Texas Roadhouse, Inc. (TXRH) Q3 2021 Earnings Report, Transcript and Summary

Good evening. And welcome to the Texas Roadhouse Third Quarter Earnings Conference Call. Today’s call is being recorded. All participants are now in listen-only mode. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] I would now like to introduce Tonya Robinson, the Chief Financial Officer of Texas Roadhouse. You may begin your conference.

Thank you, Emma, and good evening, everyone. By now you should have access to our earnings release for the third quarter ended September 28, 2021. It may also be found on our website at texasroadhouse.com in the Investors section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our earnings release and our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements, including factors related to the COVID-19 pandemic. In addition, we may refer to non-GAAP measures. If applicable, reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Jerry Morgan, Chief Executive Officer of Texas Roadhouse. Following our remarks, we will open the call for questions. Now, I would like to turn the call over to Jerry.

Thanks, Tonya, and good evening. Our sales momentum continued in the third quarter with strong comparable sales growth versus 2020 and 2019. It is encouraging to continue to see our dining rooms busy while our To-Go volumes remain elevated. Our operators and their teams are delivering on the promise of Legendary Food and Legendary Service each and every shift. Their commitment to the quality of our food and the level of our service remains unwavering and the benefit of this commitment is seen in the growing number of guests choosing our restaurants. Our strong topline performance during the quarter lead to continued unprecedented growth in the restaurant margin dollars and earnings per share. At the same time, industry-wide labor and supply chain issues on top of rising commodity inflation remain a challenge. While inflation is certainly impacting our financial results, we remain focused on what we can control and executing on our top priority, which is taking care of our guests. With sales growing and margin dollars increasing, we are confident that we are doing the right things for the long-term success of our business. As I mentioned on our last call, during the third quarter, we completed our normal process of evaluating our menu pricing. With the feedback from our operators, we implemented a menu price increase of approximately 4.2% last week. This increase will help offset some of the structural cost pressures that our restaurants are facing. While 4.2% pricing is above our typical range, we are comfortable that we are maintaining our leading value position in the industry. On the development front, our pipeline of openings remains on track despite the challenges of buying the supplies and equipment necessary to open new restaurants. We opened seven company restaurants in the third quarter and expect to open as many as 11 more in the fourth quarter, for a total of 29 company openings in 2021. This total is expected to include five Bubba’s and one Jaggers. Our franchise partners should open to more Roadhouse locations in the fourth quarter, which would give us a total of four franchise openings this year. As we look ahead to next year, we are targeting 25 to 30 company-owned Texas Roadhouse and Bubba’s 33 restaurant openings. Additionally, we look forward to adding seven more restaurants to our company base, as we have a non-binding agreement with one of our franchisees to acquire their restaurants at the beginning of 2022. As I conclude my prepared remarks, I want to again thank all of our managing partners, our managers and Roadies for their efforts. I also want to extend a special congratulations to David Hollinger, our managing partner from Greenville, North Carolina for recently being named our 2019 Managing Partner of the Year, while COVID caused us to delay recognizing David until just recently, it does not diminish the passion, partnership, integrity and fun that David consistently brings to the restaurant and to Texas Roadhouse. Congratulations, David and team G Vegas [ph]. Now, Tonya, will provide a financial update.

Thanks, Jerry. For the third quarter of 2021, we reported diluted earnings per share of $0.75, driven by $869 million of revenue and $135 million of restaurant level profit. Average weekly sales grew to over $120,000 as compared to approximately 92,000 in Q3 2020 and approximately $99,000 in Q3 2019. Comparable restaurant sales for the third quarter grew 30.2% versus 2020, comprised of 23.6% traffic growth and a 6.6% increase in average check. As compared to Q3 2019, comparable restaurant sales grew 22.3%, including 12.2% traffic growth and average check growth of 10.1%. The two-year check growth includes positive mix of 4.3% as guests move to higher priced entrees. By mouth comparable restaurant sales versus 2019 grew 25.5%, 21.5% and 20.3% for our July, August and September periods, respectively. As Jerry noted, we continue to benefit from elevated To-Go sales volumes. In the third quarter, our restaurants averaged approximately $18,000 per week in To-Go sales, which represented 15.1% of total sales. Over the course of the quarter, we saw a gradual increase in To-Go sales as a percentage of total sales, as dining sales levels moderated slightly, which we attribute to normal seasonality. Sales in our October period were also strong with average weekly sales of over $121,000 and comparable restaurant sales growth of 23.6% versus 2019. In October To-Go sales remained at approximately $18,000 per store week or 14.8% of total sales. For the third quarter, restaurant margin as a percentage of total sales was 15.7%, up 111 basis points as compared to the third quarter of last year. Restaurant margin benefited by approximately 45 basis points from a $4.8 million adjustment to other sales primarily related to adjusting our historical gift card breakage assumption. Food and beverage costs as a percentage of total sales were 34.6% for the third quarter. This was 242 basis points higher than the prior year, as a higher than expected increase in beef prices during the back half of the quarter drove total commodity inflation to 13.9%. Commodity inflation was approximately 10%, 15% and 16% for our July, August and September periods, respectively. Labor shortages at the processing plants coupled with high consumer demand are the primary drivers of the higher beef prices and these cost pressures have been magnified for us as we need to buy even more beef our restaurants, so they can continue to serve a significantly higher number of guests. Based on our current outlook, we expect high-teens inflation for the fourth quarter, which would bring full year 2021 inflation to approximately 10%. Looking ahead to next year, we expect commodity costs to remain elevated. With approximately 30% of our commodity basket locked for the first half of 2022, we currently expect high-teens inflation over that time period, with inflation likely above that range for the first quarter. With little of the basket locked for the back half of 2022 and given the level of volatility we are seeing, we currently do not have enough visibility to provide meaningful full year inflation guidance. At this time, we expect inflation in the back half of the year to moderate, given the prices -- the beef prices that we will be lapping. Labor as a percentage of total sales improved to 147 basis points to 33.2% as compared to Q3 2020. However, like last quarter, we believe a comparison to the third quarter of 2019 is more relevant and beneficial. As compared to Q3 2019, labor as a percentage of sales was 62 basis points lower, even as labor dollars per store week increase 19.3%. This increase in labor dollars per store week was driven by wage and other inflation of 15.1% and growth in hours of 3.4%. The remaining increase of 0.8% was due to adjustments to our quarterly reserve for workers comp and group health insurance, including a $2.6 million charge this year. But for 2022, we are forecasting wage and other inflation of approximately 6%, with the first quarter above this level as wage rates did not begin to significantly increase until the second quarter of 2021. Other operating costs were 14.8% of sales, which was 163 basis points lower than the prior year period. Approximately 60 basis points of the decrease relates to adjustments to our quarterly reserve for general liability insurance, which includes a $3.2 million benefit this year and a $1.4 million charge in 2020. Moving below restaurant margin, G&A costs for the quarter increased $15.3 million to 4.7% of revenue, a 63-basis-point increase versus the prior year period. The increase in G&A dollars includes $2.8 million of conference expense in the third quarter. While we held our NP Award celebration this quarter. Next year, we will return to holding conference during the second quarter. Additional drivers of the G&A increase include cash and equity compensation, which was up $8.2 million, and travel and meeting expense, which was up $1.7 million. Lastly, we lapped a $3 million benefit from the sale of a legal claim in 2020. Our effective tax rate in the third quarter was 11.6% and like last quarter, our tax rates saw a higher than normal benefit from FICA tip credits driven by the increase in our sales. Based on current sales trends we expect our full year effective tax rate will be approximately 14%, and for 2022, we would expect an income tax rate of approximately 15%, assuming no changes to the federal tax code are enacted. With regards to cash flow, we ended the third quarter with $437 million of cash, which is down $47 million from the end of the second quarter. Cash flow from operations was $52 million, net of a $24 million FICA tax liability payment that had been deferred from 2020. This was offset by $54 million of capital expenditures, $28 million of dividend payments and a $15 million -- and $15 million of share repurchases under our program that we restarted in August. We expect full year 2021 capital expenditures will be approximately $200 million. For next year, we are currently projecting that will grow to approximately $230 million. The majority of the year-over-year increase is due to the planned relocation of six Texas Roadhouse restaurants in 2022. Finally, on a housekeeping note, I want to point out that Christmas Day will be on a Saturday this year versus a Friday in 2020. We estimate that this shift will have an approximately 1.5% negative impact on comp sales growth for the fourth quarter. Like, Jerry, I want to congratulate David Hollinger and also thank the entire Texas Roadhouse family for their continued dedication and commitment. Emma, please open the line for questions.

Thank you. [Operator Instructions] Our first question today comes from Jared Garber from Goldman Sachs. Please go ahead. Your line is now open. Hi, Jared, can you just make sure that you’re not on mute? Okay. Our next question today comes from Peter Saleh from BTIG. Please go ahead. Your line is now open.

Yeah. Can you hear me all right?

Yes.

Yeah, Peter.

Yeah, Peter.

Excellent. All right. Thanks for taking the question. I just -- one point of clarification, I think, you guys mentioned you took a 4.2% price increase last week. I believe about 100 basis points or so was rolling off of your price. What is the implied pricing in the fourth quarter and going forward for the next couple?

Yeah. So for Q4 the implied pricing would be about 5.3% Peter, that’ll be the impact from taking the 4.2%. Also, we have about 1.75% that we took in April of 2020 and then about 1.4% that we took in October of 2020. That rolls off this quarter. So as you’re going forward, you’re really looking just into 2022 at the 4.2% for the most of the year and then that 1.75% rolls off in April. So, that gives you for Q1 about 5.9% and then you essentially just dropped down to the 4.2%.

Got it. Okay. And is it -- do you anticipate taking any more replacing pricing in April? I mean, I know it’s kind of early, but given what you’re seeing right now, do you think that you’re comfortable with the 4.2% that you took in October or you think you’ll come back in April and take some more?

Well, I think, we’ll look at it again and evaluate either late January or February, and really see where we’re at. But we typically look at it twice a year and then see what we need to do to the adjustment from that standpoint. But, yeah, we will definitely be looking again and seeing where we need to be.

Great. And then just on the restaurant margins in 2022, Tonya, any thoughts on where you guys think you’ll land given the pricing, they’re taking in all the inflationary pressures. I know, historically, you guys tried to defend that 17%. Just curious as to where you think you’ll land next year?

Yeah. That could be a little tougher in 2022. That 17%, 17% to 18% range that we talked about, really is the long-term goal with this level of commodity inflation that could be coming in 2022. That is going to be a little bit tougher to do. Now, on the sales side of things, we’re going to continue to drop -- drive topline sales. We’re going to continue to protect those To-Go sales. And Q1 is a bit more beneficial, because we’re lapping still some capacity restrictions that we had in Q1 of 2020. And then, as you head into Q2, we’re kind of fully up and running both years. So, a lot will depend on sharper growth, a lot depends on where that commodity inflation does land, particularly in the back half of the year. And we’re going to continue to be pushing on staffing and making sure that we’re staffed appropriately and doing all of those things. So, that -- all of those things could make it a bit tougher on the margins for the full year.

All right. Thank you very much. I’ll pass it along.

Thank you.

Thanks, Peter.

Our next question today comes from Chris O'Cull from Stifel. Please go ahead, Chris. Your line is now open.

Thanks. Good afternoon, guys. I had a follow up on the pricing question.

Yeah.

I know the company typically raises prices to cover structural changes, like you mentioned, like wage increases, but I was hoping you could explain how you determined that 4.2% or 4% was the necessary increase? And then I had a follow up.

Sure. So really we went through the same process we always go through. We sat down with our operators, really talking to them about the things that we look at, how are their sales doing, what’s -- how traffic behaving, how they’re feeling about the competitive environment. They’re looking closely at competitor pricing and things like that on the menu and so we did all of those things. And we came in a little bit higher, just as we were thinking about how wage inflation is going to probably continue to grow and we were learning more about this commodity inflation and the potential that it could be pretty impactful for a bit of time. And given that we didn’t take a price -- two price increases in 2020, we had to skip one. That gave us more comfort to that -- we could come in just a bit higher maybe than we normally would with that level -- with that pricing this time.

Okay. That’s helpful. And then, Jerry, the company consistently opens 25 to 30 units a year, at least targets that, but the mix has been shifting between Roadhouse and Bubba’s. When do you believe Bubba’s will have the scale to start opening more stores and potentially increase the total number of units that the company can open a year?

Yeah. I really have a lot of confidence in our team currently. We’ve been able to open five to eight a year very successfully. All of our openings this year have really opened strong on the sales side and been able to get to the profitability a little quicker than in the past. So we’re very confident. We’ve got a -- we’re continue to work on some building costs to look at what we can do there to get it to the financial position we’d like a little sooner. But we’re happy with the sales, we’re happy with the food and the service model that we have. So I don’t think we’re that far away. We got a real good product there. A couple of more things we want to work on before we kind of open up that gate a little further.

Okay. Thanks, guys. I appreciate it.

Thank you.

You bet.

Our next question today comes from Nick Setyan from Wedbush Securities. Please go ahead, Nick. Your line is now open.

Thank you. Yeah. Many of your peers are pointing to staffing challenges impacting topline growth. Obviously, we don’t see much of a slowdown with respect to your topline. Can you just talk about whether you do feel like you’re fully staffed, if not, what kind of percentage growth in labor hours we should expect then in 2022? Just any context there would be very helpful.

Yeah. I would say that, we’re feeling much better about it. We had a pretty good summer of hiring and getting new people into the system. We’re back to our original 2019 numbers. But again, based on our sales growth, we still need some folks in and just in different areas of the country and the front of the house and the back of the house and management. But I will tell you that, our folks are probably working a little more overtime and spend a few extra shifts and we’d really like to get them some fresh legs and some help and we definitely need some more people. But I think, overall, we met with our regional operations partners yesterday and with Doug and really feel good about where we’re at. We’d like to feel great, but we’re really feeling good. We do have some close sections at times and things because we are in pockets and areas. But overall, we feel very confident. I’d like to get really, really confident and back to 100%. We’re not there yet. It’s hard for me to tell you whether what range or number we are. But I feel very confident that we are very close to where we want to be. We still need some great people to help us and we’re looking, we just had our second national hiring day and we’re excited to see some of the numbers come out of there as we add more help to the team and as the people that have settled into school. So like I said, we feel real good. I want to feel real great. So we still got work to do.

Yeah. Nick and on the hours perspective -- from an hours perspective for 2022, I think you’ll continue to see hours pick up a little bit more. Right now you’re seeing the productivity be pretty high, because we’re probably a little short in some situations from an hours perspective and we’d like that, as Jerry said, to be a little more staff. So I don’t know what the percentage will end up being. We always talked about that in terms of traffic and maybe we get back to more that 70%, 75% of traffic from an hours -- labor hours perspective. That overtime shows up in the wages and that’s kind of helping to drive a little bit of that wage inflation right now. So maybe you get a little relief there, but you see the hours pick up a little bit more.

Great. Thank you very much.

You’re welcome.

Our next question today comes from Drew North from Baird. Please go ahead, Drew. Your line is now open.

Great. Thanks. I had two questions on the development front. First, as it relates to your outlook, what’s the breakdown of Texas Republic 33 [ph] in terms of the openings next year, how many Bubba’s embedded in that outlook? And just wanted to confirm that the six relocations are not embedded in that 25% to 30%, that you mentioned? And then the follow up there is just that several in the industry have called out upward pressure on development costs and I believe you had mentioned that last quarter for new store openings. I am wondering if you could comment on what you’re seeing from a development cost perspective, how much upward pressure you’re seeing any there and if it’s having an impact on the development pipeline over the next 12 months to 24 months?

Sure. I’ll take the first couple questions you had Drew, that -- those relocations are not in the 25% to 30% guidance for 2022. So those would be in addition. The seven franchise acquisitions are not in those store openings either just to be clear. And then, there’s about, I would say, as many as eight Bubba’s that are built into that number, the rest being Roadhouse. Obviously, sometimes that changes throughout the course of the year as deal change and things like that. But the way the pipeline looks right now, I think, looks like right now, I think, that’s about where we’ll be. And then, from a cost perspective, we could see costs creep up a little bit, you do see that? I think, definitely here anecdotally the contractors continue to have labor, staffing issues, just like all of us are having and that can impact sometimes the building costs, things like that. It hasn’t been anything that has been unmanageable at this point, nothing that makes us say, we want to take our foot off the gas from a development perspective. So, so far, so good. So we’re definitely keeping an eye on it. Trying to making sure that we’ve got equipment sourced and that we’re ready to go to keep this pipeline moving.

Yeah. I would agree. I feel really comfortable with the Roadhouse piece of it, the 22 to 24 maybe and then obviously Bubba’s is about eight and the six relocations. We’re very excited about. We look back in the history of the last four years or five years and we’ve done six to eight relocations and really provided a bigger restaurant with more parking and saw our sales spike and our ability to make a lot more money. So we feel like these relocations are again in addition to where they’re at sometimes the energy moves. So our investment in these relocations of some really top performers is a real smart business I believe.

Thanks. That’s helpful. I’ll pass it on.

Thank you.

Our next question today comes from Eric Gonzalez from KeyBanc. Please go ahead, Eric. Your line is now open.

Hey. Thanks. Good afternoon. I am just wondering if you can comment on maybe the long-term implications of the supply chain issues right now. And as you speak with your suppliers, do have a sense about whether this will have a long tail in terms of beef inflation given the long replacement cycle? And then just on your hedging strategy, right now, I think, you said, you’re about 30% locked, maybe correct me if I’m wrong, but was that for the first half of the year, but wondering how that compares to the past and maybe why you might not want to push that higher?

Sure. So, yeah, 30% is locked on the first half of the year. And that’s probably, I would say, a little lower maybe than we normally would be, now normally maybe going back to 2018, 2019. But, yeah, we would like to and we do a lot of that in fourth -- in the fourth quarter and into the first quarter of the year. So I think we’ll continue to see getting a little more locked on on some of those amounts that we need. So that’ll be good. And then, I’m sorry, Eric, but I forgot the other question that you were asking, oh, about supply chain, I believe is what it was…

Yeah. The long-term implications…

… and how we think that’s going to -- so long-term implications. I think a lot of people have different perspectives of long-term implications. Some would tell you maybe this is just going to be a few quarters. Others would tell you, we’re hearing, hey, this could go into 2023. So I think it just a lot depends on how some things play out. And staffing is definitely one of them, I think, for the supply chain folks, transportation another and then it’s just that ability to build up some inventory a product, given the high demand of beef. And so, we have a great supply chain, we have awesome vendors that have been working very closely with us to supply the beef that we need, supply all of the commodities that we need at these levels. So that’s been really great. And the inflation, I think, we’ll just kind of have to wait and see kind of how that plays out.

Yeah. I feel…

The follow-up…

…really comp…

Sure. Go ahead.

Well, I just wanted to -- I mean, obviously, we’ve been buying the same product for 28 years and our team has done a really good job. The meat is available. It’s just the pricing of it obviously. The supply chain for the development side, we’re really paying close attention to especially as we get in there. We are having to stock some inventory on things that we didn’t have to do in the past. So we’re aware of that. We are definitely building up inventory on things that are big ticket items that we will absolutely need to get a restaurant open and to grow, and obviously, the relocation. So our vendor partners have been working very closely with us. We are definitely looking out for the whole year. We want to know where we out on each quarter for all of the items that we need. We’re asking those questions. So far, it’s gotten a little tight, I can tell you that. So we’re aware of that. But as of right now, it looks really good and they -- we -- obviously, if we get into a situation, our vendors are aware of that. They’re -- we’re working closely with them to know if we’re going to have any emergencies of something critical from an equipment standpoint that would delay us. But as of right now, we feel real good about 2022 and being able to get the things that we need to open all these restaurants.

Thanks for that. And maybe on -- real quick on pricing, I was wondering, if you tested any different levels of pricing or if you ever go out to the market and see if you -- would you expect to see any resistance in that 4% level or if you push it higher where you might start to see resistance? And then if you can maybe comment, where you’re seeing some of the competitors in the category price relative to what you’re doing? That would be helpful. Thanks.

Sure. So we really are testing all the time, because we have a number of pricing tiers across the country and that allows us to do different things at different times. And so we learn a lot from that and we utilized that when we’re looking at pricing each year and doing it twice a year too really allows us the ability pivot and do some things differently. So that’s been working really well. I mean, historically, I would tell you, we don’t see any issues with flow through. We don’t see any issues when we take pricing. And a lot of times, it’s hard to tell, you’re not going to see it in the short-term, sometimes it’s a longer term impact and it gets really hard to kind of see it. But we’re watching it. It’s only been a week since we chose the 4.2%. But we’re going to definitely be keeping an eye out and a lot of it is just talking with operators and getting their thoughts and what they’re hearing from guests and things like that. From a competitive side, I think, again, as I said earlier, we feel very good about how we’re positioned. And we’re definitely measuring certain items on our menu, looking at them compared to others in the industry, making sure we feel good about that. And as much as the pricing, it’s the quality of the product, the quality of the food, the quality of the service that we’re delivering, that whole experience really comes into play. So it’s definitely something, Eric, that we think about, for sure.

Yeah. Eric, and I would say, again, we are -- we haven’t changed our quality model at all and we still cut our stakes in-house. We serve -- use a brand that we are very specific and happy with. We haven’t changed any of that and we feel very good. We know that we have to earn it every day from -- for our guests. If we are going to charge a little bit more than we all know that we got to ramp up the level of that experience and that’s on our operations team. And we’re very committed to continue to cut our own steaks and make off our food from scratch and which is definitely more difficult. But it absolutely tastes better and we have to deliver on our Legendary Food and our Legendary Service experience every single time. If we do that, people will be okay with what we have to charge them, because of some of the other pressures.

Great. Thanks. I’ll pass it on.

Our next question today comes from Jeff Farmer from Gordon Haskett. Please go ahead, Jeff. Your line is now open.

Thank you very much. I just wanted to follow up on staffing question from a few minutes ago. One of your casual dining peers last week did say that, at least from their perspective, they thought that peak casual dining staffing shortfalls or pressures were seeing in August. From what you’re seen, August, September into October, do you agree with that? Do you think it’s getting a little bit easier out there to bring employees into the restaurant?

I don’t know about easier. I think we’re still hustling to find people. We’re doing a couple of things to recruit and to retain people. We’ve just offered some tuition benefit. And so we’re having -- did I say having to do things. We’re doing things, because we feel great about being able to add people to our program and offering some better benefits and even better pace, so we know that. But I -- what I’d say easy by no means. Are there more people in the pool? I would say, maybe a little bit and we have to go earn the right for them to come choose us to work at. So easing up a little bit, but I still think there’s a long way to go to get enough people out there that can supply all of us with our needs.

Okay. And then just one more similar topic, which is on the labor side of the equation, which is that. Again, the same peer called out roughly 100 plus basis points of what they consider transitory labor cost pressures in their quarter and that included things like training costs, reduced productivity, waste? I think things like retention bonuses. Are you seeing a healthy component of that in your own labor costs right now?

Jeff, I don’t know if I could quantify any of those things as far as how we’re seeing them in the labor model. I mean, we’re seeing higher wage inflation. We know we’re paying higher wages, especially in the back of house, that’s become very competitive as, not just outside the industry, even just across the country. So that’s something we’re doing. We are -- we’ve always had a phenomenal training program and development program. And so we’ve definitely double down on those and taking those to another level during this time. But we really -- we don’t really slice and dice it that way or look at it from that perspective. So I don’t know that I can tell you we’re comparable there.

Okay. Thank you very much.

Our next question today comes from James Rutherford from Stephens, Inc. Please go ahead. Your line is now open.

Great. Thank you. I wanted to circle back on that commodity question, the guidance for high-teens commodity inflation in the first half of the year. I’m curious, what assumption is embedded into that for the 70% of your basket that I understand you will be buying on the spot market? Are you assuming that essentially current spot prices hold from today or is there some kind of improvement in those dollar costs just as we can attract the market as we go forward here?

Sure. James, I would tell you, we’re assuming more, probably, along the lines of -- the trend continues, the elevated costs continue versus seeing anything ease up. I think we saw some easing in October, late October. And then the expectation though is, we’re going to see the historic seasonality, the normal spike from the holiday seasonality. So that’s kind of our expectation. And remember too, we’re buying, we’re aging our need, as Jerry mentioned earlier. So you’re doing anything from 30 days, up to 45 days. So what we’re buying in October are things we’re probably using in December into the New Year. And so we expect to see the cost stay elevated and right now a lot of that is just based on market prices, spot prices.

Perfect. That’s really helpful. And then just one more on the commodity side, if I may, just we can kind of all level set our models for the fourth quarter. I know kind of Peter asked the question earlier about 2022 restaurant margins. But I’m kind of putting together the commodity and wage information you gave us and getting to a restaurant margin in the 13% range. Am I off there by very much, just if you can help a little bit on that, calibrating that margin?

Yeah. Sure. There’s a lot of moving pieces in those numbers. There is no doubt about it. And a lot depends on what you’re using for traffic and sales growth. So as I mentioned earlier, we’re expecting Q1 sales we’re going to be lapping capacity restrictions from last year. So we’re definitely going to see some benefit there from a sales perspective and that’s going to help from leveraging cost. And then I think that staffing issues, we continue to see some of those occur throughout the year. That might keep hours growth, a little moderated along with that 6% wage inflation. So I think it’s definitely tough to say kind of where we’ll be on that, that, I would tell you that seems a little low to me, but I might be a little more optimistic from a sales perspective.

Got it. Well, thank you very much, Tonya and Jerry. I appreciate it.

Thank you.

Our next question today comes from Brian Vaccaro from Raymond James. Please go ahead, Brian. Your line is open.

Thanks and good evening. I just wanted to circle back on staffing levels as well and I appreciate your earlier comments. But could you help frame what percentage of your stores may be at levels that are still meaningfully below 2019 staffing levels, however, you may define that. And if they are below, can you frame how much of an impact it may be having to comps in those locations?

I think it’s a small number that are below the 2019 levels. Really, I mean, there are some staffing areas like, Louisiana has been hit hard by some weather and we’ve had some challenges getting people back in that area, so just because they had to relocate because of weather. So I would say, that’s one of our tougher areas necessarily to get completely stuff. But other than that, there is some real small pockets of people that are far, but we know who they are. We’ve got a -- what we’re calling a ninja staffing team that is helping these restaurants to get there. But I would say, the vast majority are at 2019 levels and just looking to go and cover the additional sales that we have today. So, like I said, we feel real good. I’d like to feel great.

Okay. That’s helpful. Thanks, Jerry. And Tonya on the average hours per store, I think, you said that was up 3% or 3.5% versus 2019 in the quarter. Is it fair to assume that, that progressed higher through the quarter? And can you ballpark kind of where you exited the quarter or where you may be thus far in October on average hours per store?

I don’t have that number in front of me, Brian, as far as the cadence throughout the quarter. Just trying to think a little bit off the top of my head, I would expect that, it probably grew a little bit throughout the quarter just looking. But you’re also looking at volumes that kind of had some seasonality throughout the quarter too. So could have been a little bit more lumpiness there. But like I said earlier…

Yeah.

…I would expect to be…

Yeah.

… for us to start seeing hours getting close -- more in that 60%, 70% range when we’re looking at traffic growth. Now when -- right now traffic -- a lot of the traffic growth is driven by To-Go sales. So that’s a little more efficient from a labor perspective and that explains a little bit of why those hours maybe a little bit lower. And we still have the people working. We just have fewer people working. So, again, we have people working overtime, things like that. So that’s something that we’re focused on moving a little bit more away from overall

Okay. Okay. That’s helpful. And you touched on seasonality there, so good little segue to average weekly average sales. And just to frame kind of expectations as we move through the fourth quarter. Can you remind us how October, November, December, typically the interplay between those months? I think you said, you gave us October average weekly sales. But what’s typical seasonality work like as we move through the rest of Q4 to back to 2019…

Typically, as you’re moving into the holiday…

… was different.

Yeah. Sure. Yeah. Typically you’re going to see those volumes increase throughout the quarter. As we -- as Jerry mentioned, we’re getting into the holiday season and things like that. Now you do you have the impact of that Christmas shift to Saturday. So we will be closed on that Saturday and we gave you that impact. But typically seasonality would be growing volumes over the course of the year -0- over the course of that quarter, sorry.

Okay. Okay. I’ll circle back on that offline. I guess just last one and kind of appreciate the early thoughts on 2022. But could you ballpark your expectations on G&A, just so we’re on the same page there? Thanks again.

Yeah. No problem, Brian. So, yeah, from a G&A perspective, I think, you continue to see growth stay moderate. I think as a percentage of revenue, we stay below 5% of revenue is our expectation. So, obviously, we talked a little bit about some costs are ramping back up, travel, which we’re really excited to see that ramping back up, getting those meetings going in the restaurants, with our managers and our coaches and things like that. It’s been wonderful to see happening. And so, I would expect a little bit of increased spend in G&A in 2022 versus 2020. But I think it will still we’ll keep it below 5% of revenue and see some leverage there.

Okay. Thank you.

Thank you.

Our next question today comes from Jeff Bernstein from Barclays. Please go ahead, Jeffrey. Your line is now open.

Thanks. This is actually Jeff Priester on for Jeff Bernstein. Just wanted to dive into the franchisee acquisition a little bit more. Longer term has your thoughts changed any on how the Texas Roadhouse brand in particular will look from a company franchise mix going forward? And then on those transaction, in particular, did they approach you or did you approach them and kind of what was the driving force behind wanting to make this transaction?

Sure, Jeff. This is something even prior to COVID we were having conversations with franchise partners all the time. I don’t know if there is a one approach versus another. It’s kind of a joint conversation that we’re always kind of talking about and just seeing where everybody stands. And I think from a franchise perspective domestically for Texas Roadhouse, we’re really not looking at growth from a franchise perspective. We may add one or two a year domestically. The growth from a Roadhouse perspective on a franchise is really international focus. All of our international growth right now is franchise and we expect that to continue. Bubba’s right now is our company. We expect that to continue to say. And then Jaggers is probably why there is some opportunity and we signed a franchise partner. Really excited about them and getting a restaurant open next year. We continue to look at the past for company restaurants. So overall really Roadhouse, I would say, not as much franchise domestic, very, very little and it’s kind of way we’re looking at it. And we’re going to keep talking to franchise partners. Everybody is kind of in a different place and we’ll continue to have conversations with them and we’d like to continue to just add more of those rollouts.

Appreciate it.

Sure.

Our next question today comes from Jared Garber from Goldman Sachs. Please go ahead, Jared. Your line is now open.

Hey. Can you hear me this time?

Yeah, Jared.

Yeah. Yes. We can hear you.

Great. Sorry about that. And also this is Michael Rothstein on for Jared Garber. Sorry about that. So quick question on unit growth actually. In the outer years in kind of 2023, 2024, you are seeing great demand right now and expecting positive comps next year. Does that maybe drive maybe accelerating unit growth, especially Texas Roadhouse now? So you kind of touched on Bubba’s earlier in the call and what could that look like kind of 2023 and 2024 onwards? Thanks.

Sure, Jared. I’ll kind of start out and tell you. We’ve always felt really good about that range of 25 to 30 for several reasons. One, we just -- we make really good disciplined real estate decisions when we’re in that range and we also make really good people choices. And that’s a big -- those are the two probably bigger drivers, when you’re talking about opening new restaurants. So I don’t see that changing for us. Now, just like Jerry mentioned, as Bubba’s begins to ramp up a little more, maybe we start living in the higher end of that range. But as per 2020, 2022, we wanted to kind of keep that option of 25 out there just as you are -- we’re dealing with some of the supply chain stuff. But in the out years you’re mentioning, I could see us getting closer to 30 more often for the Roadhouse Bubba’s concept.

Great. Thank you. Appreciate that. And then as far as next year goes with that positive comp, aside from price, can you talk a little bit about what you expect kind of for traffic or mix? Obviously, you’re lapping very strong 2021. What does that sort of look like, obviously, from a mix perspective also very strong? So any clarity around that would be great. Thanks.

Yeah, I would just say, if we nail it on the operation side and keep delivering on the quality of our food and the experience, the demand is there. I think if you look at our comp sales that is a strong model. And yes, we know that we have to compete against that in 2022. And -- but as I said, we met with our regional operations, but we work with our operations team. And as we get more staff, as we continue to make sure that we’re delivering on our promise of the Legendary Food and Legendary Service, our consumer is telling us to keep doing what we’re doing. Open our doors, create a great environment, deliver on our promise of the food in the service and I don’t see that going away. We’re going to continue to operate at a very, very high level. It is important for us to have operational excellence, have a memorable experience and develop our people. So as long as we deliver on that promise to our guests and we put the right people up there and they enjoy working for us. I think we will continue to have a -- still I expect us to be very aggressive on the topline sales.

Yeah. And I will tell you…

Okay. Thanks.

…Jared, it’s really hard to follow that. But I’ll tell you on the mix, because we had seen some phenomenal mix growth over -- starting in late 2020 and into 2021. We would expect that to moderate quite a bit probably get closer back to flat mix for 2022 would be my expectation.

Thank you. I appreciate that. And then one last quick one for me, we’ve heard from a couple of your peers that repairs and maintenance kind of have upticked a little bit recently. And maybe that’s because you haven’t been able to get equipment or your stores are starting to get more use again as some along those lines. What do you guys think from that front? Thank you.

Yeah. We’re definitely seeing that on the P&L. You’re seeing -- there were delays in 2020. We are putting things on hold and things like that. So, yeah, you see some of those projects. But they’ve been on hold getting go. And then, probably, a little inflation, I would venture to guests, just as, again, everyone is dealing with labor shortages and getting things done and things like that. So definitely see now little bit. All right. Emma, I think that’s the last question.

Yeah. That’s our last question for today.

All right. Well, thanks everyone for joining us. Hope you’re doing well and let us know if you have any questions. Thanks so much. Have a great night.

Thank you, all.

Thank you everyone for joining today’s call. Enjoy your evening. You may now disconnect your lines.