Texas Roadhouse, Inc. — Q2 2022 Form 10-Q
Reporting period: 13 weeks ended June 28, 2022, compared with the 13 weeks ended June 29, 2021; year-to-date (YTD) comparisons cover 26 weeks. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Business context
Texas Roadhouse operated 582 company restaurants and franchised 96 Texas Roadhouse restaurants at quarter-end, across its Texas Roadhouse, Bubba’s 33 and Jaggers concepts. All domestic company and franchise locations were operating without restriction as of June 28, 2022.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Total revenue | $1,024.6 | $898.8 | +14.0% |
| Income from operations | $85.9 | $89.7 | −4.2% |
| Net income attributable to Texas Roadhouse | $72.4 | $75.5 | −4.1% |
| Diluted EPS | $1.07 | $1.08 | −0.8% |
| Restaurant margin (non-GAAP) | $168.7; 16.6% of restaurant sales | $158.2; 17.7% | Dollars +6.6%; margin rate down |
- Comparable restaurant sales rose 7.6% in Q2: average check increased 8.4%, while guest traffic declined 0.8%. Store weeks increased 6.4%. Management attributed sales growth to higher average check and increased store weeks, including new openings and acquired restaurants.
- Food and beverage costs were 34.1% of restaurant and other sales, versus 33.1% a year earlier; labor was 32.7%, versus 32.3%. Commodity and labor inflation pressured restaurant margins. General and administrative expense rose to $49.2 million from $36.9 million, primarily reflecting the timing of the annual managing partner conference.
- For the first 26 weeks, revenue was $2,012.1 million versus $1,699.4 million; net income attributable to the company was $147.6 million versus $139.6 million, and diluted EPS was $2.15 versus $1.99. Restaurant margin was 16.5% versus 18.1%.
Cash flow, debt and liquidity
- YTD operating cash flow was $298.7 million, compared with $296.8 million. Investing cash outflow was $139.1 million, including $108.6 million of capital expenditures and $33.1 million for acquired franchise restaurants. Financing cash outflow was $314.8 million, mainly reflecting $212.9 million of share repurchases and $62.5 million of dividends.
- Cash and cash equivalents were $180.4 million at June 28, 2022, down from $335.6 million at December 28, 2021. Current assets were $280.9 million and current liabilities $528.5 million; management notes restaurant operations can function with negative working capital.
- Long-term debt was $75.0 million, down from $100.0 million at year-end. The company had $212.7 million available under its $300 million revolving facility, net of letters of credit, and was compliant with financial covenants. The facility matures May 1, 2026; the weighted-average rate on borrowings was 2.13%.
Outlook, risks and notable items
- For 2022, management expected approximately 25 company restaurant openings, about 6.0% store-week growth including acquired restaurants, and capital expenditures of approximately $230 million. It expected commodity inflation of approximately 12% for the year and labor cost inflation of approximately 8%; approximately 45% of remaining forecast commodity costs were locked in. The expected effective tax rate was approximately 14%.
- Management cited continued commodity inflation, food and supply availability, and difficulty attracting and retaining restaurant employees as risks that could increase costs or reduce sales. Beef purchasing is concentrated among four suppliers; the company said it had managed shortages to date but had incurred higher costs.
- During YTD, the company opened eight company restaurants, acquired eight franchise restaurants for $33.1 million, and franchise partners opened three international restaurants. It planned to open its first Jaggers franchise restaurant as early as Q4 2022. Delays in obtaining equipment and supplies could postpone openings.
- The board increased the quarterly dividend to $0.46 per share. The company repurchased 2.7 million shares for $212.9 million YTD; $166.9 million remained under its $300 million authorization.
- A $0.3 million impairment related to a restaurant scheduled for relocation in Q3 was included in Q2 impairment and closure costs. YTD results also included a $0.7 million gain on sale of land and a $0.3 million gain recognized on a step acquisition. The company had $23.0 million of deferred employer payroll taxes due at the end of 2022.
- Seven lease guarantees had a maximum potential exposure of $11.7 million; no material liability was recorded because default was considered less than probable. The filing reported no litigation believed likely to have a material adverse effect and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Whether menu pricing and sales growth can offset expected food and labor inflation without further erosion in restaurant margins.
- Actual traffic trends, since Q2 comparable sales growth was driven by check increases while traffic declined.
- Progress against restaurant opening, store-week growth and capital expenditure plans, including supply-related delays.
- Cash and debt levels after planned capital spending, dividends, buybacks and the $23.0 million payroll-tax repayment.
- Management’s inflation and tax-rate assumptions, and the availability and pricing of key food supplies, particularly beef.