Texas Roadhouse (TXRH) Q3 2026 earnings review
Texas Roadhouse food costs cool, but customer traffic slows sharply
Texas Roadhouse, the casual-dining steakhouse chain, gained a break on beef costs just as its customer traffic cooled off. Third-quarter revenue rose 10% and earnings per share grew 9%, helped by food inflation dropping to 2%. However, chief executive Jerry Morgan warned that guest traffic softened late in the period, and comparable restaurant sales growth slowed to 1.5% in the first five weeks of the fourth quarter.
| Comparable restaurant sales | +4.3% slowed to +1.5% in the first 5 weeks of Q4 |
|---|---|
| Restaurant profit margin | 14.6% +0.3 percentage points as food inflation cooled to 2% |
| 2026 capital spending outlook | Raised $40M to $440M, while 2026 store-week growth was trimmed |
| Initial 2027 cost outlook | ~4% food / ~3% labor down from ~5% food and 3.5–4% labor planned for 2026 |
⚖️ Verdict: 🔴 Bearish
The story got worse because the company's biggest strength — steady customer traffic gains — is stalling before beef costs fully normalize. While the initial 2027 outlook calls for milder food and wage inflation, Texas Roadhouse also raised its 2026 capital spending budget by $40 million and took $4 million in store impairment charges, keeping corporate operating margins down.
The question now is whether the late-summer traffic slowdown is a brief dip from stretched household budgets or the end of the chain's multi-year run of market share gains. If grocery beef prices ease or diners keep trading down, comparable sales will barely match menu price increases; if value-seeking guests return, milder 2027 cost inflation will lift profit margins. Full fourth-quarter comparable sales and guest traffic counts will tell.
🐂 Bull Case
Easing Beef Costs Lifted Restaurant Profit Margins
After six quarters of steep beef cost increases that squeezed profit, food inflation cooled off in the third quarter. Commodity inflation dropped to 2.0%, down from 7.0% in the second quarter and 7.9% a year ago. That drop cut food and beverage costs by 0.3 percentage points, to 35.5% of restaurant sales, and lifted restaurant-level profit margin by 0.3 points to 14.6%.
Store managers also kept staffing costs in check. Wage and labor inflation ran at 4.1%, slightly above earlier quarters, but labor expenses barely moved as a share of sales, ticking up just 0.1 percentage points to 33.7%. Together, milder food inflation and steady labor productivity pushed restaurant profit dollars up 11.9% to $228.6 million, outpacing the 9.5% rise in total revenue.
What to watch: Fourth-quarter food and beverage costs as a share of sales. By our math, the full-year outlook points to commodity inflation jumping back to 5.0% in the fourth quarter, which will test restaurant margins while customer traffic is weak.
Initial 2027 Outlook Points to Milder Cost Inflation
Cattle supply across the US has been tight for two years, making beef prices the main threat to the steakhouse chain's earnings. While keeping its 2026 commodity inflation forecast at 5.0%, Texas Roadhouse issued its first outlook for 2027 and called for food inflation to slow to about 4.0%. The company also expects wage and labor inflation to cool to about 3.0% next year, down from the 3.5% to 4.0% range it now plans for 2026.
What to watch: How much of the 2027 beef basket management has locked in under fixed-price contracts on the conference call. In 2025, the company had to raise its food cost forecast four times because cattle prices kept climbing on unhedged supply.
Takeout Orders Keep Outgrowing the Dining Room
To-go orders continue to bring in extra business even as dining-room growth slows down. Average weekly takeout sales per restaurant rose 10.4% from a year ago to $23,628, making up 14.4% of total weekly sales compared with 13.6% in the third quarter of last year. By our math, weekly dine-in sales grew 3.3% to $140,352, meaning takeout grew more than three times as fast as the main dining room.
What to watch: Weekly to-go sales in the fourth quarter. If customers keep ordering steaks for pickup while overall store traffic slows, takeout will help cushion restaurant sales against a weaker consumer backdrop.
🐻 Bear Case
Customer Traffic Cooled Late in the Quarter
For the past two years, the casual dining group has stood out by drawing larger crowds while rivals lost diners. That run hit a wall in late summer. "While we entered the quarter with strong momentum, traffic softened late in the quarter," chief executive Jerry Morgan said, adding that the chain is working to stand out "as consumers navigate rising costs".
- First five weeks of Q3 comparable sales: up 6.2% from a year ago
- Final eight weeks of Q3 comparable sales: up 3.1% by our math, bringing the full quarter to 4.3%
- First five weeks of Q4 comparable sales: up 1.5%, including a 1.0% menu price increase
The early fourth-quarter reading is the sharpest warning sign in the release. Because the chain carried roughly 2.9% in menu price increases into October after taking its new 1.0% hike, a 1.5% comparable sales rise means fewer guests visited existing restaurants or diners ordered cheaper items. That cuts against last quarter's argument that high grocery store beef prices would keep driving diners into Texas Roadhouse.
What to watch: Fourth-quarter comparable sales and the breakdown between guest traffic and average check. If full-quarter sales stay near 1.5%, customer traffic will turn negative for the first time in years.
Overhead and Construction Costs Drag on Profit
Even though individual restaurants improved their profit margins by 0.3 percentage points, corporate operating margin fell 0.2 points from a year ago to 6.5% of revenue. Texas Roadhouse said earnings growth was held back by "higher depreciation and amortization expenses and higher general and administrative expenses", along with store impairment charges and pre-opening bills.
- Depreciation and amortization: $60.3 million, up 14.6% from a year ago (up 0.2 points of revenue)
- Impairment and closure charges: $3.6 million vs $0.1 million a year ago (up 0.2 points of revenue)
- General and administrative overhead: $59.3 million, up 9.0% from a year ago
- Full-year 2026 capital spending plan: raised by $40 million to $440 million
Building new restaurants is getting more expensive and running behind schedule. The US company opened five restaurants in the third quarter against a target of six, trimmed its full-year store-week growth outlook by a quarter point at the top end, and still had to lift its 2026 capital budget by 10%. Morgan pointed to a pipeline "with over 30 company restaurants currently under construction across all brands", which is driving up pre-opening costs (up 29.8% this quarter) before those stores bring in sales.
What to watch: Fourth-quarter company restaurant openings and pre-opening expenses. With 18 stores opened in the first nine months, the chain needs up to 17 openings in the final quarter to approach its original 35-store goal.
Newer Bubba's 33 Restaurants Still Lag the Core Brand
Bubba's 33 is the company's smaller family dining chain, selling burgers, pizza and wings across 61 locations. Comparable sales at Bubba's 33 restaurants open at least 18 months rose 2.8% in the third quarter, an improvement from 1.3% in the second quarter and 0.9% in the first. However, that growth still trailed the core Texas Roadhouse steakhouse brand, which posted 4.4% comparable growth.
More concerning is the performance of newer Bubba's 33 locations. For the seven restaurants open between six and 18 months (which are not yet in the comparable base), average weekly sales dropped 7.8% from a year ago to $113,683. At core Texas Roadhouse stores in that same age group, weekly sales jumped 11.2% to $147,430. That gap suggests new Bubba's 33 stores lose momentum once their opening honeymoon fades.
What to watch: Segment profit margins and capital spending for Bubba's 33 in the third-quarter 10-Q filing. In the second quarter, Bubba's 33 profit margins fell even as management increased its construction budget by 55%.
Risks this quarter didn't answer
Four watch items from last quarter cannot be read from the earnings release alone and depend on the conference call or the quarterly 10-Q filing.
- Guest traffic vs average check: the release gives the 4.3% Q3 and 1.5% early-Q4 comparable sales figures, but not the exact guest count change.
- Labor hours vs traffic growth: management usually shares this productivity ratio on the call to show whether stores are adding staff hours slower than guest count.
- Bubba's 33 segment profit and asset returns: concept-level margins and capital spending appear only in the 10-Q footnote tables.
- Impairment and legal costs: the release shows a $3.6 million impairment charge in Q3, and the 10-Q will show which concept took the write-down and whether Q2's legal settlement costs repeated.
💲 Other KPIs
Free cash flow — operating cash left after paying for restaurant construction and equipment — fell 24.6% from a year ago in the third quarter, by our math. Operating cash flow edged up 2.1% to $146.7 million, but capital spending rose 5.2% to $135.6 million (8.6% of revenue), absorbing almost all of the quarter's cash generation.
The steakhouse operator slowed its stock buybacks to $12.4 million in the third quarter, down from $42.6 million in the second quarter and $40.0 million a year ago. Over the past year, buybacks reduced the diluted share count by 1.0% to 65.8 million shares, adding 1.2 percentage points to third-quarter earnings-per-share growth.
Cash minus long-term debt stood at $91.4 million at the end of September ($141.4 million in cash against $50.0 million drawn on the credit line), down $43.3 million from the end of 2025 by our math. Heavy store construction, $71.8 million of first-quarter franchise buyouts, and $147.9 million of year-to-date dividends outpaced cash flow.
🔮 Guidance
Unchanged for the full year, with a new early fourth-quarter reading and initial 2027 plan. The company still calls for positive comparable sales in 2026 and 2027, a floor it has met every quarter in its history. However, comparable sales in the first five weeks of the fourth quarter rose just 1.5%, down from 4.3% in Q3, despite a 1.0% menu price increase at the start of Q4.
Cut at the top end for 2026; new for 2027. Texas Roadhouse trimmed the upper end of its 2026 store-week growth plan by 0.5 points, lowering the middle of the range to 5.25%. With store weeks up 5.3% over the first nine months, that leaves about 5.1% growth for Q4 by our math. For 2027, management set an initial target of 5.0% to 6.0%.
Raised at the bottom end for 2026; new for 2027. The restaurant chain lifted the low end of its 2026 labor inflation forecast by 0.5 points after wage inflation ran at 3.9% through the first nine months. By our math, the new 3.75% middle of the range points to about 3.3% labor inflation in Q4, before easing further to about 3.0% in 2027.
Unchanged for 2026; new for 2027. Management kept its 2026 food inflation outlook at about 5.0%, following two cuts earlier in the year (from 7.0% to 6.5%, then to 5.0%). Because commodity inflation averaged 5.0% over the first nine months and dropped to 2.0% in Q3, the full-year figure points to inflation jumping back to about 5.0% in Q4 by our math, then easing to 4.0% in 2027.
Raised for 2026; new for 2027. The US company increased its 2026 capital spending budget by $40 million, or 10%, after holding it at $400 million for four straight quarters. Having spent $314.4 million in the first nine months, the plan leaves $125.6 million for Q4 by our math, up 40.8% from last year's fourth quarter. For 2027, spending is planned to dip to $425 million.
Cut for 2026; new for 2027. Management lowered its 2026 tax rate forecast for a third time (from 15.0% initially to 14.5%, 14.0%, and now 13.0%). The third-quarter tax rate dropped to 12.2%, and with the nine-month rate at 13.5%, the full-year outlook points to an implied Q4 tax rate of about 11.6% by our math.
❓ Key Questions
Did guest traffic turn negative in early Q4?
Comparable sales grew just 1.5% in the first five weeks of the fourth quarter despite a 1.0% menu price hike that brought total pricing near 2.9%. Management did not disclose the split between guest traffic and average check in the release.
Why did 2026 capital spending jump by $40 million?
Texas Roadhouse raised its 2026 capital budget by 10% to $440 million at the same time it trimmed the top end of its 2026 store-week growth plan. Investors need to know how much of the extra $40 million is construction cost inflation versus early spending on 2027 openings.
Why are newer Bubba's 33 stores losing sales momentum?
Weekly sales at Bubba's 33 restaurants open between six and 18 months fell 7.8% from a year ago, while newer Texas Roadhouse stores grew 11.2%. What is causing the second-year drop-off at Bubba's 33, and has it hurt concept-level profit margins?
What triggered the $3.6 million impairment charge in Q3?
Impairment and closure costs jumped to $3.6 million from $0.1 million a year ago, shaving 0.2 percentage points off operating margin. Which restaurant brand or locations required the write-down?