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2026.09.29 | TB | Consumer | Texas Roadhouse Growth Outlook

原标题：Texas Roadhouse – Can it Lasso More Growth Without Straining the Model?

#consumer

Third Bridge · 2026-09-29

Analyst-led • 18 Sep 2026

Companies: DRI US, TXRH US, BLMN US

Patrick PJ Kupris (PPK) Managing Director at PJK Talent LLC

Landon Luxembourg (LL) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

LL [00:00:01]: Welcome to Third Bridge's Interview entitled Texas Roadhouse – Can it Lasso More Growth Without Straining the Model? I am Landon Luxembourg and I'll be facilitating today's Interview with Mr PJ Kupris, former Managing Partner at Texas Roadhouse Inc.

PJ, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

PPK [00:00:27]: I agree.

LL [00:00:28]: Could you please begin with a brief introduction of your background?

PPK [00:00:35]: Sure. Good morning. My name is PJ Kupris. I've been a restaurant operator for nearly 40 years, mostly in the casual to fine dining segment. I was with Texas Roadhouse 12 years as a managing partner here in New Jersey. I was involved in opening about six or seven locations here in the greater metropolitan area of New York City and was hired on as a managing partner, had a great career with them and really excited to see where they're going to go. I think they've got a strong business plan. I am currently into restaurant consulting and recruiting. I keep my fingers, ears and eyes on the restaurant industry and trends that are happening nowadays.

Questions

00:01:25] Could you share your outlook for the broader US casual dining industry and what it might look like over the remainder of 2026?

PPK [00:01:45]: Sure. What I'm seeing and hearing from operators and talking to people in the business is it seems to be the word of the year, bifurcation. There seems to be kind of a shaking out of middle players that are underperforming. Maybe they're tired brands, maybe they're just a little bit long in the tooth that seem to be going by the way. I see a lot more focus on quick service, a lot more focus on different ethnic groups, Middle Eastern food segment seems to be perking up in some areas as evident by Cava's success and some of the other ancillary smaller regional chains in that area. I also see fine dining, high-end, Capital Grille, Morton's, also excelling and outperforming. There seems to be the family group in the middle, the pay cheque by pay cheque work in Bubba's as Roadhouse would call them, the families taking the kids after the soccer game, seem to be in a middle place where they're either going through the drive-through and eating in the car or looking to see what family packs are out there to try and get something to go.

I see that the operators that just can't be consistent when people are really struggling and really choosing hard where they're going to take their family out seem to really not be as lenient as they were pre-pandemic when times were a little bit… Traffic was a little bit more spread out evenly. There seems to be more of a survivor mode, like people are only cut back on their disposable income going out to eat, they're certainly going to make choice and try and go buy and eat the market brand, a reputation and what they personally know and appreciate.

00:03:51] Texas Roadhouse followed a strong Q1 2026 with a strong Q2, including some positive traffic and continued comp momentum into early Q3. How durable do you think this traffic outperformance is over the next few quarters, especially given that the broader casual dining segment is running negative guest counts in some parts?

PPK [00:04:24]: I've seen that. I think that Roadhouse has the position of strength. They're sitting from a top of the mountain in the restaurant casual dining segment. I think they're going to be tough to knock off. I certainly think that, as I mentioned, it's getting tough. There are negative traffic counts, but people still have to eat. I think that they're either choosing something either downplaying and going to a drive-through for quick service or where Roadhouse is really trying to focus on is making sure that when people do choose them that the guest has a great experience and leaves with to-go food, leaves with smiles on their face, maybe a tune in their head and certainly a pleasant atmosphere. If they dropped whatever it took to feed a family of four nowadays that everybody is walking out with little leftovers and enjoying it a lot better. I think that they have some initiatives going on that will help with throughput, maximising certainly the locations that are already there. The traffic is… I mean the parking lots can be an issue in some locations, me specifically speaking of the Teterboro location in Bergen County, New Jersey, was very compact and probably holds them back a little bit on certain days because of the traffic of the external mall hurts, so they're looking at different ways to go and get people in and out without losing hospitality…

LL [00:06:09]: Sorry?

PPK [00:06:10]: I was just going to say whether it be by quicker ticket times or quicker seating times or quicker turnaround times. That's all I was going to add.

00:06:20] Which of Texas Roadhouse's drivers, if any at all, are most likely to persist, even if the consumer backdrop softens?

PPK [00:06:32]: I think the drivers are continue to be with the local communities with the managing partner programme, it really allows for the local managing partner who has invested their money into the restaurant to really get out there and own that community. Although some communities are thriving and some are not doing so well, for the most part, Texas Roadhouse locations are accessible to different income variables. I believe that the real estate has been able to choose better locations that are more durable during uptimes and downtimes. I think that they're in a spot price point where they can keep their prices under LongHorn, under Outbacks and they compete on a value proposition where people can think of Texas Roadhouse as getting more meat for their buck, bang for their buck. I know there's been some initiatives to market into the supermarkets with their cinnamon butter and candles, I think that that's been an avenue that's still untapped for its full resources. I'm sure they're considering there's going to be cannibalisation if they start marketing barbecue sauce and dressings and all that stuff from the restaurants, but that would be another area with the sizes of the locations pretty much being intact. There is a programme, they call it a bump out where stores that are outperforming and have been vetted will receive 6-8 extra stores by simply blowing out a side of the restaurant and adding on to the four square walls.

That's been successful, I believe, in just about every place they've been able to do that by increasing sales, just by increasing capacity. I think that the model for dinner only will still stay, although that's always going to be a trigger that they could always go and open up for lunch seven days a week. I have not heard anything to that extent yet. I think that the culture kind of forces them to really think that that would be like a last ditch effort, and I don't think they're anywhere close to pulling that lever. I think inside operations, getting quicker table turns will lead to people being able to go into a busy restaurant and feel like they're not just a number, but they're actually being taken care of. I can't underemphasise that I think that's so important nowadays where people are really struggling and going out to eat has become more of a premium where maybe it wasn't as valuable because people were going out maybe three or four times a week. Maybe now they're going out one or two, and they really want to make sure that they have a great experience. I think that Texas Roadhouse appreciates that where the guest is coming from and wants to deliver seven days a week on that.

00:09:47] You mentioned the importance of brand recognisability in the current environment. For Texas Roadhouse, to what extent do you think structural brand strength is important vs benefiting from a category-level rotation where struggling competitors are sending guests to Texas Roadhouse?

PPK [00:10:22]: People like to be associated with winners. In my experience of 40 years, I've seen when Steak and Ale was the big dog, when TGI Fridays was the big dog and Bennigan's was a big dog. People like to go there because people like to go to places that are hot, that are kind of exciting. You can see it in some of the fast casual where people get excited when the Chick-fil-A comes to town. Now it seems to be like here in New Jersey, speaking from experience when Raising Cane's was building, that's where my nieces were all excited because that seems to be the segment that loves chicken fingers is teenage girls, teenage guys. Not that Chick-fil-A has done anything poorly or gotten any negative press. It just seems to be a little bit more fickle in the quick service. I think with the casual dining, people actually come in and sit down and know that they can get a full square meal and have liquor, beer or wine available to them, and they can't afford the white tablecloth or perhaps they just don't know the etiquette or intimidated by going to somewhere a little bit more fancy. I think Roadhouse really disarms a lot of people from eating out anxiety of what to do because the answer is always yes and what's the question to the guest.

If you want some extra dressing, yes, of course, we can. You want another set of rolls, of course, we can. We can do that. You want some more peanuts? Of course, we can. There's never been a theory of, well, let's try a nickel-and-dime. If you want an extra sauce, well, it's USD 0.25. If you want another bag of peanuts, it's USD 0.50. That kind of negative thinking is never really… I've never seen it in my experience with Texas Roadhouse. I think that's where some other brands have lost their guidance with different ownerships perhaps coming in, different consultants trying to squeeze different restaurants down to being more afloat and being positive cash flow, but I think that Texas Roadhouse will still remain, give the people what they want and do it with a smile and they will appreciate it and they will return. I think that's shown in their guest counts being positive again still for that. I think bringing the experience on a consistent basis, getting people to appreciate that the brand is strong. They keep their nose clean. They don't get involved with politics. They don't want to isolate or alienate anybody. I believe it was Michael Jordan, who said, both Democrats and Republicans still have to buy shoes. The same goes for the all. Democrats and Republicans still have to eat.

Texas Roadhouse really has been able to maintain some anonymity. They don't go out and sponsor college footballs. They're not blasting their benefits on national TV. Again, going back to that managing partner programme that they have, it really makes it relevant to stay important in the community, local in the community and relevant by knowing everybody and making sure that the people that live within 3-5 miles, your regular people really look at Texas Roadhouse as a value being in their neighbourhood. I think they've been pretty successful doing that for the most part.

00:13:56] How much of Texas Roadhouse's current strength do you think is reflective of the brand's value equation vs consumers seeing steak away-from-home as a better deal than buying beef at retail?

PPK [00:14:21]: When you come to Texas Roadhouse, certainly, you get the steak in the food and the potatoes and all that, but certainly, the ambience. Country music is at an all-time high in popularity. When you get out of your car and you hear the speakers kind of blaring Jason Aldean or probably a lot of Dolly Parton right now being overplayed. It really kind of brings a lot of people a level of comfort that, hey, this place is jumping. It is a Roadhouse and name and in essence. Then when they come in, they hear the excitement, it's more of an environment that is conducive to socialisation, more smiles because hopefully, the employees, the roadies are smiling. I think that that brand is something that you can't really duplicate, and I don't think it's something I've seen at an Outback or at LongHorn. Certainly, I've had good service. I've had good management in both of those locations and both of those brands throughout the years and recently, but I think Texas Roadhouse does kind of put that a little extra in people's mind. It might be a deciding factor, Outback Steakhouse or LongHorn or Roadhouse. Then when people go down to it and then which one we're going to have more fun as a family. I think Roadhouse has that driver, that brand awareness like, hey, they're going to… It's like a party in there.

Let's go there. Maybe if they want something more quiet and serene, then they might choose some place else, but for the most part, with people not feeling great about the economy, people not feeling great about what's going on in public sentiment and surveys that I've seen across the board, you come in here into a Roadhouse, have a very good steak, have a great expectation to have that and when that's delivered and people are leaving, I think that really sets people apart for Texas Roadhouse like, hey, they really do it. It's a Tuesday afternoon, it's a Tuesday evening, and we had a great time. It's not like some places that just kind of go for their home runs on Saturday and Sunday. Roadhouse really does try and have that mentality of every day we're open, let's put on the show, let's put on our game face, it's time to go.

LL [00:16:57]: Is this something consumers actively seek out, not just because it's a value steak?

PPK [00:17:06]: I see a lot of… Besides the quick service, I would also say that I've also seen a segment grow that's unique as well. I think that's like more of the entertainment, like these big box, like here in New Jersey, we have a concept called the Albatross, which is a huge bowling alley, bar, minigolf, all under one roof. Certainly, Topgolf has had ups and downs, but people seem to be gravitating. I'm seeing some other buildings where it's an event-driven type of stuff, getting people to come to their location to throw darts, shoot pool, all under one roof, kind of like a revamp of the Dave & Buster's, but for adults, where it's a little bit more adult-centric, but still kid-centric. You have the games for people involved. Just speaking about when people are thinking about going out to eat, I think when people go to Roadhouse, they want to eat but also enjoy the atmosphere. Certainly, if you go to Topgolf, you're going there mostly to play golf or if you're going to a bowling alley or one of these fancy upscale bowling alleys, you're there for that.

Then the food is ancillary. If it's a good burger or chicken sandwich, that's fine, but I think with Texas Roadhouse, when people are deciding, hey, we want to eat a dinner because it's 18:00 in the evening, and it's time to feed everybody and have a good time and enjoy some extra bread or some bread to take home. I've seen a lot of casual dining take a step back from the all-you-can-eat and stuff like that where Texas Roadhouse doesn't do the all-you-can-eat, but certainly with the bread and the peanuts, you can have all you can. I think those little maybe not obvious things are just small little subtle hints to the guests that I think they pick up on that when they're walking out with a bag full of take homes and leftovers that I think that that really travels well. If other restaurants are Ruby Tuesday or an Applebee's, I'm not sure if that really carries over. You seem to get as much as you can eat for a normal person, and from my experience in both of those places, I have not seen a real big need to… A lot of people walking out with extra food per se.

00:19:47] For the consumer segment that is potentially just looking for a value steak, where the value equation and proposition either means getting an experience with a steak or staying at home and paying very similar pricing, do you think Texas Roadhouse would be able to retain those newer consumers or the more frequent guests that it has attracted?

PPK [00:20:21]: Also, it's been known in Texas Roadhouse that the repeat guest is 70% of the business. The people that know Roadhouse, love Roadhouse, come in there once a week, once a month, twice a week, twice a month, whatever it is, it seems to be… There's always been that emphasis to try and convert the first-time guests. It was called literally the first-time guest programme. If you came into the restaurant, one of the host's job would have to… Part of their spiel is, "Have you ever been Texas Roadhouse before?" Based on your answer, if you said no, then they kind of go into an extra spiel about the fall-of-the-bone ribs and the ice cold beer and the legendary margaritas to give you a little bit more sense. Then that host would after seating you and making sure that you're comfortable, also let the server know, hey, this table, party of four, it's first time here. Then that triggers another notification to the floor manager. Then the floor manager sometime throughout your meal will come by with a little welcome pack of either peanuts or a free appetiser card or sometimes even both or just a little extra something just to say, "Hey, thanks, how was everything?" and really make sure that your first experience with Roadhouse is what we want it to be.

This way, you don't quietly just go leave the building without any interaction with the manager or indifferent server that isn't present to what you're looking for and make sure that, hey, you've talked to a manager, you had a great steak. Even if you had a problem, wow, they fixed it, they were right on top of it. Those things, you never get a second chance to make a first impression, cliche, but it's so important. It's something they've always taken to heart that when people have… From my own experience, you walk into a place, there's nobody at the host stand, you stand there for a little bit. Again, being in the restaurant business, maybe I'm a little bit more sensitive. You're already kind of taking points away. With Texas Roadhouse, we're making sure that they have a full staff up at the host stand all the time to answer the phones right away to make sure that anybody walking through the door, whether it's a guest or whether it's a delivery person is acknowledged immediately upon setting foot into the restaurant. Sometimes we have people holding the door outside because it's so packed and we need to have somebody outside taking names. That kind of acknowledgment to the guest, like, "Hey, we're a very busy restaurant. We know if you have to wait in this cattle herd in front of the host stand, that's an uncomfortable position for most people."

If we can alleviate that by putting some people out front to try and address that, I think that sends a message right away, like, "Hey, we're a serious restaurant. We know it's very busy. We only have X amount of square feet, and this is the best that we're going to do. We're going to throw people at the problem." If we have bright, shiny people at the front door, that's something I rarely see at other restaurants on busy nights or not so busy nights that they will say, well, it's not that busy, let's cut the host stand. For a typical restaurant, that's what their most of the thinking is, let's cut down on labour. We'll cut back on the host stand and maybe the guests might have to wait five or 10 seconds because there's only going to be a few hosts on there. They might be busy doing something else. Roadhouse really has flipped that around and saying, look, the last thing we want to do is have anybody walk into our restaurant with their wallet full of cash or credit cards, wanting to give us their money, and we have to make them wait. That seems to be almost the first sin for Texas Roadhouse. They want that immediate acknowledgment, "Hey, how can I help you? What can we do?"

That kind of mentality is just a class above itself on a generality. Certainly, they're not perfect. They serve a lot of people every day, but for the most part, that's the mantra is, again, with the value proposition and getting in there, that's something that you won't see at a or at least I have not seen at some places like a Ruby Tuesdays or casual dining or someplace like that.

00:24:46] Could you share your outlook for Texas Roadhouse's pricing strategy? We saw a 1.2% pricing increase in Q2 2026, and the company is planning another 1% in Q4. How much pricing flexibility might the brand have while still protecting its value proposition?

PPK [00:25:15]: Sure. That's going to be the tough one. Meat is going through the roof, commodities are continue to increase, and there is a Roadhouse that serves a lot of steak that's built their brand on steak. If that goes up, then it's really tough. I could tell you in my dozen years with Roadhouse, increasing prices was really a knockdown drag out. Certainly, operators like myself always like that extra 3-4% when we can get it, but we were always shot down by our uppers. They wanted to keep the increase as small as possible to not upset the guest or price ourselves out of the menu. One of the goals was always to try and stay under the Outback and under the LongHorn. When people are choosing restaurants by price and numbers that we would always maybe not be the lowest, but certainly not be the highest. Certainly, a lot of thought has been put into Texas Roadhouse. They've got the strength. They're certainly bigger than they've ever been before. They have a lot more leverage as far as pricing powers. They've got smart people in purchasing that buy contracts, lock in the prices to avoid the fluctuations that are going through. It seems like 2027 should calm down with the cattle from what I'm reading and hearing, but still wars, all that kind of tariffs, all those kind of things do affect what they're talking about.

As far as pricing, I could tell you that they've never wanted to increase sales by increasing prices. There's always been a great focus for butts in seats and guest counts to make sure that when Bob comes in, the goal is to have… Even if he gets a burger, an early dine or something like that that's just as important as someone who's coming in here and buying a bone-in steak with a side of ribs. That was always valued as the trifecta. You always want it to be positive in sales, positive or green in guest counts and then positive or green in profits. That was kind of the triangle that when hit, that's when you really were in your game, and that's where they want all the stores to be positive in sales, guest counts, traffic and also, of course, profits. Certainly, with the pricing being very conservative, I think they could play around with the menus and try and emphasise some more lower cost items. I know when they've had price fluctuations with beef in the past, certainly, they emphasise and they had strong price on shrimp or ribs, they were able to focus a lot more items with shrimp or ribs.

If you had a steak that maybe was a, let's say, 40% food cost at X amount of dollars, if you added a side of shrimp, that plate cost might be reduced because you added a side of shrimp, which might be a 20% food cost, let's say, and then really reducing that price down. It's some mathematics. I'm not sure if I'm accurately saying, but because you're getting a higher dollar price point, the plate cost even with the added food is a lower percentage of that price overall. It's a better food cost item, if that makes sense.

00:29:11] Looking at industry pricing and how many players are taking price, and then considering Texas Roadhouse's actions, do you still think the company is at an advantage, net-net?

PPK [00:29:37]: Above the other competitors, I do. I think that getting back to your original question, I mean, I think the full-service casual dining is struggling. I think that it's tough to find the time to go out to a lot of restaurants, and I think it's tough to find a restaurant concepts out there that are worthy of people's dollars. I think that with Roadhouse, they come into it with that anticipation saying that every dollar is valuable, and we don't want to lose anything because of operational underperformance, and they want to make sure that the people that do come in are getting taken care of, and I think there is a value to that actions. When a lot of operators are out there and other concepts are just hoping that they're busy, maybe not scheduling enough people, I think Roadhouse will overschedule people to make sure that the food is going out, put another server on to make sure that the tables are taken care of and people aren't getting larger sections, but I think with the casual dining restaurant, I think that that is even a higher value because of the consistent performance.

Again, circling back, I think when people are discerning their money and where they want to go and where they want to choose, certainly, sometimes it's location, convenience, but I think when people are really thinking about celebration or any type of, "Hey, this is serious. Let's… Can't go to Capital Grille, let's go to Texas Roadhouse because their food is fantastic." I think with the other thing you were asking about with eating at home, I think because of the variety of different options, if people aren't sure what they want, they know that, well, maybe I want a T-bone, maybe I want a bone-in, ribeye. You're not going to go to steak in the local supermarket and buy both and put them in the fridge and kind of decide later, you're going to make that decision right there. I think going to a Texas Roadhouse gives you a lot more flexibility while you're enjoying the music, the ambience, the dancing, the peanuts, the bread, all that stuff, you're thinking about you kind of get… I don't want to say hitting the tiles, but you kind of get into the mood where, okay, well, maybe I'll get that extra side of shrimp. Certainly a lot more enticing when you're in the building to try and suggestively sell something vs someone thinking, well, I can get, here in New Jersey, it's ShopRite.

ShopRite steaks. I'm not bashing them, but certainly, the quality of the Roadhouse and what they put into it and how they season it and how they do everything to make it taste as well as they do, I think that's something that can't be replicated at home very easily.

00:32:26] To what extent do you think there's a risk regarding the partner model? Do you have any thoughts on the merits or drawbacks of allowing managing partners to build their own culture or brand within the brand?

PPK [00:32:54]: That's a sweet spot for me. I think that that's really… If there's one thing you want… It's a managing partner programme. It doesn't dilute the brand as looking on surface, it may appear to be. There are strict controls from the market partner who usually… Who also has a financial investment into his or her market, and they usually run anywhere from eight to 12 restaurants. That would be the first level of multi-unit in the hierarchy. That person has to make sure they're the ambassador of the brand, they're the protector of the brand to make sure that whatever Sally in East Stroudsburg is doing or Bobby in Bloomfield, wherever the location is, all complies with what Texas Roadhouse has allowed people to do. Now in one hand, it goes with hiring a higher calibre of person to run those stores and understand that accountability. It also allows so much more for people like myself who have been in the restaurant industry. When you don't have skin in the game, like partners do for a USD 25,000 buy-in, it is a different mentality. When all of a sudden that… Then again, that money is a lot of money for some people, especially in the restaurant business where you have operators, some went to college, some didn't, but it's a great opportunity for hard-working smart folks to make sure that they follow the leader, build on what successes have been before.

Roadhouse doesn't allow Sally in East Stroudsburg to change the prices or open the lunch just because she wants to. Everything has to go through and get approved. There is a process behind the scenes, but it really does allow people. If Sally wants to cater the East Stroudsburg high school on their Friday night football, she can certainly do something like that. That's within the realm of responsibility and account for local store marketing. They can't go and rip out tables or change the facade or do anything like that. It all has to be protected. Even though there is a lot more autonomy than you would have at, say, the General Manager of a LongHorn or General Manager of Applebee's, it really gives a lot of pride to that person. If they've been vetted correctly, they're usually a Type A person who likes to be in control, can multitask, certainly has shown leadership in past performances, whether that's working their way up through the culture of Texas Roadhouse. If you have one store, you have 1,000 stories of people that have started as bussers and servers and bartenders and now have their own cooks or dishwashers and now are managing partners of themselves and making a nice pay cheque for themselves and their family. That can be repeated ad infinitum because the culture has been so strong. I think even as they continue to grow that culture is not being diluted.

00:36:27] Given that the Texas Roadhouse brand is approaching about 95% company-owned as franchise buybacks near completion, does operating closer to a fully owned system change the culture of accountability and ownership that has historically made the managing partner model that you discussed work so well?

PPK [00:36:54]: In my experience, a lot of the franchise models, I don't want to say were diluted, but they didn't seem like… The people that I spoke with that work for franchise didn't have as much financial incentive. I don't think their benefit package was as strong for the most part as the company. I do believe that buying back is an advantage because now all those companies with the partners and their managers all get a bump. They'll get better benefits. They'll get perhaps a better bonus buying. I'm sure they have to all be managing partners and whether they bought into the franchise. I don't know the intricacies of that, but I think that that would be an advantage for Texas Roadhouse, certainly having more control of it, more consistent execution. I know that some franchises did some different things with the menu, everything was approved and some things were good and some things weren't, but certainly, it's an easier implementation of technology. That's something that certainly all casual dining restaurants are going through right now with more and more getting the KDS and losing the old system of chits and tickets. I think getting the franchise buybacks in-house, again, more consistency because now everybody is on the same plan, everybody is on the same field.

Then it also adds to the restaurant-level economics, whether they were getting their food, perhaps maybe their local produce. There's things that certainly with the strength of so many restaurants being included can get better prices for trash, can get better prices for linen, can get better prices for all those ancillary different restaurant expenses that nobody really sees everybody thinks about, well, it's how much it cost for a steak. Well, no. You have to get a liquor license, you have to have garbage pickup, you have to have linen. All these things can vary depending on who the contractor is. If you're getting a nationwide price, it's probably better than your local ABC linen company that handles maybe five or six stores. They might be able to go with an Aramark or a (inaudible 39.21), one of the bigger national brands and instead of paying USD 0.10 a dish towel, maybe they're paying USD 0.05 a dish towel. Now it doesn't seem like much, but as anybody who knows restaurants, it's a nickel-and-dime business. By saving that, how many thousands of towels every restaurant uses every week times X amount of people, would just extrapolates into greater savings and better margins and not so much pressure.

This way, when steak and commodities go up, they have a little bit of a lever that they can pull by going corporate and getting better prices for insurance for all those different things that buying power can bring. I think that's an advantage, and I think it's a smart move for them just as an outside observer. That's just my opinion.

00:40:17] We saw restaurant margin dollars rising in Q2 2026 for Texas Roadhouse, but it seems to be the case that the margin rate still declined to 16.4%. How do you expect that margin story to evolve over the next few quarters? What does its path to margin recovery look like?

PPK [00:40:39]: Oh, the price of beef going down would certainly be one trick pony for sure. Other than that, they got their work cut ahead to them. They are coming up on really maxing out. When you have a line out the door at 16:00 and you're on a wait until you close at 22:00, I mean, how many more people can you get through? How many people are turned away because maybe they do like a quieter setting or a little simpler setting. They knew that coming in at 16:00 or 17:00 was the quote, unquote quiet time for Texas Roadhouse. Now for some, it's not. Now how much can you put through without making people feel like they're just a number. That's where Texas Roadhouse with all the music and the peanuts and the bread really try and soften the blow for how quick they want people to get in and out. I think you've never seen or will ever see a great pressure to be put on desserts. They've kind of stuck with their tried and true because they're easy to execute. They're pretty much bulletproof as far as a scoop of ice cream as long as it's cold is a scoop of ice cream. They don't try and do anything extravagant and keep people there any longer. They've got their work cut out. They've got to get people to get in out quicker.

Certainly, to-go is certainly… They've done some nice improvements as far as getting people and order accuracy and operations to handle what they're trying to do. Now I think it's just a matter of trying to not just survive it but thrive in the to-go business. I think inherently, steaks, ribs, chicken, are travel well than vs, say, like Carrabba's, if you get a to-go bowl of Fettuccine, even if you get it home in 20 minutes, it could be spackle. It just, some foods do not travel so well. Calamari, fried foods like that do not travel well. Steaks, French fries, baked potatoes, sweet potatoes, they travel pretty well. They have to get people to come back the to-go food and building that by whatever means that they're looking to do and then get back to those the unit economics. If the price of labour is going up, which it seems to be continually and putting people on is really going to make it challenging for them. Even with throughput has been their main driver, I think some units might be coming up to a wall if they're coming up close. A lot of stores are doing higher volumes than they've ever done and certainly higher volumes than they were originally built for. Stores that were built 10-15 years ago might have been excited to do USD 3m-4m a year. Now some of those stores are doing USD 7m-8m a year.

They didn't get a bump out because they were built in a smaller location thinking because of the traffic demographics that they would only be at that USD 3m-4m level, maybe get up to USD 5m. I think that that's been the challenge for some of the places because they might have had a real estate deal where they can expand. Again, going back to the Teterboro, where land is so valuable in Bergen County, they would love nothing more than add eight more stores, and they would easily go from a USD 10m or USD 11m store to a USD 14m-15m store just based on the demand, but they can't. I think that's where Roadhouse is really looking at what they can do, how they can rework their leases to try and build some of those build-out or bump outs like I had mentioned. What they can do with the other stores is certainly making sure the kitchen capacity. I know they've been working on a two line, a dual line, not to get food techy, but for the most part, Roadhouses work off of… They usually have two grills in the front, and that's where the two grill cooks will push out all the food. Then it just kind of funnels into a one line. This dual kitchen concept that they have will have one grill handling one section and then another grill pushing off other food.

This way, as food will have an extra relief valve as it goes. I hope I explained that correctly, but I think that it all goes back to how can you get the people in and out because it's not a matter of people not wanting to come in. It's just a matter of how quickly can you serve them. Certainly, there's some decay because if you tell people on a Tuesday, it's a 45-minute wait, you tell 20 people that, maybe 15 might wait and maybe five might go, you know what, let's just go to Chick-fil-A next door. Let's go get a pizza right next door. There's going to be some decay in that capacity. People do have a limit on what they'll wait and Texas Roadhouse was always aware of that. We always tried to, during the weekday, keep the wait under 30 minutes. 20-30 minutes always seem to be the kiss of death. Once you went to 35-40, people really said, now we'll try someplace else. On a Friday or Saturday night, maybe that goes up to 45 minutes. People will give you 45 minutes, but once you go over that hour, that's the kiss of death and people say, you know what, I don't have time for an hour, I'm really hungry or we just can't wait an hour. We have kids or we have older people.

I think some of the technology with maybe possibly pre-ordering, I know that with the Ziosk that they put on the tables, that was certainly an emphasis just, okay, if you can't find the server for whatever reason, you go ahead and pay and let yourself out. I think that's helped. I think although they've been not in the forefront in technology, they've always wanted new technologies to be played out by other concepts. I think they're smartly waiting to see what technologies can be useful in the Texas Roadhouse brand and add value to the guest, add value to the employees, the roadies and making sure that the hospitality is not lost in the technology.

LL [00:47:22]: My question was on margins and what the path to recovery looks like. I think your answer was, "Well, it's counting on commodity inflation coming down", which is a part of the guidance that we last heard from the management team. How much confidence do you have that the beef pressure is becoming more manageable?

PPK [00:47:56]: That beef price is so important in the Texas Roadhouse system. I think just going from what we used to do, I think, in like 2016-17, they had smaller… They would cut down the strip steaks and serve smaller portions. That was something to try and get people in. As far as the margins, I think it's going to continue to be tight. As long as beef stays up there and that being the market driver for them, it's going to be a challenge. There's only so much you can do with purchasing. I think that… Right now, I think the near-term pressure does appear more manageable, more stable if they can lock into that. The labour, I think their dinner-only model allows for them to run restaurants with only 2-3 salaried managers. Once you open up for lunch, you certainly need another full-time salaried manager, maybe two. I think the technology, how much they can keep that in cost and kind of implement new KDS systems and making sure that the technology doesn't start adding or detracting from the margins. Then also, of course, to-go business as well, putting pressure. It's the same steak, the same menu price.

They don't charge extra, but as soon as they put that steak in a container and put it in a bag and put your drink in a cup and a lid and a straw, I mean you're adding sometimes USD 0.70-0.80 to that cost just by going out and you're not eating it on a ceramic plate with stainless steel forks that we wash. Even though they can build some top-line sales with the to-go business, it's always going to be more expensive to plate up a to-go meal. As far as the leases and the margins, I wish I had more for you. I think that the beef price is really always going to be a big container. As that goes, I think it just allows. I don't think that they're looking to do much more with Texas Roadhouse. They still have plenty of reasons to build the restaurants and keep them well-maintained, but I think that's all I have for that on the margin question.

00:50:40] You mentioned labour and some pressure there. Could you expand on your labour outlook for Texas Roadhouse?

PPK [00:50:53]: With the economy the way it is, is usually favourable for most restaurants. When there's not a lot of white-collar jobs or just general jobs out there, a lot of the restaurants are staffed with well-educated college kids or kids going through college, younger people going through college. I think that for the most part, working at Texas Roadhouse has not been much of a challenge. Again, it does go back to the brand strength. When people say, "Hey, I need to get a job because I've got student loans to pay or I want a server job and do I want to work at Applebee's or do I want to work at Texas Roadhouse?" People will normally, in my experience, kind of want to upgrade to a Texas Roadhouse because they like working in a place where they know what it is. I think that the price of labour will continue to moderate as the price of everything else goes up, but I think that with Texas Roadhouse model, the managing partner is on a set salary and their bonus structure is based on how much business they can do and how much money they can make.

I think with the labour part, they're still going to stick as far as with the servers, two or three table stations, I don't see or hear that changing at all, even as hourly rates for servers and tip credit states continue to increase and make it harder for margins to get squeezed. Cooks will probably be a little bit more stable, although they creep up there, but there's… Once you have a full staff, there's not too many more people you can really hire in the kitchen. You really can't cut people down. A lot of the kitchen was built on one person does one job. The grill person does a grill job. The pull person does one job. The push person does one job, the fry person does one job. Even though on slower volumes, sometimes you can cross-train and get some people over there, that to do multiple jobs for one person, but for the most part, a lot of the jobs are one person. With the volume, even with the dishwashers, sometimes you need one and sometimes you need three or four because of the speed that people need. The way they build these restaurants, they're not… Sometimes storage is an issue. You need at least two trucks a week.

As far as the labour for the servers and the SAs, I don't see that changing very much, and they're going to keep driving more guests coming through the door to offset the increase of prices. The labour is going to be… It's a people-focused business. That's certainly been the strength. They paid for it by compensating well. I don't think they're going to stop changing the bonus programme for any of the managers. I think that most of the volumes are warranted and stores are staffed from what I hear and see. I don't think it's a matter of they can't find people. I think it's just a matter of perhaps using some of the technology to schedule smarter as far as anticipating volume increases or decreases and writing schedules according to that vs a lot of restaurants will just kind of copy and paste one schedule or the next and not really take into advantage some of the technology to see where the last couple of years have been, where are the sales trending? As far as labour, I think it's going to keep creeping up 2%, 3%, 4%, but the staffing level is always something that we've talked about in managing partner meetings, how many servers do you have? How many cooks do you have? Who's a host that wants to be a server. Those conversations always had. It wasn't as much not having enough people.

It's just making sure that you have people that are getting paid a fair amount of money that feel good about coming to work and making sure that you retain them simply by retaining employees really reduces your labour cost because you're not hiring people every other week to do the same job if you can keep somebody… The key mark I always had was if you kept somebody for a year, you pretty much… I don't want to say own them, but you really had them kind of locked in. There's a familiarity, there's a relationship, and I think that that's a hidden strength that Texas Roadhouse has is, yes, they might run higher labour cost than Olive Gardens or LongHorns or Outbacks out there, but if you flip in and you add in the cost to go out, recruit, train, locate different employees for different positions, it can really be a struggle. I think that that's where they have the advantage on the labour cost by keeping their turnover lower than the industry average and making up for there.

00:56:23] Regarding competition, do you think Texas Roadhouse is still taking market share from weaker casual dining brands, or is the bigger opportunity now in expanding steakhouse occasions against stronger peers such as LongHorn?

PPK [00:56:40]: I think it's a little bit of both. I think that with their brand strength, certainly, I think continuing to be the brand head and shoulders above the rest will continue to be an important factor for them. I think that the culture, the service consistency, not having… Even though Outback is kind of receding these last, I don't know, decade, if you want to go that far, guests may come back to Outback if they come back with a strong punch, but it's so tough in the restaurant business. Once you take a step back, it's a slippery slope. Again, going through the history and the archives of the Steak and Ale and the Bennigan's and the TGI Fridays. Once some of those companies take a slip back and they start sliding real quick. I think with Texas Roadhouse being known as just for so long, they wanted to be the number one. They wanted to knock out the Outback. Now they have. They've knocked out everybody. Certainly, I don't know if they'll go up to a Darden scale, although there are talks about building their secondary brands, the Bubba's and the Jaggers and getting them up there. I think they're also… With the size of building more locations in different spots around the country, making them more viable, even though you think 700, 800, 900 restaurants, it's a lot, but in some places, they're few and far between.

I think where they can find real estate deals that make sense to them and long-term growth for them, I think that they can continue to build in anywhere USA and be successful because I think they're still going to bring the strong operations, a strong culture and continue to build market share by taking advantage of performers that are competition that's underperforming on a consistent basis or just operators or other concepts that are inconsistent. I think the Texas Roadhouse really puts a high value and premium on secret shoppers to keep everybody on the same level field. The Google reviews are important, but certainly, they're unfiltered and can really swing dramatically… I think that the secret shopper programme, which brings in three service sit-down at a table and grade the service to one bar. There's four ratings every month that all Texas Roadhouses get, and they're ranked among all 800-900 stores to see who's the best and who is not. I think that levels the playing field and keeps everybody honest when they're evaluating their service procedures and how well the guest is perceiving what that individual unit is doing. I think that that's top of mind. If there's any slippage there, it's usually attacked right away.

00:59:54] Would you like to highlight anything else around Texas Roadhouse? Is there anything that the investment community might be currently overlooking about the business?

PPK [01:00:12]: Sure. Real quick with that. With the understanding that certainly Texas Roadhouse had a high over 200 earlier this year and has dropped down to, I think, yesterday, 160. I wouldn't judge Texas Roadhouse particularly by the number. I think that if you look past the numbers and you look to the company's leadership, which has been very consistent and what they're looking to do, I think that will give you a strong and clear answer to what's going to go. I think that as from an investment point, I think they'll continue to outperform, maybe not at the same margins as they have been, but I think compared to other casual dining restaurants, in the United States right now, I think they will continue to be a strong long-term investment. They've got smart people trying to figure out so many different things. For the casual dining, I think that they're still going to be one of the top picks out there. They're not going to be flashy. They're not going to be double their money in six months.

That's not the way they've ever run the company, and I don't think that that's the way they're going to do it, but I think if you look at the leadership and what they're trying to do and accomplish for a long-term slow, steady growth, it seems to be very consistent. I think the integrity of, hey, here's what we're doing, here's what we're saying we're going to do and here's what we're doing. That kind of integrity, I think, is important.

LL [01:01:39]: We will conclude the Interview there. Thank you for your thoughts and input on Texas Roadhouse. I want to wish you a great rest of your day. Thanks again.

PPK [01:01:48]: Thanks. I hope I added some value. Take care.

LL [01:01:51]: Bye.

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