I would now like to introduce Michael Bailen, Vice President of Investor Relations for Texas Roadhouse. You may begin your conference.
Thank you, Kenneth, and good evening. By now, you should have access to our earnings release for the third quarter ended September 29, 2026. It may also be found on our website at texasroadhouse.com in the Investors section. I would like 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. 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, and Mike Lenihan, our Chief Financial Officer. Following the prepared remarks, we will be available to answer your questions. In order to accommodate everyone that would like to ask a question, could everyone please limit yourself to one question? Now, I would like to turn the call over to Jerry.
Thanks, Michael. Good evening, everyone. For the third quarter, we are pleased to report that all three brands delivered positive comparable sales and traffic growth. We generated $1.6 billion in revenue, and same-store sales increased 4.3%, including 0.7% traffic growth. We are proud to say that each of our brands have reported positive comparable sales for every quarter in 2026. Our third quarter results, specifically in September, were negatively impacted by what was determined to be a social media hoax that occurred at the end of August. Through our investigation, which included an external forensic analysis, we were quickly able to determine that the allegations made and the social media posts were completely false. Our recently completed annual fall tour allowed us to speak directly to our operators across the country.
I can tell you that overall sentiment is positive, and we are seeing momentum in the restaurants that were affected. There's no doubt that our operators are doing what business owners do. They're doubling down on legendary food, legendary service, local store marketing, and being great partners in their communities. Looking forward, our development pipeline continues to be strong. We opened five company locations in the third quarter, which included two Bubba's 33 restaurants and one Jaggers. We have over 15 openings scheduled for the fourth quarter and remain on track to open approximately 35 restaurants across the three brands in 2026. Today is a significant milestone for the original Texas Roadhouse restaurant in Clarksville, Indiana. We opened the doors to its newly relocated building, which is just down the road from the original location. Clarksville is where Kent's dream of Texas Roadhouse became a reality.
The new building includes memorabilia honoring our first store, as well as a very special Kent's Corner, which pays tribute to our founder's vision and success. Looking ahead to 2027, we expect to open approximately 35 company-owned restaurants across the three brands. We currently expect a more balanced cadence to next year's openings, with 18 restaurants already under construction. We also have momentum on the international front. Our franchise partners opened three Texas Roadhouse restaurants during the third quarter and expect three openings in the fourth quarter. This will bring our international total to nearly 70 restaurants in 11 countries. In addition, we are excited to announce that we have recently come to terms on development and franchise agreements in Vietnam and Japan. In 2027, our franchise partners are planning to open approximately 10 new restaurants, including as many as eight international Texas Roadhouses.
There are also exciting things happening on the menu at all three brands. For example, Texas Roadhouse added chicken Alfredo pasta to over 600 restaurants. The feedback from operators and guests has been positive, and we expect pasta to be system-wide by the spring menu. While we are currently focused on chicken Alfredo, there is interest from our guests to add other proteins or vegetables, which gives us confidence in the offer going forward. On the beverage side, we are seeing positive results from our non-alcoholic offerings with mocktails and dirty sodas. We are also testing energizers options at all three brands. As for everyday value at the bar, we are continuing to promote our all-day, every day, our $5 all-day, every day ice-cold beer, Long Island iced tea, and legendary margaritas. On the technology front, our mobile POS test is currently in approximately 100 restaurants.
We will continue to be deliberate as we customize the technology to make sure the rollout is successful for our guests and operators. Finally, as I have mentioned before, there is nothing more energizing than meeting face-to-face with nearly 800 managing partners on fall tour. Seeing the business through their eyes and feeling the passion they have for legendary food, legendary service, and our purpose of serving communities across America and the world is always inspiring. Mike will provide some thoughts.
Thanks, Jerry. During the third quarter, traffic trends through August were strong on both a one and multi-year basis, and guest behavior within our restaurants remained healthy. Mix improved sequentially throughout the third quarter, with both dining room and to-go mix positive in August and September. Through the first five weeks of the fourth quarter, our comparable sales have grown 1.5%, which includes an approximately 30 basis point negative impact from Halloween shifting from a Friday to a Saturday. Most importantly, we are encouraged by the sequential improvement in both sales and traffic we saw throughout October and into the beginning of November. While consumers remain selective and value-conscious, we have not seen signs of a meaningful shift in our guests' ordering behavior since implementing our 1% menu price increase at the beginning of the fourth quarter.
Moving on to commodities, inflation in the third quarter came in at 2%, which was at the lower end of our expected range. While our outlook for the fourth quarter inflation has improved, we are maintaining our full- year 2026 commodity inflation guidance at approximately 5%. At this time, we are also setting our 2027 commodity inflation guidance at approximately 4%. On labor, third quarter inflation of 4.1% was in line with our expectations. We are narrowing our full- year 2026 wage and other labor inflation guidance to 3.5%-4%. For 2027, we are guiding to wage and other labor inflation of approximately 3%. With regards to our capital position, we ended the quarter with $141 million of cash. Cash flow from operations for the third quarter was $147 million, which was offset by $197 million of capital expenditures, dividend payments, and share repurchases.
Based largely on the health and timing of our new store development pipelines, for 2026 and 2027, we are updating our 2026 capital expenditure guidance from approximately $400 million to approximately $440 million. We are establishing our 2027 capital expenditure guidance at approximately $425 million. Now Michael will provide the third quarter financial update.
Thanks, Mike. For the third quarter of 2026, we reported revenue growth of 9.5%, driven by a 4.2% increase in average weekly sales and 5.1% store week growth. We also reported a restaurant margin dollar increase of 11.9% to $229 million and a diluted earnings per share increase of 8.6% to $1.36. Average weekly sales in the third quarter were $164,000, with to-go representing $23,500 or 14.4% of these total weekly sales. Comparable sales increased 4.3% in the third quarter, driven by a 3.6% increase in average check and 0.7% traffic growth. By month, comparable sales grew 5.9%, 6.8%, and 1% for our July, August, and September periods respectively. In the third quarter, restaurant margin dollars per store week increased 6.4% year-over-year to $24,000.
Restaurant margin as a percentage of total sales increased 30 basis points to 14.6% as compared to the same period last year. Food and beverage costs as a percentage of total sales were 35.5% for the third quarter. The 32 basis point year-over-year improvement was primarily driven by a 3.6% check increase, which more than offset commodity inflation of 2%. Labor as a percentage of total sales increased 8 basis points to 33.7% as compared to the third quarter of 2025. Labor dollars per store week increased 4.4% due to wage and other labor inflation of 4.1% and growth in hours of 0.4%. Other operating costs were 14.6% of sales, which was 8 basis points better than the third quarter of 2025. Higher sales was the primary driver of the leverage.
Moving below restaurant margin, G&A dollars increased 9% as compared to the third quarter of 2025 and came in at 3.8% of revenue for the quarter. For full year 2026, we continue to forecast a low double-digit percentage increase in our total G&A dollar expense. Depreciation expense increased 14.6% year-over-year in the third quarter and came in at 3.8% of revenue. For full year 2026, we continue to expect a low- teen percentage increase in our total depreciation dollar expense. Our effective tax rate for the quarter was 12.2%. At this time, we are updating our guidance for the full year 2026 income tax rate to approximately 13%. We are also setting our guidance for the full year 2027 income tax rate at approximately 13%. Lastly, as a reminder, we expect same-store sales growth in the fourth quarter will be negatively impacted by several holiday shifts.
Year-over-year, Halloween shifted from a Friday to a Saturday, and Christmas Day is shifting from a Thursday to a Friday. In total, we estimate an approximately 75 basis point negative impact to fourth quarter same-store sales growth from these shifts. Now, I will turn the call back over to Jerry for final comments.
Thanks, Michael. In closing, I want to thank the best operators in the industry for their commitment to being owners of their business and serving over 200 million guests so far this year. Our company was built on an ownership mentality of executing the fundamentals. This mentality has driven our success over the years and will continue to keep us Roadhouse strong for years to come. There's no doubt Roadie Nation is on the job.
That concludes our prepared remarks. Kenneth, please open the line for questions.
We will now begin the question- and- answer session. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jacob Aiken-Phillips with Melius Research. Jacob, please go ahead.
Hey, good afternoon or good evening, everyone. You mentioned the CapEx increase largely reflects timing of the development pipeline, but with roughly 35 openings planned in the years, how much of the increase in spending ahead of future openings versus higher opening costs per restaurant? As a corollary, given the pace of openings and the timing in Q4, Q1, why not an increase in the hours per week or the store hours? Thank you.
Yeah. Hey, Jacob. On the CapEx for both this year and next year, Jerry mentioned we've got approximately 35 restaurants that'll open this year and another 35 that'll open next year, approximately, across the three brands. The 27 openings will be more evenly spread throughout the year, so some of our CapEx for next year is hitting our Q4 number this year, as well as obviously the Q4 numbers. That is driving it. We are very excited about that prospect of having more restaurants open sooner in the year next year. I think the other thing driving the 2026 number is we did purchase a neighboring property next to our support center that'll further support our growth in the years to come.
Your next question comes from the line of Peter Saleh with BTIG. Peter, please go ahead.
Great. Thanks. I did want to ask about the comp slowdown in September. If maybe you guys could give us a little bit more color. Was this more confined to certain regions? Was it more national? Is there anything that you guys are doing differently from a marketing or a promotional standpoint to try and re-accelerate some of that traffic back into the stores? Thanks.
Yeah, Peter, I'll start and I'll let Jerry weigh in on some of the things we're doing. In terms of the impact, we always have stores that either over or underperform the national average in any given quarter for a variety of reasons. That was the case that happened in September, in Q3, and what we're seeing in Q4. Importantly, as we talk about our sequential improvement, such as far in Q4, we are seeing it across all of our restaurants. I'll let Jerry talk to some of the things we're doing.
Yeah, thank you. Obviously, we had the opportunity to be face-to-face with our operators during the fall tour to really talk about how do we strengthen our position in the market. So, it's been about our food, our value, the trust we have with our guests, and getting out in our communities. I think that was the real marching orders. We'll continue to focus on our Early Dine offering, our Wild West Wednesday, and things that we can do. But mostly, it's about making sure that every guest who walks through those doors, we're taking great care of, and that we're going out in our communities and shaking hands with folks we might not have seen in a little while, and trying to engage. I think that has been our strategy, and it's obviously working as we can tell in the numbers now.
Your next question comes from the line of Lauren Silberman with Deutsche Bank. Lauren, please go ahead.
Thanks so much. I wanted to just dig into the comp side. There's been a lot of noise in October broadly across the industry. Can you just help unpack how trends have progressed, and perhaps more recently, September, you said was 1%, underlying ex-Halloween quarter-to-date, I think 1.8%. Just trying to understand how things are building and any changes in the consumer environment. Thank you.
Sure, Lauren, I'll start with what we've seen in Q4, then I'll hand it over to Michael for some commentary on the consumer. We exited the month of October higher than what we entered it. Thus far in November, we have seen a further increase from where we exited October. Michael, I'll turn it over to you on consumer.
Yeah. Thanks, Mike. Yeah, so the consumer environment, it still feels very similar to what we've seen throughout the year. Sentiment is still not the highest amongst the consumer, but I still believe the behavior when it relates to casual dining remains the same. People want to be out. They want food service and value, and those who can deliver on that are continuing to drive people into their restaurants. That's what we're focused on. That's what we've always been focused on. So, it's kind of business as usual here at Texas Roadhouse, and don't feel anything is really different from the consumer environment.
Your next question comes from the line of Brian Harbour with Morgan Stanley. Brian, please go ahead.
Yeah, thanks. Hi, guys. Could you elaborate on the 4% commodity inflation guidance for next year? I mean, it actually seems like it's a little bit more favorable right now. What are some of the drivers behind what you're seeing for next year?
Yeah. Hey, Brian. It's Michael. Thanks for the question. I'll tell you that 4% number, about half of that is driven by beef, and the other half is coming from non-protein items, specifically oils and produce items. You are correct. I think it was referring to maybe an improving or a less inflationary beef environment, but there are other items within our baskets that have been fairly benign for multiple years that are seeing some pressure at present, given what's going on in the world today. And freight costs add to that as well. We expect to maybe be on the higher side of that in commodity inflation guidance early in the year. Q1 could be in that 5% range, and then seeing it step down. But I think the important thing to realize is it's not all beef in the expected inflation for 2027.
Your next question comes from the line of Andrew Charles with TD Cowen. Andrew, please go ahead.
Great. Thanks. You guys talked about the hoax weighing on sales, and it's definitely encouraging to hear about the sequential increase you guys are seeing through October and November. There's a lot of investor concern that with beef disinflation, this is working against you, that the retail demand destruction that benefited sales for the better part of the last 12 to 18 months is starting to wane. I'm curious to get your thoughts on that idea.
Yeah. Hey, Andrew. It's Michael. I hear the concern. I don't know if I believe that that's really what's going on, and I don't know that I think that retail beef prices have come down. Maybe they aren't inflating as much as they have, but beef as a protein is still very expensive at the grocery store, and the relative value of coming to Texas Roadhouse for that steak is still very attractive. We've talked about, yes, our traffic trends do tend to outperform in times of higher commodity inflation. That does not in beef inflation. That doesn't mean that we're not going to perform when beef is not as inflationary. But again, I don't think we're yet in an environment where beef relative to other proteins looks cheap in the grocery store.
Your next question comes from the line of David Palmer with Evercore ISI. David, please go ahead.
Thanks. Good evening. Just wanted to ask you a technology question. I guess it's not unreasonable at this point to review what has transpired with your digital kitchens and to think about what that has done for you, and maybe a little bit of a review on that would be helpful. It's obviously been an enabler in terms of fueling your confidence to take on that off-premise business during peak hours, but maybe you have some other comments about that. Related to that is the handheld ordering. It sounds like there's a lot of enthusiasm from the managing partners out there. What do you think that could be, and could you give us a sense of the timing of that? Thanks very much.
Yeah, thank you. This is Jerry . On the digital kitchen, we're completely rolled out. I think we really have gotten used to the system and how it is helping our operators with the orders and the assembly of the food to go out together. I think there's a lot of wins from that standpoint, just the calmness in the kitchens and how everybody has adjusted to it so well. Completely rolled out, really continuing to learn out what it can do for us outside of just making our orders more consistent and concise, to your point. The digital kitchen and to-go orders, being able to really work that into the dining room flow has been extremely helpful. We've obviously seen our dining rooms grow sales and our to-go business. That is absolutely a part of it.
The mobile POS is in 100 stores, as I think we mentioned. It's on version 2. We're currently writing that software on ourselves, and we're having a lot of success with it. We do have a plan for 2027 to roll out approximately 200 more restaurants, and then we'll finish up probably in 2028 if everything continues to go well. Obviously, that handheld mobile POS does help us in many ways. I think there's a generation of servers that absolutely love the tablet, and I think there's others that still want to have the hardwired POS and be able to write down an order and interact in that fashion. Us being able to have the flexibility to do both, I think will serve Roadie Nation extremely well. But we're very pleased with the rollout of the 100 stores that we currently have.
We're getting our game plan and strategy for the 200 + in 2027. It could ramp up a little higher from that, depending on how well it's received. Then we will anticipate, if everything goes well, that we would be able to wrap up by the end of 2028.
Your next question comes from the line of Jim Salera with Stephens. Jim, please go ahead.
Yes. Good afternoon. Thanks for taking our question. To ask about the Alfredo menu innovation, if you could walk us through, is that something that you had guests come to you asking as an expansion or maybe some of your folks in the field at the restaurant level? Just any thoughts on how we might think about that impacting mix. Is that kind of positive, negative? Do you think it will bring incremental people in? Is it more of a kind of entry or opening price point for guests? Any color around that would be helpful.
Yeah, thank you for the question. We are excited about the pasta. It has been on one of our weekends menu in a market for probably 20 + years. I had an opportunity to really sit with the operator and ask him why, and we were getting some questions from our operators about additional menu enhancements and what that could be. We obviously added the fried cheese mozzarella sticks a few years ago, which has been a real big hit. So we really expanded from that market and tested it in 100 stores, and it went really well. Our servers love it. The guests is loving it. Our operators are really feeling good about it. So we expanded that test to another 100. I think by the going into the summer, we had a little over 200.
When we got to our pricing calls, our operators were really excited about it. The word had got now that they felt great about the quality, that the guest was really excited about a new additional menu item. We do not do a lot of things like that, so it has been received very well. We had 400 more stores opt in on our October menu, and the sales have been very strong and very solid. Maybe Michael can speak to a little bit about how many stores or how many units we are moving. I will tell you, it is a great product. We are very proud of it, and it is exciting to have some refreshing menu item. It may be a little bit of that game changer when people are driving in the car, and we have not had pasta on the menu on a national level for a long time.
So this could be a real win for us in the long term. Still early on, I think, to have that many stores to know the impact. It is a great product, and we are really excited about it.
Yeah, Jerry, to your point, I probably won't get into the exact number. I mean, we're selling a good number. It's probably not going to be one of our top 10 mix entrée items that we offer, but it rounds out the menu, and it's a great choice for somebody who wants something a little bit different. I don't really expect it to change anything with our mix trends or margin trends from it. But again, it was something that we thought fit well into the menu.
Your next question comes from the line of Chris O'Cull with Baird. Chris, please go ahead.
Thanks. Good afternoon, guys. Jerry, what would cause the company to conclude that it might need to shift its recovery plan or strategy beyond just local store marketing outreach? What maybe could that look like? Then one other question, this may be for you, Michael. The pace of the slowdown you've seen, how should we be thinking about the company's ability to manage labor hours relative to the sharp fall-off in traffic?
Thanks, Chris. I do believe having the conversation with our operators face-to-face and really understanding what we do. I feel if I look at July and August, then I look at September, then I look at where we're at today, we are a very trusted brand out there, and I do believe that people understand that. I think the confidence of us really doubling down on running great shifts, running open in our business, being great community partners is really the way to go. Will we lean into other avenues if we need to? Absolutely. We are definitely business people, but the trends and the signs show that we believe that those were false accusations and that absolutely our sales are coming back. Our relationship with our communities across the nation are strong, and people believe that.
We are just going to continue to open our doors and serve our food and show them high-level hospitality and show them that we are loving partners in their community. I believe that we will continue to get back to exactly where we were going into it.
On the labor question, this is Mike. I think it is safe to say our operators are managing the business for the long term. They have got a second-to-none ownership mentality, so quarterly results are less important to them, the long term is. From a labor efficiency perspective, I will repeat something we say a lot, and that is our MPs, they staff for the sales and the traffic they want in the long term. I do not think you will see much of a change from us in that approach at all.
Your next question comes from the line of Andy Barish with Jefferies. Andy, please go ahead.
Yeah. Hey, guys. Can you just give us kind of a Bubba's 33 update, and does the pipeline for 2027 continue to contemplate a higher number of openings with that brand?
Yeah. Thanks, Andy. It's Jerry. I'll kick it off, and then one of these guys will take over. Really excited about the opportunity for Bubba's 33. I think we've got eight openings left this year, so we had been pushed off a little bit, but we're continuing to see great success with the brand. I love the food, I love what we're doing on the operation side, and really the results that we're getting. We've seen some very positive trends here. As of recent, our new store openings are doing really, really solid. So, I feel really good about the brand and the positioning of it representing one of TXRH's brands. Bubba's 33 obviously has a huge role in our company today and going forward. We'll keep the cadence.
I believe we're trying to get around 10 to 12 a year is what we're striving for. We got a strong pipeline for 2027 and 2028, and obviously working on 2029. So we feel very good about what we've currently got and what we're doing with the brand.
Yeah. Andy, just to give you a little bit more color on the pipeline stuff, this is Mike. I think the really encouraging thing on that is that Bubba's is being able to take advantage of ground-up opportunities as well as some conversions. We will open three or four conversions this year, and we've been pleased with those results. I'll go up a level too, and that is the learnings that are being applied at Bubba's are really, really encouraging. With only 60-some-odd restaurants, hardly any advertising to spend and to generate weekly average sales of nearly $126,000 year to date, puts them near the top of the casual dining space. So you put those three things together, and it does mean the future's very bright for Bubba's.
Your next question comes from the line of Andrew Strelzik with BMO Capital Markets. Andrew, please go ahead.
Great. Thanks for taking the question. I wanted to ask about the to-go business, and at 14% of sales, it's already a pretty decently sized business. Is there anything you're thinking about doing incrementally to grow to-go in 2027 that we should be aware of, or longer-term things on your radar to continue to build that business over time?
Yeah. Hey, Andrew. We don't necessarily have a target mix on our to-go business. We like the way it's growing. Weekly sales dollars to-go grew 10% in Q3 over last year. The mix has grown nicely. We think that the investments in technology that Jerry mentioned earlier, some of the labor efficiencies that we see allow us to deliver those legendary experiences through the to-go business. We also think our operators can and will continue to support growth in both the dine-in as well as the to-go. I think it's more of the same in 2027 there.
Andrew, it's Jerry. I think we have been working on a program with our Family Packs, and some have been received extremely well. Not all of our stores need them, but I think there's some areas where you can get a Family Pack that feeds four is definitely something that we're continuing to look at. We have it in the system now. It is working. There's a lot of stores that are using it, so that could be something that we could use that lever if we needed to from that. It's already in the system having some success, so we could be leaning into that a little heavier.
Your next question comes from the line of John Ivankoe with JPMorgan. John, please go ahead.
Hi. Thank you. I was in a store a couple of weeks ago and had the physical menu in my hand, and I was really kind of struck by how much it reminded me of the menu from 20 years ago. It might even be exactly the same. You can tell me. As we kind of think about maybe over time menu enhancements might be more of an incremental opportunity in the future than it was in the past, do we have an opportunity to kind of make some enhancements to the physical menu? Keeping all the good, of course, and just making it better, especially as I imagine many of your most frequent customers probably don't even use the menu, and a more modern menu actually might benefit new customers to explore some new things a little bit better. What are your thoughts on that?
Hey, John. This is Jerry. That's a great question. You're right. I mean, if I go back to all the beginning days, we didn't have a lot. We only had a 6 oz, an 8 oz, and 11 oz sirloin. So we've added a 16 oz sirloin, a 16 oz ribeye, the Bone-In Ribeye. We've added a lot of bigger steaks by keeping our value and our options to that point. But I think over time we have adjusted, we used to have trout on the menu, and now I believe we went to shrimp, and that shrimp has been a huge seller. We used to have baked beans, and we have corn. So not only our healthier options. So we continue to look at. We have test items that are out there. Obviously, the pasta is something that we'll see how that continues to go, the fried cheese mozzarella sticks.
We have definitely evolved the menu. We continue to test some things. We've got shrimp cocktail out there in a test, deviled eggs. We've got some fun things that are working, and they may be more regional items, but I'll tell you, we've got a heck of a chef that continues to throw things our way. But in order to make it on that menu, it's got to be a really good product to bump something out of a slot, because you just can't keep adding and adding. I think we're in a really good place where we currently are, and we'll continue to talk to the operators in the spring about if there is the ability to expand or not. We'll have some options for them. But really, they got to tell us how much they can handle. But I love our menu.
We're steaks and potatoes and ice-cold beer, baby.
John, this is Michael. I just want to add on from a design of the menu, we've certainly A lot of it is very similar, but I think a big enhancement is we've added pictures on the menu and a panel that shows a number of the items. That's something we learned from our international team that really added value to the menu. A lot of people use that to help determine what they want to buy. So we definitely have enhanced the design of the menu over the years, and the pictures being probably the biggest change.
Your next question comes from the line of Logan Reich with RBC Capital Markets. Logan, please go ahead.
Hey. Good evening. Thanks for taking my questions, and I personally love pictures on the menu, so appreciate that. My question is going back to the quarter-to-date comp and just how to think about the Q4 balance of the quarter. I guess just what would you chalk up the slowdown to? I mean, obviously, the hoax was a headwind, but I think some investors maybe had expected sales to improve a little bit faster than they have. Then I believe compares get easier through the balance of the quarter. Is there a right way to think about maybe some acceleration on easier compares for the rest of the quarter, or is that not the right way we should be thinking about it? Thanks.
Yeah. Hey, Logan. It's Mike. I think I'd like to not necessarily provide We don't provide quarterly guidance, but I will remind you of a couple things that may help out with how you're looking at it. We do have 2.9 points of pricing in the quarter, and point you back to Michael's prepared comments with regard to the negative holiday shift. Then lastly, just kind of reiterate the comments I had earlier, I believe it was to Lauren, with regard to how October and thus far November, where we exited October stronger than we entered it, and we're entering November stronger than we exited October.
Your next question comes from the line of Dennis Geiger with UBS. Dennis, please go ahead.
Thanks, guys. I wanted to ask a little more on beef visibility into 2027, if any commentary you can give on loosely where you're locked, and if any additional updates on the supply-demand side of things. Anything you could share that's shifting at all on the supply side, and any updates maybe on where you think demand is, retail demand, et cetera, if we've seen much shift there? Thank you.
Yeah. Hey, Dennis. It's Michael. Appreciate the question. I don't know if I think that the demand at retail has changed much since we were last speaking over second quarter of the year. I think people are still looking for value, and there are some that probably are shifting to other proteins, but beef is still certainly selling in the grocery store, in retail. Supply is tighter. The packers are slaughtering more cattle right now, but we expect supply will tighten into the end of the year and early next year. The benefit of Mexican border reopening is probably a mid to late- year impact if things continue to go well with that reopening. We are locked on about half of our overall commodity basket. We never talk specifically on beef, but with beef being about half the basket, they're not going to run too far different from each other.
We have our supply locked in for the majority of our beef, and we have prices locked in on about half the overall commodity basket right now.
Your next question comes from the line of Chris Carril with KeyBanc Capital Markets. Chris, please go ahead.
Hi, thanks for taking the question. I just wanted to follow up on Bubba's. Your commentary around volumes and around new locations sounds really encouraging. Maybe following up on this, can you speak to the progress you're seeing from a margins and/or returns perspective at the brand?
Yeah, I can start with that. I think as it relates to returns, because it's a good follow-on to the development comments earlier, we are seeing nice returns in our Bubba's locations. That generally equates to high -teens cash- on- cash returns. What's nice is that we are seeing that in both the ground- ups as well as the conversions that I mentioned. As it relates to profit margin, the Bubba's operators have the exact same mentality that the Roadhouse operators do, and they manage and get paid off of margin-related dollars, not percentages. The increases that we're seeing there, top line is flowing through in a way that we're happy with at Bubba's.
Chris, this is Michael. I'll just add, and I'll tell you, we're seeing some really encouraging comp trends at Bubba's of recent. Very excited about what we may continue to see from those sales flowing through to margin. Remember, when you have approximately 60 locations and you're opening 10 new restaurants, you do get some pressure from those new stores taking a little bit of time to ramp up to profitability. That can weigh down on the margin on a quarter-over-quarter basis. Over time, we are very encouraged by what we're seeing. Kenneth, we're ready for the next question.
The next question comes from the line of Jim Sanderson with Northcoast Research. Jim, please go ahead.
Hey, thanks for the question. I wanted to go back to international. I think you mentioned signing agreements in Vietnam and Japan. Wanted to get a little bit more feedback on the size and scale, duration of the agreements, and then also wondering if you're actively pursuing franchise agreements in Latin America or Canada.
Yeah. Jim, this is Michael. Probably not going to get into a lot of details right now on the size or scope of those agreements. We think there are some huge opportunities in both those countries that we have agreements in place with, but probably not going to get too specific there. Also, probably don't want to comment too much on where we may be focusing our attention. We do have franchise restaurants in Mexico, so we do have some Latin America presence already, and we'll continue to look for new opportunities going forward.
I'll just add to that we made a comment in the last quarter on the World Cup and the interest that we got internationally on an inbound basis from some of the viral social media posts that were made by international guests coming to the U.S. That has resulted in some additional inbound interest in our international business as well.
Your next question comes from the line of Gregory Francfort with Guggenheim. Gregory, please go ahead.
Hi, this is Arian Razai on for Greg. Thanks for taking our question. I wanted to double-click on the consumer slowdown. Is there softness in the past couple of months across the industry? Did you see any trade-down in steak cuts during that as well? If I am not mistaken, you hit the soft patch last December when there was a trade-down in steak. Any additional color would be super helpful. Thank you.
Yeah, this is Michael. Yeah, I do not think we are seeing a consumer slowdown, a macro slowdown at this point. We are not seeing anything in our mixed trends that tell us the consumer is behaving any differently in the five weeks of the fourth quarter than it behaves in September or August or July. So, we continue to see guests trading to, more of our guests getting a steak or a bigger entrée. So, nothing there right now that is raising a concern for us.
Your next question comes from the line of Sara Senatore with Bank of America. Sara, please go ahead.
Thank you. Just a quick follow-up on the mix question, and it looks like maybe it's flat for the quarter, which is better than it's been for, call it, six or seven quarters. I was just curious, what's driving that? Sounds like you're still seeing that trade-up. Maybe alcohol is moderated, maybe non-alcoholic, and that's part of maybe what's inspiring the mocktails and dirty sodas, or rather the energizers. I just wanted to sort of understand that. Broadly speaking, is there an opportunity, or maybe it's just too small, for mix to actually impact your margin? Because obviously, food margins on beef tend to be lower than pretty much anything else.
Just trying to understand kind of the margin complexion if you do start to see a pickup in your beverage business or even pasta, or if it's just too kind of small to move the needle.
Hey, Sara, it's Michael. I mean, you laid out some of the answers to the question as far as what's driving the mix, entrée mix. As you kind of look from sequentially Q1 to Q2 and Q2 to Q3, entrée mix has gotten more positive, and alcohol mix has gotten less negative. That's really the driver of getting to that flat mix. You were correct. Q3 mix was flat. All of our pricing flowed through to check. As far as your question on can mix impact margins, I think it depends. Certainly on the beverage side, getting positive mix on beverage, whether that's soft beverage, alcohol, dirty sodas, mocktails, you name it, beverages is profitable, and that would probably be the biggest one that could improve margins.
Whether mix moves enough to move that needle is to be determined, but beverage would be the one that has the largest impact there. I don't think pasta, as I kind of alluded to before, is going to be a big enough mix item to move the margin numbers.
Your next question comes from the line of Brian Vaccaro with Raymond James. Brian, please go ahead.
Thanks, and good evening. Just following up on the food cost inflation, and sorry if I missed it earlier, but what is your expectation for the fourth quarter specifically? My question is on wage and other inflation. I think you guided to up 3% in 2027. It's been a long time since we've seen it that low. Could you just provide a little more color on some of the dynamics contributing to that? Thanks very much.
Sure. Hey, Brian, it's Michael. Fourth quarter commodity inflation, we're now expecting approximately 4.5%, and that's down from, I would say, approximately 5% that we were expecting when we updated you all last quarter. So, a little bit better there. You're right, the labor inflation has come down. The wage component of that inflation continues to moderate. Some of that is also because the last two years, we acquired some of our California franchise stores where wage rates are much higher, and that was adding some pressure to wage inflation. We don't have that in 2027. But I'd say two-thirds of the wage and other inflation expected for 2027 is coming from the wage side of it, and the remainder is coming from health insurance costs and other components of labor.
Your next question comes from the line of Zach Fadem with Wells Fargo. Zach, please go ahead.
Hi, good evening. I think there's still some confusion on the trajectory of the recovery. Just to get a little more detail, is it fair to say that the comp exited flat or perhaps a little negative in late September and then gradually improved through October, and now roughly 3 or 4 points better versus the trough? Is that a fair characterization?
Zach, I would say we're certainly I'm probably not going to get you as specific an answer as you may like, but certainly, we have seen sequential improvement every week, certainly through the five weeks of the fourth quarter. Yes, we are continuing to see those numbers get better. I'm not going to put any specific number around it, but every week has gotten better, and we're encouraged by what we're seeing right now. But sometimes, maybe the recovery has taken a little bit longer than some would have expected, but our operators are out there busting their butts, and they've doubled down on everything they're doing. If there's any group of managers, operators out there who are up for this challenge, it's the Texas Roadhouse managing partners and the whole teams out there who are compensated off their restaurants.
They're out there and working and not sitting back, just waiting to see what might happen.
We have reached the end of the question-and-answer session. I will now turn the call back to Jerry Morgan for closing remarks.
Thank you, and I wanted to thank you all for joining us tonight, and a special thanks to our management team and all of our Roadies at our new Clarksville restaurant on their first day serving Clarksville, Indiana, in that brand-new store. Let's go, Clarksville, Indiana!
This concludes today's call. Thank you for attending. You may now disconnect.