Texas Roadhouse, Inc. — 2020 Form 10-K
Business context and reporting period. The filing covers the 52-week fiscal year ended December 29, 2020; fourth-quarter 2020 comprised 13 weeks. Texas Roadhouse operated 537 company restaurants and had 97 franchised restaurants across 49 states and 10 foreign countries. The company also operated Bubba’s 33 and Jaggers concepts. Results were significantly affected by COVID-19 dining-room restrictions and temporary closures.
Key financial results
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $2.398 billion | $2.756 billion |
| Income from operations | $23.8 million | $212.0 million |
| Net income attributable to Texas Roadhouse | $31.3 million | $174.5 million |
| Diluted EPS | $0.45 | $2.46 |
| Operating cash flow | $230.4 million | $374.3 million |
| Capital expenditures | $154.4 million | $214.3 million |
| Comparable restaurant sales | (14.2)% | 4.7% |
| Restaurant margin, non-GAAP | $265.6 million; 11.2% | $474.2 million; 17.3% |
Total revenue declined 13.0%; restaurant and other sales fell 12.9%. The 2019 fiscal year included a 53rd week, which contributed $59.0 million in restaurant and other sales and approximately $0.10–$0.11 of diluted EPS. Restaurant margin is a company-defined non-GAAP measure.
Fourth quarter: Revenue was $638.0 million versus $725.2 million in Q4 2019; operating income was $20.4 million versus $53.4 million; net income attributable to the company was $19.5 million versus $42.7 million; diluted EPS was $0.28 versus $0.61. The comparison is affected by the differing quarter lengths: 13 weeks in 2020 and 14 weeks in 2019.
Liquidity, debt, and financial position
- Cash and cash equivalents were $363.2 million at year-end, compared with $107.9 million a year earlier. Total assets were $2.325 billion and total liabilities were $1.382 billion.
- Revolving-credit borrowings totaled $240.0 million: $190.0 million under the original facility and $50.0 million under the incremental facility. The weighted-average rate was 1.98%. Reported remaining availability was $1.8 million under the original facility, net of letters of credit, and $32.5 million under the incremental facility.
- The $50.0 million incremental borrowing was classified as current and matures May 10, 2021; the original facility matures August 5, 2022. The company reported compliance with its financial covenants at year-end.
- Operating lease liabilities were $591.4 million. Contractual operating lease payments totaled $1.046 billion before discounting. The company also had $13.0 million of contingent exposure on seven assigned leases; no material liability was recorded.
- Operating cash flow decreased to $230.4 million. Cash used in investing was $161.1 million and cash provided by financing was $185.9 million, principally reflecting $240.0 million of credit-facility borrowings.
Material changes and unusual items
- At year-end, 82% of company restaurants had dining rooms operating under capacity restrictions; the remainder were limited to outdoor dining and/or To-Go or curbside service. To-Go sales rose to 27.0% of restaurant sales from 7.2% in 2019, but management said these sales generally generate lower margins and cash flow than normal dine-in operations.
- Company restaurant comparable sales declined 14.2%; Texas Roadhouse average unit volume fell to $4.649 million from $5.555 million. Restaurant labor rose to 36.8% of restaurant sales from 33.1%, and other operating costs rose to 17.0% from 15.3%, reflecting lower volumes and pandemic-related expenses.
- The company recorded $7.0 million of CARES Act Employee Retention Credit in labor expense. It deferred $47.3 million of employer Social Security payroll taxes, repayable in equal installments at the ends of 2021 and 2022, and incurred $20.2 million of relief pay and enhanced employee benefits.
- The 2020 income tax benefit was $15.7 million, including the effect of FICA tip and work opportunity tax credits against low pretax income. The resulting 81.4% effective tax benefit rate is unusually high and should not be treated as a normalized rate.
- Impairment and closure costs were $2.3 million, including $1.2 million for fixed and lease assets at four restaurants and $1.1 million of goodwill impairment at two restaurants. The company also recognized a $1.1 million loss on its investment in a China joint venture.
- The company suspended dividends after the March 27, 2020 payment and halted share repurchases on March 17, 2020. It paid $12.6 million for repurchases before suspension; $147.8 million remained authorized at year-end. Dividends and repurchases remained under review.
Outlook, management commentary, and risks
Management expected 25–30 company restaurant openings in 2021 and up to six openings by franchise partners, primarily international. Planned 2021 capital expenditures were $210–$220 million, subject to possible reductions if restrictions tightened or dining rooms closed. Expected average investment was approximately $5.5 million per new Texas Roadhouse restaurant and $6.9 million per Bubba’s 33 restaurant. Management forecast approximately 3.0% commodity cost inflation in 2021 and said it could take additional menu pricing if needed.
Management stated that results would remain affected until restrictions were lifted and dining rooms could operate at full capacity; it could not predict the pandemic’s duration, further closures, or changes in consumer spending. Key risks include continued capacity restrictions, lower profitability of off-premise sales, labor availability and wage inflation, beef and other commodity costs, supplier disruption, lease commitments, and the availability and terms of additional liquidity. The company reported no litigation it believed would have a material adverse effect. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether dining-room capacity and guest traffic recover, and whether higher To-Go sales can improve profitability and cash generation.
- Liquidity and debt refinancing, particularly the incremental facility’s May 2021 maturity, covenant compliance, and repayment of deferred payroll taxes.
- Whether restaurant-level margins recover amid labor, insurance, supply, and commodity-cost pressures.
- Whether planned 2021 openings and $210–$220 million capital expenditures proceed as expected, given pandemic conditions and construction costs.
- Timing of any dividend or share-repurchase resumption, and the sustainability of reported earnings apart from unusual tax credits and pandemic-related items.