Texas Roadhouse, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 25, 2012 (52 weeks). The filing also presents fourth-quarter results. Unless otherwise stated, financial amounts are in U.S. dollars.
Business context
Texas Roadhouse operates a moderately priced, full-service restaurant chain. At year-end it had 392 restaurants in 47 states and two foreign countries: 320 company-operated and 72 franchised or licensed. Company restaurants included 318 Texas Roadhouse locations and two Aspen Creek locations. Restaurant and franchising operations are reported as one segment.
Financial and operating performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $1,263.3 million | $1,109.2 million |
| Income from operations | $110.5 million (8.7% of revenue) | $95.2 million (8.6%) |
| Net income attributable to Texas Roadhouse | $71.2 million (5.6%) | $64.0 million (5.8%) |
| Diluted EPS | $1.00 | $0.88 |
| Cash from operating activities | $145.9 million | $138.5 million |
| Cash used in investing activities | $88.0 million | $81.6 million |
| Cash used in financing activities | $54.9 million | $64.4 million |
- Revenue grew 13.9%; restaurant sales rose 13.9% and franchise royalties and fees rose 12.5%. Growth reflected new restaurant openings and higher average unit volumes.
- Comparable restaurant sales increased 4.7% for company restaurants. Texas Roadhouse average unit volume was $4.085 million, up 4.3%. Comparable sales growth reflected a 3.4% increase in average check and 1.3% higher guest traffic.
- Restaurant cost of sales increased to 33.8% of restaurant sales from 33.4%, primarily due to approximately 6.4% commodity inflation. Labor improved to 29.4% from 29.7%; other operating costs improved to 16.3% from 16.7%.
- Fourth-quarter revenue was $309.5 million versus $276.6 million; operating income was $22.1 million versus $18.2 million; attributable net income was $13.9 million versus $12.3 million. Diluted EPS was $0.19 versus $0.17.
- Year-end cash and cash equivalents were $81.7 million. Total assets were $791.3 million and current liabilities were $158.7 million. The company reported negative working capital, which it describes as typical for its restaurant operations.
- Long-term debt and capital lease obligations, net of current maturities, were $51.3 million; the revolver balance was $50.0 million. The $200 million revolving facility had $145.3 million available, net of letters of credit. The company was in compliance with covenants.
Changes, unusual items and capital returns
- Compared with FY 2011, revenue, operating income, attributable net income and diluted EPS increased. Attributable net income included a $5.0 million pre-tax ($3.1 million after-tax) legal-settlement charge recorded in Q1; excluding it, diluted EPS was $1.04, a non-GAAP measure, versus $0.88 in 2011.
- FY 2012 included $1.6 million of impairment and closure costs, including impairment related to one restaurant and costs associated with a restaurant closure. A $4.3 million acquisition of two franchise restaurants was completed on the final day of the fiscal year.
- The company repurchased 1.79 million shares for approximately $29.4 million in 2012; $70.6 million remained under its repurchase authorization at year-end. It paid $24.5 million in shareholder dividends. The Board later authorized a $0.12-per-share dividend for March 2013.
- Capital expenditures were $84.9 million in 2012. The company expects 2013 capital expenditures of $100–$105 million, excluding franchise acquisitions.
Outlook, commentary and risks
- Management planned approximately 28 company restaurant openings in 2013 and expected existing franchise partners to open as many as five restaurants, primarily internationally. Fiscal 2013 is a 53-week year.
- Management expected 2013 commodity inflation of 6%–7%, with fixed-price contracts covering 65%–70% of food costs; labor costs were expected to face continued wage-rate pressure. Pre-opening expense was expected to rise.
- Management expected a 2013 tax rate of approximately 31% and operating cash flow to exceed capital expenditures. It noted that 2013 development costs could be slightly higher than 2012.
- Key risks include beef and other commodity price volatility, reliance on four principal beef suppliers, wage and health-benefit costs, competition, consumer spending and traffic trends, weather, food safety and reputational events, recruiting and retaining staff, and successful execution of restaurant expansion.
- The EEOC age-discrimination lawsuit remained pending; the company disputed the allegations and said it could not estimate any potential loss. A separate Massachusetts wage-and-hour class action was settled for $5.0 million and the charge was recorded in 2012.
- Goodwill impairment estimates depend on restaurant-level forecasts; management identified five restaurants with $19.7 million of goodwill for monitoring. The company also self-insures significant portions of certain claims and remains contingently liable on leases assigned to some franchisees.
Important facts for investors to verify
- Whether comparable-sales and traffic trends, restaurant-level profitability, and new-unit performance continue as the company expands.
- Actual food-cost inflation, menu pricing and wage/benefit increases compared with management’s 2013 expectations.
- Progress against the planned 28 company openings, capital spending plans and cash-flow expectations.
- Changes in debt, revolver availability, covenant headroom, lease commitments and shareholder distributions.
- Developments in the EEOC case, the monitored goodwill balances, insurance reserves and other contingencies.
- The company reported unqualified audit opinions on its financial statements and internal control over financial reporting as of December 25, 2012.