00:00 Speaker A
Take a look at one stock. We are watching at the market open here and that is Texas Roadhouse shares are higher up over 5% after the company posted mixed earnings for the first quarter with lower than expected earnings, but a 3.5% increase in same store sales. On the earnings call, leadership acknowledged some of the macro headwinds including consumer sentiment and of course tariffs. The comments echo concerns voiced by other companies like McDonald’s, which said they were not immune to industry volatility. Chipotle on its call saying consumers reduced restaurant visits due to econ concerns. Joining us now on this, John Tower, City’s restaurant analyst to break down how consumer demand is impacting the sector. John, it’s always great to get your insights before we get into the individual companies here. I just want to get your macro take on the sector and on the health of the consumer. How would you describe how the consumer is holding up amid the macro uncertainty right now?
01:52 John Tower
I think fairly well. I mean, we had a really noisy first quarter with weather really being a significant factor and then April May, excuse me, March, and then April came along caused a lot of noise for consumers. Confidence fell, uh, quite a bit during the month and I think that caused a lot of folks to pull back, um, at least temporarily. But we’re also hearing from a number of companies that April actually improved relative to what they were seeing certainly during February, March. So it’s it’s a bit of a mixed bag. I I’m not all that concerned on the health of the consumer at the moment. And look, I I don’t know where we’re going to go from from the US economy standpoint, but if we do go to a slowdown, I think the restaurant category is actually set up relatively well to outperform other parts of consumer discretionary.
03:20 Speaker A
When you hear this number of businesses talking about remaining focused on the fundamentals of our business, things what they can control, what what are the main controllables, the variables that are are a little bit more in their hands that they can essentially kind of pull levers here and there to ensure that they do navigate what is an uncertain environment that all of them have acknowledged in some capacity or another?
04:07 John Tower
It’s great value, great service, it’s relevant products. It’s staying in front of the guest with good news, meaning, you know, you’re you’re staying out there with important or relevant products, right? You’re not just saying, here’s a value price point. It’s here’s a value price point with new product news behind it. And it’s high quality food, right? And you’re getting in an environment that you want to be and it’s not a tired restaurant with poor service. It’s, you know, frankly a waiter or waitress coming up to you and saying, hey, how you doing? And I hope you’re having a great day. And oh, by the way, you know, we’re coming to your table more often to make sure that your drinks are topped off, you’re getting what you want. It’s really those soft touches that will drive customers back to the store rather than, you know, eating at home or going to a competitor. So I think all of those, it’s really soft things, but they matter in times when consumers are pulling back.
06:00 Speaker A
And so within that, some people will hear value and read through to say, well, it sounds like more promotions as well. To what extent then do some of those promotions start to hit the margins?
06:48 John Tower
Yeah, I think a lot of the operators have gotten smarter about how they promote, when they promote, and value engineering any sort of promotion that they put forth to the guests. So it’s not just straight discounting, it’s ensuring that whatever they put forth on their menu, they’re making some profits, not only clearly for the company itself, but in a franchise model, ensuring that their franchisee profitability is not, you know, falling in the tank. So I everything that you’re going to see out there might, you know, decrease profit dollars modestly, um, but they’re also hoping that it drives traffic to the store. And then when a guest comes through, they’re adding, say a beverage to the occasion, adding a side item that they wouldn’t have done, uh, had they not come to the store in general. So it’s much more thoughtful than it used to be, say, even thinking back to the financial crisis when there’s a lot of panic setting in across the industry and there’s just straight discounting to get guests in the door. This is a much more methodical industry, much more analytics behind it. So I I do think that as we see promoting come through, more discounting come through, it’s not just straight up discount, unprofitable. It’s more thoughtful and profitable promotions.
09:10 Speaker A
John, thanks so much for taking the time here with us today just after the opening bell. Appreciate it.
09:20 John Tower
Good to see you. Thank you.
