UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 28,September 26, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-50972
Texas Roadhouse, Inc.
(Exact name of registrant specified in its charter)
Delaware | | 20-1083890 |
(State or other jurisdiction of | | (IRS Employer |
incorporation or organization) | | Identification Number) |
6040 Dutchmans Lane, Suite 200
Louisville, Kentucky 40205
(Address of principal executive offices) (Zip Code)
(502) 426-9984
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | TXRH | NASDAQ Global Select Market |
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ | Accelerated Filer ☐ | Non-accelerated Filer ☐ | Smaller Reporting Company ☐ |
| Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding were 67,000,31366,783,122 on April 26,October 25, 2023.
TABLE OF CONTENTS
2
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | |
|
| March 28, 2023 |
| December 27, 2022 |
| September 26, 2023 |
| December 27, 2022 | ||||
Assets | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 156,143 | | $ | 173,861 | | $ | 69,324 | | $ | 173,861 |
Receivables, net of allowance for doubtful accounts of $78 at March 28, 2023 and $50 at December 27, 2022 | |
| 41,528 | |
| 150,264 | ||||||
Receivables, net of allowance for doubtful accounts of $54 at September 26, 2023 and $50 at December 27, 2022 | |
| 48,967 | |
| 150,264 | ||||||
Inventories, net | |
| 36,812 | |
| 38,015 | |
| 36,589 | |
| 38,015 |
Prepaid income taxes | |
| — | |
| 5,097 | |
| 2,823 | |
| 5,097 |
Prepaid expenses and other current assets | |
| 34,235 | |
| 29,604 | |
| 23,783 | |
| 29,604 |
Total current assets | |
| 268,718 | |
| 396,841 | |
| 181,486 | |
| 396,841 |
Property and equipment, net of accumulated depreciation of $995,149 at March 28, 2023 and $968,036 at December 27, 2022 | |
| 1,310,782 | |
| 1,270,349 | ||||||
Property and equipment, net of accumulated depreciation of $1,048,243 at September 26, 2023 and $968,036 at December 27, 2022 | |
| 1,425,169 | |
| 1,270,349 | ||||||
Operating lease right-of-use assets, net | | | 643,485 | | | 630,258 | | | 679,065 | | | 630,258 |
Goodwill | |
| 169,641 | |
| 148,732 | |
| 169,684 | |
| 148,732 |
Intangible assets, net of accumulated amortization of $18,554 at March 28, 2023 and $17,905 at December 27, 2022 | |
| 5,859 | |
| 5,607 | ||||||
Intangible assets, net of accumulated amortization of $20,217 at September 26, 2023 and $17,905 at December 27, 2022 | |
| 4,195 | |
| 5,607 | ||||||
Other assets | |
| 76,380 | |
| 73,878 | |
| 86,738 | |
| 73,878 |
Total assets | | $ | 2,474,865 | | $ | 2,525,665 | | $ | 2,546,337 | | $ | 2,525,665 |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Current portion of operating lease liabilities | | $ | 26,466 | | $ | 25,490 | | $ | 27,186 | | $ | 25,490 |
Accounts payable | |
| 113,834 | |
| 105,560 | |
| 126,219 | |
| 105,560 |
Deferred revenue-gift cards | |
| 240,729 | |
| 335,403 | |
| 201,316 | |
| 335,403 |
Accrued wages | |
| 66,153 | |
| 54,544 | |
| 68,013 | |
| 54,544 |
Income taxes payable | | | 5,718 | | | 434 | | | 603 | | | 434 |
Accrued taxes and licenses | |
| 38,401 | |
| 35,264 | |
| 42,478 | |
| 35,264 |
Other accrued liabilities | |
| 96,797 | |
| 95,315 | |
| 95,611 | |
| 95,315 |
Total current liabilities | |
| 588,098 | |
| 652,010 | |
| 561,426 | |
| 652,010 |
Operating lease liabilities, net of current portion | | | 692,016 | | | 677,874 | | | 730,163 | | | 677,874 |
Long-term debt | |
| — | |
| 50,000 | |
| — | |
| 50,000 |
Restricted stock and other deposits | |
| 8,487 | |
| 7,979 | |
| 8,873 | |
| 7,979 |
Deferred tax liabilities, net | |
| 23,674 | |
| 20,979 | |
| 23,393 | |
| 20,979 |
Other liabilities | |
| 92,051 | |
| 89,161 | |
| 103,316 | |
| 89,161 |
Total liabilities | |
| 1,404,326 | |
| 1,498,003 | |
| 1,427,171 | |
| 1,498,003 |
Texas Roadhouse, Inc. and subsidiaries stockholders’ equity: | | | | | | | | | | | | |
Preferred stock ($0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding) | |
| — | |
| — | |
| — | |
| — |
Common stock ($0.001 par value, 100,000,000 shares authorized, 67,000,306 and 66,973,311 shares issued and outstanding at March 28, 2023 and December 27, 2022, respectively) | |
| 67 | |
| 67 | ||||||
Common stock ($0.001 par value, 100,000,000 shares authorized, 66,783,010 and 66,973,311 shares issued and outstanding at September 26, 2023 and December 27, 2022, respectively) | |
| 67 | |
| 67 | ||||||
Additional paid-in-capital | |
| 6,240 | |
| 13,139 | |
| — | |
| 13,139 |
Retained earnings | |
| 1,048,941 | |
| 999,432 | |
| 1,103,889 | |
| 999,432 |
Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity | |
| 1,055,248 | |
| 1,012,638 | |
| 1,103,956 | |
| 1,012,638 |
Noncontrolling interests | |
| 15,291 | |
| 15,024 | |
| 15,210 | |
| 15,024 |
Total equity | |
| 1,070,539 | |
| 1,027,662 | |
| 1,119,166 | |
| 1,027,662 |
Total liabilities and equity | | $ | 2,474,865 | | $ | 2,525,665 | | $ | 2,546,337 | | $ | 2,525,665 |
See accompanying notes to condensed consolidated financial statements.
3
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
| | | | | | |
| | | | | | |
| | 13 Weeks Ended | ||||
|
| March 28, 2023 |
| March 29, 2022 | ||
Revenue: | | | | | | |
Restaurant and other sales | | $ | 1,167,583 | | $ | 980,972 |
Franchise royalties and fees | | | 6,773 | | | 6,514 |
Total revenue | |
| 1,174,356 | |
| 987,486 |
Costs and expenses: | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | |
Food and beverage | |
| 410,711 | | | 337,396 |
Labor | |
| 385,819 | | | 321,871 |
Rent | |
| 17,828 | | | 16,368 |
Other operating | |
| 167,529 | | | 144,154 |
Pre-opening | |
| 5,377 | | | 4,291 |
Depreciation and amortization | |
| 36,227 | | | 33,620 |
Impairment and closure, net | |
| 55 | | | (646) |
General and administrative | |
| 49,865 | | | 40,294 |
Total costs and expenses | |
| 1,073,411 | |
| 897,348 |
Income from operations | |
| 100,945 | |
| 90,138 |
Interest income (expense), net | |
| 1,238 | | | (397) |
Equity income from investments in unconsolidated affiliates | |
| 755 | | | 334 |
Income before taxes | | $ | 102,938 | | $ | 90,075 |
Income tax expense | |
| 14,334 | | | 12,747 |
Net income including noncontrolling interests | | | 88,604 | | | 77,328 |
Less: Net income attributable to noncontrolling interests | |
| 2,217 | | | 2,126 |
Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 86,387 | | $ | 75,202 |
| | | | | | |
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries: | | | | | | |
Basic | | $ | 1.29 | | $ | 1.09 |
Diluted | | $ | 1.28 | | $ | 1.08 |
Weighted average shares outstanding: | | | | | | |
Basic | |
| 67,016 | | | 69,086 |
Diluted | |
| 67,293 | | | 69,373 |
Cash dividends declared per share | | $ | 0.55 | | $ | 0.46 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended | ||||||||
|
| September 26, 2023 |
| September 27, 2022 |
| September 26, 2023 |
| September 27, 2022 | ||||
Revenue: | | | | | | | | | | | | |
Restaurant and other sales | | $ | 1,115,224 | | $ | 986,999 | | $ | 3,447,192 | | $ | 2,986,028 |
Franchise royalties and fees | | | 6,528 | | | 6,299 | | | 20,119 | | | 19,362 |
Total revenue | |
| 1,121,752 | |
| 993,298 | |
| 3,467,311 | |
| 3,005,390 |
Costs and expenses: | | | | | | | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | |
Food and beverage | |
| 386,184 | | | 342,032 | | | 1,198,099 | | | 1,026,469 |
Labor | |
| 378,814 | | | 330,219 | | | 1,155,970 | | | 985,132 |
Rent | |
| 18,177 | | | 16,703 | | | 54,001 | | | 49,785 |
Other operating | |
| 169,225 | | | 146,036 | | | 507,846 | | | 442,714 |
Pre-opening | |
| 8,663 | | | 5,701 | | | 19,711 | | | 15,315 |
Depreciation and amortization | |
| 39,124 | | | 33,735 | | | 112,764 | | | 101,775 |
Impairment and closure, net | |
| (2) | | | 772 | | | 131 | | | 537 |
General and administrative | |
| 47,708 | | | 42,812 | | | 148,573 | | | 132,319 |
Total costs and expenses | |
| 1,047,893 | |
| 918,010 | |
| 3,197,095 | |
| 2,754,046 |
Income from operations | |
| 73,859 | |
| 75,288 | |
| 270,216 | |
| 251,344 |
Interest income (expense), net | |
| 496 | | | (85) | | | 2,730 | | | (877) |
Equity income from investments in unconsolidated affiliates | |
| 139 | | | 190 | | | 1,181 | | | 1,069 |
Income before taxes | | $ | 74,494 | | $ | 75,393 | | $ | 274,127 | | $ | 251,536 |
Income tax expense | |
| 8,870 | | | 11,430 | | | 35,474 | | | 35,708 |
Net income including noncontrolling interests | | | 65,624 | | | 63,963 | | $ | 238,653 | | $ | 215,828 |
Less: Net income attributable to noncontrolling interests | |
| 1,836 | | | 1,635 | | | 6,207 | | | 5,879 |
Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 63,788 | | $ | 62,328 | | $ | 232,446 | | $ | 209,949 |
| | | | | | | | | | | | |
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries: | | | | | | | | | | | | |
Basic | | $ | 0.96 | | $ | 0.93 | | $ | 3.47 | | $ | 3.09 |
Diluted | | $ | 0.95 | | $ | 0.93 | | $ | 3.46 | | $ | 3.08 |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | |
| 66,779 | | | 66,886 | | | 66,923 | | | 67,875 |
Diluted | |
| 67,014 | | | 67,159 | | | 67,179 | | | 68,140 |
Cash dividends declared per share | | $ | 0.55 | | $ | 0.46 | | $ | 1.65 | | $ | 1.38 |
See accompanying notes to condensed consolidated financial statements.
4
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| | For the 13 Weeks Ended September 26, 2023 | |||||||||||||||||||
|
| |
| | |
| | |
| | |
| Total Texas |
| | |
| | |
| |
| | | | | | | Additional | | | | | Roadhouse, Inc. | | | | | | |
| ||
| | | | Par | | Paid-in- | | Retained | | and | | Noncontrolling | | | |
| |||||
| | Shares | | Value | | Capital | | Earnings | | Subsidiaries | | Interests | | Total |
| ||||||
Balance, June 27, 2023 |
| 66,843,456 | | $ | 67 | | $ | — | | $ | 1,082,915 | | $ | 1,082,982 | | $ | 15,268 | | $ | 1,098,250 | |
Net income |
| — | |
| — | |
| — | |
| 63,788 | |
| 63,788 | |
| 1,836 | |
| 65,624 | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1,894) | |
| (1,894) | |
Dividends declared ($0.55 per share) |
| — | |
| — | |
| — | |
| (36,731) | |
| (36,731) | |
| — | |
| (36,731) | |
Shares issued under share-based compensation plans including tax effects |
| 68,248 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (21,101) | |
| — | |
| (2,360) | |
| — | |
| (2,360) | |
| — | |
| (2,360) | |
Repurchase of shares of common stock, including excise tax | | (107,593) | | | — | | | (6,162) | | | (6,083) | | | (12,245) | | | — | | | (12,245) | |
Share-based compensation |
| — | |
| — | |
| 8,522 | |
| — | |
| 8,522 | |
| — | |
| 8,522 | |
Balance, September 26, 2023 |
| 66,783,010 | | $ | 67 | | $ | — | | $ | 1,103,889 | | $ | 1,103,956 | | $ | 15,210 | | $ | 1,119,166 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | For the 13 Weeks Ended September 27, 2022 | |||||||||||||||||||
|
| |
| | |
| | |
| | |
| Total Texas |
| | |
| | | | |
| | | | | | | Additional | | | | | Roadhouse, Inc. | | | | | | | | ||
| | | | Par | | Paid-in- | | Retained | | and | | Noncontrolling | | | | | |||||
| | Shares | | Value | | Capital | | Earnings | | Subsidiaries | | Interests | | Total | | ||||||
Balance, June 28, 2022 |
| 66,853,296 | | $ | 67 | | $ | — | | $ | 938,825 | | $ | 938,892 | | $ | 15,127 | | $ | 954,019 | |
Net income |
| — | |
| — | |
| — | |
| 62,328 | |
| 62,328 | |
| 1,635 | |
| 63,963 | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1,704) | |
| (1,704) | |
Dividends declared ($0.46 per share) |
| — | |
| — | |
| — | |
| (30,781) | |
| (30,781) | |
| — | |
| (30,781) | |
Shares issued under share-based compensation plans including tax effects |
| 88,641 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (27,351) | |
| — | |
| (2,444) | |
| — | |
| (2,444) | |
| — | |
| (2,444) | |
Share-based compensation |
| — | |
| — | |
| 9,580 | |
| — | |
| 9,580 | |
| — | |
| 9,580 | |
Balance, September 27, 2022 |
| 66,914,586 | | $ | 67 | | $ | 7,136 | | $ | 970,372 | | $ | 977,575 | | $ | 15,058 | | $ | 992,633 | |
See accompanying notes to condensed consolidated financial statements.
5
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| | For the 13 Weeks Ended March 28, 2023 | |||||||||||||||||||
|
| |
| | |
| | |
| | |
| Total Texas |
| | |
| | |
| |
| | | | | | | Additional | | | | | Roadhouse, Inc. | | | | | | |
| ||
| | | | Par | | Paid-in- | | Retained | | and | | Noncontrolling | | | |
| |||||
| | Shares | | Value | | Capital | | Earnings | | Subsidiaries | | Interests | | Total |
| ||||||
Balance, December 27, 2022 |
| 66,973,311 | | $ | 67 | | $ | 13,139 | | $ | 999,432 | | $ | 1,012,638 | | $ | 15,024 | | $ | 1,027,662 | |
Net income |
| — | |
| — | |
| — | |
| 86,387 | |
| 86,387 | |
| 2,217 | |
| 88,604 | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1,950) | |
| (1,950) | |
Dividends declared ($0.55 per share) |
| — | |
| — | |
| — | |
| (36,878) | |
| (36,878) | |
| — | |
| (36,878) | |
Shares issued under share-based compensation plans including tax effects |
| 173,620 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (53,874) | |
| — | |
| (5,430) | |
| — | |
| (5,430) | |
| — | |
| (5,430) | |
Repurchase of shares of common stock | | (92,751) | | | — | | | (9,623) | | | — | | | (9,623) | | | — | | | (9,623) | |
Share-based compensation |
| — | |
| — | |
| 8,154 | |
| — | |
| 8,154 | |
| — | |
| 8,154 | |
Balance, March 28, 2023 |
| 67,000,306 | | $ | 67 | | $ | 6,240 | | $ | 1,048,941 | | $ | 1,055,248 | | $ | 15,291 | | $ | 1,070,539 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | For the 13 Weeks Ended March 29, 2022 | |||||||||||||||||||
|
| |
| | |
| | |
| | |
| Total Texas |
| | |
| | | | |
| | | | | | | Additional | | | | | Roadhouse, Inc. | | | | | | | | ||
| | | | Par | | Paid-in- | | Retained | | and | | Noncontrolling | | | | | |||||
| | Shares | | Value | | Capital | | Earnings | | Subsidiaries | | Interests | | Total | | ||||||
Balance, December 28, 2021 |
| 69,382,418 | | $ | 69 | | $ | 114,504 | | $ | 943,551 | | $ | 1,058,124 | | $ | 15,360 | | $ | 1,073,484 | |
Net income |
| — | |
| — | |
| — | |
| 75,202 | |
| 75,202 | |
| 2,126 | |
| 77,328 | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| (2,007) | |
| (2,007) | |
Dividends declared ($0.46 per share) |
| — | |
| — | |
| — | |
| (31,795) | |
| (31,795) | |
| — | |
| (31,795) | |
Shares issued under share-based compensation plans including tax effects |
| 204,968 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (66,999) | |
| — | |
| (6,166) | |
| — | |
| (6,166) | |
| — | |
| (6,166) | |
Repurchase of shares of common stock | | (1,060,618) | | | (1) | | | (84,704) | | | — | | | (84,705) | | | — | | | (84,705) | |
Share-based compensation |
| — | |
| — | |
| 9,120 | |
| — | |
| 9,120 | |
| — | |
| 9,120 | |
Balance, March 29, 2022 |
| 68,459,769 | | $ | 68 | | $ | 32,754 | | $ | 986,958 | | $ | 1,019,780 | | $ | 15,479 | | $ | 1,035,259 | |
| | | | | | | | | | | | | | | | | | | | | |
| | For the 39 Weeks Ended September 26, 2023 | |||||||||||||||||||
|
| |
| | |
| | |
| | |
| Total Texas |
| | |
| | |
| |
| | | | | | | Additional | | | | | Roadhouse, Inc. | | | | | | |
| ||
| | | | Par | | Paid-in- | | Retained | | and | | Noncontrolling | | | |
| |||||
| | Shares | | Value | | Capital | | Earnings | | Subsidiaries | | Interests | | Total |
| ||||||
Balance, December 27, 2022 | | 66,973,311 | | $ | 67 | | $ | 13,139 | | $ | 999,432 | | $ | 1,012,638 | | $ | 15,024 | | $ | 1,027,662 | |
Net income |
| — | |
| — | |
| — | |
| 232,446 | |
| 232,446 | |
| 6,207 | |
| 238,653 | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| (6,021) | |
| (6,021) | |
Dividends declared ($1.65 per share) |
| — | |
| — | |
| — | |
| (110,429) | |
| (110,429) | |
| — | |
| (110,429) | |
Shares issued under share-based compensation plans including tax effects |
| 324,415 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (100,397) | |
| — | |
| (10,599) | |
| — | |
| (10,599) | |
| — | |
| (10,599) | |
Repurchase of shares of common stock, including excise tax | | (414,319) | | | — | | | (27,806) | | | (17,560) | | | (45,366) | | | — | | | (45,366) | |
Share-based compensation |
| — | |
| — | |
| 25,266 | |
| — | |
| 25,266 | |
| — | |
| 25,266 | |
Balance, September 26, 2023 |
| 66,783,010 | | $ | 67 | | $ | — | | $ | 1,103,889 | | $ | 1,103,956 | | $ | 15,210 | | $ | 1,119,166 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | For the 39 Weeks Ended September 27, 2022 | |||||||||||||||||||
|
| |
| | |
| | |
| | |
| Total Texas |
| | |
| | | | |
| | | | | | | Additional | | | | | Roadhouse, Inc. | | | | | | | | ||
| | | | Par | | Paid-in- | | Retained | | and | | Noncontrolling | | | | | |||||
| | Shares | | Value | | Capital | | Earnings | | Subsidiaries | | Interests | | Total | | ||||||
Balance, December 28, 2021 |
| 69,382,418 | | $ | 69 | | $ | 114,504 | | $ | 943,551 | | $ | 1,058,124 | | $ | 15,360 | | $ | 1,073,484 | |
Net income |
| — | |
| — | |
| — | |
| 209,949 | |
| 209,949 | |
| 5,879 | |
| 215,828 | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| (5,841) | |
| (5,841) | |
Acquisition of noncontrolling interest | | — | | | — | | | (1,395) | | | — | | | (1,395) | | | (340) | | | (1,735) | |
Dividends declared ($1.38 per share) |
| — | |
| — | |
| — | |
| (93,328) | |
| (93,328) | |
| — | |
| (93,328) | |
Shares issued under share-based compensation plans including tax effects |
| 390,996 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (124,823) | |
| — | |
| (11,108) | |
| — | |
| (11,108) | |
| — | |
| (11,108) | |
Repurchase of shares of common stock | | (2,734,005) | | | (2) | | | (123,057) | | | (89,800) | | | (212,859) | | | — | | | (212,859) | |
Share-based compensation |
| — | |
| — | |
| 28,192 | |
| — | |
| 28,192 | |
| — | |
| 28,192 | |
Balance, September 27, 2022 |
| 66,914,586 | | $ | 67 | | $ | 7,136 | | $ | 970,372 | | $ | 977,575 | | $ | 15,058 | | $ | 992,633 | |
| | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
56
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended | ||||||||
|
| March 28, 2023 |
| March 29, 2022 |
| September 26, 2023 |
| September 27, 2022 | ||||
Cash flows from operating activities: | | | | | | | | | | | | |
Net income including noncontrolling interests | | $ | 88,604 | | $ | 77,328 | | $ | 238,653 | | $ | 215,828 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | |
| 36,227 | |
| 33,620 | |
| 112,764 | |
| 101,775 |
Deferred income taxes | |
| 2,988 | |
| 2,630 | |
| 2,707 | |
| 5,246 |
Loss on disposition of assets | |
| 1,223 | |
| 1,151 | |
| 4,315 | |
| 3,635 |
Impairment and closure costs | |
| — | |
| 26 | |
| 41 | |
| 772 |
Equity income from investments in unconsolidated affiliates | |
| (755) | |
| (334) | |
| (1,181) | |
| (1,069) |
Distributions of income received from investments in unconsolidated affiliates | |
| 170 | |
| 332 | |
| 493 | |
| 817 |
Provision for doubtful accounts | |
| 28 | |
| 12 | |
| 4 | |
| 36 |
Share-based compensation expense | |
| 8,154 | |
| 9,120 | |
| 25,266 | |
| 28,192 |
Changes in operating working capital: | | | | | | | ||||||
Changes in operating working capital, net of acquisitions: | | | | | | | ||||||
Receivables | |
| 109,483 | |
| 116,419 | |
| 102,068 | |
| 123,551 |
Inventories | |
| 1,612 | |
| 1,820 | |
| 1,835 | |
| (990) |
Prepaid expenses and other current assets | |
| (3,224) | |
| 651 | |
| 5,821 | |
| 2,831 |
Other assets | |
| (2,265) | |
| 5,756 | |
| (12,680) | |
| 10,313 |
Accounts payable | |
| 10,418 | |
| 6,275 | |
| 14,188 | |
| 1,941 |
Deferred revenue—gift cards | |
| (95,838) | |
| (80,009) | |
| (135,251) | |
| (119,338) |
Accrued wages | |
| 11,609 | |
| 15,118 | |
| 13,469 | |
| 21,130 |
Prepaid income taxes and income taxes payable | |
| 10,381 | |
| 11,447 | |
| 2,443 | |
| 10,886 |
Accrued taxes and licenses | |
| 3,137 | |
| 315 | |
| 7,041 | |
| 4,016 |
Other accrued liabilities | |
| 3,044 | |
| (10,676) | |
| (10,117) | |
| (8,916) |
Operating lease right-of-use assets and lease liabilities | |
| 1,090 | |
| 1,542 | |
| 4,702 | |
| 3,950 |
Other liabilities | |
| 2,895 | |
| (4,774) | |
| 14,158 | |
| (9,549) |
Net cash provided by operating activities | |
| 188,981 | |
| 187,769 | |
| 390,739 | |
| 395,057 |
Cash flows from investing activities: | | | | | | | | | | | | |
Capital expenditures—property and equipment | |
| (66,733) | | | (49,029) | |
| (243,895) | | | (174,194) |
Acquisition of franchise restaurants, net of cash acquired | | | (39,111) | | | (26,437) | | | (39,153) | | | (33,069) |
Proceeds from sale of investments in unconsolidated affiliates | | | 472 | | | — | | | 632 | | | 316 |
Proceeds from the sale of property and equipment | |
| — | |
| 2,188 | |
| 1,800 | |
| 2,262 |
Proceeds from sale leaseback transaction | | | 2,072 | | | — | ||||||
Proceeds from sale leaseback transactions | | | 7,097 | | | 9,078 | ||||||
Net cash used in investing activities | |
| (103,300) | |
| (73,278) | |
| (273,519) | |
| (195,607) |
Cash flows from financing activities: | | | | | | | | | | | | |
Payments on revolving credit facility | | | (50,000) | | | — | | | (50,000) | | | (25,000) |
Distributions to noncontrolling interest holders | |
| (1,950) | | | (2,007) | |
| (6,021) | | | (5,841) |
Acquisition of noncontrolling interest | | | — | | | (1,735) | ||||||
Proceeds from restricted stock and other deposits, net | |
| 482 | | | 260 | |
| 485 | | | 91 |
Indirect repurchase of shares for minimum tax withholdings | |
| (5,430) | | | (6,166) | |
| (10,599) | | | (11,108) |
Repurchase of shares of common stock | |
| (9,623) | | | (84,705) | |
| (45,193) | | | (212,859) |
Dividends paid to shareholders | |
| (36,878) | | | (31,795) | |
| (110,429) | | | (93,328) |
Net cash used in financing activities | |
| (103,399) | |
| (124,413) | |
| (221,757) | |
| (349,780) |
Net decrease in cash and cash equivalents | |
| (17,718) | |
| (9,922) | |
| (104,537) | |
| (150,330) |
Cash and cash equivalents—beginning of period | |
| 173,861 | | | 335,645 | |
| 173,861 | | | 335,645 |
Cash and cash equivalents—end of period | | $ | 156,143 | | $ | 325,723 | | $ | 69,324 | | $ | 185,315 |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 411 | | $ | 381 | | $ | 877 | | $ | 1,091 |
Income taxes paid (refunded) | | $ | 965 | | $ | (1,317) | ||||||
Income taxes paid | | $ | 30,323 | | $ | 19,591 | ||||||
Capital expenditures included in current liabilities | | $ | 30,908 | | $ | 25,006 | | $ | 51,556 | | $ | 32,468 |
See accompanying notes to condensed consolidated financial statements.
67
Texas Roadhouse, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(tabular amounts in thousands, except share and per share data)
(unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Texas Roadhouse, Inc., our wholly-owned subsidiaries and subsidiaries in which we have a controlling interest (collectively, the "Company," "we," "our" and/or "us") as of March 28,September 26, 2023 and December 27, 2022 and for the 13 and 39 weeks ended March 28,September 26, 2023 and March 29,September 27, 2022.
The Company maintains three restaurant concepts operating as Texas Roadhouse, Bubba’s 33 and Jaggers. As of March 28,September 26, 2023, we owned and operated 611623 restaurants and franchised an additional 9399 restaurants in 49 states and ten foreign countries. Of the 611 company restaurants that were operating at March 28, 2023, there were 591 wholly-owned restaurants and 20 majority-owned restaurants. Of the 611 restaurants that we owned as of March 28, 2023, we operated 564 as Texas Roadhouse restaurants, 40 as Bubba’s 33 restaurants and seven as Jaggers restaurants. Of the 93 Texas Roadhouse99 franchise restaurants, there were 5455 domestic restaurants and 3944 international restaurants.
As of March 29,September 27, 2022, we owned and operated 576587 restaurants and franchised an additional 9698 restaurants in 49 states and ten foreign countries. Of the 576 company restaurants that were operating at March 29, 2022, there were 556 wholly-owned restaurants and 20 majority-owned restaurants. Of the 576 restaurants that we owned as of March 29, 2022, we operated 536 as Texas Roadhouse restaurants, 36 as Bubba’s 33 restaurants and four as Jaggers restaurants. Of the 96 Texas Roadhouse98 franchise restaurants, there were 6362 domestic restaurants and 3336 international restaurants.
As of March 28,September 26, 2023 and March 29,September 27, 2022, we owned a majority interest in 20 company restaurants. The operating results of these majority-owned restaurants are consolidated and the portion of income attributable to noncontrolling interests is reflected in the line item net income attributable to noncontrolling interests in our unaudited condensed consolidated statements of income.
As of September 26, 2023 and September 27, 2022, we owned a 5.0% to 10.0% equity interest in 1920 and 2423 domestic franchise restaurants, respectively. These unconsolidated restaurants are accounted for using the equity method. Our investments in these unconsolidated affiliates are included in other assets in our unaudited condensed consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our unaudited condensed consolidated statements of income under equity income from investments in unconsolidated affiliates. All significant intercompany balances and transactions for these unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reporting of revenue and expenses during the periods to prepare these unaudited condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). Significant items subject to such estimates and assumptions include the carrying amountamounts of property and equipment, goodwill, obligations related to insurance reserves, leases, and leasehold improvements, legal reserves, gift card breakage and third party fees and income taxes. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, except that certain information and footnotes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results for the 13 and 39 weeks ended March 28,September 26, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 2023. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2022.
Our significant interim accounting policies include the recognition of income taxes using an estimated annual effective tax rate.
78
(2) Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting. These changes are intended to simplify the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. We do not anticipate thatadopted this guidance during the 39 weeks ended September 26, 2023 and the adoption of this standard willdid not have a significantmaterial impact on our unaudited condensed consolidated financial statements.
(3) Long-term Debt
We maintain a revolving credit facility (the "credit facility""credit facility") with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A. and PNC Bank, N.A. The credit facility is an unsecured, revolving credit agreement and has a borrowing capacity of up to $300.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders. The credit facility has a maturity date of May 1, 2026.
The terms ofOn May 19, 2023, we amended the credit facility require usto provide for the transition from LIBOR to the Secured Overnight Financing Rate ("SOFR") as the benchmark rate for purposes of calculating interest on outstanding borrowings. Pursuant to the amendment, we are required to pay interest on outstanding borrowings at LIBORthe Term SOFR, plus a marginfixed adjustment of 0.10% and a variable adjustment of 0.875% to 1.875% and pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the credit facility, in each case depending on our leverage ratio. TheAt the time of transition to the Term SOFR, we had no outstanding borrowings under the credit facility also has an Alternate Base Rate that may be substituted for LIBOR.facility.
As of March 28,September 26, 2023, we had no outstanding balance on the credit facility and had $283.5$287.7 million of availability, net of $16.5$12.3 million of outstanding letters of credit. As of December 27, 2022, we had $50.0 million outstanding on the credit facility and $233.5 million of availability, net of $16.5 million of outstanding letters of credit. The outstanding amount as of December 27, 2022 is included as long-term debt on our unaudited condensed consolidated balance sheet.
The interest rate for the credit facility as of March 28,September 26, 2023 and March 29,September 27, 2022 was 5.47%6.19% and 1.20%3.69%, respectively.
The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants. We were in compliance with all financial covenants as of March 28,September 26, 2023.
(4) Revenue
The following table disaggregates our revenue by major source:
| | | | | | | | | | | | | | |||
| 13 Weeks Ended | 13 Weeks Ended | | 39 Weeks Ended | ||||||||||||
| March 28, 2023 | | March 29, 2022 | September 26, 2023 | | September 27, 2022 | | September 26, 2023 | | September 27, 2022 | ||||||
Restaurant and other sales | $ | 1,167,583 | | $ | 980,972 | $ | 1,115,224 | | $ | 986,999 | | $ | 3,447,192 | | $ | 2,986,028 |
Franchise royalties | | 6,019 | | | 5,699 | | 5,832 | | | 5,559 | | | 17,896 | | | 17,029 |
Franchise fees | | 754 | | | 815 | | 696 | | | 740 | | | 2,223 | | | 2,333 |
Total revenue | $ | 1,174,356 | | $ | 987,486 | $ | 1,121,752 | | $ | 993,298 | | $ | 3,467,311 | | $ | 3,005,390 |
89
The following table presents a rollforward of deferred revenue-gift cards:
| | | | | | | | | | | | | | | | | | |
| | | 13 Weeks Ended | 13 Weeks Ended | | 39 Weeks Ended | ||||||||||||
| | | March 28, 2023 | | March 29, 2022 | September 26, 2023 | | September 27, 2022 | | September 26, 2023 | | September 27, 2022 | ||||||
Beginning balance | | | $ | 335,403 | | $ | 300,657 | $ | 226,130 | | $ | 208,429 | | $ | 335,403 | | $ | 300,657 |
Gift card activations, net | | | | 50,563 | | | 42,024 | | 48,824 | | | 42,741 | | | 167,378 | | | 144,402 |
Gift card redemptions and breakage | | | | (145,237) | | | (121,202) | | (73,638) | | | (68,905) | | | (301,465) | | | (262,794) |
Ending balance | | | | 240,729 | | | 221,479 | $ | 201,316 | | $ | 182,265 | | $ | 201,316 | | $ | 182,265 |
We recognized restaurant sales of $119.6$26.5 million and $102.1$191.7 million for the 13 and 39 weeks ended March 28,September 26, 2023, and March 29, 2022, respectively, related to the amountamounts in deferred revenue as of December 27, 2022. We recognized restaurant sales of $30.3 million and $171.9 million for the 13 and 39 weeks ended September 27, 2022, andrespectively, related to amounts in deferred revenue as of December 28, 2021, respectively.2021.
(5) Income Taxes
A reconciliation of the statutory federal income tax rate to our effective tax rate for the 13 and 39 weeks ended March 28,September 26, 2023 and March 29,September 27, 2022 is as follows:
| | | | | | | | | | | | | | | |
| | 13 Weeks Ended |
| | 13 Weeks Ended |
| | 39 Weeks Ended | | ||||||
|
| March 28, 2023 |
| March 29, 2022 |
|
| September 26, 2023 |
| September 27, 2022 |
| | September 26, 2023 |
| September 27, 2022 | |
Tax at statutory federal rate | | 21.0 | % | 21.0 | % | | 21.0 | % | 21.0 | % | | 21.0 | % | 21.0 | % |
State and local tax, net of federal benefit | | 3.7 | | 3.8 | | | 3.7 | | 3.8 | | | 3.7 | | 3.8 | |
FICA tip tax credit | | (10.2) | | (9.7) | | | (12.0) | | (9.6) | | | (11.0) | | (10.1) | |
Work opportunity tax credit | | (1.1) | | (1.3) | | | (1.0) | | (1.0) | | | (1.1) | | (1.3) | |
Stock compensation | | (0.3) | | (0.2) | | | (0.6) | | (0.2) | | | (0.6) | | — | |
Net income attributable to noncontrolling interests | | (0.4) | | (0.4) | | | (0.4) | | (0.3) | | | (0.4) | | (0.4) | |
Officers compensation | | 0.6 | | 0.5 | | | 0.4 | | 0.8 | | | 0.6 | | 0.6 | |
Other | | 0.6 | | 0.5 | | | 0.8 | | 0.7 | | | 0.7 | | 0.6 | |
Total | | 13.9 | % | 14.2 | % | | 11.9 | % | 15.2 | % | | 12.9 | % | 14.2 | % |
Our effective tax rate was 13.9%11.9% and 14.2%15.2% for the 13 weeks ended March 28,September 26, 2023 and March 29,September 27, 2022, respectively. Our effective tax rate was 12.9% and 14.2% for the 39 weeks ended September 26, 2023 and September 27, 2022, respectively. The reduction in our tax rate for the 13 and 39 weeks ended March 28,September 26, 2023 as compared to the prior year periodperiods was primarily driven by an increase in the FICA tip credit benefit along with an increase in the excess tax credits.benefit for stock compensation.
(6) | Commitments and Contingencies |
The estimated cost of completing capital project commitments at March 28,September 26, 2023 and December 27, 2022 was $228.6$261.3 million and $205.7 million, respectively.
As of March 28,September 26, 2023 and December 27, 2022, we were contingently liable for $11.1$10.6 million and $11.3 million, respectively, for seven lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of March 28,September 26, 2023 and December 27, 2022, as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.
During the 13 and 39 weeks ended March 28,September 26, 2023, we bought most of our beef from four suppliers. We have no material minimum purchase commitments with our vendors that extend beyond a year.
10
Occasionally, we are a defendant in litigation arising in the ordinary course of business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns. None of these types of litigation, most of which
9
are covered by insurance, has had a material adverse effect on us and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.
(7) Acquisitions
On December 28, 2022, the first day of the 2023 fiscal year, we completed the acquisition of eight franchise Texas Roadhouse restaurants located in Maryland and Delaware, including four in which we previously held a 5.0% equity interest. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $39.039.1 million, net of cash acquired, for 100% of the entities. The transactions in which we held an equity interest were accounted for as a step acquisitionacquisitions and we recorded a gain of $0.6 million on our previous investments in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income.
These transactions were accounted for using the acquisition method as defined in Accounting Standards Codification ("ASC") 805, Business Combinations. These acquisitions are consistent with our long-term strategy to increase net income and earnings per share.
The following table summarizes the consideration paid for thethese acquisitions, and the estimated preliminary fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for measurement-period adjustments through March 28,September 26, 2023.
| | | | | ||
Inventory | | $ | 410 | | $ | 410 |
Other assets | | 293 | | 293 | ||
Property and equipment | |
| 17,763 | |
| 17,763 |
Operating lease right-of-use assets | | | 4,775 | | | 4,775 |
Goodwill | |
| 20,024 | |
| 20,067 |
Intangible assets | |
| 1,700 | |
| 1,700 |
Deferred revenue-gift cards | | | (1,164) | | | (1,164) |
Current portion of operating lease liabilities | |
| (110) | |
| (110) |
Operating lease liabilities, net of current portion | | | (4,665) | | | (4,665) |
| | $ | 39,026 | | $ | 39,069 |
The aggregate purchase prices areprice is preliminary as the Company iswe are finalizing working capital adjustments. Intangible assets represent reacquired franchise rights which will beare being amortized over a weighted-average useful life of 2.2 years. We expect all of the goodwill and intangible asset amortization will be deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.
Pro forma financial detail and operating results for the 13 and 39 weeks ended March 28,September 26, 2023 have not been presented as the results of the acquired restaurants are not material to our unaudited condensed consolidated financial position, results of operations or cash flows.
On March 30, 2022, we completed the acquisition of one franchise Texas Roadhouse restaurant located in Nebraska in which we previously held a 5.49% equity interest. Pursuant to the terms of the acquisition agreement, we paid a total purchase price of $6.6 million, net of cash acquired, for 100% of the entity. The transaction was accounted for as a step acquisition and we recorded a gain of $0.3 million on our previous investment in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income.
On December 29, 2021, the first day of the 2022 fiscal year, we completed the acquisition of seven franchise Texas Roadhouse restaurants located in South Carolina and Georgia. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $26.5 million, net of cash acquired. These acquisitions are consistent with our long-term
11
strategy to increase net income and earnings per share. The transactions were accounted for using the acquisition method as defined in ASC 805, Business Combinations.
The following table summarizes the consideration paid for thethese acquisitions, and the estimated fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for final measurement-period adjustments.
10
| | | | | | ||
Inventory | | $ | 268 | | | $ | 321 |
Other assets | | 211 | | | 222 | ||
Property and equipment | | | 3,456 | | | | 4,841 |
Operating lease right-of-use assets | | | 1,221 | ||||
Goodwill | | | 18,218 | | | | 22,616 |
Intangible assets | | | 5,200 | | | | 6,100 |
Deferred revenue-gift cards | | | (831) | | | | (947) |
Current portion of operating lease liabilities | | | (47) | ||||
Operating lease liabilities, net of current portion | | | (1,174) | ||||
| | $ | 26,522 | | | $ | 33,153 |
Intangible assets represent reacquired franchise rights which will beare being amortized over a weighted-average useful life of 3.03.4 years. We expect all of the goodwill and intangible asset amortization will be deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.
(8) Related Party Transactions
As of March 28,September 26, 2023 and March 29,September 27, 2022, we had four franchise restaurants and one majority-owned company restaurant owned in part by a current officer of the Company. The franchise entities paid us fees of $0.5 million and $0.4 million for the 13 weeks ended March 28,September 26, 2023 and March 29,September 27, 2022. The franchise entities paid us fees of $1.5 million and $1.4 million for the 39 weeks ended September 26, 2023 and September 27, 2022, respectively.
(9) Earnings Per Share
The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding. The diluted earnings per share calculations show the effect of the weighted-average restricted stock units from our equity incentive plans. Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met.
For all periods presented, the weighted-average shares of nonvested stock units that were outstanding but not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect were not significant.
12
The following table sets forth the calculation of earnings per share and weighted-average shares outstanding (in thousands) as presented in the accompanying unaudited condensed consolidated statements of income:
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 13 Weeks Ended | | | 39 Weeks Ended | ||||||||||||
|
| March 28, 2023 |
| March 29, 2022 |
| September 26, 2023 |
| September 27, 2022 |
| | September 26, 2023 |
| September 27, 2022 | ||||||
Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 86,387 | | $ | 75,202 | | $ | 63,788 | | $ | 62,328 | | | $ | 232,446 | | $ | 209,949 |
Basic EPS: | | | | | | | | | | | | | | | | | | | |
Weighted-average common shares outstanding | |
| 67,016 | | | 69,086 | |
| 66,779 | | | 66,886 | | | | 66,923 | | | 67,875 |
Basic EPS | | $ | 1.29 | | $ | 1.09 | | $ | 0.96 | | $ | 0.93 | | | $ | 3.47 | | $ | 3.09 |
Diluted EPS: | | | | | | | | | | | | | | | | | | | |
Weighted-average common shares outstanding | |
| 67,016 | | | 69,086 | |
| 66,779 | | | 66,886 | | | | 66,923 | | | 67,875 |
Dilutive effect of nonvested stock | |
| 277 | | | 287 | |||||||||||||
Dilutive effect of nonvested stock units | |
| 235 | | | 273 | | | | 256 | | | 265 | ||||||
Shares-diluted | |
| 67,293 | |
| 69,373 | |
| 67,014 | |
| 67,159 | | |
| 67,179 | |
| 68,140 |
Diluted EPS | | $ | 1.28 | | $ | 1.08 | | $ | 0.95 | | $ | 0.93 | | | $ | 3.46 | | $ | 3.08 |
(10) Fair Value Measurements
At March 28,September 26, 2023 and December 27, 2022, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values based on the short-term nature of these instruments. At December 27, 2022, the fair value of our credit facility approximated its carrying value since it is a variable rate credit facility (Level 2). There were no transfers among levels within the fair value hierarchy during the 13 and 39 weeks ended March 28,September 26, 2023.
11
The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:
| | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements |
| | Fair Value Measurements |
| ||||||||||||
|
| Level |
| March 28, 2023 |
| December 27, 2022 |
|
| Level |
| September 26, 2023 |
| December 27, 2022 |
| ||||
Deferred compensation plan—assets |
| 1 | | $ | 64,682 | | $ | 61,835 | |
| 1 | | $ | 74,775 | | $ | 61,835 | |
Deferred compensation plan—liabilities |
| 1 | | $ | (64,476) | | $ | (61,668) | |
| 1 | | $ | (74,690) | | $ | (61,668) | |
We report the accounts of the deferred compensation plan in other assets and the corresponding liability in other liabilities in our unaudited condensed consolidated financial statements. These investments are considered trading securities and are reported at fair value based on quoted market prices. The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, are recorded in general and administrative expense in the unaudited condensed consolidated statements of income.
The following table presents the fair value of our assets measured on a nonrecurring basis:
| | | | | | | | | | | | | | | ||
| | Fair Value Measurements | | Fair Value Measurements | ||||||||||||
| | | | | | | | | | | | | | | ||
| | |
| March 28, |
| December 27, | | |
| September 26, |
| December 27, | ||||
| | Level | | 2023 | | 2022 | | Level | | 2023 | | 2022 | ||||
Long-lived assets held for use | | 3 | | $ | — | | $ | 2,000 | | 3 | | $ | — | | $ | 2,000 |
Long-lived assets held for use include the land and building for one underperforming restaurant that was impaired to fair value at December 27, 2022 using a Level 3 input.inputs.
13
(11) Stock Repurchase Program
On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program under which we may repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 31, 2019 that authorized the Company to repurchase up to $250.0 million of our common stock. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases are determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions and other corporate considerations.
For the 13 and 39 weeks ended March 28,September 26, 2023, we paid $9.6$12.1 million and $45.2 million to repurchase 92,751107,593 shares and 414,319 shares of our common stock, respectively. For the 13 weeks ended September 27, 2022, we did not repurchase any shares of our common stock. For the 1339 weeks ended March 29,September 27, 2022, we paid $84.7212.9 million to repurchase 1,060,6182,734,005 shares of our common stock. As of March 28,September 26, 2023, $157.3121.7 million remained under our authorized stock repurchase program.
(12) Segment Information
We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba’s 33, Jaggers and our retail initiatives as separate operating segments. Our reportable segments are Texas Roadhouse and Bubba’s 33. The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants. The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants. Our remaining operating segments, which include the results of our domestic company and franchise Jaggers restaurants and the results of our retail initiatives, are included in Other. In addition, corporate-related segment assets, depreciation and amortization, and capital expenditures are also included in Other.
Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin also includes sales and operating costs related to our non-royalty based retail initiatives. Restaurant margin is used by our chief operating decision maker to evaluate restaurant-level operating efficiency and performance.
12
In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-opening and general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We also exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We also exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry.
Restaurant and other sales for all operating segments are derived primarily from food and beverage sales. We do not rely on any major customer as a source of sales and the customers and assets of our reportable segments are located predominantly in the United States. There are no material transactions between reportable segments.
14
The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:
| | | | | | | | | | | | | | | | | | |||||
| For the 13 Weeks Ended March 28, 2023 | For the 13 Weeks Ended September 26, 2023 | ||||||||||||||||||||
| Texas Roadhouse | | Bubba's 33 | | Other | | Total | Texas Roadhouse | | Bubba's 33 | | Other | | Total | ||||||||
Restaurant and other sales | $ | 1,100,926 | | $ | 61,369 | | $ | 5,288 | | $ | 1,167,583 | $ | 1,047,795 | | $ | 61,083 | | $ | 6,346 | | $ | 1,115,224 |
Restaurant operating costs (excluding depreciation and amortization) | | 923,936 | | | 52,916 | | | 5,035 | | | 981,887 | | 893,330 | | | 53,584 | | | 5,486 | | | 952,400 |
Restaurant margin | $ | 176,990 | | $ | 8,453 | | $ | 253 | | $ | 185,696 | $ | 154,465 | | $ | 7,499 | | $ | 860 | | $ | 162,824 |
| | | | | | | | | | | | | | | | | | |||||
Depreciation and amortization | $ | 29,888 | | $ | 3,447 | | $ | 2,892 | | $ | 36,227 | $ | 32,416 | | $ | 3,518 | | $ | 3,190 | | $ | 39,124 |
Capital expenditures | | 57,137 | | 6,255 | | 3,341 | | 66,733 | | 76,811 | | 7,027 | | | 5,477 | | 89,315 | |||||
| | | | | | | | | | | | | | | | | | |||||
| For the 13 Weeks Ended March 29, 2022 | For the 13 Weeks Ended September 27, 2022 | ||||||||||||||||||||
| Texas Roadhouse | | Bubba's 33 | | Other | | Total | Texas Roadhouse | | Bubba's 33 | | Other | | Total | ||||||||
Restaurant and other sales | $ | 926,729 | | $ | 51,225 | | $ | 3,018 | | $ | 980,972 | $ | 931,683 | | $ | 51,993 | | $ | 3,323 | | $ | 986,999 |
Restaurant operating costs (excluding depreciation and amortization) | | 773,261 | | | 43,431 | | | 3,097 | | | 819,789 | | 785,546 | | | 46,368 | | | 3,076 | | | 834,990 |
Restaurant margin | $ | 153,468 | | $ | 7,794 | | $ | (79) | | $ | 161,183 | $ | 146,137 | | $ | 5,625 | | $ | 247 | | $ | 152,009 |
| | | | | | | | | | | | | | | | | | |||||
Depreciation and amortization | $ | 27,541 | | $ | 3,190 | | $ | 2,889 | | $ | 33,620 | $ | 27,757 | | $ | 3,198 | | $ | 2,780 | | $ | 33,735 |
Capital expenditures | | 39,677 | | 7,377 | | 1,975 | | 49,029 | | 55,158 | | 8,107 | | | 2,363 | | 65,628 | |||||
| | | | | | | | | | | | | | | | | | |||||
| For the 39 Weeks Ended September 26, 2023 | |||||||||||||||||||||
| Texas Roadhouse | | Bubba's 33 | | Other | | Total | |||||||||||||||
Restaurant and other sales | $ | 3,244,973 | | $ | 184,012 | | $ | 18,207 | | $ | 3,447,192 | |||||||||||
Restaurant operating costs (excluding depreciation and amortization) | | 2,741,313 | | | 158,428 | | | 16,175 | | | 2,915,916 | |||||||||||
Restaurant margin | $ | 503,660 | | $ | 25,584 | | $ | 2,032 | | $ | 531,276 | |||||||||||
| | | | | | | | | | |||||||||||||
Depreciation and amortization | $ | 93,072 | | $ | 10,399 | | $ | 9,293 | | $ | 112,764 | |||||||||||
Capital expenditures | | 210,403 | | 23,032 | | | 10,460 | | 243,895 | |||||||||||||
| | | | | | | | | | |||||||||||||
| For the 39 Weeks Ended September 27, 2022 | |||||||||||||||||||||
| Texas Roadhouse | | Bubba's 33 | | Other | | Total | |||||||||||||||
Restaurant and other sales | $ | 2,818,565 | | $ | 157,830 | | $ | 9,633 | | $ | 2,986,028 | |||||||||||
Restaurant operating costs (excluding depreciation and amortization) | | 2,357,910 | | | 136,837 | | | 9,353 | | | 2,504,100 | |||||||||||
Restaurant margin | $ | 460,655 | | $ | 20,993 | | $ | 280 | | $ | 481,928 | |||||||||||
| | | | | | | | | | |||||||||||||
Depreciation and amortization | $ | 83,402 | | $ | 9,690 | | $ | 8,683 | | $ | 101,775 | |||||||||||
Capital expenditures | | 146,151 | | 21,898 | | | 6,145 | | 174,194 | |||||||||||||
| | | | | | | | | |
1315
A reconciliation of restaurant margin to income from operations is presented below. We do not allocate interest income (expense), net and equity income from investments in unconsolidated affiliates to reportable segments.
| | | | | | | | | | | | | | ||||
| | 13 Weeks Ended | 13 Weeks Ended | | 39 Weeks Ended | ||||||||||||
| | March 28, 2023 | | March 29, 2022 | September 26, 2023 | | September 27, 2022 | | September 26, 2023 | | September 27, 2022 | ||||||
Restaurant margin | | $ | 185,696 | | $ | 161,183 | $ | 162,824 | | $ | 152,009 | | $ | 531,276 | | $ | 481,928 |
| | | | | | | | | | | | | | ||||
Add: | | | | | | | | | | | | | | ||||
Franchise royalties and fees | | | 6,773 | | 6,514 | | 6,528 | | 6,299 | | 20,119 | | 19,362 | ||||
| | | | | | | | | | | | | | ||||
Less: | | | | | | | | | | | | | | ||||
Pre-opening | | | 5,377 | | 4,291 | | 8,663 | | 5,701 | | 19,711 | | 15,315 | ||||
Depreciation and amortization | | | 36,227 | | 33,620 | | 39,124 | | 33,735 | | 112,764 | | 101,775 | ||||
Impairment and closure, net | | | 55 | | (646) | | (2) | | 772 | | 131 | | 537 | ||||
General and administrative | | | 49,865 | | | 40,294 | | 47,708 | | | 42,812 | | | 148,573 | | | 132,319 |
Income from operations | | $ | 100,945 | | $ | 90,138 | $ | 73,859 | | $ | 75,288 | | $ | 270,216 | | $ | 251,344 |
| | | | | | | | | | | | | |
1416
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
This report contains forward-looking statements based on our current expectations, estimates and projections about our industry and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 27, 2022, and in Part II, Item 1A in this Form 10-Q, along with disclosures in our other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors that may affect our business, results of operations or financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our Company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements, except as may be required by applicable law. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.
Our Company
Texas Roadhouse, Inc. is a growing restaurant company operating predominantly in the casual dining segment. Our late founder, W. Kent Taylor, started the Company in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to three restaurant concepts with 704722 restaurants in 49 states and ten foreign countries. As of March 28,September 26, 2023, our 704722 restaurants included:
● |
● |
We have contractual arrangements that grant us the right to acquire at pre-determined formulas the remaining equity interests in 18 of the 20 majority-owned company restaurants and 5051 of the 5455 domestic franchise restaurants.
Throughout this report, we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise noted.
1517
Presentation of Financial and Operating Data
Throughout this report, the 13 weeks ended March 28,September 26, 2023, and March 29,September 27, 2022, are referred to as Q1Q3 2023 and Q1Q3 2022, respectively. The 39 weeks ended September 26, 2023, and September 27, 2022, are referred to as 2023 YTD and 2022 YTD, respectively. Fiscal years 2023 and 2022 will beare 52 weeks in length, while the quarters for the year will bethose years are 13 weeks in length.
Key Measures We Use to Evaluate Our Company
Key measures we use to evaluate and assess our business include the following:
● | Comparable Restaurant Sales. Comparable restaurant sales reflect the change in sales for all company restaurants across all concepts, unless otherwise noted, over the same period of the prior year for the comparable restaurant base. We define the comparable restaurant base to include those restaurants open for a full 18 months before the beginning of the period measured excluding restaurants permanently closed during the period. Comparable restaurant sales can be impacted by changes in guest traffic counts or by changes in the per person average check amount. Menu price changes, the mix of menu items sold, and the mix of dine-in versus to-go sales can affect the per person average check amount. |
● | Average Unit Volume. Average unit volume represents the average quarterly or annual restaurant sales for Texas Roadhouse and Bubba’s 33 restaurants open for a full six months before the beginning of the period measured excluding sales of restaurants permanently closed during the period. Historically, average unit volume growth is less than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels lower than the company average. At times, average unit volume growth may be more than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels higher than the company average. |
● | Store Weeks and New Restaurant Openings. Store weeks represent the number of weeks that all company restaurants across all concepts, unless otherwise noted, were open during the reporting period. Store weeks include weeks in which a restaurant is temporarily closed. Store week growth is driven by new restaurant openings and franchise acquisitions. New restaurant openings reflect the number of restaurants opened during a particular fiscal period, excluding store relocations. We consider store openings that occur |
● | Restaurant Margin. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin is not a measurement determined in accordance with U.S. generally accepted accounting principles ("GAAP") and should not be considered in isolation, or as an alternative, to income from operations. This non-GAAP measure is not indicative of overall company performance and profitability in that this measure does not accrue directly to the benefit of shareholders due to the nature of the costs excluded. Restaurant margin is widely regarded as a useful metric by which to evaluate core restaurant-level operating efficiency and performance over various reporting periods on a consistent basis. |
In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We also exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We also exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We also exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section below.
1618
Other Key Definitions
● | Restaurant and Other Sales. Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all company restaurants. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from restaurant sales in |
● | Franchise Royalties and Fees. Franchise royalties consist of royalties, as defined in our franchise agreement, paid to us by our domestic and international franchisees. Domestic and/or international franchisees also typically pay an initial franchise fee and/or development fee for each new restaurant or territory. |
● | Food and Beverage Costs. Food and beverage costs |
● | Restaurant Labor Expenses. Restaurant labor expenses include all direct and indirect labor costs incurred in operations except for profit sharing incentive compensation expenses earned by our restaurant managing partners and market partners. These profit sharing expenses are reflected in restaurant other operating expenses. Restaurant labor expenses also include share-based compensation expense related to restaurant-level employees. |
● | Restaurant Rent Expense. Restaurant rent expense includes all rent, except pre-opening rent, associated with the leasing of real estate and includes base, percentage and straight-line rent expense. |
● | Restaurant Other Operating Expenses. Restaurant other operating expenses consist of all other restaurant-level operating costs, the major components of which are credit card fees, utilities, supplies, repairs and maintenance, outside services, property taxes, profit sharing incentive compensation for our restaurant managing partners and market partners and general liability insurance. |
● | Pre-opening Expenses. Pre-opening expenses, which are charged to operations as incurred, consist of expenses incurred before the opening of a new or relocated restaurant and |
● | Depreciation and Amortization Expenses. Depreciation and amortization expenses include the depreciation of fixed assets and amortization of intangibles with definite lives, substantially all of which relates to restaurant-level assets. |
● | Impairment and Closure Costs, Net. Impairment and closure costs, net include any impairment of long-lived assets, including property and equipment, operating lease right-of-use assets and goodwill, and expenses associated with the closure of a restaurant. Closure costs also include any gains or losses associated with a relocated restaurant or the sale of a closed restaurant and/or assets held for sale as well as lease costs associated with closed or relocated restaurants. |
● | General and Administrative Expenses. General and administrative expenses |
1719
● | Interest Income (Expense), Net. Interest income (expense), net includes earnings on cash and cash equivalents and is reduced by interest expense on our debt or financing obligations including the amortization of loan fees |
● | Equity Income from Investments in Unconsolidated Affiliates. Equity income includes our percentage share of net income earned by unconsolidated affiliates and our share of any gain on the sale of these affiliates. As of |
● | Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests represents the portion of income attributable to the other owners of the majority-owned restaurants. Our consolidated subsidiaries include 20 majority-owned restaurants for all periods presented. |
Q1Q3 2023 Financial Highlights
Total revenue increased $186.9$128.5 million or 18.9%12.9% to $1,174.4$1,121.8 million in Q1Q3 2023 compared to $987.5$993.3 million in Q1Q3 2022 primarily due to an increase in store weeks and an increase in comparable restaurant sales. Store weeks and comparable restaurant sales increased 6.0%5.7% and 12.9%8.2%, respectively, at company restaurants in Q1Q3 2023 compared to Q1Q3 2022. The increase in store weeks was due to new store openings and the acquisition of franchise restaurants. The increase in comparable restaurant sales was due to an increase in guest traffic along with an increase in our per person average check.
Net income increased $11.2$1.5 million or 14.9%2.3% to $86.4$63.8 million in Q1Q3 2023 compared to $75.2$62.3 million in Q1Q3 2022 primarily due to higher restaurant margin dollars, as described below, and lower income tax expense partially offset by higher general and administrative expenses.expense and depreciation and amortization expense. Diluted earnings per share increased 18.4%2.6% to $1.28$0.95 in Q1Q3 2023 from $1.08$0.93 in Q1Q3 2022 primarily due to the increase in net income and the benefit of share repurchases.income.
Restaurant margin dollars increased $24.5$10.8 million or 15.2%7.1% to $185.7$162.8 million in Q1Q3 2023 compared to $161.2$152.0 million in Q1Q3 2022 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 15.9%14.6% in Q1Q3 2023 compared to 16.4%15.4% in Q1Q3 2022. The decrease in restaurant margin, as a percentage of restaurant and other sales, was primarily due to commodity andinflation, wage and other labor inflation and higher general liability insurance expense partially offset by higher sales.
We repurchased 92,751107,593 shares of common stock for $9.6$12.1 million in Q1Q3 2023. We also increased ourpaid a quarterly dividend toof $0.55 per share of common stock, representing a 20% increase compared to our quarterly dividend of $0.46 per sharewhich totaled $36.7 million in Q1 2022.
Q3 2023.
1820
Results of Operations
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | ||||||||||||
| | 13 Weeks Ended | | 13 Weeks Ended | | 39 Weeks Ended | ||||||||||||||||||
| | March 28, 2023 | | March 29, 2022 | | September 26, 2023 | | September 27, 2022 | | September 26, 2023 | | September 27, 2022 | ||||||||||||
|
| $ |
| % |
| $ |
| % | ||||||||||||||||
| | (In thousands) |
| $ |
| % |
| $ |
| % |
| $ |
| % |
| $ |
| % | ||||||
Consolidated Statements of Income: | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
Restaurant and other sales | | 1,167,583 | | 99.4 | | 980,972 | | 99.3 | | 1,115,224 | | 99.4 | | 986,999 | | 99.4 | | 3,447,192 | | 99.4 | | 2,986,028 | | 99.4 |
Franchise royalties and fees | | 6,773 | | 0.6 | | 6,514 | | 0.7 | | 6,528 | | 0.6 | | 6,299 | | 0.6 | | 20,119 | | 0.6 | | 19,362 | | 0.6 |
Total revenue | | 1,174,356 | | 100.0 | | 987,486 | | 100.0 | | 1,121,752 | | 100.0 | | 993,298 | | 100.0 | | 3,467,311 | | 100.0 | | 3,005,390 | | 100.0 |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
(As a percentage of restaurant and other sales) | | | | | | | | | | | | | | | | | | | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | | | | | | | | | | | | | |
Food and beverage | | 410,711 | | 35.2 | | 337,396 | | 34.4 | | 386,184 | | 34.6 | | 342,032 | | 34.7 | | 1,198,099 | | 34.8 | | 1,026,469 | | 34.4 |
Labor | | 385,819 | | 33.0 | | 321,871 | | 32.8 | | 378,814 | | 34.0 | | 330,219 | | 33.5 | | 1,155,970 | | 33.5 | | 985,132 | | 33.0 |
Rent | | 17,828 | | 1.5 | | 16,368 | | 1.7 | | 18,177 | | 1.6 | | 16,703 | | 1.7 | | 54,001 | | 1.6 | | 49,785 | | 1.7 |
Other operating | | 167,529 | | 14.3 | | 144,154 | | 14.7 | | 169,225 | | 15.2 | | 146,036 | | 14.8 | | 507,846 | | 14.7 | | 442,714 | | 14.8 |
(As a percentage of total revenue) | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-opening | | 5,377 | | 0.5 | | 4,291 | | 0.4 | | 8,663 | | 0.8 | | 5,701 | | 0.6 | | 19,711 | | 0.6 | | 15,315 | | 0.5 |
Depreciation and amortization | | 36,227 | | 3.1 | | 33,620 | | 3.4 | | 39,124 | | 3.5 | | 33,735 | | 3.4 | | 112,764 | | 3.3 | | 101,775 | | 3.4 |
Impairment and closure, net | | 55 | | NM | | (646) | | NM | | (2) | | NM | | 772 | | NM | | 131 | | NM | | 537 | | NM |
General and administrative | | 49,865 | | 4.2 | | 40,294 | | 4.1 | | 47,708 | | 4.3 | | 42,812 | | 4.3 | | 148,573 | | 4.3 | | 132,319 | | 4.4 |
Total costs and expenses | | 1,073,411 | | 91.4 | | 897,348 | | 90.9 | | 1,047,893 | | 93.4 | | 918,010 | | 92.4 | | 3,197,095 | | 92.2 | | 2,754,046 | | 91.6 |
Income from operations | | 100,945 | | 8.6 | | 90,138 | | 9.1 | | 73,859 | | 6.6 | | 75,288 | | 7.6 | | 270,216 | | 7.8 | | 251,344 | | 8.4 |
Interest income (expense), net | | 1,238 | | 0.1 | | (397) | | NM | | 496 | | NM | | (85) | | NM | | 2,730 | | 0.1 | | (877) | | NM |
Equity income from investments in unconsolidated affiliates | | 755 | | NM | | 334 | | NM | | 139 | | NM | | 190 | | NM | | 1,181 | | NM | | 1,069 | | NM |
Income before taxes | | 102,938 | | 8.8 | | 90,075 | | 9.1 | | 74,494 | | 6.6 | | 75,393 | | 7.6 | | 274,127 | | 7.9 | | 251,536 | | 8.4 |
Income tax expense | | 14,334 | | 1.2 | | 12,747 | | 1.3 | | 8,870 | | 0.8 | | 11,430 | | 1.2 | | 35,474 | | 1.0 | | 35,708 | | 1.2 |
Net income including noncontrolling interests | | 88,604 | | 7.5 | | 77,328 | | 7.8 | | 65,624 | | 5.9 | | 63,963 | | 6.4 | | 238,653 | | 6.9 | | 215,828 | | 7.2 |
Net income attributable to noncontrolling interests | | 2,217 | | 0.2 | | 2,126 | | 0.2 | | 1,836 | | 0.2 | | 1,635 | | 0.2 | | 6,207 | | 0.2 | | 5,879 | | 0.2 |
Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | 86,387 | | 7.4 | | 75,202 | | 7.6 | | 63,788 | | 5.7 | | 62,328 | | 6.3 | | 232,446 | | 6.7 | | 209,949 | | 7.0 |
NM — Not meaningful
1921
| | | | | | |||||||||||
| Reconciliation of Income from Operations to Restaurant Margin | |||||||||||||||
| (in thousands) | | | | | | | | | | | | ||||
| 13 Weeks Ended | Reconciliation of Income from Operations to Restaurant Margin | ||||||||||||||
| March 28, 2023 | | March 29, 2022 | (in thousands) | ||||||||||||
| | | | | | 13 Weeks Ended | | 39 Weeks Ended | ||||||||
| | | | | | September 26, 2023 | | September 27, 2022 | | September 26, 2023 | | September 27, 2022 | ||||
Income from operations | $ | 100,945 | | $ | 90,138 | $ | 73,859 | | $ | 75,288 | | $ | 270,216 | | $ | 251,344 |
| | | | | | | | | | | | | | | | |
Less: | | | | | | | | | | | | | | | | |
Franchise royalties and fees | | 6,773 | | | 6,514 | | 6,528 | | | 6,299 | | | 20,119 | | | 19,362 |
| | | | | | | | | | | | | | | | |
Add: | | | | | | | | | | | | | | | | |
Pre-opening | | 5,377 | | | 4,291 | | 8,663 | | | 5,701 | | | 19,711 | | | 15,315 |
Depreciation and amortization | | 36,227 | | | 33,620 | | 39,124 | | | 33,735 | | | 112,764 | | | 101,775 |
Impairment and closure, net | | 55 | | | (646) | | (2) | | | 772 | | | 131 | | | 537 |
General and administrative | | 49,865 | | | 40,294 | | 47,708 | | | 42,812 | | | 148,573 | | | 132,319 |
Restaurant margin | $ | 185,696 | | $ | 161,183 | $ | 162,824 | | $ | 152,009 | | $ | 531,276 | | $ | 481,928 |
| | | | | | | | | | | | | | | | |
Restaurant margin $/store week | $ | 23,505 | | $ | 21,618 | $ | 20,272 | | $ | 20,001 | | $ | 22,237 | | $ | 21,332 |
Restaurant margin (as a percentage of restaurant and other sales) | | 15.9% | | | 16.4% | | 14.6% | | | 15.4% | | | 15.4% | | | 16.1% |
See above for the definition of restaurant margin.
Restaurant Unit Activity
| | | | | | | | | | | | | | | | |
|
| Total | | Texas Roadhouse | | Bubba's 33 |
| Jaggers |
| Total | | Texas Roadhouse | | Bubba's 33 |
| Jaggers |
Balance at December 27, 2022 |
| 697 | | 652 | | 40 |
| 5 |
| 697 | | 652 | | 40 |
| 5 |
Company openings |
| 6 | | 4 | | — | | 2 |
| 18 | | 13 | | 3 | | 2 |
Company closings | | — | | — | | — | | — | | — | | — | | — | | — |
Franchise openings - Domestic | | — | | — | | — | | — | | 2 | | 1 | | — | | 1 |
Franchise openings - International |
| 1 | | 1 | | — | | — |
| 6 | | 6 | | — | | — |
Franchise closings | | — | | — | | — | | — | | (1) | | (1) | | — | | — |
Balance at March 28, 2023 |
| 704 | | 657 | | 40 |
| 7 | ||||||||
Balance at September 26, 2023 |
| 722 | | 671 | | 43 |
| 8 |
| | | | | | | | |
|
| March 28, 2023 |
| March 29, 2022 |
| September 26, 2023 |
| September 27, 2022 |
Company - Texas Roadhouse |
| 564 | | 536 |
| 573 | | 545 |
Company - Bubba's 33 |
| 40 | | 36 |
| 43 | | 38 |
Company - Jaggers |
| 7 | | 4 |
| 7 | | 4 |
Franchise - Texas Roadhouse - U.S. |
| 54 | | 63 | ||||
Franchise - Texas Roadhouse - Domestic |
| 54 | | 62 | ||||
Franchise - Jaggers - Domestic | | 1 | | — | ||||
Franchise - Texas Roadhouse - International |
| 39 | | 33 |
| 44 | | 36 |
Total |
| 704 |
| 672 |
| 722 |
| 685 |
2022
Q1Q3 2023 (13 weeks) compared to Q1Q3 2022 (13 weeks)and 2023 YTD compared to 2022 YTD
Restaurant and Other Sales
Restaurant and other sales increased 19.0%13.0% in Q1Q3 2023 compared to Q1 2022.Q3 2022 and 15.4% in 2023 YTD compared to 2022 YTD. The following table summarizes certain key drivers and/or attributes of restaurant sales at company restaurants for the periods presented. Company restaurant count activity is shown in the restaurant unit activity table above.
| | | | | | | | | | | | | | | | | | | | | | |
|
| Q1 2023 |
| Q1 2022 |
| |
| Q3 2023 |
| Q3 2022 |
| 2023 YTD |
| 2022 YTD |
| | ||||||
Company Restaurants: | | | | | | | | | | | | | | | | | | | | | | |
Increase in store weeks |
| | 6.0 | % | | 6.6 | % | |
| | 5.7 | % | | 6.1 | % | | 5.8 | % | | 6.3 | % | |
Increase in average unit volume |
| | 12.5 | % | | 15.7 | % | |
| | 7.8 | % | | 7.9 | % | | 9.7 | % | | 10.2 | % | |
Other(1) |
| | 0.4 | % | | 1.1 | % | |
| | (0.1) | % | | 0.2 | % | | 0.0 | % | | 0.5 | % | |
Total increase in restaurant sales |
| | 18.9 | % | | 23.4 | % | |
| | 13.4 | % | | 14.2 | % | | 15.5 | % | | 17.0 | % | |
Other sales | | | 0.1 | % | | — | % | | | | (0.4) | % | | 0.2 | % | | (0.1) | % | | 0.1 | % | |
Total increase in restaurant and other sales | | | 19.0 | % | | 23.4 | % | | | | 13.0 | % | | 14.4 | % | | 15.4 | % | | 17.1 | % | |
| | | | | | | | | | | | | | | | | | | | | | |
Store weeks |
| | 7,900 | | | 7,456 | | |
| | 8,032 | | | 7,600 | | | 23,892 | | | 22,592 | | |
Comparable restaurant sales |
| | 12.9 | % | | 16.0 | % | |
| | 8.2 | % | | 8.2 | % | | 10.1 | % | | 10.5 | % | |
| | | | | | | | | | | | | | | | | | | | | | |
Texas Roadhouse restaurants: | | | | | | | | | | | | | | | | | | | | | | |
Store weeks | | | 7,304 | | | 6,936 | | | | | 7,394 | | | 7,062 | | | 22,041 | | | 21,004 | | |
Comparable restaurant sales |
| | 13.1 | % | | 15.8 | % | |
| | 8.4 | % | | 8.2 | % | | 10.3 | % | | 10.4 | % | |
Average unit volume (in thousands) | | $ | 1,966 | | $ | 1,741 | | | | $ | 1,840 | | $ | 1,700 | | $ | 5,753 | | $ | 5,227 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Weekly sales by group: | | | | | | | | | | | | | | | | | | | | | | |
Comparable restaurants (527 and 498 units) | | $ | 151,439 | | $ | 134,422 | | | ||||||||||||||
Average unit volume restaurants (22 and 20 units)(2) | | $ | 146,220 | | $ | 129,143 | | | ||||||||||||||
Restaurants less than six months old (15 and 18 units) | | $ | 162,150 | | $ | 140,535 | | | ||||||||||||||
Comparable restaurants (542, 511, 527 and 499 units) | | $ | 141,675 | | $ | 131,378 | | $ | 147,832 | | $ | 134,565 | | | ||||||||
Average unit volume restaurants (18, 23, 22 and 20 units)(2) | | $ | 138,439 | | $ | 125,421 | | $ | 139,989 | | $ | 129,283 | | | ||||||||
Restaurants less than six months old (13, 11, 24 and 26 units) | | $ | 141,409 | | $ | 143,801 | | $ | 150,747 | | $ | 136,358 | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Bubba's 33 restaurants: | | | | | | | | | | | | | | | | | | | | | | |
Store weeks | | | 520 | | | 468 | | | | | 547 | | | 486 | | | 1,593 | | | 1,433 | | |
Comparable restaurant sales | | | 8.7 | % | | 21.3 | % | | | | 4.8 | % | | 6.2 | % | | 6.0 | % | | 11.6 | % | |
Average unit volume (in thousands) | | $ | 1,521 | | $ | 1,398 | | | | $ | 1,437 | | $ | 1,395 | | $ | 4,494 | | $ | 4,243 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Weekly sales by group: | | | | | | | | | | | | | | | | | | | | | | |
Comparable restaurants (34 and 30 units) | | $ | 116,916 | | $ | 107,387 | | | ||||||||||||||
Average unit volume restaurants (3 and 4 units)(2) | | $ | 117,920 | | $ | 108,771 | | | ||||||||||||||
Restaurants less than six months old (3 and 2 units) | | $ | 127,955 | | $ | 140,855 | | | ||||||||||||||
Comparable restaurants (36, 31, 34 and 30 units) | | $ | 112,447 | | $ | 104,669 | | $ | 115,343 | | $ | 108,692 | | | ||||||||
Average unit volume restaurants (4, 5, 3 and 4 units)(2) | | $ | 93,012 | | $ | 123,760 | | $ | 113,926 | | $ | 109,656 | | | ||||||||
Restaurants less than six months old (3, 2, 6 and 4 units) | | $ | 129,941 | | $ | 95,312 | | $ | 116,281 | | $ | 126,600 | | |
23
(1) | Includes the impact of the year-over-year change in sales volume of all Jaggers restaurants, along with Texas Roadhouse and Bubba’s 33 restaurants open less than six months before the beginning of the period measured and, if applicable, the impact of restaurants permanently closed during the period. |
(2) | Average unit volume includes restaurants open a full six to 18 months before the beginning of the period measured, excluding sales from restaurants permanently closed during the period, if applicable. |
The increaseincreases in restaurant sales for Q1Q3 2023 wasand 2023 YTD were primarily attributable to an increase in store weeks and an increase in comparable restaurant sales. The increaseincreases in store weeks waswere driven by the opening of new restaurants and the acquisition of franchise restaurants. The increaseincreases in comparable restaurant sales waswere driven by an increase in guest traffic count along with an increase in our per person average check as shown in the table below.
21
| | | | | | | | | | | |
| Q3 2023 |
| | Q3 2022 |
| | 2023 YTD |
| | 2022 YTD |
|
Guest traffic counts | 4.1 | % | | 0.5 | % | | 5.5 | % | | 2.2 | % |
Per person average check | 4.1 | % | | 7.7 | % | | 4.6 | % | | 8.3 | % |
Comparable restaurant sales growth | 8.2 | % | | 8.2 | % | | 10.1 | % | | 10.5 | % |
| | | | | | | |
| |
| Q1 2023 |
| | Q1 2022 | |
Guest traffic counts | | | 7.6 | % | | 7.0 | % |
Per person average check | | | 5.3 | % | | 9.0 | % |
Comparable restaurant sales growth | | | 12.9 | % | | 16.0 | % |
| | | | | | | |
The increase in Q1Q3 2023 guest traffic counts was due todriven by an increase in dining room traffic partially offset by a decrease in to-go traffic. To-go sales as a percentage of restaurant sales were 12.8%12.3% for Q1Q3 2023 compared to 14.8%12.6% for Q1Q3 2022.
In Q1 2023, perPer person average check includedincludes the benefit of a menu price increase of approximately 2.2% implemented in Q2 2023 and menu price increases of approximately 3.2% and 2.9% implemented in Q2 2022 and Q4 2022, respectively. In addition, weWe implemented a menu price increase of approximately 2.2%2.7% in late Marchearly Q4 2023.
In Q1 2023 YTD, we opened four16 Texas Roadhouse and Bubba’s 33 company restaurants and completed the acquisition of eight domestic franchise restaurants. As of March 28, 2023, an additional 13 Texas Roadhouse and Bubba’s 33 restaurants were under construction. In addition, we opened two Jaggers company restaurants in Q1 2023.2023 YTD. As of September 26, 2023, an additional 22 Texas Roadhouse and Bubba’s 33 company restaurants were under construction.
In total for 2023, we plan to open approximately 25 to 30as many as 27 Texas Roadhouse and Bubba’s 33 company restaurants, and we expect store week growth of at leastapproximately 6% across all concepts, including the impact of the eight franchise restaurants acquired at the beginning of the fiscal year.
In 2024, we expect store week growth of approximately 8% across all concepts, including a benefit of 2% from the 53rd week.
Other sales include the net impact of the amortization of third party gift card fees and gift card breakage income, sales related to our non-royalty based retail products and content revenue related to our tabletop kiosk devices. The net impact of these amounts was ($5.1)$1.4 million in Q3 2023 and $4.4 million in Q3 2022 and was $(7.2) million in 2023 YTD and $(4.2) million in 2022 YTD. The changes in Q3 2023 and Q3 2022 were driven by favorable adjustments recorded of $3.7 million and ($5.2)$6.6 million, respectively. These adjustments related to changes in Q1 2023 and Q1 2022, respectively.our estimate of breakage due to a shift in our historic redemption patterns which indicated that the percentage of gift cards sold that are not expected to be redeemed had increased.
Franchise Royalties and Fees
Franchise royalties and fees increased by $0.3$0.2 million or 4.0%3.6% in Q1Q3 2023 compared to Q1 2022.Q3 2022 and increased by $0.8 million or 3.9% in 2023 YTD compared with 2022 YTD. The increase wasincreases in both periods were due to comparable restaurant sales growth and new store openings partially offset by decreased royalties related to the eight franchise restaurants that were acquired.
In Q1 2023 YTD, our existing franchise partners opened one domestic Texas Roadhouse restaurant and six international Texas Roadhouse restaurant.restaurants. The first Jaggers domestic franchise restaurant was also opened in Q3 2023. In addition,
24
we had one Texas Roadhouse domestic franchise store close in 2023 YTD. In total for 2023, we expect approximately 10as many as 14 international and domestic franchise openings including two Jaggers franchise openings.
Food and Beverage Costs
Food and beverage costs, as a percentage of restaurant and other sales, decreased to 34.6% in Q3 2023 compared to 34.7% in Q3 2022 and increased to 35.2%34.8% in Q1 2023 YTD compared to 34.4% in Q1 2022.2022 YTD. The increasedecrease in Q3 2023 was primarily driven by the benefit of a higher guest check partially offset by commodity inflation of 4.2% primarily due to higher beef costs. The increase in 2023 YTD compared to 2022 YTD was driven by commodity inflation of 6.3% due to higher costs across the basket partially offset by the benefit of a higher guest check. Commodity inflation was 8.9% in Q1 2023, with higher costs across the basket.
In total for 2023, we expect commodity inflation to moderate to approximatelyof 5% to 6% for the year with prices locked for approximately 50%75% of our remaining forecasted costs and the remainder subject to floating market prices. In 2024, we expect commodity cost inflation of 5% to 6%.
Restaurant Labor Expenses
Restaurant labor expenses, as a percentage of restaurant and other sales, increased to 33.0%34.0% in Q1Q3 2023 compared to 32.8%33.5% in Q1 2022.Q3 2022 and increased to 33.5% in 2023 YTD compared to 33.0% in 2022 YTD. The increase wasincreases in both periods were primarily due to wage and other labor inflation of 8.0%5.6% and 6.8% in Q1 2023.Q3 2023 and 2023 YTD, respectively. Wage and other labor inflation iswas driven by higher wage and benefit expense driven bydue to labor market pressures along with increases in state-mandated minimum and tipped wage rates and increased investment in our people. A higher mix of dining room sales versus to-go sales also contributed to the increase. In addition, there was an increasewere increases in group insurance expense of $2.2 million due to unfavorable claims experience. The increase wasexperience of $1.5 million and $6.5 million in Q3 2023 and 2023 YTD, respectively, as compared to the prior year periods. These increases were partially offset by decreases in workers’ compensation expense due to favorable claims experience of $2.6 million and $3.1 million in Q3 2023 and 2023 YTD, respectively, as compared to the prior year periods, as well as the benefit of a higher guest check.
22
In total for 2023, we expect wage and other labor inflation of 6% to moderate to 5% to 6%7% for the year driven by labor market pressures, increases in state-mandated minimum and tipped wage rates and increased investment in our people. In 2024, we expect wage and other labor inflation of 4% to 5%.
Restaurant Rent Expense
Restaurant rent expense, as a percentage of restaurant and other sales, decreased to 1.5%1.6% in Q1Q3 2023 compared to 1.7% in Q1 2022.Q3 2022 and decreased to 1.6% in 2023 YTD compared to 1.7% in 2022 YTD. The decrease wasdecreases in both periods were primarily due to the increaseincreases in average unit volume and waswere partially offset by higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants.
Restaurant Other Operating Expenses
Restaurant other operating expenses, as a percentage of restaurant and other sales, decreasedincreased to 14.3%15.2% in Q1Q3 2023 compared to 14.8% in Q3 2022 and decreased to 14.7% in Q1 2022.2023 YTD compared to 14.8% in 2022 YTD. The increase in Q3 2023 compared to Q3 2022 was driven by an increase in general liability insurance expense of $7.3 million, as compared to the prior year period, partially offset by an increase in average unit volume, lower supplies expense and lower incentive compensation expense. The increase in general liability insurance expense was due to unfavorable claims experience. The decrease in 2023 YTD compared to 2022 YTD was primarily due to thedriven by an increase in average unit volume and lower supplies and bonusincentive compensation expense partially offset by higher repair and maintenance costs and equipment rent.the increase in general liability insurance expense.
Pre-opening Expenses
Pre-opening expenses were $5.4$8.7 million in Q1Q3 2023 compared to $4.3$5.7 million in Q1 2022.Q3 2022 and $19.7 million in 2023 YTD compared to $15.3 million in 2022 YTD. Pre-opening costs will fluctuate from quarter to quarter based on wage inflation, specific
25
pre-opening costs incurred for each restaurant, the number and timing of restaurant openings and the number and timing of restaurant managers hired.
Depreciation and Amortization Expense
Depreciation and amortization expenses,expense, as a percentage of total revenue, decreasedincreased to 3.1%3.5% in Q1Q3 2023 compared to 3.4% in Q1 2022.Q3 2022 and decreased to 3.3% in 2023 YTD compared to 3.4% in 2022 YTD. The increase in Q3 2023 compared to Q3 2022 was driven by higher depreciation at our newer restaurants partially offset by the increase in average unit volume. The decrease in 2023 YTD compared to 2022 YTD was primarily due to the increase in average unit volume partially offset by higher depreciation at newour newer restaurants.
Impairment and Closure Costs, Net
Impairment and closure costs, net waswere not significant in Q1Q3 2023 and ($0.6)compared to $0.8 million in Q1 2022.Q3 2022 and were $0.1 million in 2023 YTD compared to $0.5 million in 2022 YTD. For Q1Q3 2022, impairment and closure costs, net included the impairment of an operating lease right-of-use asset at a restaurant that was relocated. For 2022 YTD, impairment and closure costs, net included the impairment of right-of-use assets at two restaurants that were relocated and a gain of $0.7 million associated with the sale of land and building on a site that was previously was classified as assets held for sale.
General and Administrative Expenses
General and administrative expenses, as a percentage of total revenue, increased to 4.2%remained flat at 4.3% in Q1Q3 2023 compared to 4.1%Q3 2022 and decreased to 4.3% in Q1 2022.2023 YTD compared to 4.4% in 2022 YTD. In Q3 2023 compared to Q3 2022, activity included an increase in average unit volume, a decrease in restricted stock expense and a decrease in incentive compensation expense. These were offset by a favorable adjustment of $2.5 million recorded in Q3 2022 related to our managing partner conference held in Q2 2022 and increased software hosting fees driven by the development of a new human resources software. The increasedecrease in 2023 YTD compared to 2022 YTD was primarily driven by an increase in average unit volume partially offset by a separation payout, net of restricted stock forfeitures of $2.6 million, related to the retirement of an executive officer increased salary and bonus expensein Q1 2023, and increased software hosting fees. The increase was partially offset by the increase in average unit volume.
Interest Income (Expense), Net
Interest income (expense), net was $1.2$0.5 million and ($0.4)$(0.1) million in Q1Q3 2023 and Q1Q3 2022, respectively, and were $2.7 million and $(0.9) million in 2023 YTD and 2022 YTD, respectively. The increase wasincreases in both periods were primarily driven by increased earnings on our cash and cash equivalents and decreased borrowings on our revolving credit facility.
Equity Income from Investments in Unconsolidated Affiliates
Equity income was $0.8$0.1 million in Q1Q3 2023 compared to $0.3$0.2 million in Q3 2022 and was $1.2 million in 2023 YTD compared to $1.1 million in 2022 YTD. The decrease in Q3 2023 was primarily due to a decreased number of investments driven by acquisitions of four of these affiliates in Q1 2022.2023. The increase in 2023 YTD was driven byprimarily due to a $0.6 million gain on the acquisition of four of these affiliates in Q1 2023.2023 partially offset by a $0.3 million gain on the acquisition of one of these affiliates in Q2 2022.
23
Income Tax Expense
Our effective tax rate decreased to 13.9%11.9% in Q1Q3 2023 compared to 15.2% in Q3 2022 and decreased to 12.9% in 2023 YTD compared to 14.2% in Q1 2022.2022 YTD. The decrease wasdecreases in both periods were primarily driven by an increaseincreases in the tax benefits related to the FICA tip tax credit benefits.and stock compensation. For 2023, we expect ouran effective income tax rate to beof approximately 14%13% based on forecasted operating results, excluding the impactresults. For 2024, we expect an effective tax rate of any legislative changes enacted.14% to 15% based on forecasted operating results.
26
Segment Information
We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba's 33, Jaggers and our retail initiatives as separate operating segments. Our reportable segments are Texas Roadhouse and Bubba's 33. The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants. The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants. Our remaining operating segments, which include the results of our domestic company and franchise Jaggers restaurants and the results of our retail initiatives, are included in Other.
Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin also includes sales and operating costs related to our non-royalty based retail initiatives.initiatives that is included in Other. Restaurant margin is used by our chief operating decision maker to evaluate restaurant-level operating efficiency and performance. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section above.
The following table presents a summary of restaurant margin by segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |||
| 13 Weeks Ended | 13 Weeks Ended | |||||||||||||||||||||||
| March 28, 2023 | | March 29, 2022 | September 26, 2023 | | September 27, 2022 | |||||||||||||||||||
Texas Roadhouse | $ | 176,990 | | 16.1 | % | | $ | 153,468 | | 16.5 | % | $ | 154,465 | | 14.7 | % | | $ | 146,137 | | 15.7 | % | |||
Bubba's 33 |
| 8,453 | | 13.8 | | |
| 7,794 | | 15.2 | |
| 7,499 | | 12.3 | | |
| 5,625 | | 10.8 | | |||
Other |
| 253 | | 4.8 | | |
| (79) | | (2.6) | |
| 860 | | 13.6 | | |
| 247 | | 7.4 | | |||
Total | $ | 185,696 | | 15.9 | % | | $ | 161,183 | | 16.4 | % | $ | 162,824 | | 14.6 | % | | $ | 152,009 | | 15.4 | % | |||
| | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | ||||||||||||||
| 39 Weeks Ended | ||||||||||||||||||||||||
| September 26, 2023 | | September 27, 2022 | ||||||||||||||||||||||
Texas Roadhouse | $ | 503,660 | | 15.5 | % | | $ | 460,655 | | 16.3 | % | ||||||||||||||
Bubba's 33 |
| 25,584 | | 13.9 | | |
| 20,993 | | 13.3 | | ||||||||||||||
Other |
| 2,032 | | 11.2 | | |
| 280 | | 2.9 | | ||||||||||||||
Total | $ | 531,276 | | 15.4 | % | | $ | 481,928 | | 16.1 | % | ||||||||||||||
| | | | | | | | | | | |
For our Texas Roadhouse reportable segment, restaurant margin dollars increased $23.5$8.3 million or 15.3%5.7% in Q1 2023.Q3 2023 and increased $43.0 million or 9.3% in 2023 YTD. The increase wasincreases in both periods were due to higher sales, primarily driven by an increase in store weeks and an increase in comparable restaurant sales, which was primarilypartially offset by commodity and wage and other inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, decreased to 16.1%14.7% in Q1Q3 2023 from 16.5%15.7% in Q1 2022. Restaurant margin percentage was primarily impacted byQ3 2022 and decreased to 15.5% in 2023 YTD from 16.3% in 2022 YTD. The decreases in both periods were due to commodity and wage and other labor inflation which was partially offset by the benefit of an increase in comparable restauranthigher sales.
For our Bubba’s 33 reportable segment, restaurant margin dollars increased $0.7$1.9 million or 8.5%33.3% in Q1 2023.Q3 2023 and increased $4.6 million or 21.9% in 2023 YTD. The increase wasincreases in both periods were due to higher sales, primarily driven by an increase in store weeks and an increase in comparable restaurant sales, and commodity deflation which was primarily offset by wage and other labor inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, decreasedincreased to 13.8%12.3% in Q1Q3 2023 from 15.2%10.8% in Q1 2022. Restaurant margin percentage was primarily impactedQ3 2022 and increased to 13.9% in 2023 YTD from 13.3% in 2022 YTD. The increases in both periods were due to higher sales and commodity deflation driven by poultry partially offset by wage and other labor inflation which was partially offset by the benefit of an increase in comparable restaurant sales.inflation.
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Liquidity and Capital Resources
The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities (in thousands):
| | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended | ||||||||
|
| March 28, 2023 |
| March 29, 2022 |
| September 26, 2023 |
| September 27, 2022 | ||||
Net cash provided by operating activities | | $ | 188,981 | | $ | 187,769 | | $ | 390,739 | | $ | 395,057 |
Net cash used in investing activities | |
| (103,300) | |
| (73,278) | |
| (273,519) | |
| (195,607) |
Net cash used in financing activities | |
| (103,399) | |
| (124,413) | |
| (221,757) | |
| (349,780) |
Net decrease in cash and cash equivalents | | $ | (17,718) | | $ | (9,922) | | $ | (104,537) | | $ | (150,330) |
Net cash provided by operating activities was $189.0$390.7 million in Q1 2023 YTD compared to $187.8$395.1 million in Q1 2022.2022 YTD. This increasedecrease was primarily due to an unfavorable change in working capital partially offset by an increase in net income and non-cash items such asincluding depreciation and amortization partially offset by an unfavorable change in working capital.amortization.
Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital, if necessary. Sales are primarily for cash, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth.
Net cash used in investing activities was $103.3$273.5 million in Q1 2023 YTD compared to $73.3$195.6 million in Q1 2022.2022 YTD. The increase was primarily due to higher capital expenditures, driven by the new company restaurants pipeline and the refurbishment of existing restaurants. The increase in the new company restaurants pipeline is primarily due to an increase in capital expenditures, driven by an increase in new company restaurants,locations currently under construction and the acquisition of eight domestic franchise restaurants compared to seven in Q1 2022.higher average development costs per location.
We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants and the acquisition of franchise restaurants, if any. We either lease our restaurant site locations under operating leases for periods of five to 30 years (including renewal periods) or purchase the land when appropriate. As of March 28,September 26, 2023, we had developed 154156 of the 611623 company restaurants on land that we own.
The following table presents a summary of capital expenditures (in thousands):
| | | | | | | | | | | | |
|
| 13 Weeks Ended |
| 39 Weeks Ended | ||||||||
| | March 28, 2023 |
| March 29, 2022 | | September 26, 2023 |
| September 27, 2022 | ||||
New company restaurants | | $ | 41,301 | | $ | 26,326 | | $ | 138,124 | | $ | 99,249 |
Refurbishment or expansion of existing restaurants | |
| 19,196 | |
| 18,160 | |
| 88,580 | |
| 60,404 |
Relocation of existing restaurants | | | 4,627 | | | 3,666 | | | 11,946 | | | 11,965 |
Capital expenditures related to Support Center office | | | 1,609 | | | 877 | | | 5,245 | | | 2,576 |
Total capital expenditures | | $ | 66,733 | | $ | 49,029 | | $ | 243,895 | | $ | 174,194 |
Our future capital requirements will primarily depend on the number and mix of new restaurants we open, the timing of those openings and the restaurant prototype developed in a given fiscal year. These requirements will include costs directly related to opening new restaurants or relocating existing restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant base. In 2023, we expect our capital expenditures to be approximately $265$340 million as we plan to open approximately 25 to 30 Texas Roadhousedriven by our 2023 planned company restaurant openings, the acceleration of our 2024 development pipeline and Bubba’s 33continued refurbishment of our existing restaurants. We intend to satisfy our capital requirements over the next 12 months with cash on hand, net cash provided by operating activities and, if needed, funds available under our revolving credit facility. In 2024, we expect our capital expenditures to be $340 million to $350 million.
As of March 28,September 26, 2023, the estimated cost of completing capital project commitments over the next 12 months was approximately $228.6$261.3 million. See note 6 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations.
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Net cash used in financing activities was $103.4$221.8 million in Q1 2023 YTD compared $124.4to $349.8 million in Q1 2022.2022 YTD. The decrease is primarily due to a decrease in the amount of share repurchases partially offset by increased payments on our revolving credit facility as well as an increase in our quarterly dividend payment.payments.
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On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program under which we may repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 31, 2019. All repurchases to date under our stock repurchase programs have been made through open market transactions.
For the 13 weeks ended March 28,During 2023 YTD and 2022 YTD, we paid $9.6$45.2 million and $212.9 million, respectively, to repurchase 92,751414,319 shares of our common stock. For the 13 weeks ended March 29, 2022, we paid $84.7 million to repurchase 1,060,618and 2,734,005 shares, respectively, of our common stock. As of March 28,September 26, 2023, $157.3$121.7 million remained under our authorized stock repurchase program.
On February 14,May 11, 2023, our Board authorized the payment of a quarterly cash dividend of $0.55 per share of common stock which represented a 20% increase compared to the quarterly dividend of $0.46 per share of common stock declared in 2022. The payment of quarterly dividends totaled $36.9$110.4 million and $31.8$93.3 million in Q1 2023 YTD and Q1 2022 YTD, respectively.
We maintain a revolving credit facility (the "credit facility""credit facility") with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A. and PNC Bank, N.A. The credit facility is an unsecured, revolving credit agreement and has a borrowing capacity of up to $300.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders. The credit facility has a maturity date of May 1, 2026.
The terms of the credit facility require us to pay interest on outstanding borrowings at LIBOR plus a margin of 0.875% to 1.875% and pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the credit facility, in each case depending on our leverage ratio. The credit facility also has an Alternate Base Rate that may be substituted for LIBOR.
As of March 28,September 26, 2023, we had no outstanding balance on the credit facility and had $283.5$287.7 million of availability, net of $16.5$12.3 million of outstanding letters of credit. As of December 27, 2022, we had $50.0 million outstanding on the credit facility, which was repaid in Q1 2023 YTD, and $233.5 million of availability, net of $16.5 million of outstanding letters of credit. The outstanding amount as of December 27, 2022 is included as long-term debt on our unaudited condensed consolidated balance sheet.
The interest rate for the credit facility as of March 28,September 26, 2023 and March 29,September 27, 2022 was 5.47%6.19% and 1.20%3.69%, respectively.
The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants. We were in compliance with all financial covenants as of March 28,September 26, 2023.
Guarantees
As of March 28,September 26, 2023 and December 27, 2022, we were contingently liable for $11.1$10.6 million and $11.3 million, respectively, for seven lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of March 28,September 26, 2023 and December 27, 2022 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on variable rate debt and changes in commodity prices. Our exposure to interest rate fluctuations is limited to our outstanding bank debt. The terms of the revolving credit facility (the "credit facility") require us to pay interest on outstanding borrowings at London Interbank Offeringthe Secured Overnight Financing Rate ("LIBOR"SOFR"), plus a marginfixed adjustment of 0.10%, plus a variable adjustment of 0.875% to 1.875% and pay a commitment fee of 0.125% to 0.30% per year on any unused
26
portion of the credit facility, in each case depending on our leverage ratio. The credit facility also has an Alternate Base Rate that may be substituted for LIBOR. As of March 28,September 26, 2023, we had no outstanding borrowings on our credit facility.
In an effort to secure high quality, low-cost ingredients used in the products sold in our restaurants, we employ various purchasing and pricing contract techniques. When purchasing certain types of commodities, we may be subject
29
to prevailing market conditions resulting in unpredictable price volatility. For certain commodities, we may also enter into contracts for terms of one year or less that are either fixed price agreements or fixed volume agreements where the price is negotiated with reference to fluctuating market prices. We currently do not use financial instruments to hedge commodity prices, but we will continue to evaluate their effectiveness.prices. Extreme and/or long-term increases in commodity prices could adversely affect our future results, especially if we are unable, primarily due to competitive reasons, to increase menu prices. Additionally, if there is a time lag between the increasing commodity prices and our ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not to pass on the cost increases, our short-term financial results could be negatively affected.
We are subject to business risk as our beef supply is highly dependent upon four vendors. To date, we have been able to properly manage any supply shortages but have experienced increased costs. If these vendors are unable to fulfill their obligations under their contracts, we may encounter supply shortages and/or higher costs to secure adequate supply and a possible loss of sales, any of which would harm our business. To date, we have been able to properly manage any supply shortages but have experienced increased costs.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to, and as defined in, Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of our management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of March 28,September 26, 2023.
Changes in Internal Control
There were no significant changes in the Company’s internal control over financial reporting that occurred during the 13 weeks ended March 28,September 26, 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns. None of these types of litigation, most of which are covered by insurance, has had a material adverse effect on us during the periods covered by this report and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended December 27, 2022, under the heading "Special Note Regarding Forward-looking Statements" and in the Form 10-K Part I, Item 1A, Risk Factors. There have been no material changes from the risk factors previously disclosed in our Form 10-K for the fiscal year ended December 27, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program which authorized us to repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date. All repurchases to date under our stock repurchase program have been made through open market transactions. The timing and the amount of any repurchases through this program will be determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions and other corporate considerations.
For the 13 weeks ended March 28,September 26, 2023, we paid $9.612.1 million to repurchase 92,751107,593 shares of our common stock. As of March 28,September 26, 2023, $157.3$121.7 million remained authorized for stock repurchases.
| | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| |
| Maximum Number |
| |
| | |
| |
| Maximum Number | ||
| | | | | | | | | (or Approximate | | | | | | | | | (or Approximate | ||
| | | | | | | Total Number of | | Dollar Value) | | | | | | | Total Number of | | Dollar Value) | ||
| | | | | | | Shares Purchased | | of Shares that | | | | | | | Shares Purchased | | of Shares that | ||
| | Total Number | | Average | | as Part of Publicly | | May Yet Be | | Total Number | | Average | | as Part of Publicly | | May Yet Be | ||||
| | of Shares | | Price Paid | | Announced Plans | | Purchased Under the | | of Shares | | Price Paid | | Announced Plans | | Purchased Under the | ||||
Period | | Purchased | | per Share | | or Programs | | Plans or Programs | | Purchased | | per Share | | or Programs | | Plans or Programs | ||||
December 28 to January 24 |
| — | | $ | — |
| — | | $ | 166,877,726 | ||||||||||
January 25 to February 21 |
| — | | $ | — |
| — | | $ | 166,877,726 | ||||||||||
February 22 to March 28 |
| 92,751 | | $ | 103.76 |
| 92,751 | | $ | 157,253,537 | ||||||||||
| | | | | | | | | | | ||||||||||
June 28 to July 25 |
| 90,093 | | $ | 113.00 |
| 90,093 | | $ | 123,637,670 | ||||||||||
July 26 to August 22 |
| 17,500 | | $ | 111.67 |
| 17,500 | | $ | 121,683,492 | ||||||||||
August 23 to September 26 |
| — | | $ | — |
| — | | $ | 121,683,492 | ||||||||||
Total |
| 92,751 | | | |
| 92,751 | | | |
| 107,593 | | | |
| 107,593 | | | |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
None.Rule 10b5-1 Trading Plans
In accordance with the disclosure requirement set forth in Item 408 of Regulation S-K, the following table discloses any executive officer or director who is subject to the filing requirements of Section 16 of the Securities Exchange Act of 1934 that adopted a Rule 10b5-1 trading arrangement during the 13 weeks ended September 26, 2023. These trading arrangements are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
| | | | |
Name | Title | Adoption Date | End Date (1) | Aggregate Number of Securities to be Sold |
Gerald L. Morgan | Chief Executive Officer | 8/23/2023 | 2/23/2025 | 15,000 |
Christopher C. Colson | Chief Legal and Administrative Officer | 8/25/2023 | 1/23/2024 | 2,000 |
(1) | A trading plan may expire on such earlier date that all transactions under the trading plan are completed. |
Other than those disclosed above, no other executive officer or director adopted, modified or terminated a Rule 10b5-1 or a non-Rule 10b5-1 trading arrangement during the 13 weeks ended September 26, 2023.
ITEM 6. EXHIBITS
Exhibit No. |
| Description |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
10.2* | | |
31.1 | | |
31.2 | | |
31.3 | | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | | |
|
| |
101.INS | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TEXAS ROADHOUSE, INC. | |
| | |
Date: | By: | /s/ GERALD L. MORGAN |
| | Gerald L. Morgan |
| | Chief Executive Officer ( |
| | |
| | |
Date: | By: | /s/ D. CHRISTOPHER MONROE |
| | D. Christopher Monroe |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
| | |
Date: November 3, 2023 | By: | /s/ KEITH V. HUMPICH |
| | Keith V. Humpich |
| |
|
| | ( |
| |
|
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