In all periods presented, average guest check may not have changed in line with the menu price increases
implemented as guests shifted to other menu price items and/or purchased more or less beverages. In March 2019, we
expect to implement a menu price increase of approximately 1.5%.
In 2019, we plan to open 25 to 30 company restaurants. While the majority of our restaurant growth in 2019 will be
Texas Roadhouse restaurants, we currently expect to open as many as four Bubba’s 33 restaurants. We have either begun
construction or have sites under contract for purchase or lease for the majority of our expected 2019 openings.
Franchise Royalties and Fees
Franchise royalties and fees increased $3.8 million or 23.1% in 2018 compared to 2017 and increased $0.1 million
or 0.4% in 2017 compared to 2016. Included in the increase in 2018 are reclassifications of approximately $2.6 million
in conjunction with the implementation of new revenue recognition accounting guidance as previously described. An
increase in average unit volume at domestic restaurants, driven by comparable restaurant sales growth, and the opening
of new franchise restaurants also contributed to the increases in both periods. For both 2018 and 2017, the increases
were partially offset by a decrease in average unit volume at international restaurants, driven by a decrease in
comparable restaurant sales at those locations. For 2017, the increase was also partially offset by the loss of royalties
associated with the acquisition of four franchise restaurants in Q1 2017. In 2018, franchise comparable restaurant sales
increased 2.2% which included an increase in domestic franchise comparable restaurant sales of 4.3%. In 2017,
franchise comparable restaurant sales increased 2.9% which included an increase in domestic franchise comparable
restaurant sales of 4.2%. Franchise restaurant count activity is shown in the restaurant unit activity table above.
We anticipate our existing franchise partners will open as many as eight Texas Roadhouse restaurants, primarily
international, in 2019.
Restaurant Cost of Sales
Restaurant cost of sales, as a percentage of restaurant and other sales, decreased to 32.6% in 2018 from 32.8% in
2017 and from 33.9% in 2016. The decrease in 2018 was primarily attributed to the benefit of menu pricing actions
along with the reclassification of $5.4 million in conjunction with the implementation of new revenue recognition
accounting guidance as previously described. The decrease was partially offset by commodity inflation of
approximately 1.4% driven by higher food costs. The decrease in 2017 was primarily attributed to commodity deflation
of 2.4% and menu pricing actions. Commodity deflation was driven by lower food costs, primarily beef. Recent menu
pricing actions are summarized in our discussion of restaurant and other sales above.
For 2019, we currently expect commodity cost inflation of 1.0% to 2.0% with fixed price contracts for
approximately half of our overall food costs and the remainder subject to fluctuating market prices.
Restaurant Labor Expenses
Restaurant labor expense, as a percentage of restaurant and other sales, increased to 32.6% in 2018 compared
to 31.2% in 2017. This increase was primarily attributed to higher average wage rates and current staffing initiatives
along with higher costs associated with health insurance and workers’ compensation expense partially offset by the
benefit from an increase in average unit volume.
Restaurant labor expense, as a percentage of restaurant and other sales, increased to 31.2% in 2017 compared
to 29.9% in 2016. The increase was primarily attributed to higher average wage rates, current staffing initiatives to
increase sales, and a change in our compensation structure, partially offset by the benefit from an increase in average
unit volume.
In 2019, we anticipate our labor costs will be pressured by mid-single digit inflation due to ongoing labor market
pressures, current staffing initiatives and increased investment in our people and increases in state-mandated minimum
and tipped wage rates. These increases may or may not be offset by additional menu price adjustments or guest traffic
growth.