Texas Roadhouse Inc. is increasing development of its Bubba’s 33 concept, as early units in the burgeoning concept prove successful.
The Louisville, Ky.-based company said it could build as many as five new Bubba’s locations this year, after adding two in 2014. That would more than double the footprint of the three-unit chain.
“Bubba’s 33 is doing very well,” Texas Roadhouse CEO Kent Taylor said during a call Monday discussing fourth-quarter earnings. “And so we’re going to step it up a little bit. Why not?”
Bubba’s 33 is a family sports restaurant that serves burgers, sandwiches and pizza. Company executives said during the call that early locations have been built near existing Texas Roadhouse locations, and have not taken business from the company’s flagship concept.
Executives described Bubba’s as a “pilot project,” and weren’t ready to say that it’s in full-fledged development mode. Taylor said it is in “phase two of our pilot project.”
Texas Roadhouse remains the company’s main growth engine. The company plans to add 25 to 30 new locations of the 448-unit chain in 2015, while franchisees are expected to build four to six new units, as many as four of which will open in international markets.
But Taylor said Bubba’s would be an important part of the company’s future. “We realize that the development of Bubba’s 33 is important not only for the long-term growth of the company, but also for the growth opportunities it brings our people,” he said.
Texas Roadhouse has reported some strong sales for the fourth quarter ended Dec. 30, and into 2015. Same-store sales rose 7 percent during the quarter. Through the first seven weeks of 2015, same-store sales at corporate units have risen 12 percent.
Higher sales offset cost pressures for both food and labor due to high beef costs, rising minimum wage and increasing health care costs.
“We certainly have a lot of positive momentum on the sales structure,” said Scott Colosi, Texas Roadhouse president and chief financial officer. “Our operators continue to do a legendary job of balancing all the inflationary pressures we have by providing our guests with legendary food and service.”
Beef costs remain a major issue for Texas Roadhouse, as well as for many other restaurant chains. The company said food costs rose 4.5 percent in the fourth quarter, contributing to a 47 basis point decline in restaurant margins, to 16.5 percent, in the period.
Texas Roadhouse anticipates more food cost increases in 2015, ranging from 3 percent to 4 percent, mostly in the first part of the year. “The cost of beef remains a pressure point,” said Tonya Robinson, director of financial reporting. “The cattle supply remains low.”
Labor and benefit costs are also rising, executives said. The company expects health care costs to increase from $5 million to $6 million this year as it expands coverage to employees who work more than 30 hours a week.
Texas Roadhouse raised menu prices 1.8 percent in November in anticipation of cost increases, and also began to work on cost savings initiatives to offset increases.
Fourth-quarter revenue rose 7.5 percent, to $404.4 million, from $376 million the previous year. Net income rose nearly 11 percent, to $18.6 million, or 26 cents per share, from $17.1 million, or 24 cents per share the previous year. An extra week in the fourth quarter of 2013 increased that period’s net income by 3 cents to 4 cents per share, the company said.
For the year, revenue rose 11.2 percent, to $1.6 billion, from $1.4 billion. Net income rose 9.4 percent, to $87 million, or $1.23 per share, from $80.4 million, or $1.13 per share in 2013.
Contact Jonathan Maze at [email protected].
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