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Diners are still coming to Texas Roadhouse for quality meals at fair prices — but cost pressures for one of its key menu items is a potential obstacle for investors to monitor. For now, at least, investors are mostly focused on what’s going right at the company’s restaurants, sending shares up more than 10% over the past three sessions. The stock jumped 4.8% Friday in response to first-quarter earnings; another 5% Monday during Wall Street’s massive rally on tariff-relief optimism; and tacked on a little more Tuesday. More certainty on trade policy could help shore up consumer sentiment, which has been on the decline in recent months, and reduce the risk of recession. Both would be helpful to the restaurant industry. The biggest highlight in Texas Roadhouse’s earnings report last week was strong same-store sales growth — a critical industry metric — in the month of April, part of its ongoing second quarter. The biggest blemish? A revised full-year outlook for commodity inflation of approximately 4%, after previously expecting it to be in the 3% to 4% range. The guidance change was attributed to updated expectations for beef costs for the remainder of the year — and, of course, that’s an important ingredient for a company selling steaks and burgers, among other dishes. Cattle supplies are tight in the U.S. , but resilient beef demand has pushed prices higher. On Monday, live cattle futures trading on the Chicago Mercantile Exchange hit a record high and are up around 22% over the past 12 months. Additionally, Texas Roadhouse factored in tariff impacts into its higher inflation outlook, saying seafood is its most-exposed commodity to elevated duty rates. Texas Roadhouse, which also owns the Jaggers and Bubba’s 33 chains in addition to its namesake brand, is guiding for steeper commodity inflation than its casual-dining competitors such as Darden Restaurants and Bloomin’ Brands . Bloomin’ Brands, the parent of Outback Steakhouse, said in its earnings report last week that it still expects commodity inflation in the range of 2.5% to 3.5% for the year, the same guidance it offered in February . “Obviously, there could be impacts from kind of the larger macro or some of the tariff components, but right now, we’re pretty well protected on beef. And so, no issues,” CFO Michael Healy said on last week’s earnings call. Texas Roadhouse and Bloomin’ Brands’ labor inflation outlooks aligned at 4% to 5%, though. Meanwhile, LongHorn Steakhouse owner Darden is guiding for total inflation in its fiscal 2025 of 2.5%. To be sure, Darden’s fiscal year ends this month, and executives said in March that commodity inflation in the current quarter is tracking above where it was earlier in their fiscal year, citing chicken and seafood as a big driver of that dynamic. Darden plans to share its fiscal 2026 inflation projects in June. For its part, Chili’s parent Brinker International in late April reported commodity inflation in the “low-single” digits. Wall Street hasn’t backed away from Texas Roadhouse. In a note to clients Friday, Morgan Stanley said the restaurant chain is still “a relative winner.” Analysts said that while there were questions about its same-store sales growth slowing, “that appears to have faded” and been more of a weather-related problem in February. Indeed, Texas Roadhouse CFO David Monroe said that comparable sales growth for the first five weeks of the second quarter tracked at 5%. That compares with 3.5% during the very lumpy January-to-March period. Texas Roadhouse’s more recent performance “may actually suggest a bit of upside to our prior sales estimates if it holds,” Morgan Stanley analysts said. Analysts did lower their full-year EPS outlook by 3% when taking into account lower margin expectations, though they described the revision as “not that material.” Additionally, “this could be beatable if sales remain solid,” they said. Morgan Stanley reiterated its overweight buy rating and price target of $200 a share on Texas Roadhouse. Analysts at BTIG did that as well. “While our full-year earnings numbers are coming down on higher cost of sales, consumers are clearly seeking value and Texas Roadhouse continues to stand out as a result,” BTIG wrote in its note to clients Friday. Bottom line The Club agrees with Morgan Stanley and BTIG that Texas Roadhouse is still worth holding. But we also don’t want to lose sight of how strong the stock has been and the risks that remain in an overbought market. That’s why we trimmed the position Tuesday. “I didn’t like that” change to its inflation outlook, Jim Cramer said during Tuesday’s Morning Meeting. “They went to 4%. They should’ve been a little more sensitive that that could go up more. They may have to do it again because the [cattle] herd is not big enough.” Our sale now gives us additional flexibility. For example, if the stock gets hit on macro slowdown fears again, we could look to add shares back. In early April, as concerns about a tariff-driven recession dominated Wall Street, we bought additional shares twice — first on April 3 at roughly $169 apiece, then again April 9 around $153 each. The stock closed Tuesday’s session at $190.51. “I just think we want to be responsible,” Jim said of Tuesday’s sale. “This is that kind of trimming we do — it’s not meant for people to say we didn’t like it.” (Jim Cramer’s Charitable Trust is long TXRH. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The Texas Roadhouse logo is seen on a sign outside of one its restaurants.
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Diners are still coming to Texas Roadhouse for quality meals at fair prices — but cost pressures for one of its key menu items is a potential obstacle for investors to monitor.
