Texas Roadhouse, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 29, 2015 (52 weeks). Fiscal Q4 was 13 weeks. The filing was signed February 26, 2016. FY2014 was also 52 weeks.
Business context
Texas Roadhouse operated 401 company restaurants and franchised 82 restaurants across 49 states and four foreign countries. Company locations included 392 Texas Roadhouse restaurants, seven Bubba’s 33 restaurants and two other-concept restaurants. The company reports one operating segment; restaurant sales account for nearly all revenue.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Total revenue | $1,807.4 million | $1,582.1 million | +14.2% |
| Income from operations | $144.6 million | $130.4 million | +10.8% |
| Operating margin | 8.0% | 8.2% | Down 20 bps |
| Net income attributable to Texas Roadhouse | $96.9 million | $87.0 million | +11.3% |
| Diluted EPS | $1.37 | $1.23 | +11.1% |
| Comparable restaurant sales growth | 7.2% | 4.7% | Up 2.5 percentage points |
| Restaurant margin | $310.8 million; 17.3% | $276.8 million; 17.6% | Margin rate down 30 bps |
Revenue growth reflected new restaurant openings and higher average unit volume. Comparable sales growth included 5.4% higher guest traffic and a 1.8% increase in average check. Restaurant cost of sales rose to 35.9% of restaurant sales from 35.3%, primarily due to food commodity inflation, particularly beef. Labor remained 29.3% of restaurant sales; other operating costs improved to 15.4% from 15.7%.
Q4 results: Revenue was $454.4 million versus $404.4 million in Q4 2014; operating income was $33.7 million versus $27.0 million; net income attributable to the company was $23.0 million versus $18.6 million. Diluted EPS was $0.32 versus $0.26.
Cash flow, debt and liquidity
- Operating cash flow was $227.9 million, up from $191.7 million. Investing cash outflow was $173.2 million, including $173.5 million of capital expenditures; financing cash outflow was $81.5 million.
- Cash declined to $59.3 million from $86.1 million. Current assets were $133.8 million and current liabilities $256.6 million; current liabilities included $101.3 million of deferred gift-card revenue.
- Total debt was $25.7 million, comprising $25.0 million drawn on the revolving facility and a $0.7 million installment loan. Revolver availability was $168.4 million, net of letters of credit. The company reported compliance with all debt covenants.
- Cash dividends paid were $46.2 million. The company repurchased 321,789 shares for $11.4 million and had $74.0 million remaining under its repurchase authorization.
- Operating lease obligations totaled approximately $715.4 million. Capital project commitments were estimated at $129.4 million. Lease guarantees for seven assigned restaurant leases had maximum potential exposure of $17.2 million; no material liability was recorded.
Changes, outlook and risks
- The company opened 29 company restaurants in 2015, including 24 Texas Roadhouse, four Bubba’s 33 and one Jaggers. Total system restaurants increased from 451 to 483.
- For 2016, management planned approximately 30 company restaurant openings, including about seven Bubba’s 33 locations, and anticipated up to six franchise openings, primarily international. Expected average opening investment was about $4.8 million per Texas Roadhouse and $5.7–$6.0 million per Bubba’s 33.
- Management forecast 2016 capital expenditures of $165–$175 million, food-cost deflation of 1%–2%, and an approximately 30% tax rate. It expected labor costs to face inflationary pressure and depreciation and amortization as a share of revenue to increase. Management anticipated operating cash flow would exceed capital expenditures.
- Health-care benefit costs increased approximately $4.5 million in 2015 following expanded employee coverage. Management identified minimum and tipped wage increases as a further labor-cost pressure.
- Key exposures include beef and other commodity costs, dependence on a limited number of beef suppliers, labor availability and costs, competition, restaurant execution and growth, severe weather, food safety and reputational issues, and payment-card or information-system security. Approximately 77% of transactions were by credit or debit card.
- An EEOC lawsuit alleges age discrimination in hiring applicants over 40 for certain restaurant jobs. The company denied liability; the case was in discovery, and the company said the outcome and potential loss could not be estimated.
- FY2015 included $1.0 million of closure costs related to relocating two restaurants. Share-based compensation increased to $22.8 million from $14.9 million, including approximately $4.7 million of additional expense related to executive awards and performance criteria.
Most important facts for investors to verify
- Whether strong comparable-sales growth and traffic gains persist, and whether new restaurants achieve expected sales and returns.
- Whether forecast food-cost deflation materializes and offsets wage, health-care and other cost inflation without weakening guest traffic or margins.
- Whether planned openings and the $165–$175 million capital program are delivered on schedule and within budget, and how they affect cash and returns.
- Cash-flow and shareholder-return capacity given declining cash, dividends, repurchases, substantial lease commitments and project commitments.
- Developments in the EEOC case, self-insured claims and lease guarantees, as well as any changes in supplier concentration, food-safety or data-security risks.