Business Context and Reporting Period
Company: Texas Roadhouse, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 30, 2010 (13 weeks)
Business Overview: A growing, moderately priced, full-service restaurant chain. As of March 30, 2010, the company operated 334 restaurants in 46 states, comprising 264 company-owned restaurants and 70 franchise/license restaurants.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenue | $259,624 | $246,073 |
| Net Income (Attributable to Texas Roadhouse) | $19,241 | $14,334 |
| Diluted EPS | $0.27 | $0.20 |
| Operating Cash Flow | $22,684 | $20,178 |
| Cash and Cash Equivalents (Ending) | $53,743 | $7,753 |
| Total Debt (Long-term + Current) | $89,366 | $101,426 |
| Operating Margin | 11.6% | 9.1% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 5.5% year-over-year, driven by a 5.4% increase in restaurant sales. This was attributed to the opening of three new company restaurants and a 0.4% increase in comparable restaurant sales (compared to a 1.3% decline in Q1 2009).
- Profitability: Net income attributable to the company rose 34.2% to $19.2 million. Operating income increased 35.1% to $30.1 million.
- Cost Management: Restaurant cost of sales decreased as a percentage of sales to 32.2% (from 34.0%), primarily due to lower beef and commodity costs and menu price increases. Labor costs decreased slightly to 29.1% of sales.
- Debt Reduction: The company reduced its revolver borrowings by $12.0 million during the quarter, bringing total debt down from $101.4 million to $89.4 million.
- Capital Expenditures: Capital spending decreased significantly to $7.8 million from $13.4 million in the prior year, reflecting fewer restaurant openings in the current quarter (3 vs. 9).
Guidance, Outlook, and Risks
- Expansion Plans: Management expects to open 14 to 15 company restaurants in fiscal 2010. Average capital investment per prototype restaurant is expected to decrease by $0.2 million to $0.4 million compared to 2009.
- International Growth: The company signed its first international franchise agreement on April 26, 2010, for development in eight countries, with the first opening expected in early 2011.
- Commodity Outlook: Management anticipates commodity cost deflation of approximately 2.5% to 3.0% for 2010. However, labor costs remain pressured by federal and state-mandated minimum wage increases.
- Tax Rate: The effective tax rate is expected to be approximately 33.0% for fiscal 2010.
- Stock Repurchase: The company has $18.2 million remaining under its stock repurchase authorization but made no repurchases in Q1 2010.
- Risks: Key risks include dependence on a limited number of beef suppliers, volatility in commodity prices, and the ability to pass cost increases to consumers through menu pricing.
Investor Verification Checklist
- Comparable Sales Sustainability: Verify if the 0.4% comparable sales growth can be sustained given the shift in consumer behavior toward lower-priced menu items and reduced alcohol purchases.
- Capital Expenditure Timing: Confirm the timing of the remaining 11-12 planned restaurant openings for 2010 to assess future cash flow requirements.
- Debt Covenant Compliance: Monitor the consolidated fixed charge coverage ratio (minimum 2.00:1) and leverage ratio (maximum 3.00:1) as the company continues to pay down debt.
- International Execution: Track the progress of the new international franchise agreement signed in April 2010.
- Related Party Transactions: Review ongoing lease agreements with entities controlled by the Chief Operating Officer and other related parties for potential conflicts or cost implications.