Texas Roadhouse, Inc. — Q2 2023 Form 10-Q
Business context and period. The filing covers the 13 and 26 weeks ended June 27, 2023, compared with periods ended June 28, 2022. Texas Roadhouse operated 614 company restaurants and franchised 95 restaurants across its Texas Roadhouse, Bubba’s 33 and Jaggers concepts.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Total revenue | $1,171.2 million | $1,024.6 million | +14.3% |
| Net income attributable to Texas Roadhouse | $82.3 million | $72.4 million | +13.6% |
| Diluted EPS | $1.22 | $1.07 | +14.7% |
| Operating income | $95.4 million | $85.9 million | +11.1% |
| Restaurant margin | $182.8 million; 15.7% | $168.7 million; 16.6% | Dollars +8.3%; margin down 0.9 pp |
Q2 comparable company restaurant sales rose 9.1%, with guest traffic up 4.7% and average check up 4.4%. Company restaurant sales growth also reflected 5.6% more store weeks. Food and beverage costs rose to 34.5% of restaurant sales from 34.1%; labor costs rose to 33.6% from 32.7%. Operating margin was 8.1% of revenue versus 8.4%.
For the first 26 weeks, revenue was $2,345.6 million (+16.6%), net income attributable to the company was $168.7 million (+14.2%), diluted EPS was $2.51 versus $2.15, and restaurant margin was $368.5 million (15.8%) versus $329.9 million (16.5%).
Cash flow, debt and liquidity
- First-half operating cash flow was $288.2 million, down from $298.7 million, primarily due to an unfavorable working-capital change.
- Investing cash outflow was $186.0 million, including $154.6 million of capital expenditures and $39.2 million for franchise restaurant acquisitions. Financing cash outflow was $168.8 million, including $73.7 million of dividends and $33.1 million of share repurchases.
- Cash and cash equivalents were $107.3 million at June 27, 2023, down from $173.9 million at year-end. The company had no revolving-credit borrowings and $284.9 million available, net of letters of credit, under its $300 million facility; it was in compliance with financial covenants.
- Current assets were $233.3 million and current liabilities were $572.0 million. Operating lease liabilities totaled $739.8 million, including current and long-term portions.
Material changes, outlook and risks
- Sales growth was supported by higher traffic, check and restaurant count. The company opened seven Texas Roadhouse and Bubba’s 33 company restaurants year to date and acquired eight franchise restaurants. Total restaurant count reached 709.
- Margin pressure reflected commodity inflation of 6.0% in Q2 and wage and other labor inflation of 7.0%. Management cited beef and labor cost increases, partly offset by higher sales and check.
- For 2023, management expected up to 28 Texas Roadhouse and Bubba’s 33 company openings, approximately 6% store-week growth across concepts, 5%–6% commodity inflation, 6%–7% wage and other labor inflation, and an effective tax rate of 13%–14%. Capital expenditures were expected to be approximately $300 million. These are management expectations, not guarantees.
- About 50% of remaining forecast commodity costs were locked; the balance remained exposed to market prices. Beef purchasing was concentrated among four suppliers, and the company did not use financial instruments to hedge commodity prices.
- Estimated costs to complete capital project commitments were $245.1 million. Seven lease guarantees represented maximum contingent exposure of $10.8 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.
- Unusual items included a $2.6 million Q1 executive retirement separation payout and a $0.6 million gain related to the acquisition of franchise interests. The eight-restaurant acquisition purchase price was approximately $39.1 million, net of cash acquired, and remained subject to working-capital adjustments.
Important facts for investors to verify
- Whether traffic and check growth can continue while commodity and labor inflation weigh on restaurant margins.
- Whether the planned openings and approximately $300 million capital-spending program can be funded while sustaining dividends and repurchases.
- How cash generation and working capital evolve, including gift-card redemptions and seasonal cash movements.
- Beef supply and pricing exposure, given reliance on four suppliers and unhedged commodity risk.
- Execution and final purchase accounting for the acquired restaurants, including remaining capital commitments and lease obligations.