Business Context and Reporting Period
Company: Texas Roadhouse, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009 (26 weeks)
Business Overview: A growing, moderately priced, full-service restaurant chain operating 325 locations (256 company-owned, 69 franchise) across 46 states as of June 30, 2009. The company focuses on high-quality, affordable meals with a strategy to expand in mid-sized markets.
Key Financial Metrics
| Metric (in thousands) | 26 Weeks Ended June 30, 2009 |
26 Weeks Ended June 24, 2008 |
|---|---|---|
| Total Revenue | $488,496 | $428,524 |
| Net Income (Attributable to Texas Roadhouse) | $28,075 | $23,385 |
| Diluted EPS | $0.40 | $0.31 |
| Operating Cash Flow | $46,526 | $42,732 |
| Cash and Cash Equivalents | $24,979 | $5,258 (Dec 30, 2008) |
| Total Debt (Long-term + Current) | $126,539 | $132,710 (Dec 30, 2008) |
| Operating Margin | 9.0% | 8.8% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 14.0% year-over-year (YTD), driven by the opening of 11 new company restaurants and the acquisition of franchise restaurants in fiscal 2008. Restaurant sales grew 14.4% YTD.
- Profitability: Net income attributable to the company rose 20.0% to $28.1 million. Operating income increased 16.0% to $43.8 million.
- Comparable Sales: Comparable restaurant sales declined 2.4% YTD, reflecting a challenging economic environment, though this was offset by new unit growth.
- Cost Management: Cost of sales as a percentage of restaurant sales improved to 33.7% from 35.0% in the prior year, aided by lower beef, dairy, and produce costs. However, labor costs increased to 29.4% of sales due to higher wage rates and lower average unit volumes.
- Liquidity: Cash and cash equivalents increased significantly from $5.3 million at year-end 2008 to $25.0 million, driven by strong operating cash flows and reduced capital expenditures.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects capital expenditures for fiscal 2009 to range between $50.0 million and $60.0 million, primarily for planned restaurant openings. The company plans to reduce openings to approximately 15 for the full year.
- Stock Repurchases: The company has $18.2 million remaining under its $75.0 million stock repurchase authorization. No shares were repurchased in the first half of 2009.
- Commodity Outlook: The company expects commodity cost deflation of approximately 2.0% to 3.0% in 2009. It has secured fixed-price contracts for 100% of its beef volume for the remainder of the year.
- Risks: Key risks include dependence on two primary beef suppliers, potential supply shortages, and the impact of virus outbreaks (e.g., H1N1) on guest traffic. The company also faces pressure from state and federal minimum wage increases.
- Debt Covenants: The company remains in compliance with all financial covenants under its $250 million revolving credit facility, which has $122 million in availability.
Investor Verification Checklist
- Comparable Sales Trend: Verify the sustainability of the 2.4% decline in comparable restaurant sales and the effectiveness of menu price increases in offsetting inflation.
- Capital Allocation: Monitor the utilization of the $18.2 million remaining stock repurchase authorization and the timing of the planned 15 restaurant openings.
- Commodity Hedging: Confirm the execution of fixed-price contracts for non-beef commodities (e.g., produce, cheese) to mitigate future cost volatility.
- Franchise Acquisitions: Assess the accretive impact of the nine franchise restaurants acquired in July 2008 on long-term earnings per share.
- Liquidity Position: Track the deployment of the $25 million cash balance to determine if it will be used for debt reduction or further share buybacks.