Texas Roadhouse, Inc. — Q1 2014 Form 10-Q
Business context and period. The filing covers the 13 weeks ended April 1, 2014, compared with the 13 weeks ended March 26, 2013. Texas Roadhouse operated 427 restaurants at quarter-end: 352 company restaurants and 75 franchise restaurants.
Financial and operating performance
| Metric | Q1 2014 | Prior-year quarter |
|---|---|---|
| Total revenue | $397.1 million | $359.7 million |
| Operating income / margin | $40.2 million / 10.1% | $38.2 million / 10.6% |
| Net income attributable to Texas Roadhouse | $26.5 million | $26.2 million |
| Diluted EPS | $0.37 | $0.37 |
| Operating cash flow | $45.0 million | $38.8 million |
| Capital expenditures | $23.1 million | $15.0 million |
- Revenue increased 10.4%; restaurant sales increased 10.5%. Management attributed sales growth mainly to new restaurants and comparable sales. Comparable restaurant sales rose 2.8%, from a 1.5% increase in average check and 1.3% traffic growth; the prior-year comparable increase was 3.5%.
- Restaurant margin was $75.6 million, or 19.2% of restaurant sales, versus $67.5 million, or 18.9%. Cost of sales improved to 34.2% from 34.9%, while labor rose to 29.1% from 28.5%.
- Net income rose modestly, but net margin declined to 6.7% from 7.3%. The effective tax rate increased to 30.7% from 27.9%; diluted EPS was unchanged.
- Cash and cash equivalents were $90.7 million at April 1, 2014. Total debt was $51.2 million, including $50.0 million drawn on the revolver. The company reported $144.6 million of revolver availability, net of letters of credit, and compliance with debt covenants.
- Cash used in financing was $26.1 million, including $24.2 million for repurchases of 960,000 shares. The company declared a $0.15-per-share dividend, payable April 4, 2014; $10.5 million was recorded as dividends payable at quarter-end.
Outlook, commentary and risks
- Management planned 25–30 company restaurant openings in 2014; six opened in Q1. Franchise partners were expected to open as many as five restaurants, including up to three internationally.
- Full-year 2014 capital expenditures were projected at $100–$110 million. Management expected operating cash flow to exceed capital expenditures and anticipated using cash for repurchases, dividends and/or debt repayment.
- Management expected low-single-digit commodity inflation for 2014 and a 30.0%–31.0% effective tax rate. It expected expanded employee health coverage to add $2.5–$3.0 million to 2014 health benefit costs versus the prior year; wage, healthcare and other labor costs were identified as pressures.
- Commodity-price volatility and reliance on four principal beef suppliers could affect costs or supply. Management noted that menu pricing may not fully offset cost increases.
- Estimated capital-project commitments were $71.8 million. Operating lease obligations totaled $551.8 million. The company also remained contingently liable on certain assigned restaurant leases; it recorded no liability for these guarantees because their fair value was not considered significant.
- An EEOC lawsuit alleges age discrimination in hiring for certain restaurant positions. The company denied liability; the case was in discovery, and the potential loss could not be estimated. Management reported no material changes to previously disclosed risk factors.
- Management stated that Q1 results are not necessarily indicative of full-year results. No full-year earnings or EPS guidance was provided in the filing.
Investor facts to verify
- Whether comparable-sales and traffic trends continue, and how new restaurant openings affect sales and startup labor costs.
- Whether labor, healthcare and commodity inflation are offset by pricing, traffic and operating efficiencies, and whether the projected tax rate is achieved.
- Execution of the 2014 opening and capital-spending plans, and the resulting cash needs and shareholder returns.
- Updates on the EEOC litigation and on contingent lease guarantees, including any change in estimated exposure.