steady to more positive outlook for inflation within commodities and labor. Commodity inflation driven by lower-than-forecasted beef costs was once again below our guidance in the third quarter. This has also resulted in an improvement in our outlook for fourth quarter commodity inflation and factors into our initial expectations for next year's inflation. At this time, we are updating our full-year commodity inflation guidance to less than 1%. This adjustment reflects both the impact of lower than initially forecast in inflation in the third quarter and our current expectation of relatively flat commodity price levels in the fourth quarter. Also, we are establishing our initial 2025 commodity inflation guidance at 2% to 3%.

Wage and other labor relation during the third quarter remained in line with our guidance and we believe this trend will continue in the fourth quarter. We were also pleased to see that our labor hour growth relative to traffic growth remained well below our historical levels. As we approach the end of the year, we are narrowing our full-year 2024 labor inflation guidance to approximately 4.5%. For 2025, we are forecasting wage and other labor inflation of 4% to 5% with mandated increases representing as much as 1.5% of the increase.

With regard to cash flow, we ended the third quarter with $189 million of cash. Cash flow from operations was $139 million which was offset by $141 million of capital expenditures, dividend payments and share repurchases. As Jerry mentioned, we do have a tentative agreement in place to acquire 13 franchise restaurants at the beginning of 2025. Included in this acquisition will be seven restaurants in Indiana and Ohio, and six in California. Our current expectation is to fund this acquisition through existing cash on hand.

Finally, for 2025, we are establishing our initial capital expenditure guidance at approximately $400 million, excluding the aforementioned franchise restaurant acquisition costs. This should provide sufficient capital to build new restaurants, maintain, expand or relocate our existing restaurants and invest in our various technology initiatives. As always, we believe these investments are a great use of our capital and should result in further shareholder value accretion.

And now, Michael will walk us through the third quarter results.

[Michael Bailen, executive]

Thanks, Chris. For third quarter of 2024, we reported revenue growth of 13.5%, driven by a 7.5% increase in average unit volume and 5.8% store week growth. We also reported a restaurant margin dollar increase of 24.1% to $202 million and a diluted earnings per share increase of 32.5% to $1.26. Average weekly sales in the third quarter were $149,000 with to-go representing $19,000 or 12.7% of the total weekly sales.

Comparable sales increased 8.5% in the third quarter, driven by 3.8% traffic growth and a 4.7% increase in average check. By month, comparable sales grew 8%, 8.1% and 9.3% for our July, August and September periods, respectively. And comparable sales for the first 4 weeks of the fourth quarter were up 8.3%, with our restaurant averaging sales of over $151,000 per week during that period. In the third quarter, restaurant margin dollars per store week increased 17.3% to nearly $24,000. Restaurant margin as a percentage of total sales increased 137 basis points to 16%. The year-over-year improvement in the restaurant margin percentage was negatively impacted by approximately 30 basis points due to the change in our annual gift card breakage adjustments to $0.6 million this year from $3.7 million last year.

Food and beverage costs as a percentage of total sales were 33.5% for the third quarter, the 107 basis point year-over-year improvement was primarily driven by the benefit of a 4.7% check increase, offsetting the 1.3% commodity inflation for the quarter.

Labor as a percentage of total sales decreased 18 points to 33.8% as compared to the third quarter of 2023. Labor dollars per store week increased 6.7%, primarily due to wage and other labor inflation of 4.7% and growth in hours of 1.1%. The remaining 0.9% increase was due to the $3.5 million net impact from adjustments related to group insurance and workers' comp claims experience. This includes $.2 million of unfavorable claims experienced this year, the lapping of last year's $1.3 million favorable claims adjustment.

Other operating costs were 15.1% of sales, which was 8 basis points better than the third quarter of 2023. Higher operator bonuses as a percentage of sales resulting from increased year-over-year restaurant level profitability had a 30 basis point negative impact. This was largely offset by the 23 basis point positive net year-over-year impact from general liability insurance reserve adjustments, which includes a $0.4 million unfavorable adjustment this year and the lapping of a $2.9 million unfavorable adjustment from last year.

Moving below restaurant margin. G&A dollars grew 15.6% year-over-year and came in at 4.3% of revenue for the third quarter. The majority year-over-year dollar increase was due to higher compensation and benefit expense, including the $2.1 million impact of the timing of our change from quarterly to annual equity grants.

Our effective tax rate for the quarter was 16.7%. The higher tax rate was driven by an increase in our profitability outlook for the full year. Based on this outlook, we are updating the guidance for our full-year 2024 income tax rate to approximately 15%. And our initial forecast for the full-year 2025 income tax rate is between 15% and 16%.

Finally, as a reminder, 2024 is a 53-week year for us. As such, the fourth quarter will have 14 weeks versus our normal 13 weeks. We estimate that the additional week could benefit full-year 2024 earnings per share growth by approximately 4%.

Now I will turn the call back over to Jerry for final comments.

[Gerald Morgan, executive]

Thanks, Michael. There's no doubt that reflecting on 20 years as a public company fills us with great pride and gratitude. Speaking of 20 years, we also just celebrated our 20-year partnership with Homes for Our Troops, which provides custom built homes for severely injured post-911 veterans. We recently had the privilege of funding their 400 home for Lance Corporal Alberto Flores in New Braunfels, Texas. Partnering with such a great organization is what Texas Roadhouse is all about as we strive to serve communities across America and the world.

Finally, as I have said before, we will always honor our path, but our focus will remain on the future. At 31 years young, we are just getting started.

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

[Operator]

[Operator Instructions] Your first question comes from the line of Sara Senatore from Bank of America.

[Unknown Analyst]

This is Catherine on for Sarah. First question, I just wanted to ask about the labor leverage in the quarter. Michael, you spoke a little bit about some of the claims and adjustments that were in that number. So I just want to get a sense for how much longer you should be considering those adjustments in that labor line going forward? And is there a point at which they are no longer a headwind?

[Michael Bailen, executive]

Hi, Catherine, it is Michael. And a lot of those adjustments have to do with insurance and how those clearances come in. And so that's something that you really never know how they may affect us one way or another. But that is separate from the labor productivity that we are seeing, which I think can continue certainly through the end of this year.

[David Monroe, executive]

And Catherine, this is Chris. I mean I think we're comfortable being self-insured, and that's why we report those numbers every quarter. But also, the productivity levels that we talked about have -- and have continued to improve. We were -- in terms of hours of labor versus traffic growth -- we're well below our 50% historical averages. And again, in Q3, we were below 30%. So we've had five straight months of that metric improving.

[Unknown Analyst]

Great. Okay. And then I just want to move to the commodity inflation guidance, which continues to surprise to the downside, and it seems like next year's inflation assumption -- doesn't anticipate -- a really step up in inflation despite concerns about the size of the beef heard. So can you talk about what you're seeing there? What's embedded in that inflation guidance?

[Gerald Morgan, executive]

Sure. I mean, obviously, our purchasing department has been hard at work and determining what levels of cost we are going to have in 2025. And while we're not going to get into the specifics of what maybe fixed price contracted versus not. It does include a combination of lock prices and assumptions. And then majority of that inflation guide is coming from beef similar to this year.

[Operator]

Our next question comes from the line of Jake Bartlett from Truist Securities.

[Jake Bartlett, analyst]

Mine was another one on the commodity outlook in beef. One thing about the beef picture, it seems that when there's good news in one year, it can be bad news for the next. So supply has been a little less bad this year. And my impression was that means that supply next year kind of kicking the can down the road. So a little surprised to see kind of two decent years in a row expected within beef costs. And so I guess -- the question is why?

But also, just if you can help us understand what your beef inflation is expected to be in '24 and what's expected to be in '25? I just want to make sure I understand what the beef expectations are in those 2 years for the commodity guidance.

[David Monroe, executive]

Jake, it's Chris. Beef is roughly half of our basket. And so it drives a lot of the commodity increase. And you're correct in that this year has been a surprise that we didn't see the amount of inflation driven primarily by beef that we expected. And look, we think that there's a lot going on in that. There's supply and demand. And these -- ranchers are just business people, and they're looking at the price they're able to get for their cattle and what it costs them to raise the cattle. So -- and as interest rates come down, is there perhaps more rain as grain prices have come down, that may inspire -- there to be more breeding and to rebuild the herd.

But it is a challenged environment for sure in beef. We just haven't seen it come to fruition because of the demand side, at least this year and at least what we can see so far into 2025.

Michael, did you have something to add?

[Michael Bailen, executive]

Yes. And to your question of what kind of embedded in the '24 and '25 overall inflation from beef. And this year in 2024, everything and then some is coming from beef with other items being flat to deflationary for 2025 beef is driving the majority of our assumed inflation with most other items flat to maybe a touch of inflation.

[Jake Bartlett, analyst]

Okay. And just in terms of those other items, and I know we all focus on beef, but there is 50% -- that's the other. Do you have visibility on that portion? I assume there's maybe a little ability to contract for that portion. But how confident are you in the kind of the flat -- I think you made flat for that other 50% of your commodity needs?

[Michael Bailen, executive]

There are certain items that were probably more locked into than others. There's no one item that is a huge component of our overall basket. So certainly, there is the potential for those costs to be higher or lower than what we expected they would have to really be dramatically different to play a big part in the numbers.

[Operator]

Our next question comes from the line of Brian Bittner from Oppenheimer.

[Brian Bittner, analyst]

I wanted to ask a question about pricing into 2025 relative to your cost inflation. You took the 0.9% price increase in September. And I think that put you at a pricing run rate around 3.1% until you lap pricing from -- in late March. Please correct me if that's wrong. That's just my math. And you initiated guidance for commodity inflation of 2% to 3% wage inflation of 4% to 5% for 2025. So how does that inform you about your pricing strategy next year relative to this kind of 3%-ish run rate you're taking into the new year? And how do you want us analysts thinking about pricing for 2025?

[Gerald Morgan, executive]

And I'll start off, basically, we have the same process that we've used. We will again look at pricing and have conversation with all of our operators after the first of the year. And then as we kind of make that decision based on the environment that we're in at that time, we get feedback from our operators we talked amongst ourselves and then we will decide on what we believe is the best long-term decision for the business.

So I guess from a bigger picture standpoint, it's still early to decide but we will continue to use the process we've used for multiple years of evaluating, talking with our partners and then making a decision based on that current event, which is many months from now.

[Michael Bailen, executive]

And Brian, this is Michael here. Your math is correct. We will have 3.1% pricing in the menu for the fourth quarter. We'll have that same 3.1% for the first quarter, and then we would have 2.2% rolling off, and we will go through our normal conversations to see what we may or may not do come the beginning of the second quarter.

[Brian Bittner, analyst]

Got it. Got it. So when that 2.2 rolls off, for instance, you would have to take, say, 1.6 at that point to be at that 2.5% price range until you lap the 0.9% you just took, right? Just confirming that math.

[Michael Bailen, executive]

Yes. Yes. The 1.6% combined with the 0.9% will give you 2.5.

[Operator]

Our next question comes from the line of Eric Gonzalez from KeyBanc.

[Eric Gonzalez, analyst]

Maybe if you could help us sum all this up and think about the margin implications of what looks like a more conservative pricing strategy and a relatively benign food cost outlook for the prior years. So your plan on taking another pricing midyear to see that you're comfortable letting the price lower as commodity inflation goes in the right direction. So given these assumptions, can you help us understand what it means for store level margins in '25?

[David Monroe, executive]

Yes, Eric, it's Chris. We're always more focused on growing restaurant margin dollars than absolutely trying to hit a margin number. That being said, our 17% to 18% goal is always out there, and we're interested in hitting it consistently. But there's a -- I mean, that number is highly sensitive, particularly the margin number to traffic, pricing, inflation, both commodity and labor, and we've already talked about pricing having another component to it starting in the second quarter.

So it really is going to depend on how all of those things come together. We've been very pleased with our ability to expand the margin this year, but you'll have to -- we'll just have to look at all those elements as they come together in 2025.

[Operator]

Next question comes from the line of Jim Salera from Stephens.

[James Salera, analyst]

Maybe a two-part question on mix. Part one, if you could just kind of give us an update on the mix contribution in the quarter and particularly on kind of alcohol versus the add-ons?

And then part two is if we think about where you took pricing across the menu, is it basically that 0.9% kind of evenly across? Or are there any particular parts of the menu, whether it's appetizers or desserts that saw a little bit more or less pricing? Just how do you think about that? As it impacts mix.

[Michael Bailen, executive]

Yes. Maybe I'll touch on the mix here to start. I'll tell you our mix in the third quarter was very similar to what we had seen in the second quarter, still seeing positive entree mix, positive soft beverage mix. And positive add-ons. That alcohol mix -- is remaining negative. It hasn't gotten any worse, but it is the -- it's really what's driving that slight negative mix. We're probably around 20 basis points of negative mix in the third quarter. So to me, we're seeing good results from our guests, not hearing of any pushback on the menu pricing that we have taken. So I believe we're still screaming value.

[Gerald Morgan, executive]

And Jim, I'll say on the 0.9% across the board, there's probably -- I don't have it right here in front of me. But I think in general, as we look at the overall menu, that's how we come up with that. So it would be hard for me to break it down at this point, now that we're 5 weeks into it on that side. But typically, it is spread out through the menu.

[Operator]

Your next question comes from the line of Brian Harbour from Morgan Stanley.

[Brian Harbour, analyst]

I'll ask actually just about the kind of the technology things you mentioned, the digital kitchen and guest management system. I'm sure there's an aspect of that, that sort of improves the employee experience, but do you think is that starting to contribute to like some of the labor productivity you're seeing, do you think it sort of helps table turns? Is it sort of showing in other ways that we might sort of observe from the outside?

[Gerald Morgan, executive]

I would say it's still a little early for that, but the indicators are good. And obviously, the #1 reason is the experience of our employees and our managers and really just the cadence that we use in the kitchen and the communication. I do believe that there are going to be some other benefits as we get more and more stores on the program and on the digital kitchen. So it's hard for me to quantify that at this time. But the indicators are showing that we should expect some of that return also.

[Operator]

Your next question comes from the line of Dennis Geiger from UBS.

[Dennis Geiger, analyst]

Wondering if you could speak a little more to labor hour perhaps into next year after another really strong quarter of managing hours this year. Anything to kind of give on how we should think about the labor hours dynamic heading into next year, again, relative to the gains that we saw this year?

[Michael Bailen, executive]

Dennis, this is Michael. As I said a little bit earlier, I do think we have the opportunity to see that algorithm of labor hours to traffic growth be below that 50% level through the end of this year. And maybe as I've talked about in the past, going in to '25, it's something we're probably going to be running together as we enter 2025 as a well-staffed restaurant doing high volumes but lapping being well staffed restaurants and with growing volumes.

So what we're learning is 50% kind of the -- still the expectation or maybe something lower can be had. Our operators are going to be focused on doing what's right for the restaurants, and they know being well staffed help them grow. And certainly, our turnover continues to trend in the right way, and that should help with training and 10-year matters, the more experience you are, the better you are at the job. So hopefully, we can continue to be improve our productivity, but we'll be running that together in 2025.

[Operator]

Your next question comes from the line of David Tarantino from Baird.

[David Tarantino, analyst]

Congrats on such delivering such strong momentum in your business. I wanted to ask about unit growth. I think the guidance for next year is 30 openings, which is for company operated and it's similar to what you did this year? And I guess as the numbers creep up, I think in the past, you've talked about kind of a 5%-ish unit growth number. But as the base starts to get bigger at 30 openings are going to start to fall below that. So I was just wondering kind of what is your philosophy around unit growth as you look even beyond 2025? Is it to stay at the mid-single digit or 5% level? Or is that going to come down as you -- as the base scales?

[Gerald Morgan, executive]

David, this is Jerry. I don't think we've ever really targeted a per advantage. We've always looked at the number of openings for Texas Roadhouse, Bubba's and now as we add Jaggers into the mix about doing it right and balanced for our operations. And I think we will continue to evaluate whether what is the right number for us. And to do it right, you have to send 25 trainers out on the road. You got to hire 200-plus people. We're opening at really high volumes. So we've got -- we believe that if we continue to do these openings properly, that they hold their sales and our operational focus. And if we stretch that too far, then I think that risk that.

So I guess from my standpoint is I'm very comfortable in that 30-ish range as we go, and I would like to climb up a little bit, but I'm not trying to hit a percentage I'm really just trying to do it right for our operators and for our guests from a business perspective is kind of our philosophy.

[David Monroe, executive]

And David, it's Chris, and always good to talk to you. Don't forget, we're adding 13 via acquisition this year. So it's a 43-unit increase this year.

[Gerald Morgan, executive]

Thank you for your kind words. We appreciate it.

[Operator]

Your next question comes from the line of Peter Saleh from BTIG.

[Peter Saleh, analyst]

Great, and congrats on another great quarter. Just maybe a question and then one clarification. Just on a question in terms of the same-store sales trajectory, September and into beginning of October, there was some pretty nasty weather, but that doesn't seem to be, at least in the Southeast, doesn't seem to be reflected in your comp numbers, did you guys see any impact on weather? I know you guys don't like to talk about it, but with 9.3% and 8.3% comps. Just wondering if you had any impact on weather at the end of September and beginning of October? And then I just had a quick follow-up.

[David Monroe, executive]

And Michael may clean this up for me. It's Chris here. But basically, what we've seen and we had -- you're correct, there were a number of storms that came through. We've seen -- we had stores closed for a couple of days. We were able to get them -- most of them reopen, if not all of them reopened very swiftly. And then we experienced a bounce back at those stores. So we got -- there were sales loss for the couple of days where we closed, we saw more people coming to us, first responders and people in the community looking to dine with us.

And so you're right, the numbers are literally consistent, but there definitely was impact, but it was matched by the fact that -- I think we lost a couple of days, we got some nice bounce back in the weeks following.

[Gerald Morgan, executive]

And I'll just chime in for a second on that. Obviously, in the big machine, it may not look like it impacted, but our owner-operators that are in those communities and affected. We just -- our thoughts go out to them and how hard they work to get their restaurants back open and take care of their communities. So I just want to say thank you to the operators and the partners out there because it did have a significant impact in many of our communities across that region of the country. And we just continue to think about them and be here to support them.

[Peter Saleh, analyst]

Great. And then just as a quick follow-up, I just want to understand the message on the labor hour growth into next year into 2025? Michael, I think you said potential to be 50% or below. The last, I think, couple of quarters you've been below that 50% hour growth versus traffic. I'm just -- just want to make sure I understand that. We're not talking about a situation where you're growing labor hours above 50%? Just trying to understand the message, maybe I'm missing something there.

[Gerald Morgan, executive]

Yes. No real message there. It's more of -- we don't have a labor model that we put down to the restaurants. They are going to staff the restaurants they feel -- the way they feel is appropriate. And certainly, they are not looking to use more hours than they need, but they do know that staffing the restaurants well helps them grow. And some of the benefit we are seeing this year is because of what we're lapping from the previous year. And so we'll be well staffed going up against well staffed and doing higher volumes than we've ever done before. And all I think we're trying to say is -- we'll be learning together what that ratio may look like, and we can't sit here today and tell you it's going to be 30% or 40%, but we're also not trying to tell you that it's going to be something above 50%. It's something we'll be learning as we go.

[Operator]

Our next question comes from the line of Jeffrey Bernstein from Barclays.

[Jeffrey Bernstein, analyst]

Just a bigger picture question, Jerry, just wondering as you've kind of traveled the country side, and Chris, it sounds like you're going for the ride. I'm just wondering, you mentioned in the press release that from a macro perspective, it's an extremely competitive environment. Just wondering what you're seeing or what you're learning from your operators? Maybe is there any response you guys implement when you see more aggressive competitive environment to protect your own share? Again, it doesn't seem like you're seeing much impact. So just curious in terms of some qualitative commentary behind what you're seeing in terms of an extremely competitive environment, whether it's in the state category, whether it's by maybe local operators?

And is there anything we should make of the fact that the comp slowed from 93% in September to 83% in October. Is there anything to make of that? Or is that more just comparisons and perhaps a little bit of weather? Just trying to clarify.

[Gerald Morgan, executive]

Jeffrey, I'll -- number one, thank you very much for that. I will tell you that from talking with the operators, again, we feel like our operational excellence focus are our environment that we have, our fresh-made food and all of the things that we do is just what we need to consistently do and operate at a high level and to do all of the things that a great restaurant does, which is greet people, get them fed, make sure they have a great experience and thank them for coming into our business and supporting us as a locally owned and operated operations. So we just doubled down on everything that we do, and we try to do it a little bit better, you're trying to create an experience that people absolutely want to reward you for.

So I think from a bigger picture standpoint, the things that we're talking about with the partners are a lot of internal stuff and things that we've got going on. But when it comes to the operation and creating a guest experience, we are laser focused on our food, our service and our community partnership.

[David Monroe, executive]

I agree with all that. And Jeffrey, before Michael gets you in to talk about the sequential performance, I just wanted to add to Jerry's comment. When we do talk with -- it could be an individual situation, I know you're aware that we have our local store marketing. We have -- we try and own the communities that we're in. And so when there's specific competition or something going on in a market, that reaction is coming from the operators in the market. They're not waiting for us to come over the top with some sort of program. They're reacting to that, and they're competing every day in their community.

[Michael Bailen, executive]

And Jeff, this is Michael. With regards to that comp from September to October. I think what you're maybe not fully contemplating is, is the amount of pricing we had in the menu. In September, we still had 4.9%. October 3.1%. So our traffic actually accelerated from something in the mid-4% range in September to in the mid-5% range in October. So we actually saw an acceleration in our traffic trends from September to October.

[Jeffrey Bernstein, analyst]

Incredible. I didn't fully appreciate that. And just to clarify, the 30 units that you talked about for next year. First of all, I guess that the three Jaggers are incremental to that. So it's on that 30 core units of Texas and Bubba's. And if that's the case, I'm just wondering, roughly how many Texas and how many Bubba's would you think within that 30 for next year?

[Gerald Morgan, executive]

Yes. It will probably be -- again, that number could move a little bit. But I would say in the mid maybe at the 20 to 20-ish on Roadhouse, and then, obviously, the rest will be Bubba's and Jaggers.

[Michael Bailen, executive]

Yes. And Jeff, just to clean that up a little bit. We had said approximately 30 restaurants across all the brands. When we talked about the three Jaggers that those were franchise locations. So you may see a couple of Jaggers as Jerry said, probably in the low 20s on Roadhouse and six, seven, eight Bubba's in there.

[Operator]

Your next question comes from the line of Lauren Silberman from Deutsche Bank.

[Lauren Silberman, analyst]

Congrats. I wanted to ask about comp. The 8.5% incredibly impressive. Have you seen any changes in consumer behavior differences across regions, day parts, anything to unpack there? And then a follow-up the quarter-to-date acceleration. It seems like traffic, I guess, is closer to 5%, which is better than you guys have done all year. What do you think is driving that momentum building?

[Michael Bailen, executive]

Lauren, it's Michael. I would say, as far as the third quarter and kind of any regional differences. I would tell you, north, south, east, west, we saw strong comp performance, nothing that I would say one area was meaningfully outperforming another or anyone was lagging. So very strong performance not only regionally but by day of the week and by shift, so very strong performance there. And you are right, our comp in October include over 5% traffic growth and that is a little bit of a -- seems to be a little bit of an acceleration.

And I think it's just a continuation of us, our operators doing what they always do and making sure that we are providing a legendary experience and being well staffed and priced accordingly and delivering on our promise and the consistency that we've always delivered to them, we're being rewarded for that.

[Lauren Silberman, analyst]

Great. Do you think there's anything we should consider in terms of compares getting tougher through the fourth quarter?

[Gerald Morgan, executive]

I mean nothing -- we'll see how it all plays out. And the comps are -- were strong in November and December, but whether it's looking at 1 year or multi-year to maybe see what the right trend is, I'll kind of leave that up to you. But we know we're ready to serve the guests and we believe there's a lot of demand out there for our product.

[Operator]

Your next question comes from the line of Jeff Farmer from Gordon Haskett.

[Jeffrey Farmer, analyst]

Just following up on Jeff's managing partner tour question. I'm curious what were some of the more interesting, or I guess, unexpected things you guys heard from managers and specifically as it relates to pricing power, which you touched on, but also demand across the customer income levels?

[Gerald Morgan, executive]

Well, our conversations are -- like I said, a lot of the internal -- we've got a couple of things that are going on that we're trying to adjust on the system side. Pricing, we've already had those conversations. So we haven't seen any or heard any negative on the 0.9% that we took at the end of the -- or the start of the fourth quarter.

So I think that most of the conversations are really good right now, which is because obviously, we're having some real success and exciting to share that with the operators, and they love what they're doing. They just want to keep get better at it.

[Operator]

Your next question comes from the line of Jon Tower from Citi.

[Jon Tower, analyst]

Maybe just on the inflation outlook for labor next year. Chris, I think you had mentioned that state mandated increases is going to add about 1.5 points to that of the 4% to 5% that you outlined for '25. Just curious if you could get into what the balance of that will be driven by? And specifically in the context of looking across the landscape, it seems as if maybe starting wage rates have inflation in that as maybe come down a little bit, certainly versus what we've been seeing in recent years. So just kind of curious if you could flesh out what is driving the balance of that increase?

[Michael Bailen, executive]

Jon, it's Michael. I can maybe do a little bit there. Yes, I mean there is certainly still an expectation that we will see underlying wage pressure as a people-first company, we're going to want to make sure that we are paying our people well and compensating them for the hard work they are doing. And we'll see whether new hire rates change. But again, you want to reward your performers. And so we factored that into the numbers.

Obviously, we talked about the mandated increases. The acquisition will have a little -- will have a little bit of pressure with adding some California stores into the mix there. And those are probably the lion's share of what we're expecting there.

[Jon Tower, analyst]

Okay. Cool. And maybe just pivoting to CapEx. The number for next year, the number of stores sitting similar to this year, at roughly 30. And I think you're going to have more of the KDS development. So is that kind of the difference between the $360 million, $370 million this year and the $400 million you're targeting next year?

[David Monroe, executive]

Jon, it's Chris. Yes, you have it right there. It's -- and again, we're focused on putting money into our stores. Some of them are getting older. We want to make sure that they look fresh that they're inviting to our guests and they're great places to work as well. And we are investing, as we discussed in previous quarters, we're investing in bump-outs, kitchen expansions and other things that will provide value as well. And keep in mind, those investments are in stores that are doing well. So you're expanding somewhere where you already have great business, and you're just creating some capacity there. So we feel like that makes a lot of sense.

[Jon Tower, analyst]

Got it. And then just lastly, curious if you could add any color on how the Bun and Butter rollout is going at Walmart so far?

[Gerald Morgan, executive]

Well, thanks for asking. It's still pretty early indications are it's exceeding our expectations. But it's still -- all the retail business is really to drive awareness of our brands and have some fun with it and see if it's the demand on the consumer side. We've learned a lot since we've kind of gotten into that segment over the last several years. But it's still pretty new. But it's exciting to see that there is still a demand for anything inspired by Texas Roadhouse.

[Operator]

Your next question comes from the line of David Palmer from Evercore ISI.

[David Palmer, analyst]

Congrats. I wanted to ask you about pricing versus wages in and how you're thinking about that? And in recent years, I was beginning to think that you would generally price towards wages rather than towards food inflation cycles -- that you -- would sort of price to the consumer that would be sort of represented by the type of wages that you'd be paying your own people. This next year, it feels like we're navigating towards the 2s type of price increases and your wage rate will be going up roughly twice that level. So I'm wondering if you're consciously thinking that way that you're either making an investment in labor right now that ways that you think are appropriate or may be opportunistic?

Or are you making investments in value to the consumer that reflect some realities that you see out there. I'm just wondering how you're thinking about that.

[Michael Bailen, executive]

David, it's Michael. I think you kind of hit it on the nose there at the end. We are certainly viewing this as we are investing in the guest. This is not any kind of leap of correlating the pricing that we're taking to the level of commodity pressure that we may be feeling. We'll probably not be an accurate thought -- those pricing discussions we're having -- were happening well before we had a current picture of what we expected for 2025. So the pricing reflects what we think was -- and with collaboration of our operators, what we all think is appropriate for the business right now and making sure that we continue to deliver on that value proposition that has been so important for us for 30-plus years.

[David Palmer, analyst]

Part of the reason I'm asking about this in the past, call it, 7 to 10 years, there have been eras where you were either investing in hours, and I think a little bit before COVID. And then you were started also doing some wage adjustments that you thought appropriate in the business, too. So you guys have been very thoughtful in certain eras about your investments in things and maybe there's something opportunistic. I mean your hours are so efficient versus on a year-over-year basis. There's maybe something of a good timing in terms of the wages outpacing, what is typically what we're seeing out there elsewhere. So I'm wondering how you're thinking about that.

[Gerald Morgan, executive]

Yes. Again, we're just running the business the way we always have really no change. We're going to do what's right for the operators with right for the restaurant and what's right for our guests. And if that means adding people, we want them adding people, but we're going to always be very careful on the pricing side and airing on the side of making sure we're screaming value.

[Operator]

Our next question comes from the line of Chris O'Cull from Stifel.

[Christopher O'Cull, analyst]

Jerry, it looks like the newer Bubba's locations are running at significantly higher volumes from the older store cohorts. I realize you only have three stores open in the last 6 months, but is there something special about those stores? Or are higher volumes from new units, something we can expect from Bubba's?

[Gerald Morgan, executive]

Well, thank you for notice, and we appreciate that. I think it could be somewhat of where they're opening at, but we are very happy with the success that we've had in our new store openings over the last 18 months. And it does seem to be elevating, and again, as we continue to look at opening these stores with the right amount of support and with operational excellence in mind, that could be is that we're executing at a higher level. There's definitely a demand when we open the store.

So the more efficient that we can be of getting folks in and getting them taken care of and have a memorable experience could be rewarding us from that side of it. So it just tells me we need to continue to put the effort into getting these openings done and executing at a high level because the demand is there. So that's very exciting news from our standpoint.

[Operator]

Your next question comes from the line of Andrew Strelzik from BMO Capital.

[Andrew Strelzik, analyst]

Just two quick ones for me. Can you share how the volumes and margins of the stores that you acquired for the franchisee, how this compared to the rest of the company stores?

And then my second question -- and I feel little silly asking this, I think I know the answer, but we've seen most of the delivery hold -- I guess, have evolved they're thinking around third-party and found structures that work for them. Has you're thinking evolved at all? Or do you think there's ever a structure that you could find that might make sense for your brand?

[Michael Bailen, executive]

Andrew, it's Michael. I'll address the first one, and then I'll let Jerry chime in on the delivery. As far as those acquisition stores, they actually will drive some nice volume increases for us. Our average weekly sales as you're modeling that for 2025, you probably want to add about 0.5% evenly mix between traffic and check growth coming from what those 13 stores will deliver volume-wise. And they're probably about neutral to margins, maybe a slight increase in margin dollars coming from them.

[Gerald Morgan, executive]

And then on the third party, we do utilize it at Jaggers. We also have it in most of our Bubba's stores and one Roadhouse in New York City. That it does make sense in. So I think our stance is still the same. We will continue to evaluate if it will, at this time, add any value to the business. We're comfortable where we're at now. And we are paying attention to what's going on out there at all levels of third-party involvement. But right now, I feel very comfortable with us not having to rely on that to grow sales we really like to try to do it through our dining room and through our to-go business first.

[Operator]

Your next question comes from the line of Rahul Krotthapalli from JPMorgan.

[Rahul Krotthapalli, analyst]

I wanted to touch back on the state consumption trends. It was discussed the demand side of the equation was one of the factors for beef inflation outlook. How do you internally think about the risk of gross repricing or discounting for beef products in this environment? And in case at the margin, if it becomes more attractive for consumers to cook steak at home? And I have a follow-up.

[David Monroe, executive]

Rahul, it's Chris, and I'll take the first before you get to your follow-up. That's absolutely what I was talking about. There is a retail demand element to this that just wasn't there, at least so far this year. And part of that is we haven't seen the discounting that we might have seen in previous years from some of the major retailers, particularly on cuts of steak that would compete with where we are. So yes, that's a risk. If they were to start that. that would bring demand up from that cohort, and that is something we would have to think through.

[Rahul Krotthapalli, analyst]

Perfect. And I do understand that you guys don't advertise on TV, but just from a presidential election year or a typical disruption in trends seen across casual diners. Anything you guys noted in the past cycles when it comes to food traffic trends November, December. And then also this year, there is a shorter holiday period gap between Thanksgiving and Christmas. Is there any positive or negative impact we should be thinking about from these factors?

[Gerald Morgan, executive]

Yes. First on the election. Obviously, 2020 isn't going to be much help to us in looking at any trends. But 2016, 2012, can't recall there being much of an impact from the election cycle. And we also did look back at that shorter time frame between Thanksgiving and Christmas, I believe 2019 was the last time we had that. There was a lot of noise in there, but I didn't see anything significant. I would say that we'd be experiencing any issues during that time frame.

[Operator]

Our next question comes from the line of Brian Vaccaro from Raymond James.

[Brian Vaccaro, analyst]

Just two quick ones for me, if I could. On that labor question and just thinking about the hours next year. Can you help us frame what you're seeing currently from an hourly turnover or retention perspective? Kind of any perspective on the absolute levels or how that might compare to whatever you view as a normal level. And what other dynamics beyond retention and turnover sort of might cause that relationship to move higher into next year versus what you saw in '24?

[Michael Bailen, executive]

Brian, it's Michael. I would tell you, we don't share that turnover number just because everyone calculates differently. We do look at it on a 12-month basis, and it continues to trend in the right direction, below historical -- certainly back to historical low levels. And so we're very pleased to be seeing that just goes to show when we provide a great experience for our employees and give them the hours that they're looking for and those in the kitchen a common experience, it has them sticking with us.

As far as what could cause that to change in the '25. I don't know if I really have anything fair to add, unfortunately.

[Brian Vaccaro, analyst]

Okay. Okay. Fair enough. That's helpful. And I guess one just following up on the commodity outlook next year. Do you expect much of a difference in your year-on-year inflation in the first half versus second half at this point?

[Michael Bailen, executive]

Yes, Brian, it's Michael again. Maybe a little bit more commodity inflation in the back half of the year, probably just from the standpoint of what we're lapping this year versus last year, but nothing at this point that would say it's dramatically different in the back half of the year than the first half.

[Operator]

Our next question comes from the line of Gregory Francfort from Guggenheim Securities.

[Gregory Francfort, analyst]

Maybe just the franchise acquisition that happened, how did that come about? And I guess, as you think about the rest of your franchise base, is that something you're looking to do more of?

[Gerald Morgan, executive]

Thanks for the question. Now we talk to our franchise partners regularly, and they've been with us a very long time, and we started this conversation a few years back, and we were able to get a deal done through a lot of partnership and hard work, and we're very excited.

And in a lot of these cases, it was always kind of the intention 20, 25 years ago when these groups came with us. So we were able to get the terms. We were able to get a heck of a deal for them and for us. And it's just the timing worked out perfectly and how we like to see it roll out at the start of '25 and so it's a very, very exciting transaction for us at Roadhouse, and we will continue to talk to others that are out there. If anything ever comes to fruition, we'll keep you guys posted.

[Operator]

Our next question comes from the line of Jim Sanderson from Northcoast Research.

[James Sanderson, analyst]

A couple of quick follow-ups on capital expenditures. What do you expect build-out costs to be in 2025? Are they relatively stable or any type of relief, so to speak, relative to past inflationary years?

[David Monroe, executive]

Yes, I think they're relatively stable. I think you're just looking at a normal kind of a year in terms of build-out of the buildings.

[James Sanderson, analyst]

All right. And for fourth quarter, I don't know if you track this or not, but any feedback on whether your advanced bookings on holiday parties or special banquet events in the fourth quarter or where they should be, where you would expect or potentially any pickup in demand that you could comment on?

[David Monroe, executive]

Jim, it's Chris here. We don't really play in that game. So that's not going to be something that we see.

[Operator]

And that concludes our question-and-answer session. I will now turn the call back over to Jerry Morgan for closing remarks.

[Gerald Morgan, executive]

Thank you very much. I appreciate all your time and being with us tonight. And thank you for all of those that spoke out on our positive quarter. So with rowdy enthusiasm, I bid you a good night. Let's go Roadhouse.

[Operator]

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