TEXAS ROADHOUSE, INC. 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. These statements include, but are not limited to, statements related to the potential impact of the COVID-19/Coronavirus outbreak and other non-historical statements. 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 year endedDecember 29, 2020 , and in Part II, Item 1A in this Form 10-Q, along with disclosures in our otherSecurities 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 theSEC , 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 theSEC 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. COVID-19 Impact
The Company has been subject to risks and uncertainties as a result of the COVID-19 pandemic (the "pandemic"). These include federal, state and local restrictions on restaurants, some of which have limited capacity or seating in the dining rooms while others have allowed to-go or curbside service only. As ofSeptember 28, 2021 , all of our domestic company and franchise locations were operating without restriction. As ofSeptember 29, 2020 , nearly all of our domestic company and franchise restaurants were operating their dining rooms under various limited capacity restrictions. As a result of these restrictions, we developed a hybrid operating model to accommodate our dining room restrictions together with enhanced to-go. We continue to see increased sales in our to-go program over pre-pandemic levels, even with dining rooms operating without restriction. We cannot predict how long we will continue to be impacted by the pandemic, the extent to which our dining rooms will have to close again or otherwise have limited seating, or if the increased sales in our to-go program will continue. The extent to which COVID-19 impacts our business, results of operations, or financial condition will depend on future developments which are outside of our control. This includes the efficacy and public acceptance of vaccination programs or testing mandates in curbing the spread of the virus, the introduction and spread of new variants of the virus, which may prove resistant to currently approved vaccines, and new or reinstated restrictions or regulations on our operations. As a result of the significant increase in sales, the lingering impact of the pandemic, and other supply constraints, we have experienced and expect to continue to experience commodity cost inflation and certain food and supply shortages. The commodity cost inflation, which primarily relates to beef, is due to increased costs incurred by our vendors related to higher labor, transportation, packaging, and raw materials costs. To date, we have been able to properly manage any food or supply shortages but have experienced increased costs. If our vendors are unable to fulfill their obligations under their contracts, we may encounter further shortages and/or higher costs to secure adequate supply and a possible loss of sales, any of which would harm our business. 15 Table of Contents In addition, as our dining rooms have returned to operating without restriction, our ability to attract and retain restaurant-level employees has become more challenging. This is due to an increasingly competitive job market throughout the country. To the extent these challenges persist, we could continue to experience increased labor costs. As a result of the pandemic, legislation referred to as the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was passed in 2020 to benefit companies that were significantly impacted by the pandemic. This legislation allowed for the deferral of the social security portion of the employer portion of FICA payroll taxes from the date of enactment through the end of 2020. In total, we deferred$47.3 million in payroll taxes, of which$24.3 million was repaid in Q3 2021 and$23.0 million is required to be repaid at the end of 2022. The amount due in 2022 is included in other liabilities in our unaudited condensed consolidated balance sheets. The CARES Act also allowed for an Employee Retention Credit for companies severely impacted by the pandemic to encourage the retention of full-time employees. This refundable payroll tax credit was available for any company that had fully or partially suspended operations due to government order or experienced a significant decline in gross receipts and had employees who were paid but did not actually work. The Company provided various forms of relief pay for hourly restaurant employees that qualified for this tax credit. For the 39 weeks endedSeptember 28, 2021 andSeptember 29, 2020 , we recorded$1.2 million and$4.5 million , respectively, related to this credit which is included in labor expense in our unaudited condensed consolidated statement of income and comprehensive income. Based on the operating status of our restaurants as ofSeptember 28, 2021 , we currently do not expect to qualify for any further credits going forward. OVERVIEWTexas Roadhouse, Inc. is a growing restaurant company operating predominately in the casual dining segment. Our late founder,W. Kent Taylor , started the business in 1993 with the opening of the firstTexas Roadhouse restaurant inClarksville, Indiana . Since then, we have grown to 654 restaurants in 49 states and ten foreign countries. As ofSeptember 28, 2021 , our 654 restaurants included:
555 "company restaurants," of which 535 were wholly-owned and 20 were
majority-owned. The results of operations of company restaurants are included
in our unaudited condensed consolidated statements of income and comprehensive
income. The portion of income attributable to noncontrolling interests in ? company restaurants that are not wholly-owned is reflected in the line item
entitled "Net income attributable to noncontrolling interests" in our unaudited
condensed consolidated statements of income and comprehensive income. Of the
555 restaurants we owned as of
Roadhouse restaurants, 35 as Bubba's 33 restaurants and three as Jaggers restaurants. 99 "franchise restaurants," 24 of which we have a 5.0% to 10.0% ownership
interest. The income derived from our minority interests in these franchise
restaurants is reported in the line item entitled "Equity income from
investments in unconsolidated affiliates" in our unaudited condensed ? consolidated statements of income and comprehensive income. Additionally, we
provide various management services to these 24 franchise restaurants, as well
as five additional franchise restaurants in which we have no ownership
interest. All of the franchise restaurants are operated as
restaurants. Of the 99 franchise restaurants, 69 were domestic restaurants and
30 were international restaurants.
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 65 of the 69 domestic franchise restaurants.
Throughout this report, we use the term "restaurants" to include
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Presentation of Financial and Operating Data
Throughout this report, the 13 weeks endedSeptember 28, 2021 andSeptember 29, 2020 are referred to as Q3 2021 and Q3 2020, respectively. The 39 weeks endedSeptember 28, 2021 andSeptember 29, 2020 are referred to as 2021 YTD and 2020 YTD, respectively. Fiscal years 2021 and 2020 will be 52 weeks in length, while the quarters for the year will be 13 weeks in length.
Long-Term Strategies to Grow Earnings Per Share and Create Shareholder Value
Our long-term strategies with respect to increasing net income and earnings per share, along with creating shareholder value, include the following:
Expanding Our Restaurant Base. We continue to evaluate opportunities to develop restaurants in existing markets and in new domestic and international markets. Domestically, we remain focused primarily on markets where we believe a significant demand for our restaurants exists because of population size, income levels, and the presence of shopping and entertainment centers and a significant employment base. In recent years, we have relocated several existingTexas Roadhouse locations at or near the end of the associated lease or as a result of eminent domain which allows us to move to a better site, update them to a current prototypical design, construct a larger building with more seats and greater number of available parking spaces, and/or obtain more favorable lease terms. We continue to evaluate these opportunities particularly as it relates to older locations with strong sales. At our high volume restaurants, we continue to look for opportunities to increase our dining room capacity by adding on to our existing building and/or to increase our parking capacity by leasing or purchasing property that adjoins our site. In addition, we continue to pursue opportunities to acquire domestic franchise locations to expand our company restaurant base. In 2021 YTD, 18 company restaurants, including four Bubba's 33, were opened. We currently plan to open 26 to 29 company restaurants across all concepts in 2021. We currently expect our franchise partners will open as many as fourTexas Roadhouse restaurants, primarily international, in 2021. Our average capital investment for the 18Texas Roadhouse restaurants opened during 2020, including pre-opening expenses and a capitalized rent factor, was$6.3 million . We expect our average capital investment forTexas Roadhouse restaurants opening in 2021 to be approximately$5.6 million . Our average capital investment for the three Bubba's 33 restaurants opened during 2020, including pre-opening expenses and a capitalized rent factor, was$7.3 million . We expect our average capital investment for Bubba's 33 restaurants opening in 2021 to be approximately$7.2 million . The decrease in investment costs for both concepts is primarily due to higher building and site work costs in 2020 related to construction delays from the pandemic. We remain focused on driving sales and managing restaurant investment costs to maintain our restaurant development in the future. Our capital investment (including cash and non-cash costs) for new restaurants varies significantly depending on a number of factors including, but not limited to: the square footage, layout, scope of required site work, geographical location, cost of materials, type of construction labor, local permitting requirements, hook-up fees, our ability to negotiate with landlords, and cost of liquor and other licenses. We have entered into area development and franchise agreements for the development and operation ofTexas Roadhouse restaurants in numerous foreign countries and oneU.S. territory. We currently have signed franchise and/or development agreements in nine countries in theMiddle East as well asTaiwan ,the Philippines ,Mexico ,China ,South Korea ,Brazil andPuerto Rico . As ofSeptember 28, 2021 , we had 15 restaurants in five countries in theMiddle East , five restaurants open inthe Philippines , four inTaiwan , three inSouth Korea , two inMexico and one inChina for a total of 30 restaurants in ten foreign countries. For the existing international agreements, the franchisee is required to pay us a franchise fee for each restaurant to be opened, royalties on the gross sales of each restaurant and a development fee for our grant of development rights in the named countries. We anticipate that the specific business terms of any future franchise agreement for international restaurants might vary significantly from the standard terms of our domestic agreements and from the terms of existing international agreements, depending on the territory to be franchised and the extent of franchisor-provided services to each franchisee. 17 Table of Contents In Q3 2021, we entered into our first area development agreement for Jaggers, our fast-casual concept. This agreement allows for the development and operation of ten restaurants in specific territories inTexas andOklahoma . As part of this agreement, the franchisee is required to pay us a franchise fee for each restaurant to be opened, royalties on the gross sales of each restaurant and a development fee for our grant of development rights in the named territories. Maintaining and/or Improving Restaurant-Level Profitability. We continue to balance the impacts of inflationary pressures with our value positioning as we remain focused on our long-term success. This may create a challenge in terms of maintaining and/or increasing restaurant-level profitability (restaurant margin), in any given year, depending on the level of inflation we experience. Restaurant margin is not aU.S. generally accepted accounting principle ("GAAP") measure and should not be considered in isolation, or as an alternative to income from operations. See further discussion of restaurant margin below. In addition to restaurant margin, as a percentage of restaurant and other sales, we also focus on the growth of restaurant margin dollars per store week as a measure of restaurant-level profitability. In terms of driving comparable restaurant sales, we remain focused on encouraging repeat visits by our guests and attracting new guests through our continued commitment to operational standards relating to food and service quality. To attract new guests and increase the frequency of visits of our existing guests, we also continue to drive various localized marketing programs, focus on speed of service and increase throughput by adding seats and parking at certain restaurants. In addition, with the increase in to-go sales in prior years and the significant increase during the pandemic, we have made changes to our building layout to better accommodate higher to-go volumes at our restaurants. We have also made investments in technology to allow for a better guest experience. We also continue to look for ways through various strategic initiatives to drive awareness of our brands and increase sales and profitability. At the onset of the pandemic, we began selling ready-to-grill steaks for customers to prepare at home. While we reduced our store-level offerings around ready-to-grill once our dining rooms began to re-open in mid-2020, based on the success of this program we developed Texas Roadhouse Butcher Shop. This on-line retail store allows for the purchase and delivery of quality steaks that are available in our restaurants. This non-royalty-based product launched in Q4 2020. We also further expanded our retail business in 2021 with the introduction of our non-alcoholicMargarita Mixer , which was available in Q1 2021, and our canned cocktailMargarita Seltzer , which rolled out in Q2 2021 in test markets. TheseTexas Roadhouse -branded products are subject to royalty-based license agreements. Leveraging Our Scalable Infrastructure. To support our growth, we have made investments in our infrastructure over the past several years, including information and accounting systems, real estate, human resources, legal, marketing, international and restaurant operations, including the development of new strategic initiatives. Whether we are able to leverage our infrastructure in future years by growing our general and administrative costs at a slower rate than our revenue will depend, in part, on our new restaurant openings, our comparable restaurant sales growth rate going forward and the level of investment we continue to make in our infrastructure. Returning Capital to Shareholders. We continue to evaluate opportunities to return capital to our shareholders including the payment of dividends and repurchase of common stock. In 2011, our Board of Directors declared our first quarterly dividend of$0.08 per share of common stock which we consistently grew over time. OnMarch 24, 2020 , the Board of Directors voted to suspend the payment of quarterly cash dividends on the Company's common stock, effective with respect to dividends occurring after the quarterly cash dividend of$0.36 paid onMarch 27, 2020 . This was done to preserve cash flow due to the pandemic. OnApril 28, 2021 , our Board of Directors reinstated the payment of a quarterly cash dividend of$0.40 per share of common stock. The declaration and payment of cash dividends on our common stock is at the discretion of our Board of Directors, and any decision to declare a dividend will be based on many factors, including, but not limited to, earnings, financial condition, applicable covenants under our revolving credit facility, other contractual restrictions, the extent that state and local guidelines begin to significantly reduce capacity and/or re-close dining rooms, and other factors deemed relevant. In 2008, our Board of Directors approved our first stock repurchase program. From inception throughSeptember 28, 2021 , we have paid$383.7 million through our authorized stock repurchase programs to repurchase 17,883,539 shares of our common stock at an average price per share of$21.46 . OnMay 31, 2019 , our Board of Directors approved a stock repurchase program under which we may repurchase up to$250.0 million of our common stock. This stock 18
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repurchase program has no expiration date and replaced a previous stock repurchase program which was approved onMay 22, 2014 . All repurchases to date have been made through open market transactions. The Company suspended all share repurchase activity onMarch 17, 2020 in order to preserve cash flow due to the pandemic. OnAugust 2, 2021 , the Company resumed the repurchase of shares and in Q3 2021 paid$14.7 million to repurchase 161,034 shares of common stock. As ofSeptember 28, 2021 ,$133.1 million remains authorized for stock repurchases. The repurchase of common stock in future periods is subject to the same factors set forth regarding the continued payment of dividends.
Key Measures We Use to Evaluate Our Company
Key measures we use to evaluate and assess our business include the following:
Number of Restaurant Openings. Number of restaurant openings reflects the number of restaurants opened during a particular fiscal period. For company restaurant openings, we incur pre-opening costs, which are defined below, before the restaurant opens. Typically, new restaurants open with an initial start-up period of higher than normalized sales volumes, which decrease to a steady level approximately three to six months after opening. However, although sales volumes are generally higher, so are initial costs, resulting in restaurant margins that are generally lower during the start-up period of operation and increase to a steady level approximately three to six months after opening. Comparable Restaurant Sales. Comparable restaurant sales reflects the change in restaurant sales for company restaurants over the same period in prior years 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 forTexas Roadhouse restaurants open for a full six months before the beginning of the period measured excluding 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. Store weeks represent the number of weeks that our company restaurants were open during the reporting period. Store weeks include weeks in which a restaurant is temporarily closed.
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 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.
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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 the
unaudited condensed consolidated statements of income and comprehensive income.
Other sales include the amortization of fees associated with our third party
gift card sales net of the amortization of gift card breakage income. These
amounts are amortized consistent with the historic redemption pattern of the
associated gift card or on actual redemptions in periods where redemptions do
not align with historic redemption patterns. Other sales also include sales
related to our non-royalty-based retail products.
Franchise Royalties and Fees. Franchise royalties consist of royalties, as
defined in our franchise agreement, paid to us by our domestic and international
franchisees. Franchise royalties also include sales related to our royalty-based
retail products. Domestic and/or international franchisees also typically pay an
initial franchise fee and/or development fee for each new restaurant or
territory. The terms of the international agreements may vary significantly from
our domestic agreements. Franchise fees also include advertising fees paid by
domestic franchisees to our system-wide marketing and advertising fund and
management fees paid by certain domestic franchisees for supervisory and
administrative services that we perform.
Food and Beverage Costs. Food and beverage costs consists of the costs of raw
materials and ingredients used in the preparation of food and beverage products
sold in our company restaurants. Approximately half of our food and beverage
costs relates to beef 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 utilities, dining room and to-go supplies, local store advertising, repairs and maintenance, equipment rent, property taxes, credit card fees and general liability insurance. Profit sharing incentive compensation expenses earned by our restaurant managing partners and market partners are also included in restaurant other operating expenses. 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 are comprised principally of opening team and training team compensation and benefits, travel expenses, rent, food, beverage and other initial supplies and expenses. On average, over 70% of total pre-opening costs incurred per restaurant opening relate to the hiring and training of employees. Pre-opening costs vary by location depending on many factors, including the size and physical layout of each location; the number of management and hourly employees required to operate each restaurant; the availability of qualified restaurant staff members; the cost of travel and lodging for different geographic areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining final licenses and permits to open
the
restaurants.
Depreciation and Amortization Expenses. Depreciation and amortization expenses
("D&A") 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.
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General and Administrative Expenses. General and administrative expenses
("G&A") are comprised of expenses associated with corporate and administrative
functions that support development and restaurant operations and provide an
infrastructure to support future growth including certain advertising costs
incurred. G&A also includes legal fees, settlement charges and share-based
compensation expense related to executive officers, Support Center employees,
and market partners, and the realized and unrealized holding gains and losses
related to the investments in our deferred compensation plan.
Interest Expense, Net. Interest expense, net includes interest expense on our
debt or financing obligations including the amortization of loan fees reduced by
earnings on cash and cash equivalents.
Equity Income (Loss) from Unconsolidated Affiliates. Equity income (loss)
includes our percentage share of net income (loss) earned by unconsolidated
affiliates. As of September 28, 2021 and September 29, 2020 , we owned a 5.0% to
10.0% equity interest in 24 domestic franchise restaurants. Additionally, as of
September 28, 2021 and September 29, 2020 , we owned a 40% equity interest in two
and four non-Texas Roadhouse restaurants, respectively, as part of a joint
venture agreement with a casual dining restaurant operator in China .
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.
Q3 2021 Financial Highlights
Total revenue increased $237.8 million to $868.9 million in Q3 2021 compared to
$631.2 million in Q3 2020 primarily due to an increase in average unit volumes
driven by an increase in comparable restaurant sales, along with an increase in
store weeks. Store weeks and comparable restaurant sales increased 5.2% and
30.2%, respectively, at company restaurants in Q3 2021. The increase in
comparable restaurant sales was primarily due to all company restaurants
operating without restriction for the entire Q3 2021 period and continued strong
to-go sales.
Restaurant margin dollars increased $44.0 million to $135.1 million in Q3 2021
compared to $91.1 million in Q3 2020. Restaurant margin, as a percentage of
restaurant and other sales, increased to 15.7% in Q3 2021 compared to 14.5% in
Q3 2020. The increase in restaurant margin was due to higher sales partially
offset by commodity inflation.
Net income increased $23.4 million to $52.6 million in Q3 2021 compared to $29.2
million in Q3 2020 primarily due to higher restaurant margin dollars partially
offset by higher general and administrative expense. Diluted earnings per share
increased to $0.75 in Q3 2021 from $0.42 in Q3 2020.
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Results of Operations
13 Weeks Ended 39 Weeks Ended
September 28, 2021 September 29, 2020 September 28, 2021 September 29, 2020
$ % $ % $ % $ %
(In thousands) (In thousands)Consolidated Statements of Income: Revenue: Restaurant and other sales 862,757 99.3 626,429 99.2 2,550,124 99.3 1,747,145 99.3 Franchise royalties and fees 6,186 0.7 4,756 0.8 18,236 0.7 12,989 0.7 Total revenue 868,943 100.0 631,185 100.0 2,568,360 100.0 1,760,134 100.0 Costs and expenses: (As a percentage of restaurant and other sales) Restaurant operating costs (excluding depreciation and amortization shown separately below): Food and beverage 298,164 34.6 201,308 32.1 845,150 33.1 575,529 32.9 Labor 286,593 33.2 217,275 34.7 832,776 32.7 652,976 37.4 Rent 15,089 1.7 13,723 2.2 44,497 1.7 40,445 2.3 Other operating 127,769 14.8 102,978 16.4 386,754 15.2 296,615 17.0 (As a percentage of total revenue) Pre-opening 6,740 0.8 4,894 0.8 17,327 0.7 14,296 0.8 Depreciation and amortization 31,627 3.6 29,364 4.7 94,146 3.7 87,434 5.0 Impairment and closure, net 29 NM 716 NM 550 NM 871 NM General and administrative 41,234 4.7 25,951 4.1 114,807 4.5 88,520 5.0 Total costs and expenses 807,245 92.9 596,209 94.5 2,336,007 91.0 1,756,686 99.8 Income from operations 61,698 7.1 34,976 5.5 232,353 9.0 3,448 0.2 Interest expense, net 604 0.1 1,502 0.2 3,039 0.1 2,601 0.1 Equity income (loss) from investments in unconsolidated affiliates 266 NM 1 NM 288 NM (597) NM Income before taxes 61,360 7.1 33,475 5.3 229,602 8.9 250 0.0 Income tax expense (benefit) 7,144 0.8 3,072 0.5 31,031 1.2 (13,999) (0.8) Net income including noncontrolling interests 54,216 6.2 30,403 4.8 198,571 7.7 14,249 0.8 Net income attributable to noncontrolling interests 1,610 0.2 1,173 0.2 6,335 0.2 2,543 0.1 Net income attributable toTexas Roadhouse, Inc. and subsidiaries 52,606 6.1 29,230 4.6 192,236 7.5 11,706 0.7 NM - Not meaningful 22 Table of Contents Reconciliation of
Income from Operations to Restaurant Margin
(in thousands)
13 Weeks Ended 39 Weeks Ended
September 28, 2021 September 29, 2020 September 28, 2021 September 29, 2020
Income from operations $ 61,698 $ 34,976 $ 232,353 $ 3,448
Less:
Franchise royalties and fees 6,186
4,756 18,236 12,989
Add:
Pre-opening 6,740 4,894 17,327 14,296Depreciation and amortization 31,627 29,364 94,146 87,434 Impairment and closure, net 29 716 550 871 General and administrative 41,234 25,951 114,807 88,520 Restaurant margin $ 135,142 $ 91,145 $ 440,947 $ 181,580 Restaurant margin $/store week $ 18,865 $ 13,384 $ 20,757 $ 8,956 Restaurant margin (as a percentage of restaurant and other sales) 15.7% 14.5% 17.3% 10.4%
See above for the definition of restaurant margin.
Restaurant Unit Activity
Total Texas Roadhouse Bubba's 33 Jaggers
Balance at December 29, 2020 634 600 31 3
Company openings 18 14 4 -
Company closings - - - -
Franchise openings - Domestic - - - -Franchise openings - International 2 2 -
-
Franchise closings - International - - -
-
Balance at September 28, 2021 654 616 35
3
September 28, 2021 September 29, 2020
Company - Texas Roadhouse 517 493
Company - Bubba's 33 35 31
Company - Jaggers 3 2Franchise -Texas Roadhouse -U.S. 69
70
Franchise -Texas Roadhouse - International 30
27
Total 654 623
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Q3 2021 (13 weeks) compared to Q3 2020 (13 weeks) and 2021 YTD (39 weeks) compared to 2020 YTD (39 weeks)
Restaurant and Other Sales. Restaurant and other sales increased by 37.7% in Q3
2021 compared to Q3 2020 and 46.0% in 2021 YTD compared to 2020 YTD. The
following table summarizes certain key drivers and/or attributes of restaurant
and other sales at company restaurants for the periods presented. Company
restaurant count activity is shown in the restaurant unit activity table above.
Q3 2021 Q3 2020 2021 YTD 2020 YTD
Company Restaurants :
Increase in store weeks 5.2 % 4.6 % 4.8 % 4.7 %
Increase (decrease) in average unit volume 30.5 % (7.0) % 38.4 % (16.0) %
Other(1) 1.3 % (0.6) % 2.5 % (2.0) %
Total increase (decrease) in restaurant sales 37.0 % (3.0) % 45.7 % (13.3) %
Other sales 0.7 % 0.1 % 0.3 % 0.0 %
Total increase (decrease) in restaurant and other sales 37.7 % (2.9) % 46.0 % (13.3) %
Store weeks 7,164 6,810 21,244 20,274 Comparable restaurant sales
30.2 % (6.3) % 39.5 % (16.0) %
Texas Roadhouse restaurants only: Comparable restaurant sales 30.6 % (6.5) % 39.2 % (15.8) % Average unit volume (in thousands) $
1,580
Weekly sales by group: Comparable restaurants (485 and 464 units, respectively)$ 121,633 $ 93,659 Average unit volume restaurants (18 and 19 units, respectively)(2)$ 118,703 $ 80,556 Restaurants less than six months old (14 and 10 units, respectively)$ 128,001 $ 93,616
Includes the impact of the year-over-year change in sales volume of all
non-
applicable, the impact of restaurants permanently closed or acquired during
the period.
Average unit volume restaurants include restaurants open a full six and up to (2) 18 months before the beginning of the period measured, excluding sales from
restaurants permanently closed during the period.
The increase in restaurant sales for Q3 2021 and 2021 YTD is primarily due to an increase in average unit volumes, driven by an increase in comparable restaurant sales, along with an increase in store weeks. The increase in comparable restaurant sales was primarily driven by the re-opening of our dining rooms, the continued easing of dining room capacity and seating restrictions throughout 2021, and continued strong to-go sales. Comparable restaurant sales increased 30.2% in Q3 2021, which included guest traffic count growth of 23.6% and per person average check growth of 6.6%. Comparable restaurant sales increased 39.5% in YTD 2021, which included guest traffic count growth of 29.1% and per person average check growth of 10.4%. As ofSeptember 28, 2021 , all of our company restaurants were operating without capacity restrictions and had done so for the entire Q3 2021 period. As ofSeptember 29, 2020 , nearly all of our company restaurants had re-opened their dining rooms under various limited capacity restrictions. To-go sales as a percentage of restaurant sales were 15.1% and 18.0% for Q3 2021 and 2021 YTD, respectively, compared to 23.3% and 28.5% for Q3 2020 and 2020 YTD. The prior year periods were significantly impacted by the closure of our dining rooms. 24 Table of Contents
Comparable restaurant sales include the benefit of menu price increases of
approximately 1.75% and 1.0%, implemented in
In 2021 YTD, we opened 18 company restaurants, including four Bubba's 33 restaurants. As ofSeptember 28, 2021 , an additional 15 restaurants were under construction. We currently plan to open 26 to 29 company restaurants across
all concepts in 2021.
In 2022, we plan to open 25 to 30
Other sales primarily represent the net impact of the amortization of third party gift card fees and gift card breakage income. The net impact was$2.1 million and($1.6) million for Q3 2021 and Q3 2020, respectively, and($5.6) million and($6.3) million for 2021 YTD and 2020 YTD, respectively. The increase in both periods was primarily related to a favorable adjustment of$4.8 million recorded in Q3 2021. This adjustment primarily related to a shift in our historic redemption pattern which indicated that the percentage of gift cards sold that are not expected to be redeemed had shifted from 4.0% to 4.5%. As a result, we adjusted the breakage recognized for all gift cards that had not been fully amortized. The impact of this adjustment was offset by increased amortization of third party fees due to the increase in sales through our third party gift card program. Franchise Royalties and Fees. Franchise royalties and fees increased by$1.4 million , or by 30.1%, in Q3 2021 compared to Q3 2020 and increased$5.2 million , or by 40.4% in 2021 YTD compared to 2020 YTD. The increase was due to higher average unit volumes, driven by comparable restaurant sales increases at domestic stores. Comparable restaurant sales at domestic franchise stores increased 33.5% and 38.5% in Q3 2021 and 2021 YTD, respectively. We anticipate that our existing franchise partners will open as many as four restaurants, primarily international, in 2021, and as many as five restaurants in 2022. Food and Beverage Costs. Food and beverage costs, as a percentage of restaurant and other sales, increased to 34.6% in Q3 2021 compared to 32.1% in Q3 2020 and increased to 33.1% in 2021 YTD compared to 32.9% in 2020 YTD. The increases were primarily due to commodity inflation partially offset by the benefit of a higher guest check. Commodity inflation was 13.9% and 7.4% for Q3 2021 and 2021 YTD, respectively, primarily driven by higher beef costs. For 2021, we currently expect commodity cost inflation to be approximately 10% with prices locked for approximately 70% of our remaining forecasted costs and the remainder subject to floating market prices. For 2022, we currently expect commodity cost inflation in the high teens in the first half of the year with prices locked for approximately 30% of our forecasted costs and the remainder subject to floating market prices. Restaurant Labor Expenses. Restaurant labor expenses, as a percentage of restaurant and other sales, decreased to 33.2% in Q3 2021 compared to 34.7% in Q3 2020 and decreased to 32.7% in 2021 YTD compared to 37.4% in 2020 YTD. The decrease was primarily due to an increase in average unit volumes as well as several items related to 2020 including labor inefficiencies as we converted to our hybrid operating model, relief payments and increased benefits provided to our hourly employees. In 2021, the benefit of a higher guest check amount also contributed to the decrease. These decreases were partially offset by higher wage rates primarily due to labor market pressures along with increases in state-mandated minimum and tipped wage rates, the impact of employee retention payroll tax credits in the prior year, and an increase in workers' compensation expense. In Q3 2021 and 2021 YTD, we incurred costs of$0.3 million and$3.7 million , respectively, for relief pay and enhanced benefits for our restaurant-level managers and hourly employees. This compared to$1.8 million and$17.2 million in Q3 2020 and 2020 YTD, respectively, for relief pay and enhanced benefits
for our hourly employees.
In Q3 2020, we recognized employee retention payroll tax credits of
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in Q3 2021 as we no longer qualify for these credits. In 2021 YTD, we recognized
employee retention payroll tax credits of
The increase in workers' compensation expense was due to changes in our claims development history included in our quarterly actuarial reserve estimate that resulted in an unfavorable adjustment of$1.1 million in Q3 2021. This compared to a favorable adjustment of$1.8 million in Q3 2020. In 2022, we anticipate our labor costs will continue to be pressured by wage and other inflation of approximately 6% driven by labor market pressures, increases in state-mandated minimum and tipped wage rates, and increased investment in our people. Restaurant Rent Expense. Restaurant rent expense, as a percentage of restaurant and other sales, decreased to 1.7% in Q3 2021 compared to 2.2% in Q3 2020 and decreased to 1.7% in 2021 YTD compared to 2.3% in 2020 YTD. The decrease was due to the increase in average unit volumes 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, decreased to 14.8% in Q3 2021 compared to 16.4% in Q3 2020 and decreased to 15.2% in 2021 YTD compared to 17.0% in 2020 YTD. The decrease was primarily due to the increase in average unit volumes, lower to-go supplies, and lower general liability insurance expense. The lower supplies expense was due to the prior year periods having significantly higher to-go sales due to the closure of our dining rooms. The decrease in general liability insurance expense was due to changes in our claims development history included in our quarterly actuarial reserve estimate that resulted in a favorable adjustment of$3.2 million in Q3 2021. This compared to an unfavorable adjustment of$1.4 million in Q3 2020. In addition, due to the significant increase in our average unit volumes, expenses that are largely fixed, including utilities, property taxes, and other outside services decreased as a percentage of restaurant and other sales. Pre-opening Expenses. Pre-opening expenses increased to$6.7 million in Q3 2021 compared to$4.9 million in Q3 2020 and increased to$17.3 million in 2021 YTD compared to$14.3 million in 2020 YTD. The increase was primarily due to the timing and number of restaurant openings as well as a slight increase in average pre-opening expenses incurred. Pre-opening costs will fluctuate from quarter to quarter based on the specific 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. D&A, as a percentage of total revenue, decreased to 3.6% in Q3 2021 compared to 4.7% in Q3 2020 and decreased to 3.7% in 2021 YTD compared to 5.0% in 2020 YTD. The decrease was primarily due to an increase in average unit volumes partially offset by higher depreciation at
new restaurants. Impairment and Closure Costs, Net. Impairment and closure costs, net was not significant in Q3 2021 compared to$0.7 million in Q3 2020 and was$0.6 million in 2021 YTD compared to$0.9 million in 2020 YTD. For 2021 and 2020 YTD, impairment and closure costs, net included the impairment of land and building at a site that was relocated and is currently classified as assets held for sale. For 2020 YTD, impairment and closure costs, net also includes the impairment of the operating lease right-of-use assets for one restaurant that was relocated.
General and Administrative Expenses. G&A, as a percentage of total revenue, increased to 4.7% in Q3 2021 compared to 4.1% in Q3 2020 and decreased to 4.5% in 2021 YTD compared to 5.0% in 2020 YTD. The increase in Q3 2021 was primarily due to higher incentive and performance-based compensation costs, the prior year favorable impact of the sale of a legal claim for$3.0 million , higher managing partner conference costs, and higher travel costs. These increases were partially offset by an increase in average unit volumes. Higher incentive and performance-based compensation costs were due to the increase in profitability. In Q3 2021, we incurred costs of$2.9 million for our annual managing partner conference which was not held in 2020. The decrease in 2021 YTD was primarily due to the increase in average unit volumes partially offset by higher incentive and performance-based compensation costs, lapping the prior year impact of the sale of a legal claim, and higher managing partner conference costs. 26 Table of Contents Interest Expense, Net. Interest expense, net was$0.6 million and$1.5 million in Q3 2021 and Q3 2020, respectively, and was$3.0 million and$2.6 million in 2021 YTD and 2020 YTD, respectively. The decrease in interest expense, net in Q3 2021 was primarily due to lower interest rates and the repayment of our incremental revolving credit facility in Q2 2021. The increase in interest expense, net in the 2021 YTD period was primarily driven by additional borrowings on our credit facility inMarch 2020 along with reduced earnings on our cash and cash equivalents. Equity Income (Loss) from Unconsolidated Affiliates. Equity income was$0.3 million in Q3 2021 and was not significant in Q3 2020. Equity income was$0.3 million in 2021 YTD compared to an equity loss of$0.6 million in 2020 YTD. The increase in both periods is due to increased profitability from our unconsolidated affiliates. For the YTD periods these increases were offset by impairment charges related to our investment in a foreign joint venture that were recorded in both Q1 2021 and Q1 2020. Income Tax Expense (Benefit). Our effective tax rate increased to 11.6% in Q3 2021 compared to 9.2% in Q3 2020. Our effective tax rate was 13.5% in 2021 YTD and the 2020 YTD effective tax rate was not meaningful due to the impact of tax credits on near break-even pre-tax income. The increase in both periods was primarily due to the significant increase in pre-tax income. In 2020 YTD, our FICA tip and Work opportunity tax credits exceeded our federal tax liability which resulted in a tax rate benefit. For 2022, we expect our effective tax rate to be approximately 15%, excluding the impact of any legislative changes enacted.
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):
39 Weeks Ended
September 28, 2021 September 29, 2020 Net cash provided by operating activities $ 348,709 $ 146,035 Net cash used in investing activities (133,413) (115,322) Net cash (used in) provided by financing activities (141,888) 190,044 Net increase in cash and cash equivalents $ 73,408
$ 220,757 Net cash provided by operating activities was$348.7 million in 2021 YTD compared to$146.0 million in 2020 YTD. This increase was primarily due to an increase in net income and an increase in deferred income taxes. These changes were primarily due to our operations stabilizing compared to the prior year period. These increases were partially offset by our working capital being negatively impacted by the remittance of our deferred payroll tax liability of$24.3 million related to the CARES Act. 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$133.4 million in 2021 YTD compared to$115.3 million in 2020 YTD. The increase was due to an increase in capital expenditures, primarily driven by an increase in new company restaurants and an increase in refurbishments of existing restaurants. This was due to the delay in our development schedule in 2020 due to the pandemic. This increase was partially offset by fewer expenditures related to relocation sites. We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants and the acquisition of franchise restaurants, if any. We either lease our restaurant site locations under operating leases for periods of five to 30 years (including renewal periods) or purchase the land when appropriate. As ofSeptember 28, 2021 , we had developed 148 of the 555 company restaurants on land that we own. 27 Table of Contents The following table presents a summary of capital expenditures (in thousands): 2021 YTD 2020 YTD New company restaurants$ 79,200 $ 55,081
Refurbishment or expansion of existing restaurants 50,154 37,222 Relocation of existing restaurants
5,880 17,381
Capital expenditures related to Support Center office 3,767 7,837 Total capital expenditures
$ 139,001 $ 117,521
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 2021, we expect our capital expenditures to be approximately$200.0 million and we currently plan to open 26 to 29 restaurants across all concepts. 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 amended credit facility. For 2021, net cash provided by operating activities will exceed capital expenditures, which we plan to use, along with cash on hand, to pay dividends and repurchase common stock. As ofSeptember 28, 2021 , the estimated cost of completing capital project commitments over the next 12 months was approximately$122.6 million . See note 6 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations. Net cash used in financing activities was$141.9 million in 2021 YTD compared to net cash provided by financing activities of$190.0 million in 2020 YTD. The decrease is primarily due to the change in borrowings under our revolving credit facility and an increase in dividends paid due to the reinstatement of our quarterly dividend payment.
In 2021 YTD, we refinanced our revolving credit facility and repaid
OnApril 28, 2021 , our Board of Directors reinstated the payment of a quarterly cash dividend of$0.40 per share of common stock which was distributed onJune 4, 2021 . This was the first dividend since the Board of Directors voted to suspend the payment of quarterly cash dividends at the onset of the pandemic. OnAugust 12, 2021 , our Board of Directors authorized the payment of a quarterly cash dividend of$0.40 per share of common stock which was distributed onSeptember 24, 2021 . The payment of these dividends totaled$55.8 million in 2021 YTD. Prior to this suspension, the last dividend was authorized onFebruary 20, 2020 and was$0.36 per share of common stock. The payment of this dividend totaling$25.0 million was distributed onMarch 27, 2020 . OnMay 31, 2019 , our Board of Directors approved a stock repurchase program under which we may repurchase up to$250.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved onMay 22, 2014 . All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases will be determined by management under parameters established by the Board of Directors, based on an evaluation of our stock price, market conditions and other corporate considerations. OnAugust 2, 2021 , the Company resumed the share repurchase program. During 2021 YTD, we paid$14.7 million to repurchase 161,034 shares of our common stock. As ofSeptember 28, 2021 ,$133.1 million remains authorized for stock repurchases. We paid distributions of$6.4 million to equity holders of 19 of our 20 majority-owned company restaurants in 2021 YTD. We paid distributions of$2.1 million to equity holders of all 20 majority-owned company restaurants in 2020 YTD.
On
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remains 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 amendment also extended the maturity date toMay 1, 2026 . Prior to the amendment, our original revolving credit facility had a borrowing capacity of up to$200.0 million with the option to increase by an additional$200.0 million subject to certain limitations, including approval by the syndicate of lenders. OnMay 11, 2020 , we amended the original revolving credit facility to provide for an incremental revolving credit facility of up to$82.5 million . This amount reduced the additional$200.0 million that was available under the original revolving credit facility. As ofMay 4, 2021 , before the amendment, we had$190.0 million outstanding on the original revolving credit facility and$50.0 million outstanding on the incremental revolving credit facility. As part of the amendment, the$190.0 million remained outstanding on the amended revolving credit facility and the$50.0 million was repaid. The terms of the amendment 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 revolving credit facility, in each case depending on our leverage ratio. The amendment also provides an Alternate Base Rate that may be substituted for LIBOR.
As of
As ofDecember 29, 2020 , we had$190.0 million outstanding on the original revolving credit facility which is included as long-term debt on our unaudited condensed consolidated balance sheet. In addition, we had$50.0 million outstanding on the incremental revolving credit facility which is included as current maturities of long-term debt on our unaudited condensed consolidated balance sheet.
The weighted-average interest rate for the
The lenders' obligation to extend credit pursuant to the revolving credit
facility depends on us maintaining certain financial covenants. We were in
compliance with all financial covenants as of
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Guarantees
As ofSeptember 28, 2021 andDecember 29, 2020 , we are contingently liable for$12.4 million and$13.0 million , respectively, for seven lease guarantees, listed in the table below. 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 ofSeptember 28, 2021 andDecember 29, 2020 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not
considered significant.
Lease Current Lease
Assignment Date Term Expiration
Everett, Massachusetts (1) September 2002 February 2023
Longmont, Colorado (1) October 2003 May 2029
Montgomeryville, Pennsylvania (1) October 2004 March 2026
Fargo, North Dakota (1) February 2006 July 2026
Logan, Utah (1) January 2009 August 2024
Irving, Texas (2) December 2013 December 2024
Louisville, Kentucky (2)(3) December 2013 November 2023
Real estate lease agreements for restaurant locations which we entered into (1) before granting franchise rights to those restaurants. We have subsequently
assigned the leases to the franchisees, but remain contingently liable under
the terms of the lease if the franchisee defaults.
Leases associated with non-
the terms of the lease if the acquirer defaults.
(3) We may be released from liability after the initial contractual lease term
expiration contingent upon certain conditions being met by the acquirer.
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