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Texas Roadhouse, Inc. Announces Third Quarter 2014 Results

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Texas Roadhouse, Inc. (NasdaqGS: TXRH), today announced financial results for the 13 and 39 week periods ended September 30, 2014.

Third Quarter Year to Date
($000’s)

2014

2013

% Change

2014

2013

% Change

Total revenue $ 385,218 $ 334,770 15 $ 1,177,723 $ 1,046,565 13
Income from operations 28,821 25,696 12 103,406 93,661 10
Net income 18,881 17,170 10 68,427 63,304 8
Diluted EPS $0.27 $0.24 12 $0.97 $0.89 9

Results for the third quarter included:

  • Diluted earnings per share increased 11.9% to $0.27 from $0.24 in the prior year;
  • Comparable restaurant sales increased 5.9% at company restaurants and 5.2% at franchise restaurants;
  • Three company restaurants were opened;
  • Restaurant margin, as a percentage of restaurant sales, decreased 40 basis points to 16.8%, primarily due to approximately 4.5% food cost inflation and higher costs associated with general liability insurance due to the impact of overlapping a $1.3 million credit recorded in the prior year period;
  • Income tax rate increased 178 basis points to 31.4%, primarily due to reduced activity related to the exercise of incentive stock options and the expiration of certain federal tax credits at the end of 2013; and
  • The Company repurchased 315,000 shares of its common stock for $8.2 million.

Results for the year-to-date included:

  • Diluted earnings per share increased 8.9% to $0.97 from $0.89 in the prior year;
  • Comparable restaurant sales increased 3.9% at company restaurants and 4.4% at franchise restaurants;
  • 15 company restaurants and one franchise restaurant were opened;
  • Restaurant margin, as a percentage of restaurant sales, decreased 21 basis points to 18.1%;
  • Costs associated with the Company’s annual managing partner conference were $2.0 million lower compared to the prior year period;
  • Income tax rate increased 182 basis points to 30.6%, primarily due to the expiration of certain federal tax credits at the end of 2013; and
  • The Company repurchased 1,575,000 shares of its common stock for $40.0 million.

Kent Taylor, Chief Executive Officer of Texas Roadhouse, Inc., commented, “We are pleased to report another quarter of strong top-line growth highlighted by solid traffic growth of 4.4%. While we were challenged by higher commodity cost inflation, we delivered solid diluted earnings per share growth this quarter. As we move into the fourth quarter, we are pleased with our sales momentum, and our development is on track. Looking ahead to 2015, we are well positioned for continued success with 25 to 30 planned restaurant openings, a strong balance sheet and healthy cash flow with a focus on returning excess capital to our shareholders, and an ongoing commitment to legendary food and legendary service.”

2014 Outlook

The Company reported that comparable restaurant sales at company restaurants for the first four weeks of its fourth quarter of fiscal 2014 increased approximately 7.0% compared to the prior year period.

Management reiterated the following expectations for 2014:

  • Positive comparable restaurant sales growth;
  • Approximately 25 company restaurant openings; and
  • An income tax rate of approximately 30.0% to 31.0% which is higher than the 2013 income tax rate primarily as a result of the expiration of certain federal tax credits at the end of 2013.

Management updated the following expectations for 2014:

  • Approximately 3.0% food cost inflation for the full year; and
  • Total capital expenditures of approximately $110 million.

2015 Outlook

Management provided the following expectations for 2015:

  • Positive comparable restaurant sales growth;
  • 25 to 30 company restaurant openings;
  • Low to mid-single digit food cost inflation;
  • An income tax rate of approximately 29.0% to 31.0% depending on the reinstatement of certain federal tax credits and timing of such; and
  • Total capital expenditures of $110 million to $120 million.

Conference Call

The Company is hosting a conference call today, November 3, 2014 at 5:00 p.m. Eastern Time to discuss these results. The dial-in number is (877) 857-6151 or (719) 325-4879 for international calls. A replay of the call will be available for one week following the conference call. To access the replay, please dial (877) 870-5176 or (858) 384-5517 for international calls, and use 2758536 as the pass code. There will be a simultaneous Web cast conducted at www.texasroadhouse.com.

About the Company

Texas Roadhouse is a casual dining concept that first opened in 1993 and today operates over 440 restaurants system-wide in 49 states and four foreign countries. For more information, please visit the Company’s Web site at www.texasroadhouse.com.

Forward-looking Statements

Certain statements in this release that are not historical facts, including, without limitation, those relating to our anticipated financial performance, are forward-looking statements that involve risks and uncertainties. Such statements are based upon the current beliefs and expectations of the management of the Company. Actual results may vary materially from those contained in forward-looking statements based on a number of factors including, without limitation, the actual number of restaurants opening; the sales at these and our other company and franchise restaurants; changes in restaurant development or operating costs, such as food and labor; our ability to acquire franchise restaurants; our ability to integrate the franchise restaurants we acquire or other concepts we develop; our ability to continue to generate the necessary cash flows to fund our new restaurant growth, continue our share repurchase program and pay a quarterly cash dividend; strength of consumer spending; pending or future legal claims; conditions beyond our control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting our customers or food supplies; acts of war or terrorism and other factors disclosed from time to time in our filings with the U.S. Securities and Exchange Commission. Investors should take such risks into account when making investment decisions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update any forward-looking statements.

Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
13 Weeks Ended 39 Weeks Ended

September 30,
2014

September 24,
2013

September 30,
2014

September 24,
2013

Revenue:
Restaurant sales $ 381,991 $ 331,746 $ 1,167,766 $ 1,037,239
Franchise royalties and fees 3,227 3,024 9,957 9,326
Total revenue 385,218 334,770 1,177,723 1,046,565
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Cost of sales 137,658 116,570 409,552 361,334
Labor 112,521 99,003 342,375 302,387
Rent 8,380 7,181 24,550 21,390
Other operating 59,276 51,949 180,491 162,716
Pre-opening 3,945 4,746 12,677 11,810
Depreciation and amortization 15,164 12,462 43,682 36,864
Impairment and closure (16 ) 103 10 187
General and administrative 19,469 17,060 60,980 56,216
Total costs and expenses 356,397 309,074 1,074,317 952,904
Income from operations 28,821 25,696 103,406 93,661
Interest expense, net 492 525 1,564 1,687

Equity income from investments in unconsolidated affiliates

410 173 975 571
Income before taxes 28,739 25,344 102,817 92,545
Provision for income taxes 9,017 7,500 31,462 26,617
Net income including noncontrolling interests $ 19,722 $ 17,844 $ 71,355 $ 65,928
Less: Net income attributable to noncontrolling interests 841 674 2,928 2,624
Net income attributable to Texas Roadhouse, Inc. and subsidiaries $ 18,881 $ 17,170 $ 68,427 $ 63,304

Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries:

Basic $ 0.27 $ 0.24 $ 0.98 $ 0.91
Diluted $ 0.27 $ 0.24 $ 0.97 $ 0.89
Weighted average shares outstanding:
Basic 69,544 70,361 69,793 69,914
Diluted 70,395 71,620 70,639 71,175
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
(As Adjusted) (1)
September 30, 2014 December 31, 2013
Cash and cash equivalents $ 59,307 $ 94,874
Other current assets 39,646 50,869
Property and equipment, net 631,552 586,212
Goodwill 117,197 117,197
Intangible assets, net 6,546 7,876
Other assets 22,059 20,616
Total assets $ 876,307 $ 877,644
Current maturities of long-term debt 126 243
Other current liabilities 164,795 174,937

Long-term debt, excluding current maturities

50,727 50,990
Other liabilities 57,744 57,614
Texas Roadhouse, Inc. and subsidiaries stockholders’ equity 596,120 587,659
Noncontrolling interests 6,795 6,201
Total liabilities and equity $ 876,307 $ 877,644

(1)

December 31, 2013 revised to reflect the impact of adjustments to purchase price accounting related to 2013 acquisitions in accordance with generally accepted accounting principles (“GAAP”).

Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
39 Weeks Ended
September 30, 2014 September 24, 2013
Cash flows from operating activities:
Net income including noncontrolling interests $ 71,355 $ 65,928
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 43,682 36,864
Share-based compensation expense 10,937 10,583
Other noncash adjustments (1,392 ) 843
Change in working capital (8,266 ) (15,534 )
Net cash provided by operating activities 116,316 98,684
Cash flows from investing activities:
Capital expenditures – property and equipment (89,645 ) (70,911 )
Proceeds from sale of property and equipment, including insurance proceeds 1,197 (39 )
Net cash used in investing activities (88,448 ) (70,950 )
Cash flows from financing activities:
Repurchase shares of common stock (39,966 )
Dividends paid (20,923 ) (29,939 )
Other financing activities (2,546 ) 7,803
Net cash used in financing activities (63,435 ) (22,136 )
Net (decrease) increase in cash and cash equivalents (35,567 ) 5,598
Cash and cash equivalents – beginning of year 94,874 81,746
Cash and cash equivalents – end of period $ 59,307 $ 87,344
Texas Roadhouse, Inc. and Subsidiaries
Supplemental Financial and Operating Information
($ amounts in thousands, except weekly sales by group)
(unaudited)
Third Quarter Change Year to Date Change

2014

2013

vs LY

2014

2013

vs LY

Restaurant openings
Company – Texas Roadhouse 3 4 (1 ) 15 13 2
Company – Other 0 0 0 0 1 (1 )
Franchise – Texas Roadhouse 0 0 0 1 3 (2 )
Total 3 4 (1 ) 16 17 (1 )
Restaurants open at the end of the quarter
Company – Texas Roadhouse 360 331 29
Company – Other 1 3 (2 )
Franchise – Texas Roadhouse 75 75 0
Total 436 409 27
Company-owned restaurants
Restaurant sales $ 381,991 $ 331,746 15.1 % $ 1,167,766 $ 1,037,239 12.6 %
Store weeks 4,682 4,294 9.0 % 13,799 12,682 8.8 %
Comparable restaurant sales growth (1) 5.9 % 2.6 % 3.9 % 3.7 %
Texas Roadhouse restaurants only:
Comparable restaurant sales growth (1) 5.9 % 2.6 % 3.9 % 3.7 %
Average unit volume (2) $ 1,051 $ 994 5.7 % $ 3,270 $ 3,167 3.2 %
Weekly sales by group:
Comparable restaurants (320 units) $ 80,995
Average unit volume restaurants (25 units) (3) $ 78,542
Restaurants less than 6 months old (15 units) $ 99,636
Restaurant operating costs (as a % of restaurant sales)
Cost of sales 36.0 % 35.1 % 90 bps 35.1 % 34.8 % 24 bps
Labor 29.5 % 29.8 % (39 ) bps 29.3 % 29.2 % 17 bps
Rent 2.2 % 2.2 % 3 bps 2.1 % 2.1 % 4 bps
Other operating 15.5 % 15.7 % (14 ) bps 15.5 % 15.7 % (23 ) bps
Total 83.2 % 82.8 % 40 bps 81.9 % 81.7 % 21 bps
Restaurant margin (4) 16.8 % 17.2 % (40 ) bps 18.1 % 18.3 % (21 ) bps
Restaurant margin ($ in thousands) $ 64,156 $ 57,043 12.5 % $ 210,798 $ 189,410 11.3 %
Restaurant margin $/Store week $ 13,703 $ 13,284 3.2 % $ 15,276 $ 14,935 2.3 %
Franchise-owned restaurants
Franchise royalties and fees $ 3,227 $ 3,024 6.7 % $ 9,957 $ 9,326 6.8 %
Store weeks 975 975 % 2,912 2,886 0.9 %
Comparable restaurant sales growth (1) 5.2 % 4.0 % 4.4 % 4.2 %
Average unit volume (2) $ 1,128 $ 1,058 6.6 % $ 3,473 $ 3,273 6.1 %
Pre-opening expense $ 3,945 $ 4,746 (16.9 ) % $ 12,677 $ 11,810 7.3 %
Depreciation and amortization $ 15,164 $ 12,462 21.7 % $ 43,682 $ 36,864 18.5 %
As a % of revenue 3.9 % 3.7 % 21 bps 3.7 % 3.5 % 19 bps
General and administrative expenses $ 19,469 $ 17,060 14.1 % $ 60,980 $ 56,216 8.5 %
As a % of revenue 5.1 % 5.1 % (4 ) bps 5.2 % 5.4 % (19 ) bps
(1) Comparable restaurant sales growth reflects the change in year-over-year sales for restaurants open a full 18 months before the beginning of the period measured, excluding sales from restaurants closed during the period.
(2) Average unit volume includes sales from Texas Roadhouse restaurants open for a full six months before the beginning of the period measured, excluding any sales at restaurants closed during the period.
(3) Average unit volume restaurants include restaurants open a full six to 18 months before the beginning of the period measured.
(4) Restaurant margin represents restaurant sales less cost of sales, labor, rent and other operating costs (as a percentage of restaurant sales). Restaurant margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance. Restaurant margin is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to income from operations or other similarly titled measures of other companies.
Amounts may not foot due to rounding.

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