Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-50972
Texas Roadhouse, Inc.
(Exact name of registrant specified in its charter)
Delaware
20-1083890
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification Number)
6040 Dutchmans Lane, Suite 200
Louisville, Kentucky 40205
(Address of principal executive offices) (Zip Code)
(502) 426-9984
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
TXRH
NASDAQ Global Select Market
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒
Accelerated Filer ☐
Non-accelerated Filer ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding were 66,783,122 on October 25, 2023.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1 — Financial Statements (Unaudited) — Texas Roadhouse, Inc. and Subsidiaries
3
Condensed Consolidated Balance Sheets —September 26, 2023 and December 27, 2022
Condensed Consolidated Statements of Income — For the 13 and 39 Weeks Ended September 26, 2023 and September 27, 2022
4
Condensed Consolidated Statements of Stockholders’ Equity — For the 13 and 39 Weeks Ended September 26, 2023 and September 27, 2022
5
Condensed Consolidated Statements of Cash Flows — For the 39 Weeks Ended September 26, 2023 and September 27, 2022
7
Notes to Condensed Consolidated Financial Statements
8
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
Item 3 — Quantitative and Qualitative Disclosures About Market Risk
29
Item 4 — Controls and Procedures
30
PART II. OTHER INFORMATION
Item 1 — Legal Proceedings
31
Item 1A — Risk Factors
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 — Defaults Upon Senior Securities
Item 4 — Mine Safety Disclosures
Item 5 — Other Information
32
Item 6 — Exhibits
Signatures
33
2
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
September 26, 2023
December 27, 2022
Assets
Current assets:
Cash and cash equivalents
$
69,324
173,861
Receivables, net of allowance for doubtful accounts of $54 at September 26, 2023 and $50 at December 27, 2022
48,967
150,264
Inventories, net
36,589
38,015
Prepaid income taxes
2,823
5,097
Prepaid expenses and other current assets
23,783
29,604
Total current assets
181,486
396,841
Property and equipment, net of accumulated depreciation of $1,048,243 at September 26, 2023 and $968,036 at December 27, 2022
1,425,169
1,270,349
Operating lease right-of-use assets, net
679,065
630,258
Goodwill
169,684
148,732
Intangible assets, net of accumulated amortization of $20,217 at September 26, 2023 and $17,905 at December 27, 2022
4,195
5,607
Other assets
86,738
73,878
Total assets
2,546,337
2,525,665
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of operating lease liabilities
27,186
25,490
Accounts payable
126,219
105,560
Deferred revenue-gift cards
201,316
335,403
Accrued wages
68,013
54,544
Income taxes payable
603
434
Accrued taxes and licenses
42,478
35,264
Other accrued liabilities
95,611
95,315
Total current liabilities
561,426
652,010
Operating lease liabilities, net of current portion
730,163
677,874
Long-term debt
—
50,000
Restricted stock and other deposits
8,873
7,979
Deferred tax liabilities, net
23,393
20,979
Other liabilities
103,316
89,161
Total liabilities
1,427,171
1,498,003
Texas Roadhouse, Inc. and subsidiaries stockholders’ equity:
Preferred stock ($0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding)
Common stock ($0.001 par value, 100,000,000 shares authorized, 66,783,010 and 66,973,311 shares issued and outstanding at September 26, 2023 and December 27, 2022, respectively)
67
Additional paid-in-capital
13,139
Retained earnings
1,103,889
999,432
Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity
1,103,956
1,012,638
Noncontrolling interests
15,210
15,024
Total equity
1,119,166
1,027,662
Total liabilities and equity
See accompanying notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
13 Weeks Ended
39 Weeks Ended
September 27, 2022
Revenue:
Restaurant and other sales
1,115,224
986,999
3,447,192
2,986,028
Franchise royalties and fees
6,528
6,299
20,119
19,362
Total revenue
1,121,752
993,298
3,467,311
3,005,390
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Food and beverage
386,184
342,032
1,198,099
1,026,469
Labor
378,814
330,219
1,155,970
985,132
Rent
18,177
16,703
54,001
49,785
Other operating
169,225
146,036
507,846
442,714
Pre-opening
8,663
5,701
19,711
15,315
Depreciation and amortization
39,124
33,735
112,764
101,775
Impairment and closure, net
(2)
772
131
537
General and administrative
47,708
42,812
148,573
132,319
Total costs and expenses
1,047,893
918,010
3,197,095
2,754,046
Income from operations
73,859
75,288
270,216
251,344
Interest income (expense), net
496
(85)
2,730
(877)
Equity income from investments in unconsolidated affiliates
139
190
1,181
1,069
Income before taxes
74,494
75,393
274,127
251,536
Income tax expense
8,870
11,430
35,474
35,708
Net income including noncontrolling interests
65,624
63,963
238,653
215,828
Less: Net income attributable to noncontrolling interests
1,836
1,635
6,207
5,879
Net income attributable to Texas Roadhouse, Inc. and subsidiaries
63,788
62,328
232,446
209,949
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries:
Basic
0.96
0.93
3.47
3.09
Diluted
0.95
3.46
3.08
Weighted average shares outstanding:
66,779
66,886
66,923
67,875
67,014
67,159
67,179
68,140
Cash dividends declared per share
0.55
0.46
1.65
1.38
Condensed Consolidated Statements of Stockholders' Equity
For the 13 Weeks Ended September 26, 2023
Total Texas
Additional
Roadhouse, Inc.
Par
Paid-in-
Retained
and
Noncontrolling
Shares
Value
Capital
Earnings
Subsidiaries
Interests
Total
Balance, June 27, 2023
66,843,456
1,082,915
1,082,982
15,268
1,098,250
Net income
Distributions to noncontrolling interest holders
(1,894)
Dividends declared ($0.55 per share)
(36,731)
Shares issued under share-based compensation plans including tax effects
68,248
Indirect repurchase of shares for minimum tax withholdings
(21,101)
(2,360)
Repurchase of shares of common stock, including excise tax
(107,593)
(6,162)
(6,083)
(12,245)
Share-based compensation
8,522
Balance, September 26, 2023
66,783,010
For the 13 Weeks Ended September 27, 2022
Balance, June 28, 2022
66,853,296
938,825
938,892
15,127
954,019
(1,704)
Dividends declared ($0.46 per share)
(30,781)
88,641
(27,351)
(2,444)
9,580
Balance, September 27, 2022
66,914,586
7,136
970,372
977,575
15,058
992,633
For the 39 Weeks Ended September 26, 2023
Balance, December 27, 2022
66,973,311
(6,021)
Dividends declared ($1.65 per share)
(110,429)
324,415
(100,397)
(10,599)
(414,319)
(27,806)
(17,560)
(45,366)
25,266
For the 39 Weeks Ended September 27, 2022
Balance, December 28, 2021
69,382,418
69
114,504
943,551
1,058,124
15,360
1,073,484
(5,841)
Acquisition of noncontrolling interest
(1,395)
(340)
(1,735)
Dividends declared ($1.38 per share)
(93,328)
390,996
(124,823)
(11,108)
Repurchase of shares of common stock
(2,734,005)
(123,057)
(89,800)
(212,859)
28,192
6
Condensed Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes
2,707
5,246
Loss on disposition of assets
4,315
3,635
Impairment and closure costs
41
(1,181)
(1,069)
Distributions of income received from investments in unconsolidated affiliates
493
817
Provision for doubtful accounts
36
Share-based compensation expense
Changes in operating working capital, net of acquisitions:
Receivables
102,068
123,551
Inventories
1,835
(990)
5,821
2,831
(12,680)
10,313
14,188
1,941
Deferred revenue—gift cards
(135,251)
(119,338)
13,469
21,130
Prepaid income taxes and income taxes payable
2,443
10,886
7,041
4,016
(10,117)
(8,916)
Operating lease right-of-use assets and lease liabilities
4,702
3,950
14,158
(9,549)
Net cash provided by operating activities
390,739
395,057
Cash flows from investing activities:
Capital expenditures—property and equipment
(243,895)
(174,194)
Acquisition of franchise restaurants, net of cash acquired
(39,153)
(33,069)
Proceeds from sale of investments in unconsolidated affiliates
632
316
Proceeds from the sale of property and equipment
1,800
2,262
Proceeds from sale leaseback transactions
7,097
9,078
Net cash used in investing activities
(273,519)
(195,607)
Cash flows from financing activities:
Payments on revolving credit facility
(50,000)
(25,000)
Proceeds from restricted stock and other deposits, net
485
91
(45,193)
Dividends paid to shareholders
Net cash used in financing activities
(221,757)
(349,780)
Net decrease in cash and cash equivalents
(104,537)
(150,330)
Cash and cash equivalents—beginning of period
335,645
Cash and cash equivalents—end of period
185,315
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized
877
1,091
Income taxes paid
30,323
19,591
Capital expenditures included in current liabilities
51,556
32,468
(tabular amounts in thousands, except share and per share data)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Texas Roadhouse, Inc., our wholly-owned subsidiaries and subsidiaries in which we have a controlling interest (collectively, the "Company," "we," "our" and/or "us") as of September 26, 2023 and December 27, 2022 and for the 13 and 39 weeks ended September 26, 2023 and September 27, 2022.
The Company maintains three restaurant concepts operating as Texas Roadhouse, Bubba’s 33 and Jaggers. As of September 26, 2023, we owned and operated 623 restaurants and franchised an additional 99 restaurants in 49 states and ten foreign countries. Of the 99 franchise restaurants, there were 55 domestic restaurants and 44 international restaurants. As of September 27, 2022, we owned and operated 587 restaurants and franchised an additional 98 restaurants in 49 states and ten foreign countries. Of the 98 franchise restaurants, there were 62 domestic restaurants and 36 international restaurants.
As of September 26, 2023 and September 27, 2022, we owned a majority interest in 20 company restaurants. The operating results of these majority-owned restaurants are consolidated and the portion of income attributable to noncontrolling interests is reflected in the line item net income attributable to noncontrolling interests in our unaudited condensed consolidated statements of income.
As of September 26, 2023 and September 27, 2022, we owned a 5.0% to 10.0% equity interest in 20 and 23 domestic franchise restaurants, respectively. These unconsolidated restaurants are accounted for using the equity method. Our investments in these unconsolidated affiliates are included in other assets in our unaudited condensed consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our unaudited condensed consolidated statements of income under equity income from investments in unconsolidated affiliates. All significant intercompany balances and transactions for these unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reporting of revenue and expenses during the periods to prepare these unaudited condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). Significant items subject to such estimates and assumptions include the carrying amounts of property and equipment, goodwill, obligations related to insurance reserves, leases, legal reserves, gift card breakage and income taxes. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, except that certain information and footnotes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results for the 13 and 39 weeks ended September 26, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 2023. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2022.
Our significant interim accounting policies include the recognition of income taxes using an estimated annual effective tax rate.
(2) Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting. These changes are intended to simplify the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. We adopted this guidance during the 39 weeks ended September 26, 2023 and the adoption did not have a material impact on our unaudited condensed consolidated financial statements.
(3) Long-term Debt
We maintain a revolving credit facility (the "credit facility") with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A. and PNC Bank, N.A. The credit facility is an unsecured, revolving credit agreement and has a borrowing capacity of up to $300.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders. The credit facility has a maturity date of May 1, 2026.
On May 19, 2023, we amended the credit facility to provide for the transition from LIBOR to the Secured Overnight Financing Rate ("SOFR") as the benchmark rate for purposes of calculating interest on outstanding borrowings. Pursuant to the amendment, we are required to pay interest on outstanding borrowings at the Term SOFR, plus a fixed adjustment of 0.10% and a variable adjustment of 0.875% to 1.875% depending on our leverage ratio. At the time of transition to the Term SOFR, we had no outstanding borrowings under the credit facility.
As of September 26, 2023, we had no outstanding balance on the credit facility and had $287.7 million of availability, net of $12.3 million of outstanding letters of credit. As of December 27, 2022, we had $50.0 million outstanding on the credit facility and $233.5 million of availability, net of $16.5 million of outstanding letters of credit. The outstanding amount as of December 27, 2022 is included as long-term debt on our unaudited condensed consolidated balance sheet.
The interest rate for the credit facility as of September 26, 2023 and September 27, 2022 was 6.19% and 3.69%, respectively.
The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants. We were in compliance with all financial covenants as of September 26, 2023.
(4) Revenue
The following table disaggregates our revenue by major source:
Franchise royalties
5,832
5,559
17,896
17,029
Franchise fees
696
740
2,223
2,333
9
The following table presents a rollforward of deferred revenue-gift cards:
Beginning balance
226,130
208,429
300,657
Gift card activations, net
48,824
42,741
167,378
144,402
Gift card redemptions and breakage
(73,638)
(68,905)
(301,465)
(262,794)
Ending balance
182,265
We recognized restaurant sales of $26.5 million and $191.7 million for the 13 and 39 weeks ended September 26, 2023, respectively, related to amounts in deferred revenue as of December 27, 2022. We recognized restaurant sales of $30.3 million and $171.9 million for the 13 and 39 weeks ended September 27, 2022, respectively, related to amounts in deferred revenue as of December 28, 2021.
(5) Income Taxes
A reconciliation of the statutory federal income tax rate to our effective tax rate for the 13 and 39 weeks ended September 26, 2023 and September 27, 2022 is as follows:
Tax at statutory federal rate
21.0
%
State and local tax, net of federal benefit
3.7
3.8
FICA tip tax credit
(12.0)
(9.6)
(11.0)
(10.1)
Work opportunity tax credit
(1.0)
(1.1)
(1.3)
Stock compensation
(0.6)
(0.2)
Net income attributable to noncontrolling interests
(0.4)
(0.3)
Officers compensation
0.4
0.8
0.6
Other
0.7
11.9
15.2
12.9
14.2
Our effective tax rate was 11.9% and 15.2% for the 13 weeks ended September 26, 2023 and September 27, 2022, respectively. Our effective tax rate was 12.9% and 14.2% for the 39 weeks ended September 26, 2023 and September 27, 2022, respectively. The reduction in our tax rate for the 13 and 39 weeks ended September 26, 2023 as compared to the prior year periods was primarily driven by an increase in the FICA tip credit benefit along with an increase in the excess tax benefit for stock compensation.
(6)
Commitments and Contingencies
The estimated cost of completing capital project commitments at September 26, 2023 and December 27, 2022 was $261.3 million and $205.7 million, respectively.
As of September 26, 2023 and December 27, 2022, we were contingently liable for $10.6 million and $11.3 million, respectively, for seven lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of September 26, 2023 and December 27, 2022, as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.
During the 13 and 39 weeks ended September 26, 2023, we bought most of our beef from four suppliers. We have no material minimum purchase commitments with our vendors that extend beyond a year.
10
Occasionally, we are a defendant in litigation arising in the ordinary course of business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns. None of these types of litigation, most of which are covered by insurance, has had a material adverse effect on us and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.
(7) Acquisitions
On December 28, 2022, the first day of the 2023 fiscal year, we completed the acquisition of eight franchise Texas Roadhouse restaurants located in Maryland and Delaware, including four in which we previously held a 5.0% equity interest. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $39.1 million, net of cash acquired, for 100% of the entities. The transactions in which we held an equity interest were accounted for as step acquisitions and we recorded a gain of $0.6 million on our previous investments in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income.
These transactions were accounted for using the acquisition method as defined in Accounting Standards Codification ("ASC") 805, Business Combinations. These acquisitions are consistent with our long-term strategy to increase net income and earnings per share.
The following table summarizes the consideration paid for these acquisitions, and the estimated preliminary fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for measurement-period adjustments through September 26, 2023.
Inventory
410
293
Property and equipment
17,763
Operating lease right-of-use assets
4,775
20,067
Intangible assets
1,700
(1,164)
(110)
(4,665)
39,069
The aggregate purchase price is preliminary as we are finalizing working capital adjustments. Intangible assets represent reacquired franchise rights which are being amortized over a weighted-average useful life of 2.2 years. We expect all of the goodwill and intangible asset amortization will be deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.
Pro forma financial detail and operating results for the 13 and 39 weeks ended September 26, 2023 have not been presented as the results of the acquired restaurants are not material to our unaudited condensed consolidated financial position, results of operations or cash flows.
On March 30, 2022, we completed the acquisition of one franchise Texas Roadhouse restaurant located in Nebraska in which we previously held a 5.49% equity interest. Pursuant to the terms of the acquisition agreement, we paid a total purchase price of $6.6 million, net of cash acquired, for 100% of the entity. The transaction was accounted for as a step acquisition and we recorded a gain of $0.3 million on our previous investment in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income.
On December 29, 2021, the first day of the 2022 fiscal year, we completed the acquisition of seven franchise Texas Roadhouse restaurants located in South Carolina and Georgia. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $26.5 million, net of cash acquired. These acquisitions are consistent with our long-term
11
strategy to increase net income and earnings per share. The transactions were accounted for using the acquisition method as defined in ASC 805, Business Combinations.
The following table summarizes the consideration paid for these acquisitions, and the estimated fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for final measurement-period adjustments.
321
222
4,841
1,221
22,616
6,100
(947)
(47)
(1,174)
33,153
Intangible assets represent reacquired franchise rights which are being amortized over a weighted-average useful life of 3.4 years. We expect all of the goodwill and intangible asset amortization deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.
(8) Related Party Transactions
As of September 26, 2023 and September 27, 2022, we had four franchise restaurants and one majority-owned company restaurant owned in part by a current officer of the Company. The franchise entities paid us fees of $0.5 million for the 13 weeks ended September 26, 2023 and September 27, 2022. The franchise entities paid us fees of $1.5 million and $1.4 million for the 39 weeks ended September 26, 2023 and September 27, 2022, respectively.
(9) Earnings Per Share
The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding. The diluted earnings per share calculations show the effect of the weighted-average restricted stock units from our equity incentive plans. Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met.
For all periods presented, the weighted-average shares of nonvested stock units that were outstanding but not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect were not significant.
12
The following table sets forth the calculation of earnings per share and weighted-average shares outstanding as presented in the accompanying unaudited condensed consolidated statements of income:
Basic EPS:
Weighted-average common shares outstanding
Basic EPS
Diluted EPS:
Dilutive effect of nonvested stock units
235
273
256
265
Shares-diluted
Diluted EPS
(10) Fair Value Measurements
At September 26, 2023 and December 27, 2022, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values based on the short-term nature of these instruments. At December 27, 2022, the fair value of our credit facility approximated its carrying value since it is a variable rate credit facility (Level 2). There were no transfers among levels within the fair value hierarchy during the 13 and 39 weeks ended September 26, 2023.
The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:
Fair Value Measurements
Level
Deferred compensation plan—assets
1
74,775
61,835
Deferred compensation plan—liabilities
(74,690)
(61,668)
We report the accounts of the deferred compensation plan in other assets and the corresponding liability in other liabilities in our unaudited condensed consolidated financial statements. These investments are considered trading securities and are reported at fair value based on quoted market prices. The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, are recorded in general and administrative expense in the unaudited condensed consolidated statements of income.
The following table presents the fair value of our assets measured on a nonrecurring basis:
September 26,
December 27,
2023
2022
Long-lived assets held for use
2,000
Long-lived assets held for use include the land and building for one underperforming restaurant that was impaired to fair value at December 27, 2022 using Level 3 inputs.
13
(11) Stock Repurchase Program
On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program under which we may repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 31, 2019 that authorized the Company to repurchase up to $250.0 million of our common stock. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases are determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions and other corporate considerations.
For the 13 and 39 weeks ended September 26, 2023, we paid $12.1 million and $45.2 million to repurchase 107,593 shares and 414,319 shares of our common stock, respectively. For the 13 weeks ended September 27, 2022, we did not repurchase any shares of our common stock. For the 39 weeks ended September 27, 2022, we paid $212.9 million to repurchase 2,734,005 shares of our common stock. As of September 26, 2023, $121.7 million remained under our authorized stock repurchase program.
(12) Segment Information
We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba’s 33, Jaggers and our retail initiatives as separate operating segments. Our reportable segments are Texas Roadhouse and Bubba’s 33. The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants. The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants. Our remaining operating segments, which include the results of our domestic company and franchise Jaggers restaurants and the results of our retail initiatives, are included in Other. In addition, corporate-related segment assets, depreciation and amortization, and capital expenditures are also included in Other.
Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin also includes sales and operating costs related to our non-royalty based retail initiatives. Restaurant margin is used by our chief operating decision maker to evaluate restaurant-level operating efficiency and performance.
In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-opening and general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry.
Restaurant and other sales for all operating segments are derived primarily from food and beverage sales. We do not rely on any major customer as a source of sales and the customers and assets of our reportable segments are located predominantly in the United States. There are no material transactions between reportable segments.
14
The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:
Texas Roadhouse
Bubba's 33
1,047,795
61,083
6,346
Restaurant operating costs (excluding depreciation and amortization)
893,330
53,584
5,486
952,400
Restaurant margin
154,465
7,499
860
162,824
32,416
3,518
3,190
Capital expenditures
76,811
7,027
5,477
89,315
931,683
51,993
3,323
785,546
46,368
3,076
834,990
146,137
5,625
247
152,009
27,757
3,198
2,780
55,158
8,107
2,363
65,628
3,244,973
184,012
18,207
2,741,313
158,428
16,175
2,915,916
503,660
25,584
2,032
531,276
93,072
10,399
9,293
210,403
23,032
10,460
243,895
2,818,565
157,830
9,633
2,357,910
136,837
9,353
2,504,100
460,655
20,993
280
481,928
83,402
9,690
8,683
146,151
21,898
6,145
174,194
15
A reconciliation of restaurant margin to income from operations is presented below. We do not allocate interest income (expense), net and equity income from investments in unconsolidated affiliates to reportable segments.
Add:
Less:
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
This report contains forward-looking statements based on our current expectations, estimates and projections about our industry and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 27, 2022, and in Part II, Item 1A in this Form 10-Q, along with disclosures in our other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors that may affect our business, results of operations or financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our Company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements, except as may be required by applicable law. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.
Our Company
Texas Roadhouse, Inc. is a growing restaurant company operating predominantly in the casual dining segment. Our late founder, W. Kent Taylor, started the Company in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to three restaurant concepts with 722 restaurants in 49 states and ten foreign countries. As of September 26, 2023, our 722 restaurants included:
We have contractual arrangements that grant us the right to acquire at pre-determined formulas the remaining equity interests in 18 of the 20 majority-owned company restaurants and 51 of the 55 domestic franchise restaurants.
Throughout this report, we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise noted.
Presentation of Financial and Operating Data
Throughout this report, the 13 weeks ended September 26, 2023, and September 27, 2022, are referred to as Q3 2023 and Q3 2022, respectively. The 39 weeks ended September 26, 2023, and September 27, 2022, are referred to as 2023 YTD and 2022 YTD, respectively. Fiscal years 2023 and 2022 are 52 weeks in length, while the quarters for those years are 13 weeks in length.
Key Measures We Use to Evaluate Our Company
Key measures we use to evaluate and assess our business include the following:
In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section below.
18
Other Key Definitions
19
Q3 2023 Financial Highlights
Total revenue increased $128.5 million or 12.9% to $1,121.8 million in Q3 2023 compared to $993.3 million in Q3 2022 primarily due to an increase in store weeks and an increase in comparable restaurant sales. Store weeks and comparable restaurant sales increased 5.7% and 8.2%, respectively, at company restaurants in Q3 2023 compared to Q3 2022. The increase in store weeks was due to new store openings and the acquisition of franchise restaurants. The increase in comparable restaurant sales was due to an increase in guest traffic along with an increase in our per person average check.
Net income increased $1.5 million or 2.3% to $63.8 million in Q3 2023 compared to $62.3 million in Q3 2022 primarily due to higher restaurant margin dollars, as described below, and lower income tax expense partially offset by higher general and administrative expense and depreciation and amortization expense. Diluted earnings per share increased 2.6% to $0.95 in Q3 2023 from $0.93 in Q3 2022 primarily due to the increase in net income.
Restaurant margin dollars increased $10.8 million or 7.1% to $162.8 million in Q3 2023 compared to $152.0 million in Q3 2022 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 14.6% in Q3 2023 compared to 15.4% in Q3 2022. The decrease in restaurant margin, as a percentage of restaurant and other sales, was primarily due to commodity inflation, wage and other labor inflation and higher general liability insurance expense partially offset by higher sales.
We repurchased 107,593 shares of common stock for $12.1 million in Q3 2023. We also paid a quarterly dividend of $0.55 per share of common stock, which totaled $36.7 million in Q3 2023.
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Results of Operations
Consolidated Statements of Income:
99.4
100.0
(As a percentage of restaurant and other sales)
34.6
34.7
34.8
34.4
34.0
33.5
33.0
1.6
1.7
14.8
14.7
(As a percentage of total revenue)
0.5
3.5
3.4
3.3
NM
4.3
4.4
93.4
92.4
92.2
91.6
6.6
7.6
7.8
8.4
0.1
7.9
1.2
1.0
5.9
6.4
6.9
7.2
0.2
5.7
6.3
6.7
7.0
NM — Not meaningful
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Reconciliation of Income from Operations to Restaurant Margin
Restaurant margin $/store week
20,272
20,001
22,237
21,332
Restaurant margin (as a percentage of restaurant and other sales)
14.6%
15.4%
16.1%
See above for the definition of restaurant margin.
Restaurant Unit Activity
Jaggers
Balance at December 27, 2022
697
652
40
Company openings
Company closings
Franchise openings - Domestic
Franchise openings - International
Franchise closings
(1)
Balance at September 26, 2023
722
671
43
Company - Texas Roadhouse
573
545
Company - Bubba's 33
38
Company - Jaggers
Franchise - Texas Roadhouse - Domestic
54
62
Franchise - Jaggers - Domestic
Franchise - Texas Roadhouse - International
44
685
22
Q3 2023 compared to Q3 2022 and 2023 YTD compared to 2022 YTD
Restaurant and Other Sales
Restaurant and other sales increased 13.0% in Q3 2023 compared to Q3 2022 and 15.4% in 2023 YTD compared to 2022 YTD. The following table summarizes certain key drivers and/or attributes of restaurant sales at company restaurants for the periods presented. Company restaurant count activity is shown in the restaurant unit activity table above.
Q3 2023
Q3 2022
2023 YTD
2022 YTD
Company Restaurants:
Increase in store weeks
6.1
5.8
Increase in average unit volume
9.7
10.2
Other(1)
(0.1)
0.0
Total increase in restaurant sales
13.4
15.5
17.0
Other sales
Total increase in restaurant and other sales
13.0
14.4
15.4
17.1
Store weeks
8,032
7,600
23,892
22,592
Comparable restaurant sales
8.2
10.1
10.5
Texas Roadhouse restaurants:
7,394
7,062
22,041
21,004
10.3
10.4
Average unit volume (in thousands)
1,840
5,753
5,227
Weekly sales by group:
Comparable restaurants (542, 511, 527 and 499 units)
141,675
131,378
147,832
134,565
Average unit volume restaurants (18, 23, 22 and 20 units)(2)
138,439
125,421
139,989
129,283
Restaurants less than six months old (13, 11, 24 and 26 units)
141,409
143,801
150,747
136,358
Bubba's 33 restaurants:
547
486
1,593
1,433
4.8
6.2
6.0
11.6
1,437
1,395
4,494
4,243
Comparable restaurants (36, 31, 34 and 30 units)
112,447
104,669
115,343
108,692
Average unit volume restaurants (4, 5, 3 and 4 units)(2)
93,012
123,760
113,926
109,656
Restaurants less than six months old (3, 2, 6 and 4 units)
129,941
95,312
116,281
126,600
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The increases in restaurant sales for Q3 2023 and 2023 YTD were primarily attributable to an increase in store weeks and an increase in comparable restaurant sales. The increases in store weeks were driven by the opening of new restaurants and the acquisition of franchise restaurants. The increases in comparable restaurant sales were driven by an increase in guest traffic count along with an increase in our per person average check as shown in the table below.
Guest traffic counts
4.1
5.5
2.2
Per person average check
7.7
4.6
8.3
Comparable restaurant sales growth
The increase in Q3 2023 guest traffic counts was driven by an increase in dining room traffic. To-go sales as a percentage of restaurant sales were 12.3% for Q3 2023 compared to 12.6% for Q3 2022.
Per person average check includes the benefit of a menu price increase of approximately 2.2% implemented in Q2 2023 and menu price increases of approximately 3.2% and 2.9% implemented in Q2 2022 and Q4 2022, respectively. We implemented a menu price increase of 2.7% in early Q4 2023.
In 2023 YTD, we opened 16 Texas Roadhouse and Bubba’s 33 company restaurants and completed the acquisition of eight domestic franchise restaurants. In addition, we opened two Jaggers company restaurants in 2023 YTD. As of September 26, 2023, an additional 22 Texas Roadhouse and Bubba’s 33 company restaurants were under construction.
In total for 2023, we plan to open as many as 27 Texas Roadhouse and Bubba’s 33 company restaurants, and we expect store week growth of approximately 6% across all concepts, including the impact of the eight franchise restaurants acquired at the beginning of the fiscal year.
In 2024, we expect store week growth of approximately 8% across all concepts, including a benefit of 2% from the 53rd week.
Other sales include the net impact of the amortization of third party gift card fees and gift card breakage income, sales related to our non-royalty based retail products and content revenue related to our tabletop kiosk devices. The net impact of these amounts was $1.4 million in Q3 2023 and $4.4 million in Q3 2022 and was $(7.2) million in 2023 YTD and $(4.2) million in 2022 YTD. The changes in Q3 2023 and Q3 2022 were driven by favorable adjustments recorded of $3.7 million and $6.6 million, respectively. These adjustments related to changes in our estimate of breakage due to a shift in our historic redemption patterns which indicated that the percentage of gift cards sold that are not expected to be redeemed had increased.
Franchise Royalties and Fees
Franchise royalties and fees increased by $0.2 million or 3.6% in Q3 2023 compared to Q3 2022 and increased by $0.8 million or 3.9% in 2023 YTD compared with 2022 YTD. The increases in both periods were due to comparable restaurant sales growth and new store openings partially offset by decreased royalties related to the eight franchise restaurants that were acquired.
In 2023 YTD, our existing franchise partners opened one domestic Texas Roadhouse restaurant and six international Texas Roadhouse restaurants. The first Jaggers domestic franchise restaurant was also opened in Q3 2023. In addition,
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we had one Texas Roadhouse domestic franchise store close in 2023 YTD. In total for 2023, we expect as many as 14 international and domestic franchise openings including two Jaggers franchise openings.
Food and Beverage Costs
Food and beverage costs, as a percentage of restaurant and other sales, decreased to 34.6% in Q3 2023 compared to 34.7% in Q3 2022 and increased to 34.8% in 2023 YTD compared to 34.4% in 2022 YTD. The decrease in Q3 2023 was primarily driven by the benefit of a higher guest check partially offset by commodity inflation of 4.2% primarily due to higher beef costs. The increase in 2023 YTD compared to 2022 YTD was driven by commodity inflation of 6.3% due to higher costs across the basket partially offset by the benefit of a higher guest check.
In total for 2023, we expect commodity inflation of 5% to 6% for the year with prices locked for approximately 75% of our remaining forecasted costs and the remainder subject to floating market prices. In 2024, we expect commodity cost inflation of 5% to 6%.
Restaurant Labor Expenses
Restaurant labor expenses, as a percentage of restaurant and other sales, increased to 34.0% in Q3 2023 compared to 33.5% in Q3 2022 and increased to 33.5% in 2023 YTD compared to 33.0% in 2022 YTD. The increases in both periods were primarily due to wage and other labor inflation of 5.6% and 6.8% in Q3 2023 and 2023 YTD, respectively. Wage and other labor inflation was driven by higher wage and benefit expense due to labor market pressures along with increases in state-mandated minimum and tipped wage rates and increased investment in our people. In addition, there were increases in group insurance expense due to unfavorable claims experience of $1.5 million and $6.5 million in Q3 2023 and 2023 YTD, respectively, as compared to the prior year periods. These increases were partially offset by decreases in workers’ compensation expense due to favorable claims experience of $2.6 million and $3.1 million in Q3 2023 and 2023 YTD, respectively, as compared to the prior year periods, as well as the benefit of a higher guest check.
In total for 2023, we expect wage and other labor inflation of 6% to 7% for the year driven by labor market pressures, increases in state-mandated minimum and tipped wage rates and increased investment in our people. In 2024, we expect wage and other labor inflation of 4% to 5%.
Restaurant Rent Expense
Restaurant rent expense, as a percentage of restaurant and other sales, decreased to 1.6% in Q3 2023 compared to 1.7% in Q3 2022 and decreased to 1.6% in 2023 YTD compared to 1.7% in 2022 YTD. The decreases in both periods were primarily due to the increases in average unit volume and were partially offset by higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants.
Restaurant Other Operating Expenses
Restaurant other operating expenses, as a percentage of restaurant and other sales, increased to 15.2% in Q3 2023 compared to 14.8% in Q3 2022 and decreased to 14.7% in 2023 YTD compared to 14.8% in 2022 YTD. The increase in Q3 2023 compared to Q3 2022 was driven by an increase in general liability insurance expense of $7.3 million, as compared to the prior year period, partially offset by an increase in average unit volume, lower supplies expense and lower incentive compensation expense. The increase in general liability insurance expense was due to unfavorable claims experience. The decrease in 2023 YTD compared to 2022 YTD was driven by an increase in average unit volume and lower supplies and incentive compensation expense partially offset by the increase in general liability insurance expense.
Pre-opening Expenses
Pre-opening expenses were $8.7 million in Q3 2023 compared to $5.7 million in Q3 2022 and $19.7 million in 2023 YTD compared to $15.3 million in 2022 YTD. Pre-opening costs will fluctuate from quarter to quarter based on specific
25
pre-opening costs incurred for each restaurant, the number and timing of restaurant openings and the number and timing of restaurant managers hired.
Depreciation and Amortization Expense
Depreciation and amortization expense, as a percentage of total revenue, increased to 3.5% in Q3 2023 compared to 3.4% in Q3 2022 and decreased to 3.3% in 2023 YTD compared to 3.4% in 2022 YTD. The increase in Q3 2023 compared to Q3 2022 was driven by higher depreciation at our newer restaurants partially offset by the increase in average unit volume. The decrease in 2023 YTD compared to 2022 YTD was primarily due to the increase in average unit volume partially offset by higher depreciation at our newer restaurants.
Impairment and Closure Costs, Net
Impairment and closure costs, net were not significant in Q3 2023 compared to $0.8 million in Q3 2022 and were $0.1 million in 2023 YTD compared to $0.5 million in 2022 YTD. For Q3 2022, impairment and closure costs, net included the impairment of an operating lease right-of-use asset at a restaurant that was relocated. For 2022 YTD, impairment and closure costs, net included the impairment of right-of-use assets at two restaurants that were relocated and a gain of $0.7 million associated with the sale of land and building on a site that was previously classified as assets held for sale.
General and Administrative Expenses
General and administrative expenses, as a percentage of total revenue, remained flat at 4.3% in Q3 2023 compared to Q3 2022 and decreased to 4.3% in 2023 YTD compared to 4.4% in 2022 YTD. In Q3 2023 compared to Q3 2022, activity included an increase in average unit volume, a decrease in restricted stock expense and a decrease in incentive compensation expense. These were offset by a favorable adjustment of $2.5 million recorded in Q3 2022 related to our managing partner conference held in Q2 2022 and increased software hosting fees driven by the development of a new human resources software. The decrease in 2023 YTD compared to 2022 YTD was primarily driven by an increase in average unit volume partially offset by a separation payout, net of restricted stock forfeitures of $2.6 million, related to the retirement of an executive officer in Q1 2023, and increased software hosting fees.
Interest Income (Expense), Net
Interest income (expense), net was $0.5 million and $(0.1) million in Q3 2023 and Q3 2022, respectively, and were $2.7 million and $(0.9) million in 2023 YTD and 2022 YTD, respectively. The increases in both periods were primarily driven by increased earnings on our cash and cash equivalents and decreased borrowings on our revolving credit facility.
Equity Income from Investments in Unconsolidated Affiliates
Equity income was $0.1 million in Q3 2023 compared to $0.2 million in Q3 2022 and was $1.2 million in 2023 YTD compared to $1.1 million in 2022 YTD. The decrease in Q3 2023 was primarily due to a decreased number of investments driven by acquisitions of four of these affiliates in Q1 2023. The increase in 2023 YTD was primarily due to a $0.6 million gain on the acquisition of four of these affiliates in Q1 2023 partially offset by a $0.3 million gain on the acquisition of one of these affiliates in Q2 2022.
Income Tax Expense
Our effective tax rate decreased to 11.9% in Q3 2023 compared to 15.2% in Q3 2022 and decreased to 12.9% in 2023 YTD compared to 14.2% in 2022 YTD. The decreases in both periods were primarily driven by increases in the tax benefits related to the FICA tip tax credit and stock compensation. For 2023, we expect an effective income tax rate of approximately 13% based on forecasted operating results. For 2024, we expect an effective tax rate of 14% to 15% based on forecasted operating results.
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Segment Information
We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba's 33, Jaggers and our retail initiatives as separate operating segments. Our reportable segments are Texas Roadhouse and Bubba's 33. The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants. The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants. Our remaining operating segments, which include the results of our domestic company and franchise Jaggers restaurants and the results of our retail initiatives, are included in Other.
Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin also includes sales and operating costs related to our non-royalty based retail initiatives that is included in Other. Restaurant margin is used by our chief operating decision maker to evaluate restaurant-level operating efficiency and performance. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section above.
The following table presents a summary of restaurant margin by segment (in thousands):
15.7
12.3
10.8
13.6
7.4
14.6
16.3
13.9
13.3
11.2
2.9
16.1
For our Texas Roadhouse reportable segment, restaurant margin dollars increased $8.3 million or 5.7% in Q3 2023 and increased $43.0 million or 9.3% in 2023 YTD. The increases in both periods were due to higher sales, primarily driven by an increase in store weeks and an increase in comparable restaurant sales, which was partially offset by commodity and wage and other inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, decreased to 14.7% in Q3 2023 from 15.7% in Q3 2022 and decreased to 15.5% in 2023 YTD from 16.3% in 2022 YTD. The decreases in both periods were due to commodity and wage and other labor inflation which was partially offset by the benefit of higher sales.
For our Bubba’s 33 reportable segment, restaurant margin dollars increased $1.9 million or 33.3% in Q3 2023 and increased $4.6 million or 21.9% in 2023 YTD. The increases in both periods were due to higher sales, primarily driven by an increase in store weeks and an increase in comparable restaurant sales, and commodity deflation which was primarily offset by wage and other labor inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, increased to 12.3% in Q3 2023 from 10.8% in Q3 2022 and increased to 13.9% in 2023 YTD from 13.3% in 2022 YTD. The increases in both periods were due to higher sales and commodity deflation driven by poultry partially offset by wage and other labor inflation.
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Liquidity and Capital Resources
The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities (in thousands):
Net cash provided by operating activities was $390.7 million in 2023 YTD compared to $395.1 million in 2022 YTD. This decrease was primarily due to an unfavorable change in working capital partially offset by an increase in net income and non-cash items including depreciation and amortization.
Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital, if necessary. Sales are primarily for cash, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth.
Net cash used in investing activities was $273.5 million in 2023 YTD compared to $195.6 million in 2022 YTD. The increase was primarily due to higher capital expenditures, driven by the new company restaurants pipeline and the refurbishment of existing restaurants. The increase in the new company restaurants pipeline is primarily due to an increase in new locations currently under construction and higher average development costs per location.
We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants and the acquisition of franchise restaurants, if any. We either lease our restaurant site locations under operating leases for periods of five to 30 years (including renewal periods) or purchase the land when appropriate. As of September 26, 2023, we had developed 156 of the 623 company restaurants on land that we own.
The following table presents a summary of capital expenditures (in thousands):
New company restaurants
138,124
99,249
Refurbishment or expansion of existing restaurants
88,580
60,404
Relocation of existing restaurants
11,946
11,965
Capital expenditures related to Support Center office
5,245
2,576
Total capital expenditures
Our future capital requirements will primarily depend on the number and mix of new restaurants we open, the timing of those openings and the restaurant prototype developed in a given fiscal year. These requirements will include costs directly related to opening new restaurants or relocating existing restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant base. In 2023, we expect our capital expenditures to be approximately $340 million driven by our 2023 planned company restaurant openings, the acceleration of our 2024 development pipeline and continued refurbishment of our existing restaurants. We intend to satisfy our capital requirements over the next 12 months with cash on hand, net cash provided by operating activities and, if needed, funds available under our revolving credit facility. In 2024, we expect our capital expenditures to be $340 million to $350 million.
As of September 26, 2023, the estimated cost of completing capital project commitments over the next 12 months was approximately $261.3 million. See note 6 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations.
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Net cash used in financing activities was $221.8 million in 2023 YTD compared to $349.8 million in 2022 YTD. The decrease is primarily due to a decrease in the amount of share repurchases partially offset by increased payments on our revolving credit facility as well as an increase in our quarterly dividend payments.
On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program under which we may repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 31, 2019. All repurchases to date under our stock repurchase programs have been made through open market transactions.
During 2023 YTD and 2022 YTD, we paid $45.2 million and $212.9 million, respectively, to repurchase 414,319 shares and 2,734,005 shares, respectively, of our common stock. As of September 26, 2023, $121.7 million remained under our authorized stock repurchase program.
On May 11, 2023, our Board authorized the payment of a quarterly cash dividend of $0.55 per share of common stock compared to the quarterly dividend of $0.46 per share of common stock declared in 2022. The payment of quarterly dividends totaled $110.4 million and $93.3 million in 2023 YTD and 2022 YTD, respectively.
As of September 26, 2023, we had no outstanding balance on the credit facility and had $287.7 million of availability, net of $12.3 million of outstanding letters of credit. As of December 27, 2022, we had $50.0 million outstanding on the credit facility, which was repaid in 2023 YTD, and $233.5 million of availability, net of $16.5 million of outstanding letters of credit. The outstanding amount as of December 27, 2022 is included as long-term debt on our unaudited condensed consolidated balance sheet.
The interest rate for the credit facility as of September 26, 2023 and September 27, 2022 was 6.19% and 3.69%, respectively.
Guarantees
As of September 26, 2023 and December 27, 2022, we were contingently liable for $10.6 million and $11.3 million, respectively, for seven lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of September 26, 2023 and December 27, 2022 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on variable rate debt and changes in commodity prices. Our exposure to interest rate fluctuations is limited to our outstanding bank debt. The terms of the revolving credit facility (the "credit facility") require us to pay interest on outstanding borrowings at the Secured Overnight Financing Rate ("SOFR"), plus a fixed adjustment of 0.10%, plus a variable adjustment of 0.875% to 1.875% depending on our leverage ratio. As of September 26, 2023, we had no outstanding borrowings on our credit facility.
In an effort to secure high quality, low-cost ingredients used in the products sold in our restaurants, we employ various purchasing and pricing contract techniques. When purchasing certain types of commodities, we may be subject
to prevailing market conditions resulting in unpredictable price volatility. For certain commodities, we may also enter into contracts that are either fixed price agreements or fixed volume agreements where the price is negotiated with reference to fluctuating market prices. We currently do not use financial instruments to hedge commodity prices. Extreme and/or long-term increases in commodity prices could adversely affect our future results, especially if we are unable, primarily due to competitive reasons, to increase menu prices. Additionally, if there is a time lag between the increasing commodity prices and our ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not to pass on the cost increases, our short-term financial results could be negatively affected.
We are subject to business risk as our beef supply is highly dependent upon four vendors. If these vendors are unable to fulfill their obligations under their contracts, we may encounter supply shortages and/or higher costs to secure adequate supply and a possible loss of sales, any of which would harm our business. To date, we have been able to properly manage any supply shortages but have experienced increased costs.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to, and as defined in, Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of our management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 26, 2023.
Changes in Internal Control
There were no changes in the Company’s internal control over financial reporting that occurred during the 13 weeks ended September 26, 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns. None of these types of litigation, most of which are covered by insurance, has had a material adverse effect on us during the periods covered by this report and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended December 27, 2022, under the heading "Special Note Regarding Forward-looking Statements" and in the Form 10-K Part I, Item 1A, Risk Factors. There have been no material changes from the risk factors previously disclosed in our Form 10-K for the fiscal year ended December 27, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program which authorized us to repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date. All repurchases to date under our stock repurchase program have been made through open market transactions. The timing and the amount of any repurchases through this program will be determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions and other corporate considerations.
For the 13 weeks ended September 26, 2023, we paid $12.1 million to repurchase 107,593 shares of our common stock. As of September 26, 2023, $121.7 million remained authorized for stock repurchases.
Maximum Number
(or Approximate
Total Number of
Dollar Value)
Shares Purchased
of Shares that
Total Number
Average
as Part of Publicly
May Yet Be
of Shares
Price Paid
Announced Plans
Purchased Under the
Period
Purchased
per Share
or Programs
Plans or Programs
June 28 to July 25
90,093
113.00
123,637,670
July 26 to August 22
17,500
111.67
121,683,492
August 23 to September 26
107,593
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
In accordance with the disclosure requirement set forth in Item 408 of Regulation S-K, the following table discloses any executive officer or director who is subject to the filing requirements of Section 16 of the Securities Exchange Act of 1934 that adopted a Rule 10b5-1 trading arrangement during the 13 weeks ended September 26, 2023. These trading arrangements are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
Name
Title
Adoption Date
End Date (1)
Aggregate Number of Securities to be Sold
Gerald L. Morgan
Chief Executive Officer
8/23/2023
2/23/2025
15,000
Christopher C. Colson
Chief Legal and Administrative Officer
8/25/2023
1/23/2024
Other than those disclosed above, no other executive officer or director adopted, modified or terminated a Rule 10b5-1 or a non-Rule 10b5-1 trading arrangement during the 13 weeks ended September 26, 2023.
ITEM 6. EXHIBITS
Exhibit No.
Description
10.1*
Separation Agreement and Release of Claims dated August 3, 2023 by and between S. Chris Jacobsen and Texas Roadhouse Management Corp. (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated August 3, 2023 (File No. 000-50972))
10.2*
Form of Texas Roadhouse, Inc. 2021 Long-Term Incentive Plan Restricted Stock Unit Award Agreement (Non-Officers) (File No. 000-50972))
31.1
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
31.3
32.1
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TEXAS ROADHOUSE, INC.
Date: November 3, 2023
By:
/s/ GERALD L. MORGAN
(Principal Executive Officer)
/s/ D. CHRISTOPHER MONROE
D. Christopher Monroe
Chief Financial Officer
(Principal Financial Officer)
/s/ KEITH V. HUMPICH
Keith V. Humpich
Vice President of Finance
(Principal Accounting Officer)