David Tarantino — Analyst, Baird
Hi. Good afternoon. My question's on the pricing philosophy going forward. Thank you for the update on what you're planning for the start of Q4. My bigger picture question is: how do you think you and the system will approach price increases in a scenario where inflation moderates more meaningfully? I know Texas Roadhouse has had a long history of pricing below inflation, and it's served you well. The last year or two, you've absorbed quite a bit of inflation. Just maybe explain maybe how you might recapture some of that absorption, if you will, as we move forward.
Jerry Morgan — CEO, Texas Roadhouse
Hey, thanks, David. This is Jerry. I think we always go into these pricing conversations with a conservative approach, and we've had to make adjustments over the last several years. I think we look at it from an over an annual basis on what are we facing structurally. Then what do we feel like will change. We're going to go into it. We're going to talk to our operators. We really want to see what's going on, not only in their communities, but maybe in their state. Then try to match it up to what we believe that the company needs. I think we've always had that approach to keep value into our menu is absolutely critical for us as we continue to try to take care of our staff and our guests and our shareholders.
Understanding that we have a conservative approach, we believe that that strategy and philosophy has paid very well over the years, and we'll continue to look at it on a biannual basis, have great conversations with our operators. Then make that decision at that time.
David Tarantino — Analyst, Baird
Great. Thank you.
Jerry Morgan — CEO, Texas Roadhouse
Thank you. Best wishes to you.
David Palmer — Analyst, Evercore ISI
Thanks. Good evening. I want to ask you a question about labor productivity a bit. One could say you guys have been on a hot streak since the fourth quarter of 2023, with labor hours growing less than 0.5%, half as fast as traffic since then. Wondering, and it doesn't look like it's going to stop, but I don't want to take it for granted. I was just wondering if you could give us a sense of what you're seeing, that you've talked about things like digital kitchens and guest management systems. You're testing handhelds. Perhaps it's giving you a little bit of confidence to lean into To Go. Just want to give you some sense of will this hot streak continue, and what are some of the things going on behind the scenes, and thanks.
Mike Lenihan — CFO, Texas Roadhouse
Yeah. Hey, David, it's Mike. Thanks for the question. You hit on it nicely. It is a number of items that are continuing to build on themselves on a quarter-to-quarter basis that is driving that momentum. A quieter kitchen is a factor. That's a beneficial part of the technology investments that we've made. Importantly, the managing partners staffing for the level of sales that they want. The other thing that helps with that ratio for us is tenure of our Roadies being as high as it is, and also the continued growth of the To Go business. All of those are working in concert. Importantly, it's not a metric that we target our operators with. While we like what we see, we don't target them on it. We do hope that it will continue based on the trends we're seeing.
David Palmer — Analyst, Evercore ISI
Thank you.
Zach Fadem — Analyst, Wells Fargo
Hi, good afternoon. Could we start with the food and beverage margin bridge in terms of commodity impact versus check impact versus entree mix? In terms of that entree mix, grocery prices are starting to peak for beef. Maybe we could talk through what that typically means for entree mix as well as traffic as grocery prices retrace.
Michael Bailen — VP of Investor Relations, Texas Roadhouse
Hey, Zach, it's Michael. Certainly, if I understand your question correctly, we do see a benefit to our traffic. We're seeing a benefit to the steak category given the high price of beef at retail. What may happen in a world where beef prices come down? Will we see a change in our traffic trends? Hard to know. I think we certainly over quite a number of years through multiple beef cycles, seen very strong traffic performance. We do, like I said, tend to outperform in a time of this inflationary beef environment, but certainly would not expect that we won't be able to continue to grow in a lower inflationary environment. Times like this, it introduces new people to Texas Roadhouse, and we believe once they've come in, they're going to want to come back.
Zach Fadem — Analyst, Wells Fargo
Thanks for the time.
Jerry Morgan — CEO, Texas Roadhouse
Thank you.
Andrew Charles — Analyst, TD Cowen
Great. Thank you guys so much. I had a two-part question on the reduced commodity inflation. First, what did you attribute to the favorable commodity inflation in the quarter versus your forecast, because you guys were about 80% contracted? Curious on how much visibility you have. How contracts are in the back half of the year with commodities and relative to how contracts you were a year ago at this time for your back half 2025?
Michael Bailen — VP of Investor Relations, Texas Roadhouse
Yeah. Hey, Zach, it's Michael. Our second quarter commodity inflation was only slightly better than what we were maybe internally modeling. Because we were well informed on that going into the last call. We did see a continuation in June, we saw sirloin prices really start to move lower and some deflation there, and that's really been the biggest benefit to our commodity expectations. Expecting to see much lower inflation in the third quarter than we had originally anticipated. Now expecting 2%-3% inflation in Q3 before it's stepping back up to approximately 5% in the fourth quarter. Sirloin is the biggest driver of that improvement.
As far as contracted, on our overall commodity basket, we're about 80% locked for Q3 and about 40% locked for Q4, and that's not much different than you would have seen us having at this time last year for 2025.
Andrew Charles — Analyst, TD Cowen
That's great. Thank you, Michael.
Brian Harbour — Analyst, Morgan Stanley
Yeah, thanks. Hi, guys. I guess, Jerry, you started just by talking about the pipeline and development. Could you talk a little bit about just some of the recent openings where you've been finding success, kind of size of the pipeline and how you feel about Texas Roadhouse unit growth specifically?
Jerry Morgan — CEO, Texas Roadhouse
Yeah. Thanks. Yeah. The pipeline is obviously we continue to focus on that 20-ish a year in openings that continue to be very successful all across the country.
I mean, we've got a full pipeline for 2026, 2027, 2028. We're really working into 2029 with that deal. Working a lot of deals. We continue to have success. I'll tell you, wherever we go, we're focused on our food, our service, and opening our restaurant at the volume that we're at is really just hats off to these operators at every level, the single unit, the multi-unit, the retails, everything, the commitment, all the coaches and the training managers that it takes to really make a first impression in every community that we open up at.
When you have a reputation out there, even if you're new to the community, there are expectations. I'm really proud of the team and all of our operators that get out there and open the doors and hustle to show our guests and our community what legendary food and legendary service is about. The pipeline is strong. We continue to focus. We have great success with the openings.
Lauren Silberman — Analyst, Deutsche Bank
Thank you very much. Congrats on the great results. Just a clarifying question, then my actual question. The clarifying is just on the commodity inflation. Why is it stepping up in Q4? Just help me understand that. Then the actual question on average weekly sales, I mean, your fifth quarter of double-digit growth has been amazing. What do you think is driving the momentum? Anything that you're doing differently? Then can you remind us how the labor model works with to-go and what capacity the restaurants have with the current labor?
Michael Bailen — VP of Investor Relations, Texas Roadhouse
Hey, Lauren, I'll start with the commodity question. Again, third quarter right now, we are seeing some good benefit on the sirloin side. We do think, again, these cuts, as one moves one way and the other doesn't move quite as much, that does change how the retailers look about what they're going to buy and what they're going to market. We do think that as sirloin prices fall, that may then lead them to purchase more of that into the fourth quarter as something that they will put into their stores. It's our current, based upon what we have locked, what we're lapping, and how we believe the cuts will move over time. Also factoring in what's going on with supply.
Jerry Morgan — CEO, Texas Roadhouse
Lauren, this is Jerry. Just on the overall sales growth, we obviously are continuing to have momentum on traffic, which means to me that we're opening or operating quality shifts and that we're finding ways to get more people through the dining room. All of the components of pay-at-the-table, our guest management system upgrade, the digital kitchen, our operators just really focusing on a high level in the peak times and even in the non-peak times. It just tells me not only growing dining room sales, we're growing our to-go traffic because of the ease of order, the ease to pick up. Our operators are focused on making sure that we have all the items that the guest has ordered so that when they get home and they open up our food at their own dining room tables, they have everything that they need.
I think it's just all of us putting this energy in towards getting a great experience for our guests, whether it be through the to-go side of it or to the dining room. Just being energetic when it comes to serving people, I think is really what's paid off for us for a long time.
Lauren Silberman — Analyst, Deutsche Bank
Thank you.
Jerry Morgan — CEO, Texas Roadhouse
Thank you.
Brian Bittner — Analyst, Oppenheimer
Thanks. Good afternoon, guys. As it relates to the 1% pricing that you're going to take, can you just confirm, does that put you around 3% for 4Q? Can you guys talk about the mix trends that you're seeing maybe in 2Q and how you're anticipating mix to impact average check as we go into three and 4Q?
Mike Lenihan — CFO, Texas Roadhouse
Yeah. Hey, Brian, it's Mike. I'll start with the first on pricing. Michael will jump in on mix. With the 1% in Q4, we will have 2.9%. In Q1 of next year, we'll also have that same 2.9%.
Michael Bailen — VP of Investor Relations, Texas Roadhouse
Yeah, Brian, as far as mix is concerned, in the second quarter, we definitely saw improving trends as we moved through the quarter. Still about 40 basis points negative overall for mix. In the dining room, mix turned positive, which is very good to see. I'll tell you here, in the first five weeks of the third quarter, we've seen a continued improvement in those mix trends with the vast majority of our pricing flowing through. That is certainly beneficial to profitability when that happens. We'll see if those trends continue. So far looking very positive.
Brian Bittner — Analyst, Oppenheimer
Thank you.
Dennis Geiger — Analyst, UBS
Great. Thank you, guys. Just wondering if you could touch a little more on beef. Michael, you spoke to it a good amount a couple of minutes ago, but just anything more on what the team is seeing as far as supply and demand dynamics? I know you kind of gave the output of what supply has meant, but just anything more on the dynamics that the team's observing. Thank you.
Michael Bailen — VP of Investor Relations, Texas Roadhouse
Hey, Dennis. Yeah, happy to do that. Not sure necessarily that much has changed of recent there from what we've spoken about over the last several quarters. Supply is still very tight, and we'll likely see a tight fourth quarter, with regards to beef and cattle supply. Demand overall for beef is still very strong. There's certainly, at retail, still been some movements in trade to other proteins, and trade within the beef category to some extent. As well as trends that we've talked about before. There's been the announcement of the Mexican border reopening later this quarter, but that's more of a opportunity, if any, for next year. It takes a while. One, it's going to be a very small reopening, and that takes a while before you would see any benefit from that.
Dennis Geiger — Analyst, UBS
Thank you very much.
Jim Salera — Analyst, Stephens
Hey, guys. Good afternoon. Thanks for taking our question. Just hoping you can provide some incremental color on the continued traffic outperformance. As you guys continue to deliver very robust traffic gains, we see the industry with traffic down low single digits. I wonder if you can help us kind of disaggregate how much is increased guest frequency versus new households coming to the brand. I recognize not everyone might know about Texas Roadhouse, but I feel just the prominence at this point, especially you mentioned some of the World Cup visibility, would allow for most people to at least know that Texas Roadhouse in their area exists. Just wondering if you could help us kind of break out that frequency versus new household drivers.
Jerry Morgan — CEO, Texas Roadhouse
Hey, Jim, it's Jerry. I don't know that we measure it necessarily like that. We focus on trying to give guests great experience. By word of mouth, they tell others, and then we get to try them. I think once they get in and when you try made from scratch food and fresh baked bread and hand cut steaks and all of the things that we do is just kind of the word gets out and we continue to exceed people's expectations. I think that's really what we focus on. We do have a first time guest program, so we absolutely identify guests in the restaurant, and we try to really create a relationship with all of our guests and especially on their first time in, just letting them telling our story, who we are, how we do business, and how we approach things.
We just try to knock their socks off with legendary food and high-level hospitality and just put a smile on their face. The worlds are complicated. Our job is to fill their bellies with legendary made from scratch food and put a big smile on their face and just say thank you for coming to our restaurant and providing us with an opportunity to serve them. I think that's really how we focus on driving traffic. Again, on the to-go side, it's just a focus and emphasis on making sure that the guest has everything that they need when they get home and they unpack our bag and our food for their family at their dining room table. It's just our operators do an incredible job of building a strong relationship.
We're a nationally known company, but we like to be known as locally owned and operated, and our partners really see them owning their communities. Food service and community partnership has always been the key to our success.
Jim Salera — Analyst, Stephens
Appreciate the thoughts. Thanks, man.
Jerry Morgan — CEO, Texas Roadhouse
Thanks, Jim.
Sara Senatore — Analyst, Bank of America
Thank you. I have one clarification. Hopefully that doesn't count as its own question. A question. The clarification is, I think the negative mix you were saying, Michael, effectively there's a little bit of pressure on this from to-go because the average check is lower. I want to confirm that's true and maybe should we expect that as to-go continues to build as nicely as a percentage of sales, maybe you see that a little bit continue. The question actually is about, Jerry, you mentioned a line of sight for Texas Roadhouse even into perhaps 2029. Do you have any sort of different thoughts on how many units you think the market can support? As your volumes keep going up, it would seem that the density you could support would be higher. I was just curious where that stands. Thank you.
Jerry Morgan — CEO, Texas Roadhouse
Thanks, Sara. We have upped it a couple of years ago to approximately 900 restaurants. I don't think we're going to change anything at this time. We feel confident in what we are game plan currently. We're focused on that 20 restaurants a year being highly successful openings. We won't update that guidance at this time, we are very confident that America wants more Texas Roadhouses out there serving them high level hospitality and legendary food.
Michael Bailen — VP of Investor Relations, Texas Roadhouse
Sara, I'll clarify on the mix. In the second quarter, we did have about 40 basis points of overall negative mix. In the dining room, mix was just slightly positive, offset by the rising to-go mix.
Quarter to date, Q3, overall mix is flat and dining room has gotten more positive and the to-go mix has actually gotten a little bit better, even though the to-go is still growing.
Sara Senatore — Analyst, Bank of America
Thank you.
Gregory Francfort — Analyst, Guggenheim Partners
Thanks. If you could add two or three restaurants in Bergen County, New Jersey, I would love that.
Jerry Morgan — CEO, Texas Roadhouse
You're welcome.
Gregory Francfort — Analyst, Guggenheim Partners
I appreciate that. My question's on the smaller brands and just Bubba's, the comps have been okay, but I think the new stores the last six months have just been phenomenal. Just what you're seeing there and Jaggers, I think the reason to keep it franchised has been because maybe there wasn't a lot of QSR talent in the organization existing at Roadhouse. Mike, I guess I'm wondering with you coming in, do you think about maybe changing that into maybe a company operated model going forward? Or just any other thoughts in terms of your experience from QSR and bringing it into the Jaggers space? Thanks.
Jerry Morgan — CEO, Texas Roadhouse
Yeah, I'll start off and we'll let Mike answer that last part. On the Bubba's 33, we continue to focus on the food and the experience and we feel really, really good about the brands. All the openings these last couple of years have done extremely well. We continue to work on it. We've got the right leadership. We've got the focus on the food and the service model. Just being consistent about it is that component. I do think that there's a lot more competition for Bubba's 33. It's not as well known, so we got to continue to work hard on our local store marketing side. We absolutely have great food and the same service model, a lot of excitement and energy around there.
We focus on the burgers, the pizzas, the rock and roll, the energy, the sports theme, all of those things are components of what we believe long term, Bubba's 33 will continue to have tremendous success in that competitive set. In Jaggers, I think we have had some franchise partnerships. We've really learned a lot with them. We like that learning from that standpoint, we'll continue to look at building the company out as well as our few franchise partners having continued success in growing that side of the business. Mike might have a comment.
Mike Lenihan — CFO, Texas Roadhouse
Yes, sir. Listen, on Jaggers, I agree. I think there's a place for both franchise partners and company ownership with where the brand sits in its life cycle. I think importantly, just to piggyback on Jerry's comments around the operating DNA that exists in Jaggers because it's part of the Texas Roadhouse family, our franchisees are very, very strong operators and we're learning just as much from them as in our own company restaurants. For the time period, it is a very beneficial mix for us to have both.
Logan Reich — Analyst, RBC Capital Markets
Hey, good afternoon. Thanks for taking my question. I wanted to ask on the fact-finding delivery test you guys did at a couple stores recently, just any sort of learnings from that test that you would be able to share today?
Jerry Morgan — CEO, Texas Roadhouse
Thank you very much. Like I said, it is a micro test of four stores. It is first-party delivery. We do third-party at Jaggers and at Bubba's and also at our New Rochelle location. I think most importantly is having a few conversations with folks is that we want to get educated. We view the test as beneficial to fact-finding purposes. We also know there's some operational complexities that we want to know about in case any of our operators ever did get curious about it. I think the micro test is still very early on. I can't say that we've got a lot of learnings to be able to share at this time, but it is a micro test of four restaurants across different parts of the country.
Logan Reich — Analyst, RBC Capital Markets
Got it. Very helpful. Thank you.
Jerry Morgan — CEO, Texas Roadhouse
Thank you.
Karen Holthouse — Analyst, Citi
Hi, this is Karen Holthouse on for Jon. Thanks for taking the question. I wanted to dig a little bit into the Bubba's same-store sales performance. Maybe if there's ways to decompose that a little bit into maybe some older legacy units, more recent units, more recent markets, units that are closer to where you want the current prototype to be versus the ones that are not. Trying to get a better sense of if you could isolate the part of that system that's the closest to where you want it to be, is that chunk out comping the total system?
Mike Lenihan — CFO, Texas Roadhouse
Yeah. Hey, Karen, it's Mike. I think with Bubba's, I think again, where it is in its life cycle with 60 restaurants. The metric that we are more focused on as it relates to performance are some of the newer restaurants, because they embody some of the learnings that we've got there and then applying it backwards. I think the other really important thing to consider with Bubba's, is that we are very much taking it with a long-term approach and not a quarter-to-quarter approach. When we do that and we measure where Bubba's is at 60 restaurants and compare it to where Texas Roadhouse was at 60 restaurants, some of the metrics are extremely encouraging. With that approach and applying some of the learnings to the new ones, that's where we believe the better focus is on same-store sales.
Karen Holthouse — Analyst, Citi
Great. Thanks for taking the question.
Jim Sanderson — Analyst, Northcoast Research
Hey, thanks for the question. I wanted to go back to same-store sales in the second quarter. Any benefit or impact from the World Cup? I noticed that you had said that June decelerated a little bit and wondering if that brand exposure inspires you on to accelerate international franchising.
Mike Lenihan — CFO, Texas Roadhouse
Hey, Jim, it's Mike again. I think from a sales impact in Q2, we didn't really see anything significant across the system as a whole. We saw certain Bubba's restaurants have a bigger impact on an individual basis on game days, but nothing really measurable in the quarter across the portfolio. You did hit on a really positive impact that the World Cup had on us, and that was the social media that we got from people experiencing it for the first time. It is very helpful to some of the conversations we're having with some of the folks that posted those internationally and some of our sales efforts there.
Jim Sanderson — Analyst, Northcoast Research
All right. Just one follow-up question. Any expectations of purchasing franchise restaurants here in the U.S. that you can talk about?
Mike Lenihan — CFO, Texas Roadhouse
Yeah, we've got about 31 franchise locations left on the Texas Roadhouse side. We have roll-up rights for the majority of those sites. We talk all the time with our franchisees, and they know when they're ready to step back, that we're ready to step forward.
Jim Sanderson — Analyst, Northcoast Research
All right. Thank you.
Peter Saleh — Analyst, US Bancorp BTIG
Great. Thanks, guys. Jerry, a few minutes ago you mentioned the brand is a national brand, but you like to keep it more on the local level. Just wondering, historically, your marketing advertising is very much on the local side. You guys don't spend a ton on the percentage of sales on marketing. Is there any thoughts about changing that or any increasing the contribution or any change in strategy or going forward on the marketing side?
Jerry Morgan — CEO, Texas Roadhouse
Yeah. Thanks, Peter. We have not ever spent any money on national TV advertising. We absolutely believe that local store marketing, grassroots kind of approach, getting out into the local communities, shaking people's hands, delivering some fresh baked bread and just talking about Texas Roadhouse and what we can do for them, for their business, for their family. We've always taken that approach to legendary food, legendary service, and just high-level community engagement and involvement. If they need us to do something to help them out in some way, shape, or form, we just want to be a go-to in that deal. Whether it be local hotels, schools, churches, we want to be their partners on any of their needs. That's really been our approach.
Again, just keeping it as a locally owned and operated business, that's just always been our approach and it's worked very well.
Peter Saleh — Analyst, US Bancorp BTIG
Thank you very much.
Brian Vaccaro — Analyst, Raymond James
Thanks. Good evening. Just a quick clarification on the lower commodity guide for the year in 2026. I'm curious, is there any change in your non-beef basket inflation for the year?
Michael Bailen — VP of Investor Relations, Texas Roadhouse
Hey, Brian, it's Michael. There's a little bit of an uptick in produce with everything that's gone on there. Nothing significant.
Brian Vaccaro — Analyst, Raymond James
Okay. The question I had was, Jerry, you started off talking about the long-term growth opportunity that remains in front of you for the core Texas Roadhouse brand. I'm curious how California factors in to that future growth. I think you only have about 20 stores in that market. You've been buying those stores in recent years, making them company-owned. Are you spending more time and focus mapping out California? And maybe we could see a rising mix within your pipeline over the next three to five years. Thanks again.
Jerry Morgan — CEO, Texas Roadhouse
Thank you. Yeah, we have 20 open. I think we have six in development. We continue to identify markets in California and exercise where we want to go there. We know that there is a lot of sales opportunities in California. We've got some really high volume stores. We believe that over the time, we've learned how to manage and control business and work in California.
Even with all of the complexities that it consistently challenges businesses. We do know people love to eat and all across there's a lot of folks in California that love hand-cut steaks and fresh baked bread and ice-cold beer and a legendary margarita, and we're going to be available to serve them.
Brian Vaccaro — Analyst, Raymond James
Thank you.
Michael Bailen — VP of Investor Relations, Texas Roadhouse
No change in component.
Speaker — Analyst, JPMorgan
Hi. Thank you. This is Crystal on for John. I wanted to ask on your labor. As you keep expanding towards your TAM, how are you thinking about labor ability both at the store level and especially at the managing partner pipeline? Do you see any need to revisit your compensation plans or incentivize your incentives to strengthen the pipeline and ensure that you have enough high-quality operators to support growth?
Michael Bailen — VP of Investor Relations, Texas Roadhouse
This is Michael. On the labor side, we have no concerns about our ability to staff our existing restaurant staff, new restaurants. New managers for new locations, we don't feel will be an issue. Whether that's bringing people, promoting from within or bringing in people who are already living in the community that we may expand into. I don't think we foresee any needed change in our compensation plan. We have a very strong managing partner program and feel very good about that. No expected changes at this time.
Speaker — Analyst, JPMorgan
Got it. Thank you.
Jerry Morgan — CEO, Texas Roadhouse
Thank you all very much. Just wanted to say thanks to Roadie Nation for all they do to make our company just stronger and stronger every single day. Have a great summer. Enjoy your evening. Yee-haw, Roadhouse.