Texas Roadhouse, Inc. — Q1 2021 Form 10-Q
Reporting period: 13 weeks ended March 30, 2021; comparisons are with the 13 weeks ended March 31, 2020. Unaudited results are not necessarily indicative of full-year performance.
Business context
The company operated 540 restaurants and franchised 97, for 637 total locations across 49 states and ten foreign countries. All domestic company and franchise dining rooms had reopened by quarter-end, subject to capacity restrictions; four international franchise locations remained temporarily closed. The prior-year quarter was heavily affected by pandemic restrictions, with domestic locations limited to To-Go or curbside service.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $800.6 million | $652.5 million |
| Income from operations | $80.9 million | $15.8 million |
| Net income attributable to Texas Roadhouse | $64.2 million | $16.0 million |
| Diluted earnings per share | $0.91 | $0.23 |
| Restaurant margin, non-GAAP | $147.6 million; 18.6% of restaurant and other sales | $78.6 million; 12.1% |
| Cash from operating activities | $178.0 million | $21.7 million |
| Capital expenditures | $38.7 million | $46.7 million |
Revenue increased 22.7%, including an 18.5% increase in comparable restaurant sales at company restaurants, driven by traffic growth of 13.0% and average check growth of 5.5%. To-Go represented 22.3% of restaurant sales, versus 12.8% a year earlier. Restaurant margin is a company-defined non-GAAP measure, not a substitute for operating income.
At March 30, cash and cash equivalents were $495.6 million, total current assets $577.6 million, and total current liabilities $508.2 million. Revolving-credit borrowings totaled $240.0 million: $190.0 million classified as long-term and $50.0 million as current. The weighted-average borrowing rate was 1.95%; the company reported covenant compliance. Operating lease liabilities totaled approximately $599.9 million, including current obligations.
Operating cash flow benefited from higher earnings and working-capital movements, including higher accounts payable and accrued payroll and tax liabilities. Cash increased $132.5 million during the quarter to $495.6 million.
Material changes versus the prior period
- Results improved substantially as dining rooms reopened and capacity restrictions eased, but the comparison is against a prior-year quarter in which domestic dining rooms were restricted to To-Go or curbside service.
- Restaurant labor costs declined to 32.5% of restaurant and other sales from 37.2%; food and beverage costs declined to 31.6% from 32.5%. Higher sales volumes helped leverage costs, while labor-market wage pressure and food inflation remained relevant.
- Interest expense rose to $1.5 million from $0.1 million, primarily reflecting pandemic-related borrowing and lower interest income.
- The effective tax rate was 16.2%, compared with a 12.7% tax benefit in Q1 2020. The earlier benefit reflected tax credits and unusually low pretax income.
- No common shares were repurchased and no dividend was declared in Q1 2021; the prior-year quarter included $12.6 million of repurchases and $25.0 million of dividends.
Outlook, management commentary, and risks
- Management planned 25 to 30 company restaurant openings and expected franchise partners to open as many as six restaurants in 2021. Planned 2021 capital expenditures were $210 million to $220 million; the company cautioned that renewed restrictions could reduce development and spending. Estimated capital-project commitments were $120.1 million at quarter-end.
- Management expected 2021 commodity-cost inflation of approximately 4.0%; about half of overall food costs were covered by fixed-price contracts. Beef purchasing was concentrated among three suppliers, creating potential supply and cost exposure.
- The company cited pandemic uncertainty, including possible renewed closures or capacity limits and uncertainty over continued To-Go demand. Its hybrid model combined limited-capacity dining with enhanced To-Go service.
- After quarter-end, on May 4, 2021, the company amended its credit agreement, increasing borrowing capacity to $300 million, with an option for an additional $200 million, and extending maturity to May 1, 2026. It repaid the $50 million incremental facility; the $190 million original borrowing remained outstanding.
- On April 28, 2021, the board reinstated a quarterly dividend of $0.40 per share, payable June 4, 2021. Management said renewed restrictions could lead to suspension of dividends. Share repurchases remained suspended, with $147.8 million authorized but unused at quarter-end.
- Unusual items included a $0.5 million impairment of relocated-site land and building, a $0.5 million impairment of a China joint-venture investment, and $1.0 million of employee-retention payroll tax credits recorded as a reduction of labor expense. The company had $47.3 million of payroll taxes deferred under the CARES Act at year-end 2020, repayable in equal installments at the ends of 2021 and 2022.
- Seven lease guarantees created contingent maximum exposure of $12.8 million; no material liability was recorded because default was considered less than probable. The company reported no litigation believed likely to have a material adverse effect and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- How much of the comparable-sales and margin improvement persists as pandemic-related restrictions and prior-year comparisons normalize.
- Whether traffic, average check, and To-Go sales trends support management’s restaurant-opening and capital-spending plans.
- Actual food-cost inflation, labor-market pressure, and the effects of menu pricing on sales and margins.
- Liquidity and covenant headroom after the amended credit agreement, including variable-rate exposure and the scheduled repayment of deferred payroll taxes.
- Whether the reinstated dividend is maintained and when, if ever, share repurchases resume.