Texas Roadhouse, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. The filing covers the 13 weeks ended March 28, 2023, compared with the 13 weeks ended March 29, 2022. Texas Roadhouse operated 611 company restaurants and franchised 93 restaurants at quarter-end, across Texas Roadhouse, Bubba’s 33 and Jaggers concepts.
Financial performance
- Revenue: $1.174 billion, up 18.9% year over year. Restaurant and other sales rose 19.0%; company comparable restaurant sales increased 12.9%, reflecting 7.6% higher traffic and a 5.3% increase in average check.
- Profit: Net income attributable to Texas Roadhouse was $86.4 million, up 14.9%; diluted EPS was $1.28, up from $1.08. Income from operations was $100.9 million, or 8.6% of revenue, versus $90.1 million, or 9.1%, a year earlier.
- Restaurant margins: Restaurant margin, a company-defined non-GAAP measure, increased to $185.7 million from $161.2 million, but declined to 15.9% of restaurant and other sales from 16.4%. Food and beverage costs rose to 35.2% of sales from 34.4%, and labor to 33.0% from 32.8%.
- Cash flow: Operating cash flow was $189.0 million, compared with $187.8 million. Capital expenditures were $66.7 million; cash used in investing activities was $103.3 million, including $39.1 million for franchise restaurant acquisitions. Cash used in financing was $103.4 million. Cash declined $17.7 million to $156.1 million.
- Debt and liquidity: The company had no revolving credit facility borrowings at quarter-end, with $283.5 million available after letters of credit. It repaid $50 million borrowed at year-end and reported compliance with all financial covenants. Operating lease liabilities totaled approximately $718.5 million, current and long-term combined.
- Shareholder returns: The quarterly dividend was $0.55 per share, up 20% from $0.46. The company repurchased 92,751 shares for $9.6 million; $157.3 million remained authorized under its repurchase program.
Changes versus the prior-year quarter
- Revenue growth reflected 6.0% more company store weeks, new openings and the acquisition of eight franchise restaurants, as well as higher comparable sales. The company had 704 total restaurants at March 28, 2023, versus 672 a year earlier.
- Restaurant margin dollars increased with sales, while margin percentage contracted amid commodity and labor inflation. Comparable sales growth was 12.9%, below the prior-year 16.0%.
- Income tax expense was $14.3 million and the effective tax rate was 13.9%, versus 14.2% a year earlier; management attributed the lower rate primarily to higher FICA tip tax credits.
- Q1 2023 included a $2.6 million separation payout, net of restricted-stock forfeitures, related to an executive retirement. Equity income included a $0.6 million gain associated with acquiring four restaurants in which the company previously held minority interests.
Outlook, risks and contingencies
- Management planned approximately 25–30 Texas Roadhouse and Bubba’s 33 company restaurant openings in 2023 and expected at least 6% store-week growth across concepts. It expected approximately 10 franchise openings, including two Jaggers locations.
- Management forecast 2023 commodity inflation of approximately 5%–6%, moderating from 8.9% in Q1, and wage and other labor inflation of 5%–6%, compared with 8.0% in Q1. About 50% of remaining forecast commodity costs were locked; the balance remained exposed to market prices.
- Expected 2023 capital expenditures were approximately $265 million. Estimated costs to complete capital project commitments were $228.6 million at quarter-end. Management expected to fund capital needs with cash, operating cash flow and, if necessary, the revolving facility.
- Management expected an effective tax rate of approximately 14% for 2023, excluding legislative changes. The filing cautions that quarterly results are not necessarily indicative of full-year results and gives no specific full-year revenue or EPS guidance.
- Risks include commodity-price volatility, labor-market and wage pressures, and dependence on four suppliers for most beef purchases. The company does not use financial instruments to hedge commodity prices. Seven lease guarantees carried maximum potential exposure of $11.1 million; no material liability was recorded because default was considered less than probable. The company reported no litigation believed likely to have a material adverse effect and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether traffic and check growth can sustain sales momentum as comparable-sales growth moderates and inflation affects restaurant margins.
- Whether forecast commodity and labor inflation, and the expected 2023 restaurant opening pace and capital spending, track management’s projections.
- Cash generation and liquidity after dividends, capital expenditures, acquisitions and other shareholder returns; also monitor lease obligations and credit-facility availability.
- Whether beef supply concentration, supplier performance and the company’s ability to adjust menu pricing materially affect costs or sales.
- Acquisition purchase accounting remains preliminary for the eight restaurants acquired for approximately $39.0 million; verify final working-capital adjustments and subsequent operating contribution.