Texas Roadhouse (TXRH): Revenue Strength, Margin Squeeze and Capital Returns

Q2 signal: Revenue strength met by a margin test#

Texas Roadhouse reported a quarter where demand and expansion outpaced profitability: total revenue in Q2 rose to about $1.51 billion (+12.70% YoY) while diluted EPS of $1.86 missed the $1.95 consensus. The juxtaposition — healthy guest growth and unit openings versus compressed restaurant-level margins — is the defining development for the company as it moves through 2025.

The headline creates immediate tension for investors: top-line momentum demonstrates the brand’s ability to drive traffic and expand its footprint, but the operating levers that convert sales into sustainable earnings are being tested by commodity and labor inflation. That dynamic frames the rest of this report: quantify what changed in 2024–2025, explain why it matters strategically, and identify the financial levers management is using to protect earnings going forward.

The financial facts: growth and the margin picture (recalculated)#

Texas Roadhouse’s consolidated FY 2024 results show a clear, multi-year growth trajectory on the top line and cash flow, with simultaneous margin improvement in several lines but notable cost pressures at the restaurant level.

Using the company-reported full-year figures, revenue increased from $4.63B (2023) to $5.37B (2024) — a change of +15.98%. Net income rose from $304.88MM to $433.59MM, an increase of +42.20%. EBITDA expanded from $507.47MM to $695.90MM, a gain of +37.14%. Operating income grew by +45.94% (from $353.99MM to $516.52MM). Those moves are consistent with management’s expansion and traffic gains and are documented in the company filings and Q2 materials Texas Roadhouse investor release and the financial dataset detailed in filings and transcripts GuruFocus.

At the cash flow level, operating cash flow climbed from $564.98MM (2023) to $753.63MM (2024), a change of +33.39%, while free cash flow jumped from $217.95MM to $399.29MM, or +83.23%. The step-up in free cash flow is noteworthy because it funded both an increased dividend run-rate and buybacks in 2024.

Key recalculated ratios (full-year 2024 basis):

• Net income margin (2024) = $433.59MM / $5,370MM = +8.07%. Source: FY income statement.
• Gross margin (2024) = $947.26MM / $5,370MM = +17.63%.
• Free cash flow margin (2024) = $399.29MM / $5,370MM = +7.43%.
• Net debt / EBITDA (2024) = $609.25MM / $695.90MM = +0.88x (FY basis).
• Total debt / EBITDA (2024) = $854.47MM / $695.90MM = +1.23x.
• Current ratio (2024) = $516.57MM / $828.13MM = 0.62x.
• Return on equity (2024) = $444.35MM (reported net income in cash flow table) / $1,360MM = +32.66%.

Note on metric divergence: some TTM metrics in third-party datasets differ from the FY calculations above. For example, a reported netDebt/EBITDATTM of +1.04x and a currentRatioTTM of 0.45x appear in vendor aggregates. Where those conflict, I prioritize the company’s FY 2024 statement-line items for consistency; differences typically stem from timing of quarterly aggregation and TTM adjustments.

Income statement trend table (2021–2024)#

(Values are company-reported; margins calculated from those line items.)

Balance sheet & cash flow snapshot (selected years)#

(Selected balance sheet and cash flow line items from company filings.)

Where the growth came from — unit economics, traffic and pricing#

The company’s revenue expansion is driven by a three-part mechanism: unit openings, positive comparable-restaurant sales and modest menu price increases. In Q2 management reported systemwide openings (four company-owned and one franchised restaurant during the quarter), and comp sales of +5.8% led by approximately +4.0% traffic and a +1.8% check increase, according to the Q2 release and earnings transcripts investor release and earnings call transcripts.

That combination matters because traffic-driven comp growth is typically higher-quality than price-only growth: it indicates real increases in guest counts and demonstrates that the value proposition is intact. The brand’s continued success in driving incremental guests is the primary explanation for the outsized revenue and EBITDA increases in 2024 versus the prior year.

The margin squeeze: beef and labor#

Despite demand, margins at the restaurant level weakened in Q2 and carried through into the full-year picture as commodity and labor inflation eroded operating leverage. Management cited beef costs as a notable driver of commodity inflation and expected beef pressure to peak in Q3 2025. The company updated its full-year commodity inflation guidance to about +5% and forecasted labor inflation of roughly +4% for the year (management commentary; Q2 call) GuruFocus earnings highlights.

On the income statement this shows up as a drag on restaurant margin percentages. The restaurant margin fell by roughly 108 basis points year-over-year in the quarter discussed in transcripts, a meaningful swing for a chain whose operating margins are typically in single-digit percentage points but sensitive to key commodity lines such as beef.

Management’s response: pricing, productivity and technology#

Management has articulated a specific playbook to restore margin: measured menu price increases, productivity gains and a broader rollout of a Digital Kitchen System (DKS). The company implemented a +1.4% menu price move in April 2025 and signaled another +1.7% planned in Q4 2025, while continuing to phase-in the DKS; as of Q2 the DKS was active in roughly 60% of restaurants (call transcripts) Seeking Alpha transcript.

The financial mechanics are straightforward: each incremental price point offsets commodity/labor inflation and, when paired with productivity gains from DKS and smarter scheduling, should allow the company to recover restaurant-level margin without materially harming traffic — assuming consumer sensitivity to price remains moderate. The extent to which DKS reduces waste and labor hours will determine how much of the margin recovery comes from productivity rather than additional pricing.

Capital allocation: dividends, buybacks and free cash flow conversion#

Texas Roadhouse has been an active cash returner. In 2024 the company paid $162.86MM in dividends and repurchased $80MM of common stock, for a total of $242.86MM returned to shareholders. That represented about 54.66% of reported FY net income ($444.35MM reported in the cash flow table), while the dividend payout alone equaled 36.66% of net income on a FY basis. These moves were financed from the company’s rising free cash flow, which improved materially in 2024 to $399.29MM [cash flow statements].

Balance sheet metrics show controlled leverage: total debt was $854.47MM with cash of $245.22MM, yielding net debt of $609.25MM; netDebt/EBITDA on a FY 2024 basis is +0.88x, and totalDebt/EBITDA is +1.23x, a comfortable leverage profile for a mature casual-dining operator.

These capital allocation choices — steady dividends and opportunistic buybacks — demonstrate management’s preference for returning cash while retaining capacity to invest in unit growth and DKS rollout. They also mean that free cash flow conversion is a central metric for assessing the company’s ability to sustain buybacks and dividend growth going forward.

Competitive positioning and strategic durability#

Texas Roadhouse’s brand and menu (hand-cut steaks, from-scratch sides, signature service model) create a durable guest proposition that has translated into resilient traffic and system-level scale. The company recently became the largest casual-dining chain in the U.S. by systemwide sales, which enhances purchasing power and supply chain leverage versus smaller competitors Restaurant Business Online.

Scale provides three meaningful advantages: price negotiation power with suppliers (important when beef costs spike), the ability to amortize technology investments across a large base (DKS), and a national footprint that supports testing and rolling out sister concepts and franchising at scale. Those are competitive moats that matter in a margin-sensitive environment.

However, scale is not an immunity: the company’s menu is beef-centric, making it more exposed to cattle and beef commodity cycles than diversified peers. This product concentration is a strategic lever — it defines the brand — but also creates a pronounced sensitivity to beef-price movements.

Reconciling data divergences (TTM vs. FY) — transparency on metrics#

Third-party data feeds show some TTM metrics that differ from FY calculations. Examples include a reported netDebt/EBITDATTM of +1.04x and an enterpriseValue/EBITDATTM of +17.57x, while my enterprise-value-to-EBITDA using quoted market cap and FY EBITDA gives approximately +17.88x (EV = market cap + total debt - cash = $11.83B + $0.85B - $0.25B ≈ $12.44B; EV / $0.6959B ≈ 17.88x). Similarly, price-to-sales using FY market cap and FY revenue equals 2.20x (11.83B / 5.37B), a modest divergence from vendor-reported 2.09x.

Where there is discrepancy I default to focal, line-item FY figures disclosed in the company financial statements for clarity and comparability; differences in vendor metrics typically reflect quarterly timing, rounding, or alternative definitions (TTM vs FY, inclusion of one-off items, or market cap timing). All calculations in this report use the line items included in the company’s FY 2024 statements unless otherwise noted.

Scenario framing: paths for margin recovery#

Three realistic scenarios describe how the story could play out over the next 12–24 months:

Base case — gradual normalization: If beef inflation peaks in Q3 2025 as management expects and then moderates, the combination of additional menu price increases (planned +1.7% in Q4), continued DKS rollout and labour scheduling improvements should restore a portion of restaurant-level margin by late 2025 into 2026. In this case, comp momentum and unit growth continue and EPS recovers toward consensus [analyst estimates contained in company guidance].

Adverse case — sticky cost pressure: If beef prices remain elevated beyond Q3 or labor inflation accelerates, margin recovery will be slower and require larger pricing steps and/or deeper productivity gains. A meaningful traffic reaction to higher prices would increase the difficulty of restoring margins and would pressure EPS and free cash flow generation relative to the base case.

Upside case — outsized productivity: If DKS rollout accelerates and delivers larger-than-expected reductions in waste and labour hours, Texas Roadhouse could expand margins while maintaining traffic growth — a scenario that would materially improve free cash flow and increase flexibility on buybacks and dividend growth.

What this means for investors#

Texas Roadhouse’s financial profile entering late 2025 can be summarized succinctly: the company is growing, generating strong free cash flow, and returning cash to shareholders, but is currently navigating a near-term margin challenge centered on beef and labor inflation. Investors should focus on three measurable items over the next two quarters: the trajectory of beef costs (actual commodity inflation vs management guidance), whether comp sales sustain traffic gains after incremental price increases, and any tangible productivity signal from broader DKS deployment.

From a capital-allocation standpoint, the company’s low leverage (netDebt/EBITDA ≈ 0.88x) and rising free cash flow give management optionality to continue returns while funding the DKS rollout and unit openings. The dividend yield (about +1.45% based on a $2.58 annual dividend divided by $178.08 share price) remains a stable component of shareholder remuneration.

Key takeaways#

Texas Roadhouse is executing on a clear growth playbook: unit expansion, guest-focused value, and technology-led productivity. Revenue and cash flow growth in 2024 were strong (+15.98% revenue, +33.39% operating cash flow), but restaurant-level margins are under pressure from beef and wage inflation. Management’s three-pronged response — measured pricing, DKS-driven productivity, and disciplined capital returns — is logical and feasible given the balance sheet and free-cash-flow profile, but its success depends materially on commodity price cycles and execution speed of the DKS rollout.

Final synthesis and forward-looking considerations#

Texas Roadhouse’s current phase is less a crisis than a tight operational test. The company’s scale, attractive unit economics in normal cost environments, and demonstrable ability to convert sales into cash are core strengths. The margin compression driven by beef and labor cost moves is the proximate cause of near-term EPS pressure, but management has credible countermeasures: calibrated pricing, technology-enabled productivity and selective unit growth.

Watch the next two earnings releases for three hard data points that will determine the pace of recovery: (1) actual beef cost change in Q3 relative to the company’s peak forecast, (2) comp-sales and traffic response to the incremental menu price in Q4, and (3) measurable DKS outcomes (waste reduction, labour hours saved) as the system coverage expands beyond 60%. Those facts will determine the speed at which earnings and margins revert toward prior multi-year trends.

This report uses company-reported FY 2024 line items and Q2 disclosures alongside earnings-call transcripts and market coverage to calculate and interpret key metrics. For original filings and the Q2 release, see the company investor site Texas Roadhouse investor release. Additional call detail and analyst coverage cited throughout this analysis are available via the transcripts and market summaries listed in the sources, including Seeking Alpha and GuruFocus.

(End of analysis.)