Texas Roadhouse, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. The unaudited quarter comprised 13 weeks ended September 28, 2021; year-to-date (YTD) results cover 39 weeks. Texas Roadhouse operated 555 company restaurants and franchised 99 locations at quarter-end, for 654 total restaurants. All domestic company and franchise restaurants were operating without restrictions during Q3 2021, unlike the prior-year quarter, when nearly all operated with dining-room capacity limits.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | 2021 YTD | 2020 YTD |
|---|---|---|---|---|
| Total revenue | $868.9 million | $631.2 million | $2,568.4 million | $1,760.1 million |
| Operating income | $61.7 million | $35.0 million | $232.4 million | $3.4 million |
| Net income attributable to Texas Roadhouse | $52.6 million | $29.2 million | $192.2 million | $11.7 million |
| Diluted EPS | $0.75 | $0.42 | $2.74 | $0.17 |
| Restaurant margin, non-GAAP | 15.7% | 14.5% | 17.3% | 10.4% |
Q3 comparable restaurant sales rose 30.2%, comprising 23.6% guest-traffic growth and 6.6% average-check growth; YTD comparable sales increased 39.5%. Q3 restaurant margin dollars were $135.1 million versus $91.1 million. GAAP operating margin was 7.1% versus 5.5% in Q3 and 9.0% versus 0.2% YTD. Restaurant margin is a company-defined non-GAAP measure and is not equivalent to operating income.
- Cash flow: YTD operating cash flow was $348.7 million, capital expenditures were $139.0 million, and investing cash outflow was $133.4 million. Financing used $141.9 million; cash increased $73.4 million to $436.6 million. Operating cash flow less capital expenditures was approximately $209.7 million.
- Balance sheet and debt: Cash was $436.6 million; current assets were $537.9 million and current liabilities $443.9 million. Revolver borrowings were $190.0 million, with $101.8 million available after letters of credit. The amended unsecured facility has $300 million capacity, matures May 2026, and carries a 0.96% weighted-average rate at quarter-end. The company reported covenant compliance. Operating lease liabilities totaled approximately $625.3 million, separate from debt.
- Capital returns: The company reinstated its quarterly dividend at $0.40 per share and paid $55.8 million in dividends YTD. It resumed buybacks in August and repurchased 161,034 shares for $14.7 million; $133.1 million remained authorized.
Material changes versus the prior comparable period
- Revenue increased 37.7% in Q3, mainly reflecting stronger average unit volumes, a 5.2% increase in company restaurant store weeks, unrestricted dining rooms, and continued to-go sales. To-go represented 15.1% of restaurant sales in Q3 versus 23.3% in Q3 2020, when dining rooms were restricted.
- Food and beverage costs rose to 34.6% of restaurant sales from 32.1%, with reported Q3 commodity inflation of 13.9%, primarily from beef. Labor costs fell to 33.2% from 34.7% of sales, and other operating costs fell to 14.8% from 16.4%, benefiting from higher volumes.
- Q3 general and administrative expense increased to $41.2 million from $26.0 million, including higher incentive compensation, a $2.9 million managing-partner conference, and the absence of a prior-year $3.0 million legal-claim sale benefit. Lower Q3 net interest expense reflected lower rates and repayment of $50 million of incremental borrowings in Q2 2021.
- YTD operating cash flow increased from $146.0 million to $348.7 million, primarily with the recovery in earnings. Financing cash flow shifted from a $190.0 million inflow in 2020 YTD, which included pandemic-related borrowing, to a $141.9 million outflow in 2021 YTD.
Outlook, commentary, and risks
- Management planned 26–29 company restaurant openings in 2021 and 25–30 Texas Roadhouse and Bubba’s 33 openings in 2022. It expected 2022 store-week growth of 5%–6%, excluding potential franchise acquisitions. Expected 2021 capital expenditures were approximately $200 million; 18 company restaurants had opened YTD and 15 were under construction at quarter-end.
- Management expected 2021 commodity inflation of approximately 10%; for 2022 it expected inflation in the high teens during the first half. It anticipated 2022 labor cost inflation of approximately 6% and an effective tax rate near 15%, excluding legislative changes.
- Risks include continued COVID-19 uncertainty, possible new restrictions or variants, food and supply shortages, beef-price inflation, and difficulty recruiting and retaining employees. Beef purchasing is concentrated among three suppliers. The company said it had managed shortages to date but incurred higher costs.
- The amended credit facility is variable-rate debt; a one-percentage-point rate increase was estimated to raise annual interest expense by $1.9 million. The company also reported $12.4 million of contingent exposure under seven lease guarantees, with no material liability recorded because default was considered less than probable.
- Unusual or estimate-sensitive items included a favorable $4.8 million Q3 gift-card breakage adjustment, a $3.2 million favorable general-liability insurance reserve adjustment, and a $1.1 million unfavorable workers’ compensation reserve adjustment. YTD CARES Act payroll-tax deferrals of $47.3 million included $24.3 million repaid in Q3 2021 and $23.0 million due at the end of 2022.
- Management stated disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter. It reported no material change to previously disclosed risk factors and no litigation believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether sales momentum and traffic growth persist as pandemic comparisons normalize, and whether to-go sales remain above pre-pandemic levels.
- Actual beef and other commodity inflation, labor-cost trends, and the company’s ability to offset them through pricing without weakening traffic or value perception.
- Restaurant opening cadence, capital spending, and the effect of new units on margins and cash generation.
- Availability and terms under the revolving facility, covenant compliance, variable-rate exposure, and repayment of the remaining $23.0 million payroll-tax deferral.
- The sustainability of dividends and repurchases alongside planned investment, and the potential effects of gift-card, insurance, and other reserve estimates.