Business Context and Reporting Period
Company: Texas Roadhouse, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 29, 2009 (13 weeks) and 39 weeks (Year-to-Date)
Business Overview: A growing, moderately priced, full-service restaurant chain operating 326 locations (255 company-owned, 71 franchise) across 46 states as of the period end.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended Sep 29, 2009 |
13 Weeks Ended Sep 23, 2008 |
39 Weeks Ended Sep 29, 2009 |
39 Weeks Ended Sep 23, 2008 |
|---|---|---|---|---|
| Total Revenue | $226,467 | $217,735 | $714,963 | $646,259 |
| Net Income (Attributable to T.R.) | $10,695 | $8,644 | $38,770 | $32,029 |
| Diluted EPS | $0.15 | $0.12 | $0.54 | $0.43 |
| Operating Cash Flow (39 weeks) | $68,296 (2009) vs $58,250 (2008) | |||
| Cash and Equivalents | $35,833 (Sep 29, 2009) vs $5,258 (Dec 30, 2008) | |||
| Total Debt (Long-term + Current) | $126,483 (Sep 29, 2009) vs $132,710 (Dec 30, 2008) | |||
| Comparable Restaurant Sales Growth | -4.6% (Q3 2009) | -3.0% (YTD 2009) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 4.0% in Q3 2009 and 10.9% YTD 2009 compared to the prior year, driven primarily by new restaurant openings and acquisitions, despite a decline in comparable restaurant sales.
- Profitability: Net income attributable to Texas Roadhouse, Inc. rose 23.7% in Q3 and 21.0% YTD. Operating margins improved to 7.6% in Q3 2009 from 6.2% in Q3 2008.
- Cost Management: Restaurant cost of sales decreased as a percentage of sales (33.2% in Q3 2009 vs. 35.6% in Q3 2008) due to lower beef, dairy, and produce costs and menu price increases. Conversely, labor costs increased to 30.1% of sales due to higher wage rates and payroll taxes.
- Liquidity: Cash and cash equivalents surged from $5.3 million at year-end 2008 to $35.8 million in Q3 2009, driven by strong operating cash flows and reduced capital expenditures.
- Capital Expenditures: Capital spending dropped significantly to $34.8 million YTD 2009 from $75.4 million YTD 2008, reflecting a reduced pace of new restaurant openings.
Guidance, Outlook, and Risks
- Outlook: Management expects commodity cost deflation of approximately 2.5-3.0% for fiscal 2009. The effective tax rate is projected to be approximately 32.4% for the full year.
- Capital Plan: Planned capital expenditures for fiscal 2009 are estimated at $50.0 million to $55.0 million, primarily for new restaurant openings. The company intends to fund these via cash on hand, operating cash flow, and its credit facility.
- Stock Repurchase: The company has $18.2 million remaining under its $75.0 million stock repurchase authorization. No shares were repurchased in the current quarter.
- Risks and Contingencies:
- Supply Chain: The company relies on two primary beef suppliers; a disruption could cause shortages.
- Commodity Prices: Exposure to volatility in produce, cheese, and other ingredients not covered by fixed-price contracts.
- Health Concerns: Potential adverse effects from virus outbreaks (e.g., H1N1) on guest traffic and food supply.
- Guarantees: Contingent liability on real estate leases for five franchise restaurants if franchisees default.
Investor Verification Checklist
- Comparable Sales Trend: Verify the sustainability of the -4.6% comparable sales decline in Q3 2009 and the effectiveness of menu price increases in offsetting it.
- Labor Cost Pressure: Monitor the trajectory of labor costs as a percentage of sales, which rose to 30.1% due to wage inflation and workers' compensation expenses.
- Debt Covenants: Confirm continued compliance with the credit facility covenants (minimum fixed charge coverage ratio of 2.00:1.00 and maximum leverage ratio of 3.00:1.00).
- Capital Allocation: Assess the utilization of the $122.0 million available under the revolving credit facility and the timing of future stock repurchases.
- Beef Supply Concentration: Evaluate the risk mitigation strategies regarding the reliance on two primary beef suppliers.