The restaurant industry is seeing a serious rotation in traffic as households rethink their spending habits. It appears that some fast-food and fast-casual chains have raised prices so much that they lost their traditional cost advantage, making the move to a sit-down meal an easy choice.
Although the casual dining segment is taking market share, steakhouses still face pressure from elevated beef prices. However, the rise in the cost of beef is expected to slow down by the second half of the year, and potentially become a tailwind for margins by the back half of 2027.
NASDAQ: TXRH
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Texas Roadhouse traffic leads its rivals
Texas Roadhouse (TXRH 1.56%) operates over 600 namesake steakhouses alongside its Bubba's 33 and Jaggers concepts. While Darden Restaurants (DRI 2.38%) leverages its scale, Texas Roadhouse wins on consistent traffic.
In its most recent quarter, same-store sales (comps) rose 6.1%, with guest counts rising 4.3%. The steakhouse maintains this steady performance through a disciplined strategy that avoids the aggressive, short-term discounting common among its competitors.
Restaurant-level margins declined by nearly 170 basis points in the quarter due to higher beef prices and labor-cost inflation. Given the chain's reliance on beef, margin compression is difficult to avoid, but pressure is expected to ease as inflationary pressures ease in the back half of the year. Management has completed its systemwide transition to digital kitchens, a move designed to maximize throughput and improve order accuracy at its high-volume locations.
And its expansion pipeline remains active with plans to open 35 company-owned locations in 2026. The valuation currently reflects some margin recovery, trading at 28 times forward earnings, compared to its typical multiple in the low 20s.
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Darden uses scale to keep prices competitive
Darden Restaurants operates a portfolio of over 2,100 locations, including household names like Olive Garden, LongHorn Steakhouse, and Chuy's Tex-Mex. Shares are up by about 11% since reporting second-quarter 2026 comps growth of 4.3%, with every concept contributing positive results. While the industry struggled with declining guest counts, its anchor Olive Garden remained resilient, posting comps of 4.7%.
Performance at LongHorn was even stronger, with comps rising 5.9% as the brand captured market share from more-expensive steakhouse peers. At a time when customers are seeking value, Darden's scale and efficiency allow it to discount, as it did in the second quarter by keeping prices around 320 basis points below inflation at LongHorn Steakhouse, a competitive edge over smaller rivals. With a 2.8% dividend yield and a forward price-to-earnings ratio of 20, the current valuation is slightly above its historical average of around 18.
Chili's continues to take market share
Brinker International (EAT 4.24%) owns or franchises more than 1,600 restaurants, primarily under the Chili's Grill & Bar and Maggiano's Little Italy brands. The stock has been on a tear, up 60% since its November lows.
Chili's reported second-quarter comps growth of 8.6% in January, fueled by higher traffic. This period marks the 19th consecutive quarter of comps growth for the brand, a run that certifies the turnaround story.
NYSE: EAT
Key Data Points
Growth is led by its 3 for Me platform, which brings in budget-conscious diners with a drink, chips and salsa, and an entree with fries, starting at $10.99. The Triple Dipper menu also attracts younger guests with a shareable choice of three appetizers and dipping sauces.
Unlike peers that are cutting back on marketing, Brinker boosts its advertising to highlight its value advantage over fast-food competitors. Despite the stock's recent strength, it still trades for around 15 times this year's earnings estimates, making it the best value of these three chains.
