Texas Roadhouse, Inc. — Q1 2022 Form 10-Q
Business context and period. The filing covers the 13 weeks ended March 29, 2022, compared with the 13 weeks ended March 30, 2021. Texas Roadhouse operated 576 company restaurants and franchised 96 restaurants at quarter-end, across its Texas Roadhouse, Bubba’s 33 and Jaggers concepts. Domestic locations were operating without pandemic-related restrictions during Q1 2022; many had capacity restrictions in Q1 2021.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $987.5 million | $800.6 million |
| Income from operations | $90.1 million | $80.9 million |
| Net income attributable to Texas Roadhouse | $75.2 million | $64.2 million |
| Diluted EPS | $1.08 | $0.91 |
| Operating cash flow | $187.8 million | $178.0 million |
| Capital expenditures | $49.0 million | $38.7 million |
- Revenue rose 23.3%, driven by higher average unit volume, comparable sales growth and more store weeks. Company comparable restaurant sales increased 16.0%; guest traffic grew 7.0% and average check increased 9.0%.
- Restaurant margin, a company-defined non-GAAP measure, increased to $161.2 million from $147.6 million, but declined to 16.4% of restaurant and other sales from 18.6%. Food and beverage costs rose to 34.4% of sales from 31.6%, while labor costs were 32.8% versus 32.5%.
- Cash and cash equivalents were $325.7 million at March 29, 2022, compared with $335.6 million at December 28, 2021. The company had $100.0 million outstanding on its revolver and $189.1 million of remaining availability, net of letters of credit; the weighted-average rate on borrowings was 1.20%. It reported compliance with all financial covenants.
- Operating cash flow increased year over year. Investing cash use was $73.3 million, including the $26.4 million net purchase of seven franchise restaurants and higher capital spending. Financing cash use was $124.4 million, primarily reflecting $84.7 million of share repurchases and $31.8 million of dividends.
Material changes and notable items
- Compared with Q1 2021, revenue and net income increased, but restaurant margin percentage and operating income as a percentage of revenue decreased. Management attributed margin pressure mainly to commodity and labor inflation.
- Q1 2022 included a $0.7 million gain on the sale of previously held-for-sale land and a building; impairment and closure costs, net were a benefit of $0.6 million. The prior-year period included impairment costs.
- The company acquired seven franchised restaurants in South Carolina and Georgia for $26.4 million, net of cash acquired. It repurchased 1.06 million shares for $84.7 million and declared a $0.46-per-share dividend. A new $300 million repurchase authorization replaced the prior program; $295 million remained available at quarter-end.
Outlook, commentary and risks
- For 2022, management expected to open approximately 25 company Texas Roadhouse and Bubba’s 33 restaurants, with franchise partners expected to open as many as seven restaurants. The company projected approximately 6.5% store-week growth, including the acquired restaurants.
- Management expected 2022 capital expenditures of approximately $230 million and said operating cash flow should exceed capital expenditures. Estimated costs to complete capital project commitments were $160.3 million at quarter-end.
- Management forecast commodity inflation of 12%–14% for 2022, with approximately 30% of remaining forecast costs locked, and labor-cost inflation of approximately 7%. It implemented a 3.2% menu price increase in April 2022 and said additional pricing may be taken during the year. The expected effective tax rate was approximately 15%, excluding legislative changes.
- Risks include continued food and labor inflation, difficulty attracting and retaining restaurant employees, supply constraints and reliance on four principal beef suppliers. Management warned that higher sourcing costs, shortages or delayed menu pricing could harm sales and profitability. A one-percentage-point increase in variable borrowing rates was estimated to add $1.0 million to annual interest expense.
- The company had $23.0 million of deferred employer payroll taxes due at the end of 2022. It also had $12.0 million of maximum potential exposure under seven lease guarantees; no material liability was recorded. Management reported no litigation it believed could materially adversely affect the business and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether sales growth and pricing can offset the projected commodity and labor inflation without further deterioration in restaurant margins.
- Actual comparable-sales, traffic and average-check trends, including how results compare after pandemic-related restrictions have eased.
- Progress against restaurant-opening and capital-spending plans, and the cash-flow impact of development commitments and acquired locations.
- Use of the remaining repurchase authorization and dividend sustainability alongside liquidity, debt and the $23.0 million payroll-tax payment due in 2022.
- Exposure to beef-supplier concentration, floating commodity costs and variable interest rates; Q1 results are not necessarily indicative of full-year performance.