Texas Roadhouse, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 28, 2021 (52 weeks). The fourth quarter was 13 weeks, but the supplied filing text primarily reports full-year results; it does not provide a clear standalone Q4 financial summary. Fiscal 2020 was also 52 weeks.
Business context
The company operated 667 restaurants in 49 states and ten foreign countries at year-end: 566 company-operated and 101 franchised. Company locations included 526 Texas Roadhouse, 36 Bubba’s 33, and four Jaggers restaurants. Results rebounded as dining rooms reopened and restrictions eased; to-go sales remained above pre-pandemic levels.
Financial and operating highlights
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $3.464 billion | $2.398 billion |
| Income from operations | $297.2 million | $23.8 million |
| Net income attributable to Texas Roadhouse | $245.3 million | $31.3 million |
| Diluted EPS | $3.50 | $0.45 |
| Operating cash flow | $468.8 million | $230.4 million |
| Capital expenditures | $200.7 million | $154.4 million |
- Revenue rose 44.4%; management attributed the increase mainly to higher average unit volumes, improved comparable sales, and more store weeks.
- Company comparable restaurant sales increased 37.8% (traffic +27.6%; average check +10.2%). The comparison is against pandemic-affected 2020, when comparable sales fell 14.2%.
- Restaurant margin, a non-GAAP measure, rose to $581.7 million from $265.6 million; margin rate increased to 16.9% from 11.2%. Higher sales were partly offset by commodity inflation.
- Food and beverage costs increased to 33.6% of restaurant and other sales from 32.8%, with reported commodity inflation of 10.0%, primarily from beef. Labor costs fell to 32.7% of sales from 36.8%, helped by higher volumes and lower pandemic-related costs.
- Cash and cash equivalents were $335.6 million at year-end, versus $363.2 million a year earlier. The company used $301.2 million in financing activities, including debt repayments, dividends, and share repurchases.
- Revolving-credit-facility debt was $100 million, down from $240 million at year-end 2020. The company reported $189.1 million of availability, net of letters of credit, and compliance with its covenants. The facility matures May 2026.
- Operating lease liabilities totaled $644.8 million. Contractual obligations included $1.112 billion of undiscounted operating lease payments.
Material changes and unusual items
- Restaurant sales benefited from reopened dining rooms and easing capacity restrictions; to-go sales were 17.1% of restaurant sales, compared with 27.0% in 2020.
- The company recorded a favorable $4.8 million gift-card breakage adjustment after revising its estimate of the proportion of gift cards not expected to be redeemed from 4.0% to 4.5%.
- FY2021 included $1.2 million of employee-retention tax credits, versus $7.0 million in 2020. The company also repaid $24.3 million of deferred payroll taxes in 2021; the remaining $23.0 million was due by the end of 2022.
- On December 29, 2021, the first day of FY2022, the company acquired seven franchise restaurants for approximately $27 million; this acquisition was not included in FY2021 operating results.
- Cash dividends resumed in 2021 after suspension during the pandemic. The company paid $83.7 million in dividends and $51.6 million for share repurchases during FY2021.
- The company fully impaired its equity investment in a China joint venture after the four related restaurants closed. FY2021 impairment and closure costs were $0.7 million, versus $2.3 million in 2020.
Outlook, management commentary, and risks
- For 2022, management planned approximately 25 company Texas Roadhouse and Bubba’s 33 openings, up to five franchise openings, and expected store-week growth of approximately 6.5%, including the seven acquired restaurants.
- Expected average capital investment was approximately $6.3 million per Texas Roadhouse opening and $7.3 million per Bubba’s 33 opening. Planned 2022 capital expenditures were approximately $230 million, with as many as six relocations.
- Management expected commodity inflation of approximately 17% in the first half of 2022 and 12%–14% for the full year, and labor cost inflation of approximately 7%. About 30% of forecast commodity costs were price-locked; the remainder was exposed to floating market prices.
- Management estimated a 2022 effective tax rate of approximately 15%, excluding legislative changes. A quarterly dividend of $0.46 per share was declared in February 2022.
- Key risks include beef and other input-cost inflation, dependence on three principal beef suppliers, labor availability and wage pressure, renewed pandemic restrictions or staffing disruptions, supply shortages, competition, consumer spending and traffic trends, food safety, cybersecurity, and execution of restaurant growth plans.
- Management stated that inflation’s effect on future restaurant profitability depends on its ability and willingness to offset higher costs through pricing and other actions. The company said it had managed shortages to date but experienced increased costs.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded internal controls were effective as of December 28, 2021. The auditor identified assessment of potential long-lived-asset impairment indicators as a critical audit matter.
Investor verification priorities
- Confirm standalone Q4 results and comparable-sales details in the quarterly disclosures; this filing’s highlighted results are full-year figures.
- Assess how much of the 2021 rebound reflects reopening and comparison with depressed 2020 results, and whether traffic and to-go demand persist.
- Track the effects of forecast beef, commodity, and wage inflation on restaurant margins and the timing or effectiveness of menu pricing.
- Review liquidity and capital allocation against planned development spending, lease commitments, dividends, and repurchases; note the $23.0 million payroll-tax repayment due in 2022.
- Evaluate post-year-end acquisition integration and the assumptions behind 2022 opening, capital-expenditure, and inflation expectations.
- Consider the $4.8 million gift-card breakage estimate adjustment and the judgment involved in impairment testing when assessing earnings quality and asset values.