What is in this article?:
- Texas Roadhouse: Beef costs to remain a concern
- Sales, profits rise amid challenges
Officials expect 2013 to be another year of mid-single-digit inflation for Texas Roadhouse’s commodity costs.
Texas Roadhouse managed to increase sales and profits despite high beef prices that caused food cost inflation of 6.5 percent for fiscal 2012, and officials said similar pressures and potential remedies would remain this year.
“Challenges, whether consumer- or inflation-driven, have and will always exist to some degree,” Scott Colosi, president of Louisville, Ky.-based Texas Roadhouse Inc., said in a fourth-quarter earnings call. “We will continue to deal with them head on as we have done in the past.”
Officials expected 2013 to be another year of mid-single-digit inflation for Texas Roadhouse’s commodity costs, driven by an increase of about 15 percent in the cost of beef, founder and chief executive Kent Taylor said. However, the chain has locked in about 80 percent of beef purchases for the coming year, and about two-thirds of its remaining non-beef cost of goods sold.
Because the brand was able to contract out so much of its beef needs, said chief financial officer Price Cooper, Texas Roadhouse was able to narrow its range of expected food cost inflation for 2013 to between 6 percent and 7 percent, from a previous guidance of 5 percent to 8 percent.
The chain took a 2-percent menu price increase at the end of December and rolled out its higher-priced 23-ounce porterhouse steak to the remaining two-thirds of its system that did not yet carry the item.
With beef inflation not expected to abate this year or next, he added, Texas Roadhouse would be cautious with further pricing actions and try to manage through those pressures on the food cost line with better in-restaurant execution.
“Under our model, when you’ve got 15-percent beef inflation, [for example], we’re not going to fully price to deflate inflation generally,” Cooper said. “On the flip side, when we’ve got some commodity deflation, we’re generally not going to be reducing prices. … In general, you’d love an economy that’s growing at a couple percent a year, and consumers are making more money and spending more and that is consistent. Unfortunately, that doesn’t always happen.”
Texas Roadhouse officials acknowledge that careful planning will also help the company mitigate costs related to health care mandates.
Colosi said Texas Roadhouse has modeled several scenarios for covering employees under new requirements mandated by the Patient Protection and Affordable Care Act. The chain’s liabilities could vary, he added, because some employees would be eligible for the expanded Medicaid program, some could remain on parents’ plans and others might opt to pay a $95 penalty rather than pay premiums and deductibles.
“We’ve got an internal range of potential impacts for us that we’ve developed, and it’s not that big of a deal for us, especially when you start comparing it to beef inflation that we had last year or this year,” Colosi said. “We’ll just deal with it and kind of move on.”
He added, “We’re not touching anybody’s hours,” and any planned price increases for the end of 2013 or in 2014 likely would have more to do with competitive pressures and commodity inflation than with health care costs’ effects on margins.