Texas Roadhouse, Inc. — Q2 2021 Form 10-Q
Reporting period: 13 weeks ended June 29, 2021; year-to-date (YTD) covers 26 weeks. Financial statements are unaudited. Texas Roadhouse operated 548 company restaurants and franchised 99 restaurants at quarter-end. Comparisons with 2020 are heavily affected by pandemic-related dining-room closures and restrictions in the prior-year period.
Financial performance
| Metric | Q2 2021 | Q2 2020 | 2021 YTD | 2020 YTD |
|---|---|---|---|---|
| Total revenue | $898.8 million | $476.4 million | $1,699.4 million | $1,128.9 million |
| Operating income (loss) | $89.7 million | $(47.3) million | $170.7 million | $(31.5) million |
| Net income (loss) attributable to Texas Roadhouse | $75.5 million | $(33.6) million | $139.6 million | $(17.5) million |
| Diluted EPS | $1.08 | $(0.48) | $1.99 | $(0.25) |
| Restaurant margin, non-GAAP | $158.2 million; 17.7% | $11.8 million; 2.5% | $305.8 million; 18.1% | $90.4 million; 8.1% |
Q2 comparable company restaurant sales increased 80.2%, including 58.6% traffic growth and 21.6% higher average check. YTD comparable sales increased 44.5%. Management attributed the rebound chiefly to dining rooms reopening and easing capacity restrictions, strong To-Go sales, and increased store weeks. Q2 To-Go sales were 16.9% of restaurant sales, versus 57.1% in the prior-year quarter.
Q2 food and beverage costs were 33.1% of restaurant sales, labor 32.3%, rent 1.7%, and other operating costs 15.2%. Food-cost percentage benefited from higher checks but faced commodity inflation; labor-cost percentage improved with higher volumes, partly offset by wage and labor-market pressures. Management’s restaurant margin measure excludes pre-opening, depreciation and amortization, impairment and closure, and general and administrative costs; it is not a GAAP measure.
Cash flow, liquidity and debt
- YTD operating cash flow was $296.8 million, compared with $61.8 million in 2020, reflecting higher earnings and favorable working-capital movements.
- YTD capital expenditures were $85.1 million; investing cash outflow was $81.8 million. Financing cash outflow was $94.8 million, including $27.9 million of dividends and repayment of $50.0 million of borrowing.
- Cash and cash equivalents were $483.4 million at June 29, 2021, up from $363.2 million at December 29, 2020. Current assets were $581.8 million and current liabilities $479.8 million.
- Debt was $190.0 million, all classified as long-term; no current debt maturities remained. The amended unsecured revolver has $300 million of capacity, with a potential additional $200 million subject to conditions. Availability was $101.8 million net of $8.2 million in letters of credit. The weighted-average borrowing rate was 0.98%; the company was in compliance with its financial covenants.
- Operating lease liabilities totaled approximately $611.0 million. Texas Roadhouse reinstated its quarterly dividend at $0.40 per share; $27.9 million was paid during the first half.
Changes, outlook and risks
- Year-over-year recovery: Q2 revenue rose 88.6% and restaurant margin improved substantially from a pandemic-affected comparison period. Results should not be read as a like-for-like measure of normalized growth.
- Development and spending: Management planned 26–29 company restaurant openings in 2021, expected franchise partners to open as many as five restaurants, and forecast approximately $200 million in 2021 capital expenditures. It could reduce development and spending if dining restrictions return. Eleven company restaurants opened in the first half; 17 additional restaurants were under construction at quarter-end.
- Costs and pricing: Management expected 2021 commodity inflation of approximately 7%, with fixed-price contracts covering about half of remaining forecast costs. Beef costs were a principal inflation driver, and the company buys most of its beef from three suppliers. Menu price increases of approximately 1.75% in April 2021 and 1.0% in October 2020 had been implemented; further pricing was expected in Q4 2021.
- Labor and pandemic exposure: Management cited increased difficulty attracting and retaining restaurant employees, with potential for higher labor and sourcing costs. Nearly all domestic locations were unrestricted at quarter-end, but renewed restrictions, new COVID-19 variants, vaccination uptake, and the durability of elevated To-Go sales remained uncertain.
- Capital returns: The company had not resumed share repurchases after suspending them in March 2020, but expected to resume in the second half of 2021, subject to business and financial conditions. $147.8 million remained authorized.
- Contingencies and unusual items: Seven lease guarantees carried maximum contingent exposure of $12.6 million; no material liability was recorded because default was considered less than probable. YTD impairment and closure expense included a $0.5 million loss on relocated property held for sale; an approximately $0.5 million fair-value loss on a China joint-venture investment was also recorded. Management reported no litigation believed likely to have a material adverse effect and no material change in previously disclosed risk factors.
- The filing provides operating plans and cost expectations but does not provide a clear full-year revenue or EPS forecast. Management cautioned that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether comparable sales, traffic, and average check remain strong after the unusually weak 2020 comparison period and as dining-room conditions normalize.
- Whether labor availability, wage rates, beef and other commodity costs, and planned pricing affect restaurant margins as management expects.
- Progress against the 26–29 company-opening plan and approximately $200 million capital-spending outlook, including any renewed pandemic-related disruption.
- Cash generation, revolver availability and covenant compliance, and the company’s ability to sustain dividends or resume share repurchases while funding development.
- Potential exposure from COVID-19, concentrated beef suppliers, lease guarantees, and the company’s significant operating lease obligations.