December 15, 2017
Mr. Lyn Shenk
Branch Chief
Securities and Exchange Commission
Washington, D.C. 20549
Re: Texas Roadhouse, Inc.
Form 10-K for Fiscal Year Ended December 27, 2016
Filed February 24, 2017
File No. 000-50972
Dear Mr. Shenk:
The following is in response to the comments contained in your correspondence dated December 5, 2017 for the corporation and filing listed above. For your convenience, we have repeated the Staff’s comments below, in italics, together with the subheadings used in your letter.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations, Page 35
SEC Comment #1:
Please include in this filing and, as appropriate, in other periodic filings and earnings releases in Form 8-K a reconciliation of the non-GAAP measure “restaurant margin” to the comparable GAAP measure, such as “income from operations” presented in your statement of income, pursuant to Item 10(e)(1)(i)(B) of Regulation S-K. It appears 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 (depreciation and amortization, general and administrative, and preopening costs) excluded from the measure. The indicated reconciliation appears to be more representative of the measure as a restaurant level contribution to your results, rather than a reconciliation to net income which is an overall company measure.
Management’s Response to Comment #1:
We note the Staff’s comment and in future fillings will expand the referenced Management’s Discussion and Analysis disclosure and our earnings releases in Form 8-K to include a
reconciliation of the non-GAAP measure “restaurant margin” to the comparable GAAP measure “income from operations”. Please see our response to Comment #2 below which includes this reconciliation.
SEC Comment #2:
In regard to “restaurant margin,” please provide disclosure explaining all of the costs within income from operations in addition to depreciation and amortization that are excluded from the measure and the reason for their exclusion. Your disclosure should also explain the limitations on the usefulness of this measure to emphasize that the excluded costs support the operations of your restaurants.
Management’s Response to Comment #2:
We note the Staff’s comment and in future filings will expand the referenced Management’s Discussion and Analysis disclosure and our earnings releases in Form 8-K to include the requested information. We propose expanding our historical disclosure as follows, using amounts and disclosures included in our Form 10-Q for the 13 and 39 weeks ended September 26, 2017, our most recent filing:
Restaurant margin (in dollars and as a percentage of restaurant sales) represents restaurant sales less restaurant-level operating costs, including cost of sales, 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 restaurant-level operating efficiency and performance. 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 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.
|
| 13 Weeks Ended |
| 39 Weeks Ended |
| ||||||||
(in thousands) |
| Sept 26, 2017 |
| Sept 27, 2016 |
| Sept 26, 2017 |
| Sept 27, 2016 |
| ||||
Income from operations |
| $ | 45,511 |
| $ | 38,468 |
| $ | 148,747 |
| $ | 141,061 |
|
Less: |
|
|
|
|
|
|
|
|
| ||||
Franchise royalties and fees |
| 4,166 |
| 4,020 |
| 12,634 |
| 12,473 |
| ||||
Add: |
|
|
|
|
|
|
|
|
| ||||
Pre-opening |
| 4,548 |
| 5,017 |
| 14,302 |
| 14,253 |
| ||||
Depreciation and amortization |
| 23,534 |
| 20,941 |
| 69,236 |
| 60,718 |
| ||||
Impairment and closure |
| 2 |
| 13 |
| 13 |
| 54 |
| ||||
General and administrative |
| 26,123 |
| 26,162 |
| 94,594 |
| 82,933 |
| ||||
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|
|
|
|
|
|
|
|
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Restaurant margin |
| $ | 95,552 |
| $ | 86,581 |
| $ | 314,258 |
| $ | 286,546 |
|
Restaurant margin (as a percentage of restaurant sales) |
| 17.8% |
| 18.1% |
| 18.9% |
| 19.2% |
| ||||
Please contact me at (502) 515-7304 if you have any questions.
| Sincerely, |
|
|
| /s/ Scott M. Colosi |
| Scott M. Colosi |
| President, Chief Financial Officer |
Copy to: | Theresa Brillant |
| Doug Jones |
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