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 pandemic 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 685 restaurants in 49 states and ten foreign countries. As ofSeptember 27, 2022 , our 685 restaurants included:
587 "company restaurants," of which 567 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 majority-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
587 restaurants we owned as of
Roadhouse restaurants, 38 as Bubba's 33 restaurants and four as Jaggers restaurants. 98 "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 98 franchise restaurants, 62 were domestic restaurants and
36 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 endedSeptember 27, 2022 , andSeptember 28, 2021 , are referred to as Q3 2022 and Q3 2021, respectively. The 39 weeks endedSeptember 27, 2022 andSeptember 28, 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 of
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 a 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 addition, we continue to execute and pursue opportunities to acquire domestic franchise locations to expand our company restaurant base. 18
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In 2022 YTD, 13 company restaurants, including two Bubba's 33, were opened and our franchise partners opened five international restaurants. We currently plan to open as many as 23Texas Roadhouse and Bubba's 33 company restaurants in 2022. We currently expect our franchise partners will open as many as eight internationalTexas Roadhouse restaurants in 2022. Also, in 2022 YTD, we completed the acquisition of eight domestic franchiseTexas Roadhouse restaurants for an aggregate purchase price of$33.1 million . 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$7.8 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 has contributed to these higher supply costs. 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 27, 2022 , we had 15 restaurants in five countries in theMiddle East , six inthe Philippines , six inSouth Korea , five inTaiwan , three inMexico and one inChina for a total of 36 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 in Q1 2023. 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 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. 19
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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. In 2022, we announced the roll out of additional non-royalty-based retail products includingTexas Roadhouse branded apparel and other accessories. 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. In 2021, the Board reinstated the payment of a quarterly cash dividend of$0.40 per share of common stock. In 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 throughSeptember 27, 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. For both the 13 and 39 week periods endedSeptember 28, 2021 , we paid$14.7 million to repurchase 161,034 shares of our common stock. For the 13 week period endedSeptember 27, 2022 , we did not repurchase any shares of our common stock. For the 39 week period endedSeptember 27, 2022 , 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 ofSeptember 27, 2022 ,$166.9 million remained under our authorized stock repurchase program.
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 also includes sales and operating
costs related to the Company's non-royalty based retail initiatives. 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. 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, approximately 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 September 27, 2022 and
September 28, 2021 , we owned a 5.0% to 10.0% equity interest in 23 and 24
domestic franchise restaurants, respectively. Additionally, as of September 28,
2021 , we owned a 40% equity interest in two 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.
Q3 2022 Financial Highlights
Total revenue increased$124.4 million or 14.3% to$993.3 million in Q3 2022 compared to$868.9 million in Q3 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 6.1% and 8.2%, respectively, at company restaurants in Q3 2022 compared to Q3 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 along with an increase in guest traffic. Restaurant margin dollars increased$16.9 million or 12.5% to$152.0 million in Q3 2022 compared to$135.1 million in Q3 2021. Restaurant margin, as a percentage of restaurant and other sales, decreased to 15.4% in Q3 2022 compared to 15.7% in Q3 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 increased$9.7 million or 18.5% to$62.3 million in Q3 2022 compared to$52.6 million in Q3 2021 primarily due to higher restaurant margin dollars partially offset by higher income tax expense. Diluted earnings per share increased 23.7% to$0.93 in Q3 2022 from$0.75 in Q3 2021 due to the increase in net income and the benefit of share repurchases. 23 Table of Contents Results of Operations 13 Weeks Ended 39 Weeks Ended September 27, 2022 September 28, 2021 September 27, 2022 September 28, 2021 $ % $ % $ % $ % (In thousands) (In thousands)
Consolidated Statements of Income: Revenue: Restaurant and other sales 986,999 99.4 862,757 99.3 2,986,028 99.4 2,550,124 99.3 Franchise royalties and fees 6,299 0.6 6,186 0.7 19,362 0.6 18,236 0.7 Total revenue 993,298 100.0 868,943 100.0 3,005,390 100.0 2,568,360 100.0 Costs and expenses: (As a percentage of restaurant and other sales) Restaurant operating costs (excluding depreciation and amortization shown separately below): Food and beverage 342,032 34.7 298,164 34.6 1,026,469 34.4 845,150 33.1 Labor 330,219 33.5 286,593 33.2 985,132 33.0 832,776 32.7 Rent 16,703 1.7 15,089 1.7 49,785 1.7 44,497 1.7 Other operating 146,036 14.8 127,769 14.8 442,714 14.8 386,754 15.2 (As a percentage of total revenue) Pre-opening 5,701 0.6 6,740 0.8 15,315 0.5 17,327 0.7 Depreciation and amortization 33,735 3.4 31,627 3.6 101,775 3.4 94,146 3.7 Impairment and closure, net 772 NM 29 NM 537 NM 550 NM General and administrative 42,812 4.3 41,234 4.7 132,319 4.4 114,807 4.5 Total costs and expenses 918,010 92.4 807,245 92.9 2,754,046 91.6 2,336,007 91.0 Income from operations 75,288 7.6 61,698 7.1 251,344 8.4 232,353 9.0 Interest expense, net 85 0.0 604 0.1 877 0.0 3,039 0.1 Equity income from investments in unconsolidated affiliates 190 NM 266 NM 1,069 NM 288 NM Income before taxes 75,393 7.6 61,360 7.1 251,536 8.4 229,602 8.9 Income tax expense 11,430 1.2 7,144 0.8 35,708 1.2 31,031 1.2 Net income including noncontrolling interests 63,963 6.4 54,216 6.2 215,828 7.2 198,571 7.7 Net income attributable to noncontrolling interests 1,635 0.2 1,610 0.2 5,879 0.2 6,335 0.2 Net income attributable toTexas Roadhouse, Inc. and subsidiaries 62,328 6.3 52,606 6.1 209,949 7.0 192,236 7.5 NM - Not meaningful 24 Table of Contents Reconciliation of Income from Operations to Restaurant Margin (in thousands) 13 Weeks Ended 39 Weeks Ended September 27, 2022 September 28, 2021 September 27, 2022 September 28, 2021 Income from operations $ 75,288 $ 61,698 $ 251,344 $ 232,353
Less:
Franchise royalties and fees 6,299
6,186 19,362 18,236
Add:
Pre-opening 5,701 6,740 15,315 17,327Depreciation and amortization 33,735
31,627 101,775 94,146
Impairment and closure, net 772 29 537 550
General and administrative 42,812 41,234 132,319 114,807
Restaurant margin $ 152,009 $ 135,142 $ 481,928 $ 440,947
Restaurant margin $/store week $ 20,001 $ 18,865 $ 21,332 $ 20,757 Restaurant margin (as a percentage of restaurant and other sales) 15.4% 15.7% 16.1% 17.3%
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 13 11 2 -
Company closings - - - -
Franchise openings - Domestic - - - -Franchise openings - International 5 5 -
-
Franchise closings - - -
-
Balance at September 27, 2022 685 643 38
4
September 27, 2022 September 28, 2021
Company - Texas Roadhouse 545 517
Company - Bubba's 33 38 35
Company - Jaggers 4 3Franchise -Texas Roadhouse -U.S. 62
69
Franchise -Texas Roadhouse - International 36
30
Total 685 654
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Q3 2022 compared to Q3 2021 and 2022 YTD compared to 2021 YTD
Restaurant and Other Sales. Restaurant and other sales increased by 14.4% in Q3
2022 compared to Q3 2021 and 17.1% 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.
Q3 2022 Q3 2021 2022 YTD 2021 YTD
Company Restaurants :
Increase in store weeks 6.1 % 5.2 % 6.3 % 4.8 %
Increase in average unit volume 7.9 % 29.9 % 10.2 % 38.3 %
Other(1) 0.2 % 1.9 % 0.5 % 2.6 %
Total increase in restaurant sales 14.2 % 37.0 % 17.0 % 45.7 %
Other sales 0.2 % 0.7 % 0.1 % 0.3 %
Total increase in restaurant and other sales 14.4% 37.7 % 17.1 % 46.0 % Store weeks 7,600 7,164 22,592 21,244 Comparable restaurant sales 8.2 % 30.2 % 10.5 % 39.5 %Texas Roadhouse restaurants: Store weeks 7,062 6,675 21,004 19,843 Comparable restaurant sales 8.2 % 30.6 % 10.4 % 39.2 %
Average unit volume (in thousands)$ 1,705
Weekly sales by group: Comparable restaurants (511, 485, 499 and 473 units)$ 131,378 $ 121,633 $ 134,565 $ 122,629 Average unit volume restaurants (23, 18, 20 and 18 units)(2)$ 125,421 $ 118,703 $ 129,283 $ 103,792 Restaurants less than six months old (11, 14, 26 and 26 units)$ 143,801
$ 128,001 $ 136,358 $ 124,110 Bubba's 33 restaurants: Store weeks 486 449 1,433 1,284 Comparable restaurant sales 6.2 % 25.6 % 11.6 % 46.9 %
Average unit volume (in thousands)$ 1,395
Weekly sales by group: Comparable restaurants (31, 28, 30 and 25 units)$ 104,669 $ 99,768 $ 108,692 $ 100,531 Average unit volume restaurants (5, 3, 4 and 5 units)(2)$ 123,760 $ 86,993 $ 109,656 $ 81,559 Restaurants less than six months old (2, 4, 4 and 5 units)$ 95,312
Includes the impact of the year-over-year change in sales volume of all
(1) 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.
Average unit volume includes restaurants open a full six and up to 18 months (2) before the beginning of the period measured, excluding sales from restaurants
permanently closed during the period, if applicable.
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The increase in restaurant sales for Q3 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.
Q3 2022 Q3 2021 2022 YTD 2021 YTD
Guest traffic counts 0.5 % 23.6 % 2.2 % 29.1 %
Per person average check 7.7 % 6.6 % 8.3 % 10.4 %Comparable restaurant sales growth 8.2 % 30.2 % 10.5 %
39.5 %
The increase in Q3 2022 guest traffic counts was due to an increase in dining room traffic partially offset by a decrease in to-go traffic. 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. To-go sales as a percentage of restaurant sales were 12.6% for Q3 2022 and 13.5% for 2022 YTD compared to 15.1% for Q3 2021 and 18.0% for 2021 YTD. Per person average check includes the benefit of menu price increases of approximately 3.2% implemented in Q2 2022 as well as increases of 4.2% and 1.8% implemented in Q4 2021 and Q2 2021, respectively. We also implemented a menu price increase of 2.9% in early Q4 2022. In 2022 YTD, we opened 13 company restaurants and acquired eight franchise restaurants. As ofSeptember 27, 2022 , an additional 15 restaurants were under construction. In 2022, we plan to open as many as 23Texas Roadhouse and Bubba's 33 company restaurants. In addition, we opened one Jaggers company restaurant in Q4 2022. In 2022, we expect store week growth of approximately 6% across all concepts, including the impact of the eight franchise restaurants acquired at the beginning of the year. In 2023, we plan to open approximately 30Texas Roadhouse and Bubba's 33 company restaurants and three Jaggers company restaurants. We currently expect store week growth of approximately 5% across all concepts, excluding the impact of potential franchise acquisitions. Other sales primarily represents the net impact of the amortization of third party gift card fees and gift card breakage income. Other sales was$3.4 million in Q3 2022 and$2.1 million in Q3 2021 as breakage income exceeded the amortization of third party gift card fees in both periods. The change was driven by favorable adjustments of$6.6 million and$4.8 million recorded in Q3 2022 and Q3 2021, respectively. These adjustments related to a change in our estimate of breakage due to a shift in our historic redemption patterns which indicated that the percentage of gift cards sold that are not expected to be redeemed had increased. This shift in redemption patterns is primarily due to the increase in sales through our third party gift card program. As a result, we adjusted our expected breakage assumptions on unredeemed gift cards. Other sales was($6.1) million in 2022 YTD and($5.6) million in 2021 YTD as the amortization of third party gift card fees exceeded breakage income. The change in other sales was driven by an increase in amortization of third party fees due to an increase in sales through our third party gift card program. Franchise Royalties and Fees. Franchise royalties and fees increased by$0.1 million , or by 1.8%, in Q3 2022 compared to Q3 2021 and increased by$1.1 million , or by 6.2%, 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 and new store openings. Franchise comparable restaurant sales increased 7.6% and 11.7% in Q3 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 five internationalTexas Roadhouse restaurants and we anticipate that they will open as many as eight international restaurants in 2022. In 2023, we expect as many as nineTexas Roadhouse international and domestic franchise openings and three Jaggers domestic franchise openings. 27
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Food and Beverage Costs. Food and beverage costs, as a percentage of restaurant and other sales, increased to 34.7% in Q3 2022 compared to 34.6% in Q3 2021 and increased to 34.4% in 2022 YTD compared to 33.1% 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 8.8% and 12.4% in Q3 2022 and 2022 YTD, respectively, with higher costs across the basket. For 2022, we currently expect commodity inflation of approximately 10.5% for the year with prices locked for approximately 70% of our remaining forecasted costs and the remainder subject to floating market prices. For 2023, we currently expect commodity cost inflation of 5% to 6%. Restaurant Labor Expenses. Restaurant labor expenses, as a percentage of restaurant and other sales, increased to 33.5% in Q3 2022 compared to 33.2% in Q3 2021 and increased to 33.0% in 2022 YTD compared to 32.7% in 2021 YTD. The increase in both periods was primarily due to wage and other labor inflation of 7.7% and 7.4% in Q3 2022 and 2022 YTD, respectively. Wage and other labor inflation is driven by 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$2.7 million and$6.1 million in Q3 2022 and 2022 YTD, respectively, as compared to the prior year periods. For 2022, we anticipate our labor costs will be pressured by wage and other labor inflation of approximately 8% driven by labor market pressures, increases in state-mandated minimum and tipped wage rates, and increased investment in our people. For 2023, we anticipate our labor costs will be pressured by wage and other labor inflation of 5% to 6%. Restaurant Rent Expense. Restaurant rent expense, as a percentage of restaurant and other sales, remained flat at 1.7% in all periods presented. The increase in average unit volume was 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, remained flat at 14.8% in Q3 2022 compared to Q3 2021 and decreased to 14.8% in 2022 YTD compared to 15.2% in 2021 YTD. The YTD decrease 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. We also benefited from a decrease in general liability insurance expense due to favorable claims experience of$1.2 million in Q3 2022, as compared to the prior year period. Pre-opening Expenses. Pre-opening expenses were$5.7 million in Q3 2022 compared to$6.7 million in Q3 2021 and$15.3 million in 2022 YTD compared to$17.3 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 Q3 2022 compared to 3.6% in Q3 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$0.8 million in Q3 2022 and was not significant in Q3 2021 and was$0.5 million in 2022 YTD and$0.6 million in 2021 YTD. For Q3 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 Q4 2022. For 2022 YTD, impairment and closure costs, net included this impairment, an impairment of an operating right-of-use asset recorded in Q2 2022 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. 28
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General and Administrative Expenses. G&A, as a percentage of total revenue, decreased to 4.3% in Q3 2022 compared to 4.7% in Q3 2021 and decreased to 4.4% in 2022 YTD compared to 4.5% in 2021 YTD. For Q3 2022, the decrease was primarily driven by the increase in average unit volume and a decrease in our managing partner conference expense partially offset by increased incentive compensation. The decrease in managing partner conference expense was driven by a favorable adjustment to our 2022 managing partner conference, which was held in Q2 2022, of$2.5 million that was recorded in Q3 2022 as well as lapping our 2021 managing partner conference, which was held in Q3 2021, and totaled$2.9 million . For 2022 YTD, the decrease was primarily driven by the increase in the average unit volume and lower legal settlement expense partially offset by increased managing partner conference expense and meeting and travel expense. Interest Expense, Net. Interest expense, net was$0.1 million and$0.6 million in Q3 2022 and Q3 2021, respectively, and was$0.9 million and$3.0 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 as well as increased earnings on cash and cash equivalents. Equity Income from Unconsolidated Affiliates. Equity income was$0.2 million in Q3 2022 compared to$0.3 million in Q3 2021. Equity income was$1.1 million in 2022 YTD and$0.3 million in 2021 YTD. The YTD fluctuation was driven by a gain on the acquisition of one of these affiliates recorded in Q2 2022 as well as 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 15.2% in Q3 2022 compared to 11.6% in Q3 2021 and was 14.2% in 2022 YTD compared to 13.5% in 2021 YTD. The increase in our tax rate for Q3 2022 as compared to Q3 2021 was primarily driven by the lapping of favorable adjustments to FICA Tip and Work Opportunity tax credit benefits and a decrease in the tax benefit for stock compensation. The increase in our tax rate for 2022 YTD as compared to 2021 YTD was primarily driven by a decrease in the tax benefit for stock compensation partially offset by an increase in FICA Tip and Work Opportunity tax credits. For 2022, we expect our effective tax rate to be approximately 14%, excluding the impact of any legislative changes enacted. For 2023, we expect our effective tax rate to be approximately 15%, 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. 29
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The following table presents a summary of restaurant margin by segment (in
thousands):
13 Weeks Ended
September 27, 2022 September 28, 2021
Texas Roadhouse $ 146,137 15.7 % $ 127,802 15.7 %
Bubba's 33 5,625 10.8 7,419 16.1
Other 247 7.4 (79) (3.4)
Total $ 152,009 15.4 % $ 135,142 15.7 %
39 Weeks Ended
September 27, 2022 September 28, 2021
Texas Roadhouse $ 460,655 16.3 % $ 418,141 17.3 %
Bubba's 33 20,993 13.3 21,964 17.3
Other 280 2.9 842 10.9
Total $ 481,928 16.1 % $ 440,947 17.3 %
For our Texas Roadhouse reportable segment, restaurant margin dollars increased
$18.3 million or 14.3% in Q3 2022 and increased $42.5 million or 10.2% in 2022
YTD. The increase in both periods was primarily due to higher sales which were
offset by commodity and labor inflation. In addition, restaurant margin, as a
percentage of restaurant and other sales, remained flat at 15.7% in Q3 2022 and
Q3 2021 and decreased to 16.3% in 2022 YTD from 17.3% in 2021 YTD. Restaurant
margin in both periods was negatively impacted by commodity and labor inflation
which was offset by the benefit of an increase in comparable restaurant sales.
For our Bubba's 33 reportable segment, restaurant margin dollars decreased $1.8
million or 24.2% in Q3 2022 and decreased $1.0 million or 4.4% in 2022 YTD. In
addition, restaurant margin, as a percentage of restaurant and other sales,
decreased to 10.8% in Q3 2022 from 16.1% in Q3 2021 and decreased to 13.3% in
2022 YTD from 17.3% in 2021 YTD. The decrease in both periods was primarily
driven by commodity and labor inflation which was offset by the benefit of an
increase in comparable restaurant sales.
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 27, 2022 September 28, 2021
Net cash provided by operating activities $ 395,057 $ 348,709
Net cash used in investing activities (195,607) (133,413)
Net cash used in financing activities (349,780)
(141,888)
Net (decrease) increase in cash and cash equivalents $ (150,330) $ 73,408
Net cash provided by operating activities was
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$195.6 million in 2022 YTD compared to$133.4 million in 2021. 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. 30
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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 27, 2022 , we had developed 148 of the 587 company restaurants on land that we own. The following table presents a summary of capital expenditures (in thousands): 39 Weeks Ended September 27, 2022 September 28, 2021 New company restaurants $ 99,249 $ 79,200 Refurbishment or expansion of existing restaurants 60,404 50,154 Relocation of existing restaurants 11,965 5,880 Capital expenditures related to Support Center office 2,576 3,767 Total capital expenditures $ 174,194 $ 139,001 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 million and we currently plan to open as many as 23Texas 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. In 2023, we expect our capital expenditures to be approximately$265 million . As ofSeptember 27, 2022 , the estimated cost of completing capital project commitments over the next 12 months was approximately$155.3 million . See note 6 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations. Net cash used in financing activities was$349.8 million in 2022 YTD compared to$141.9 million in 2021. The increase is primarily due to the resumption of, and significant increase in, share repurchases as well as the reinstatement of our quarterly dividend payment in Q2 2021. These increases were 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. For the 13 week period endedSeptember 27, 2022 , we did not repurchase any shares of our common stock. For the 39 week period endedSeptember 27, 2022 , 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. For both the 13 and 39 week periods endedSeptember 28, 2021 , we paid$14.7 million to repurchase 161,034 shares of our common stock. As ofSeptember 27, 2022 ,$166.9 million remained under our authorized stock repurchase program. 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$93.3 million and$55.8 million in 2022 YTD and 2021 YTD, respectively. 31
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We paid distributions of
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 ofSeptember 27, 2022 , we had$75.0 million outstanding on the amended revolving credit facility and$213.3 million of availability, net of$11.7 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$75.0 million of borrowings outstanding as ofSeptember 27, 2022 was 3.69%. The weighted-average interest rate for the$190.0 million of borrowings outstanding as ofSeptember 28, 2021 was 0.96%.
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 ofSeptember 27, 2022 andDecember 28, 2021 , we are contingently liable for$11.5 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 ofSeptember 27, 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.
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