Texas Roadhouse, Inc. — Q2 2013 Form 10-Q
Reporting period: 13 and 26 weeks ended June 25, 2013, compared with the periods ended June 26, 2012. The company operated 405 restaurants at quarter-end: 330 company-operated and 75 franchised. Fiscal 2013 is a 53-week year.
Financial performance
| Metric | Q2 2013 | Q2 2012 | 2013 YTD | 2012 YTD |
|---|---|---|---|---|
| Total revenue | $352.1 million | $320.3 million | $711.8 million | $645.1 million |
| Income from operations | $29.8 million | $31.2 million | $68.0 million | $60.6 million |
| Net income attributable to Texas Roadhouse | $20.0 million | $20.3 million | $46.1 million | $39.2 million |
| Diluted EPS | $0.28 | $0.28 | $0.65 | $0.55 |
| Operating margin | 8.5% | 9.8% | 9.5% | 9.4% |
- Q2 revenue grew 9.9%; comparable restaurant sales increased 4.5%, comprising 2.3% higher average check and 2.2% higher guest traffic. YTD comparable sales grew 4.1%.
- Q2 operating income declined despite sales growth. Cost of sales rose to 34.5% of restaurant sales from 33.7%, principally reflecting food and beef inflation. General and administrative expense rose to 6.2% of revenue from 5.5%, partly due to the 20th-anniversary managing partner conference.
- Q2 net income attributable to the company fell about 1.7%; YTD it increased about 17.8%. The 2012 YTD comparison included a $5.0 million pretax ($3.1 million after-tax) legal settlement charge; excluding that charge, 2012 YTD diluted EPS was $0.59 versus $0.65 in 2013.
- Operating cash flow was $69.4 million YTD, versus $59.5 million. Capital expenditures were $35.9 million, compared with $42.5 million; cash increased $18.4 million to $100.1 million.
- Total debt and capital lease obligations were $51.4 million, including $50.0 million drawn on the revolving facility. The company reported $145.3 million of revolver availability, net of letters of credit, and compliance with all debt covenants. Current liabilities were $133.3 million and current assets $133.5 million.
- Quarterly dividends declared were $0.12 per share, versus $0.09 a year earlier. No shares were repurchased in the quarter; $70.6 million remained authorized under the $100 million repurchase program.
Outlook, commentary and risks
- Management planned approximately 28 company restaurant openings in 2013, including 10 opened in the first half; franchise partners were expected to open up to five restaurants. Expected 2013 capital expenditures were $100–$105 million.
- Management forecast 2013 commodity-cost inflation of 6.5%–7.0%; approximately 70% of food costs for the remainder of the year were covered by fixed-price contracts. It did not plan further menu price increases until later in 2013.
- Management expected labor-cost pressure from state-mandated minimum and tipped-wage increases. The expected fiscal 2013 effective tax rate was 30.0%–30.5%, compared with 32.8% in 2012, reflecting tax credits and lower nondeductible officer compensation.
- Beef purchasing was concentrated among four suppliers; disruptions or commodity inflation that cannot be offset through pricing could hurt results. Interest-rate exposure on the $50 million revolver was hedged with swaps, though counterparty and market risks remain.
- The EEOC age-discrimination lawsuit was in discovery. The company denied liability, but said the outcome and any possible loss could not be predicted or estimated. It also remained contingently liable on certain franchisee-assigned leases; no liability was recorded because the guarantees’ fair value was considered insignificant.
- Capital project commitments were approximately $91.4 million at June 25, 2013. Management cautioned that interim results are not necessarily indicative of full-year results. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether comparable-sales growth and traffic trends continue, and whether new restaurant openings meet management’s plans.
- Beef and other commodity inflation, labor-cost increases, and their effects on restaurant margins and pricing.
- Progress on the EEOC case, including any later estimate or recognition of potential losses.
- Actual capital spending, cash generation, dividend commitments, and revolver availability relative to planned expansion.
- Future results against the stated tax-rate, commodity-inflation, restaurant-opening, and capital-expenditure outlooks.