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 28, 2021 , 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.
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 firstTexas Roadhouse restaurant inClarksville, Indiana . Since then, we have grown to three restaurant concepts with 678 restaurants in 49 states and ten foreign countries. As ofJune 28, 2022 , our 678 restaurants included:
582 "company restaurants," of which 562 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
582 restaurants we owned as ofJune 28, 2022 , we operated 541 asTexas Roadhouse restaurants, 37 as Bubba's 33 restaurants and four as Jaggers restaurants. 96 "franchise restaurants," 23 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 23 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 96 franchise restaurants, 62 were domestic restaurants and
34 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 58 of the 62 domestic franchise restaurants.
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Throughout this report, we use the term "restaurants" to include
Presentation of Financial and Operating Data
Throughout this report, the 13 weeks endedJune 28, 2022 , andJune 29, 2021 , are referred to as Q2 2022 and Q2 2021, respectively. The 26 weeks endedJune 28, 2022 andJune 29, 2021 are referred to as 2022 YTD and 2021 YTD, respectively. Fiscal years 2022 and 2021 will be 52 weeks in length, while the quarters for the year will be 13 weeks in length.
COVID-19 and Other Economic Impacts
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 limited capacity or seating in the dining rooms while others allowed to-go or curbside service only. As ofJune 28, 2022 , all of our domestic company and franchise locations were operating without restriction. As ofJune 29, 2021 , nearly all of our domestic company and franchise locations were operating without restriction. As a result of a significant increase in sales, the lingering impact of the pandemic and other supply constraints, we have experienced and expect to continue to experience commodity inflation and certain food and supply shortages. The commodity inflation, with higher costs across the basket, is mostly due to increased demand and increased costs incurred by our vendors related to higher labor, transportation, packaging and raw material 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. 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 due to an increasingly competitive job market throughout the country. To the extent these challenges persist, we could continue to experience increased labor costs and/or decreased sales. As a result of the pandemic, legislation referred to as the Coronavirus Aid, Relief, and Economic Security 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 2021 and$23.0 million is required to be repaid at the end of 2022. The amount due in 2022 is included in accrued wages and payroll taxes in our unaudited condensed consolidated balance sheets.
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 to a current prototypical design, construct a larger building with more seats and greater number of available parking spaces, accommodate increased to-go sales 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 18 Table of Contents
addition, we continue to execute and pursue opportunities to acquire domestic franchise locations to expand our company restaurant base.
In 2022 YTD, eight company restaurants, including one Bubba's 33, were opened and our franchise partners opened three international restaurants. We currently plan to open approximately 25Texas Roadhouse and Bubba's 33 company restaurants in 2022. We currently expect our franchise partners will open as many as sevenTexas Roadhouse restaurants, primarily international, in 2022.
In 2022 YTD, we completed the acquisition of eight domestic franchise
Our average capital investment for the 23Texas Roadhouse restaurants opened during 2021, including pre-opening expenses and a capitalized rent factor, was$5.7 million . We expect our average capital investment forTexas Roadhouse restaurants opening in 2022 to be approximately$6.6 million with the increase over 2021 due to a larger building prototype and higher supply costs. Our average capital investment for the five Bubba's 33 restaurants opened during 2021, including pre-opening expenses and a capitalized rent factor, was$7.4 million . We expect our average capital investment for Bubba's 33 restaurants opening in 2022 to be approximately$7.7 million with the increase over 2021 due to higher supply costs. In addition, we continue to experience delays in acquiring restaurant equipment and supplies that could result in delayed store openings. 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 ofJune 28, 2022 , we had 15 restaurants in five countries in theMiddle East , five inthe Philippines , five inTaiwan , five inSouth Korea , three inMexico and one inChina for a total of 34 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 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. In 2021, we entered into our first area development agreements for Jaggers, our fast-casual concept. These agreements allow for the development and operation of restaurants in specific territories inTexas ,Oklahoma andNorth Carolina . As part of these agreements, the franchisees are required to pay us a franchise fee for each restaurant to be opened, royalties on the sales of each restaurant and a development fee for our grant of development rights in the named territories. We currently expect our first Jaggers franchise restaurant to open as early as Q4 2022. 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 19
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guests and increase the frequency of visits of our existing guests, we continue to drive various localized marketing programs, focus on speed of service, increase throughput by adding seats and parking at certain restaurants and continue to enhance the guest digital experience. In addition, with the increase in sales, we have made changes to our building layout and size to better accommodate higher volumes at our restaurants. 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. 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 similar to those available in our restaurants. This non-royalty-based product launched in late 2020. We also further expanded our retail business in 2021 with the introduction of our non-alcoholicMargarita Mixer , and our canned cocktailMargarita Seltzer , which rolled out 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 across all critical functions, 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 (the "Board") declared our first quarterly dividend of$0.08 per share of common stock which has consistently grown over time. The payment of a quarterly dividend was suspended in 2020 to preserve cash flow due to the pandemic. OnApril 28, 2021 , the Board reinstated the payment of a quarterly cash dividend of$0.40 per share of common stock. OnMay 12, 2022 , the Board declared a quarterly cash dividend of$0.46 per share of common stock representing a 15% increase compared to the quarterly dividend declared in the prior year period.
The declaration and payment of cash dividends on our common stock is at the discretion of the Board, 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 amended revolving credit facility, other contractual restrictions and other factors deemed relevant.
In 2008, the Board approved our first stock repurchase program. From inception throughJune 28, 2022 , we have paid$633.5 million through our authorized stock repurchase programs to repurchase 21,041,442 shares of our common stock at an average price per share of$30.11 . OnMarch 17, 2022 , 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 onMay 31, 2019 that authorized the Company to repurchase up to$250.0 million of our common stock. All repurchases to date have been made through open market transactions. The Company suspended all share repurchase activity in 2020 in order to preserve cash flow due to the pandemic. OnAugust 2, 2021 , the Company resumed the repurchase of shares and in 2022 YTD paid$212.9 million to repurchase 2,734,005 shares of common stock. This includes$133.1 million repurchased under our current authorized stock repurchase program and$79.7 million repurchased under our prior authorization. As ofJune 28, 2022 ,$166.9 million remained authorized for stock repurchases.
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
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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 all company restaurants 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 forTexas 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. Store weeks represent the number of weeks that all company restaurants, unless otherwise noted, 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.
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. These 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.
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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.
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 from Unconsolidated Affiliates. Equity income includes our
percentage share of net income earned by unconsolidated affiliates and our share
of any gain on the acquisition of these affiliates. As of June 28, 2022 and June
29, 2021 , we owned a 5.0% to 10.0% equity interest in 23 and 24 domestic
franchise restaurants, respectively. Additionally, as of June 29, 2021 , we owned
a 40% equity interest in three non-Texas Roadhouse restaurants as part of a
joint venture agreement with a casual dining restaurant operator in China . We
fully impaired our equity investment related to this joint venture in late
2021
as these restaurants closed.
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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.
Q2 2022 Financial Highlights
Total revenue increased$125.8 million or 14.0% to$1,024.6 million in Q2 2022 compared to$898.8 million in Q2 2021 primarily due to an increase in average unit volume driven by comparable restaurant sales growth, along with an increase in store weeks. Store weeks and comparable restaurant sales increased 6.4% and 7.6%, respectively, at company restaurants in Q2 2022 compared to Q2 2021. 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 increases in our per person average check. Restaurant margin dollars increased$10.5 million or 6.6% to$168.7 million in Q2 2022 compared to$158.2 million in Q2 2021. Restaurant margin, as a percentage of restaurant and other sales, decreased to 16.6% in Q2 2022 compared to 17.7% in Q2 2021. The decrease in restaurant margin, as a percentage of restaurant and other sales, was due to commodity and labor inflation partially offset by higher sales. Net income decreased$3.1 million or 4.1% to$72.4 million in Q2 2022 compared to$75.5 million in Q2 2021 primarily due to higher general and administrative expenses driven by the timing of our annual managing partner conference partially offset by higher restaurant margin dollars. Diluted earnings per share decreased 0.8% to$1.07 in Q2 2022 from$1.08 in Q2 2021 due to the decrease in net income partially offset by the benefit of share repurchases. 23 Table of Contents Results of Operations 13 Weeks Ended 26 Weeks Ended June 28, 2022 June 29, 2021 June 28, 2022 June 29, 2021 $ % $ % $ % $ % (In thousands) (In thousands) Consolidated Statements of Income: Revenue: Restaurant and other sales 1,018,057 99.4 892,444 99.3 1,999,029 99.4 1,687,367 99.3 Franchise royalties and fees 6,549 0.6 6,344 0.7 13,063 0.6 12,050 0.7 Total revenue 1,024,606 100.0 898,788 100.0 2,012,092
100.0 1,699,417 100.0 Costs and expenses: (As a percentage of restaurant and other sales) Restaurant operating costs (excluding depreciation and amortization shown separately below): Food and beverage 347,041 34.1 295,504 33.1 684,437 34.2 546,986 32.4 Labor 333,042 32.7 288,147 32.3 654,913 32.8 546,183 32.4 Rent 16,714 1.6 14,956 1.7 33,082 1.7 29,408 1.7 Other operating 152,524 15.0 135,606 15.2 296,678 14.8 258,985 15.3 (As a percentage of total revenue) Pre-opening 5,323 0.5 6,319 0.7 9,614 0.5 10,587 0.6 Depreciation and amortization 34,420 3.4 31,650 3.5 68,040 3.4 62,519 3.7 Impairment and closure, net 411 NM 17 NM (235) NM 521 NM General and administrative 49,213 4.8 36,861 4.1 89,507 4.4 73,573 4.3 Total costs and expenses 938,688 91.6 809,060 90.0 1,836,036 91.3 1,528,762 90.0 Income from operations 85,918 8.4 89,728 10.0 176,056 8.7 170,655 10.0 Interest expense, net 395 NM 975 0.1 792 0.0 2,435 0.1 Equity income from investments in unconsolidated affiliates 545 NM 239 NM 879 NM 22 NM Income before taxes 86,068 8.4 88,992 9.9 176,143 8.8 168,242 9.9 Income tax expense 11,531 1.1 11,067 1.2 24,278 1.2 23,887 1.4 Net income including noncontrolling interests 74,537 7.3 77,925 8.7 151,865 7.5 144,355 8.5 Net income attributable to noncontrolling interests 2,118 0.2 2,445 0.3 4,244 0.2 4,725 0.3 Net income attributable toTexas Roadhouse, Inc. and subsidiaries 72,419 7.1 75,480 8.4 147,621 7.3 139,630 8.2 NM - Not meaningful 24 Table of Contents
Reconciliation of Income from Operations to Restaurant Margin
(in thousands)
13 Weeks Ended 26 Weeks Ended
June 28, 2022 June 29, 2021 June 28, 2022 June 29, 2021
Income from operations $ 85,918 $ 89,728 $ 176,056 $
170,655
Less:
Franchise royalties and fees 6,549
6,344 13,063 12,050
Add:
Pre-opening 5,323 6,319 9,614 10,587Depreciation and amortization 34,420 31,650 68,040 62,519 Impairment and closure, net 411 17 (235) 521 General and administrative 49,213
36,861 89,507 73,573
Restaurant margin $ 168,736 $ 158,231 $ 329,919 $ 305,805
Restaurant margin $/store week $ 22,390 $ 22,333 $ 22,006 $
21,719
Restaurant margin (as a percentage of restaurant and other sales) 16.6% 17.7% 16.5%
18.1%
See above for the definition of restaurant margin.
Restaurant Unit Activity
Total Texas Roadhouse Bubba's 33 Jaggers
Balance at December 28, 2021 667 627 36 4
Company openings 8 7 1 -
Company closings - - - -
Franchise openings - Domestic - - - -Franchise openings - International 3 3 -
-
Franchise closings - - - -
Balance at June 28, 2022 678 637 37 4
June 28, 2022 June 29, 2021
Company - Texas Roadhouse 541 511
Company - Bubba's 33 37 34
Company - Jaggers 4 3
Franchise - Texas Roadhouse - U.S. 62 69
Franchise - Texas Roadhouse - International 34 30
Total 678 647
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Q2 2022 compared to Q2 2021 and 2022 YTD compared to 2021 YTD
Restaurant and Other Sales. Restaurant and other sales increased by 14.1% in Q2
2022 compared to Q2 2021 and 18.5% in 2022 YTD compared to 2021 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.
Q2 2022 Q2 2021 2022 YTD 2021 YTD
Company Restaurants :
Increase in store weeks 6.4 % 5.1 % 6.5 % 4.6 %
Increase in average unit volume(1) 7.4 % 78.7 % 11.3 % 43.3 %
Other(2) 0.2 % 5.3 % 0.7 % 2.7 %
Total increase in restaurant sales 14.0 % 89.1 % 18.5 % 50.6 %
Other sales 0.1 % (0.5) % - % 0.0 %
Total increase in restaurant and other sales 14.1% 88.6 % 18.5 % 50.6 % Store weeks 7,536 7,085 14,992 14,080 Comparable restaurant sales 7.6 % 80.2 % 11.7 % 44.5 %Texas Roadhouse restaurants: Store weeks 7,006 6,617 13,942 13,167 Comparable restaurant sales 7.6 % 79.0 % 11.5 % 43.9 %
Average unit volume (in thousands)$ 1,786
Weekly sales by group: Comparable restaurants (503, 476, 499 and 473 units)$ 137,599 $ 128,716 $ 136,096 $ 122,814 Average unit volume restaurants (22, 19, 20 and 18 units)$ 132,222 $ 110,459 $ 130,576 $ 103,471 Restaurants less than six months old (16, 16, 22 and 20 units)$ 145,756
$ 134,822 $ 139,534 $ 125,049 Bubba's 33 restaurants: Store weeks 478 429 946 835 Comparable restaurant sales 8.1 % 115.4 % 14.3 % 60.9 %
Average unit volume (in thousands)$ 1,475
Weekly sales by group: Comparable restaurants (31, 26, 30 and 25 units)$ 110,740 $ 106,675 $ 109,896 $ 99,459 Average unit volume restaurants (4, 5, 4 and 5 units)$ 134,386 $ 80,685 $ 111,997 $ 79,603 Restaurants less than six months old (2, 3, 3 and 4 units)$ 128,134
Average unit volume includes restaurants open a full six and up to 18 months (1) before the beginning of the period measured, excluding sales from restaurants
permanently closed during the period, if applicable.
Includes the impact of the year-over-year change in sales volume of all
(2) Jaggers restaurants, along with
open less than six months before the beginning of the period measured and, if
applicable, the impact of restaurants permanently closed during the period.
The increase in restaurant sales for Q2 2022 and 2022 YTD is primarily due to an
increase in average unit volume, driven by an increase in comparable restaurant
sales, along with an increase in store weeks driven by the opening of new
restaurants and the acquisition of franchise restaurants. Comparable restaurant
sales growth for both periods presented was driven primarily by increases in our
per person average check as shown in the table below.
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Q2 2022 Q2 2021 2022 YTD 2021 YTD
Guest traffic counts (0.8) % 58.6 % 3.0 % 32.0 %
Per person average check 8.4 % 21.6 % 8.7 % 12.5 %Comparable restaurant sales growth 7.6 % 80.2 % 11.7 %
44.5 %
The decrease in Q2 2022 guest traffic counts was due to a decrease in to-go sales partially offset by an increase in dining room sales. The increase in 2022 YTD guest traffic counts was primarily driven by all of our company locations operating without capacity restrictions for the entire 2022 YTD period. As ofJune 29, 2021 , nearly all of our company locations were operating without restriction. To-go sales as a percentage of restaurant sales were 13.1% for Q2 2022 and 13.9% for 2022 YTD compared to 16.9% for Q2 2021 and 19.5% for 2021 YTD.
Per person average check includes the benefit of menu price increases of
approximately 3.2% implemented in
In 2022 YTD, we opened eight company restaurants and acquired eight franchise
restaurants. As of
Other sales primarily represent the net impact of the amortization of third party gift card fees and gift card breakage income. The unfavorable impact was$3.5 million and$3.4 million in Q2 2022 and Q2 2021, respectively, and was$8.6 million and$7.3 million in 2022 YTD and 2021 YTD, respectively. The change in both periods is due to higher amortization of third party fees due to the increase in sales through our third party gift card program, partially offset by higher breakage income. Franchise Royalties and Fees. Franchise royalties and fees increased by$0.2 million , or by 3.2%, in Q2 2022 compared to Q2 2021 and increased by$1.0 million , or by 8.4%, in 2022 YTD compared to 2021 YTD. The increase in both periods was due to higher average unit volume, driven by comparable restaurant sales growth. Franchise comparable restaurant sales increased 8.7% and 13.8% in Q2 2022 and 2022 YTD, respectively. These increases were partially offset by decreased royalties related to the eight franchise restaurants that were acquired.
In 2022 YTD, our existing franchise partners opened three
Food and Beverage Costs. Food and beverage costs, as a percentage of restaurant and other sales, increased to 34.1% in Q2 2022 compared to 33.1% in Q2 2021 and increased to 34.2% in 2022 YTD compared to 32.4% in 2021 YTD. The increase in both periods was primarily due to commodity inflation partially offset by the benefit of a higher guest check. Commodity inflation was 11.8% and 14.4% in Q2 2022 and 2022 YTD, respectively, with higher costs across the basket. For 2022, we currently expect commodity inflation of approximately 12% for the year with prices locked for approximately 45% of our remaining forecasted costs and the remainder subject to floating market prices. Restaurant Labor Expenses. Restaurant labor expenses, as a percentage of restaurant and other sales, increased to 32.7% in Q2 2022 compared to 32.3% in Q2 2021 and increased to 32.8% in 2022 YTD compared to 32.4% in 2021 YTD. The increase in both periods was primarily due to higher wage and benefit expense driven by labor market pressures along with increases in state-mandated minimum and tipped wage rates and increased investment in our people. In addition, a higher mix of dining room sales versus to-go sales also contributed to the increase. The increases in both periods were partially offset by the benefit of a higher guest check. We also benefited from a decrease in group insurance and workers' compensation expense due to favorable claims experience of$1.6 million and$3.4 million in Q2 2022 and 2022 YTD, respectively. 27
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For 2022, we anticipate our labor costs will be pressured by wage and other inflation of approximately 8% 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 1.6% in Q2 2022 compared to 1.7% in Q2 2021 and remained flat at 1.7% in 2022 YTD compared to 2021 YTD. The decrease was due to the increase in average unit volume 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 15.0% in Q2 2022 compared to 15.2% in Q2 2021 and decreased to 14.8% in 2022 YTD compared to 15.3% in 2021 YTD. The decrease in both periods was primarily due to the increase in average unit volume and lower supplies and bonus expense partially offset by higher credit card charges and repair and maintenance costs. Pre-opening Expenses. Pre-opening expenses were$5.3 million in Q2 2022 compared to$6.3 million in Q2 2021 and$9.6 million in 2022 YTD compared to$10.6 million in 2021 YTD. 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 3.4% in Q2 2022 compared to 3.5% in Q2 2021 and decreased to 3.4% in 2022 YTD compared to 3.7% in 2021 YTD. The decrease in both periods was primarily due to the increase in average unit volume partially offset by higher depreciation at new restaurants and increased amortization of intangible assets. Impairment and Closure Costs, Net. Impairment and closure costs, net was$0.4 million in Q2 2022 and was not significant in Q2 2021 and was($0.2) million in 2022 YTD and$0.5 million in 2021 YTD. For Q2 2022, impairment and closure costs, net included the impairment of an operating lease right-of-use asset at a restaurant that is currently scheduled to be relocated in Q3 2022. For 2022 YTD, impairment and closure costs, net included this impairment as well as a gain of$0.7 million associated with the sale of land and building that was previously classified as assets held for sale. For 2021 YTD, impairment and closure costs, net included the impairment of land and building at a site that was relocated and was classified as assets held for sale. General and Administrative Expenses. G&A, as a percentage of total revenue, increased to 4.8% in Q2 2022 compared to 4.1% in Q2 2021 and increased to 4.4% in 2022 YTD compared to 4.3% in 2021 YTD. Total G&A expense was$49.2 million and$36.9 million in Q2 2022 and Q1 2022, respectively, and was$89.5 million and$73.6 million in 2022 YTD and 2021 YTD, respectively. The increase in both periods was primarily driven by the timing of our annual managing partner conference partially offset by the increase in average unit volume and lower legal settlement expense. Managing partner conference expense totaled$8.0 million and was held in Q2 2022 as compared to Q3 2021. Interest Expense, Net. Interest expense, net was$0.4 million and$1.0 million in Q2 2022 and Q2 2021, respectively, and was$0.8 million and$2.4 million in 2022 YTD and 2021 YTD, respectively. The decrease in both periods was primarily driven by decreased borrowings on our amended revolving credit facility. Equity Income from Unconsolidated Affiliates. Equity income was$0.5 million in Q2 2022 compared to$0.2 million in Q2 2021. Equity income was$0.9 million in 2022 YTD and was not significant in 2021 YTD. The increase in both periods is due to increased profitability from our unconsolidated affiliates and the gain on the acquisition of one of these affiliates. The YTD fluctuation was partially offset due to an impairment charge of$0.5 million recorded in Q1 2021 related to our investment in a joint venture inChina . Income Tax Expense. Our effective tax rate increased to 13.4% in Q2 2022 compared to 12.4% in Q2 2021 primarily due to a reduction in the tax benefit for stock compensation partially offset by an increase in the FICA Tip and Work Opportunity tax credits. Our effective tax rate decreased to 13.8% in 2022 YTD compared to 14.2% in 2021 YTD primarily due to an increase in FICA Tip and Work Opportunity tax credits partially offset by a reduction in the tax 28
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benefit for stock compensation. For 2022, we expect our effective tax rate to be approximately 14%, excluding the impact of any legislative changes enacted.
Segment Information
We manage our restaurant and franchising operations by concept and as a result have identifiedTexas Roadhouse , Bubba's 33, Jaggers, and our retail initiatives as separate operating segments. Our reportable segments areTexas Roadhouse and Bubba's 33. TheTexas Roadhouse reportable segment includes the results of our domestic companyTexas Roadhouse restaurants and domestic and international franchiseTexas 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 Jaggers restaurants and the results of our retail initiatives, are included in Other. Management uses restaurant margin as the 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. 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
June 28, 2022 June 29, 2021
Texas Roadhouse $ 161,051 16.8 % $ 149,227 17.7 %
Bubba's 33 7,575 13.9 8,542 18.9
Other 110 3.3 462 16.8
Total $ 168,736 16.6 % $ 158,231 17.7 %
26 Weeks Ended
June 28, 2022 June 29, 2021
Texas Roadhouse $ 314,518 16.7 % $ 290,339 18.1 %
Bubba's 33 15,368 14.5 14,545 18.0
Other 33 0.5 921 17.1
Total $ 329,919 16.5 % $ 305,805 18.1 %
The increase in Texas Roadhouse restaurant margin dollars is driven by an
increase in restaurant sales partially offset by commodity and labor inflation.
The increase in restaurant sales is primarily attributable to an increase in
average unit volume, driven by an increase in comparable restaurant sales, along
within an increase in store weeks. The decrease in Bubba's 33 restaurant margin
dollars is driven by increased commodity and labor inflation partially offset by
an increase in average unit volume.
The decrease in restaurant margin, as a percentage of restaurant and other
sales, for the Texas Roadhouse and Bubba's 33 segments is primarily driven by
the impact of commodity and labor inflation partially offset by the benefit of
an increase in comparable restaurant sales.
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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):
26 Weeks Ended
June 28, 2022 June 29, 2021
Net cash provided by operating activities $ 298,703 $ 296,846
Net cash used in investing activities (139,132)
(81,783)
Net cash used in financing activities (314,805)
(94,799)
Net (decrease) increase in cash and cash equivalents$ (155,234) $
120,264
Net cash provided by operating activities was$298.7 million in 2022 YTD compared to$296.8 million in 2021 YTD. This increase was primarily due to an increase in net income and non-cash items such as depreciation and amortization. This was partially offset by decreases in working capital. 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$139.1 million in 2022 YTD compared to$81.8 million in 2021 YTD. The increase was due to the acquisition of eight franchise restaurants for a net purchase price of$33.1 million as well as an increase in capital expenditures, driven by an increase in new company restaurants and refurbishments and relocations of existing restaurants. We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants and the acquisition of franchise restaurants, if any. We either lease our restaurant site locations under operating leases for periods of five to 30 years (including renewal periods) or purchase the land when appropriate. As ofJune 28, 2022 , we had developed 148 of the 582 company restaurants on land that we own. The following table presents a summary of capital expenditures (in thousands): 26 Weeks Ended June 28, 2022 June 29, 2021 New company restaurants$ 61,425 $ 48,282
Refurbishment or expansion of existing restaurants 38,067
29,712
Relocation of existing restaurants 7,724 4,694 Capital expenditures related to Support Center office 1,351
2,380
Total capital expenditures $ 108,567 $ 85,068 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 2022, we expect our capital expenditures to be approximately$230.0 million and we currently plan to open approximately 25Texas Roadhouse and Bubba's 33 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 amended revolving credit facility. For 2022, net cash provided by operating activities should exceed capital expenditures, which we plan to use, along with cash on hand, to pay dividends, repurchase common stock, pay down our amended revolving credit facility and acquire franchise restaurants, if applicable. As ofJune 28, 2022 , the estimated cost of completing capital project commitments over the next 12 months was approximately$169.2 million . See note 6 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations. 30 Table of Contents Net cash used in financing activities was$314.8 million in 2022 YTD compared to$94.8 million in 2021 YTD. The increase is primarily due to the resumption of share repurchases and the reinstatement of our quarterly dividend payment partially offset by a decrease in repayments made on our amended revolving credit facility. OnAugust 2, 2021 , the Company resumed the share repurchase program that had been suspended at the onset of the pandemic. OnMarch 17, 2022 , 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 onMay 31, 2019 . 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, based on an evaluation of our stock price, market conditions and other corporate considerations. During 2022 YTD, we paid$212.9 million to repurchase 2,734,005 shares of our common stock. This includes$133.1 million repurchased under our current authorized stock repurchase program and$79.7 million repurchased under our prior authorization. As ofJune 28, 2022 ,$166.9 million remained authorized for stock repurchases. OnApril 28, 2021 , the Board reinstated the payment of a quarterly cash dividend. This was the first dividend since the Board voted to suspend the payment of quarterly cash dividends at the onset of the pandemic. OnFebruary 17, 2022 , our Board authorized the payment of a quarterly cash dividend of$0.46 per share of common stock. The payment of these quarterly dividends totaled$62.5 million and$27.9 million in 2022 YTD and 2021 YTD, respectively. We paid distributions of$4.1 million to equity holders of 19 of our 20 majority-owned company restaurants in 2022 YTD. We paid distributions of$4.4 million to equity holders of 18 of our 20 majority-owned company restaurants in 2021 YTD. OnMay 4, 2021 , we entered into an agreement to amend our revolving credit facility with a syndicate of commercial lenders led byJPMorgan Chase Bank, N.A . andPNC Bank, N.A. The amended revolving credit facility 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 . 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 amended 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 ofJune 28, 2022 , we had$75.0 million outstanding on the amended revolving credit facility and$212.7 million of availability, net of$12.3 million of outstanding letters of credit. As ofDecember 28, 2021 , we had$100.0 million outstanding on the amended revolving credit facility and$189.1 million of availability, net of$10.9 million of outstanding letters of credit. These outstanding amounts are included as long-term debt on our unaudited condensed consolidated balance sheets.
The weighted-average interest rate for
The lenders' obligation to extend credit pursuant to the amended revolving
credit facility depends on us maintaining certain financial covenants. We were
in compliance with all financial covenants as of
Guarantees
As ofJune 28, 2022 andDecember 28, 2021 , we are contingently liable for$11.7 million and$12.2 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 ofJune 28, 2022 andDecember 28, 2021 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant. 31
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