Texas Roadhouse, Inc. Announces Fourth Quarter 2019 Results

Texas Roadhouse, Inc. (NasdaqGS: TXRH) today announced financial results for the 14 and 53 week periods ended December 31, 2019. 

	Fourth Quarter							Year to Date
($000's)	2019		2018		% Change			2019		2018		% Change
Total revenue	$	725,238	$	605,912	19.7	%		$	2,756,163	$	2,457,449	12.2	%
Income from operations		53,411		33,207	60.8	%			212,023		187,789	12.9	%
Net income		42,686		30,332	40.7	%			174,452		158,225	10.3	%
Diluted EPS	$	0.61	$	0.42	45.4	%		$	2.46	$	2.20	11.9	%

Note:  Fourth quarter and full year 2019 results include 14 and 53 weeks, respectively, compared to 13 and 52 weeks in the fourth quarter and full year of 2018, respectively.

Results for the fourth quarter included the following highlights:  

• Comparable restaurant sales increased 4.4% at company restaurants and 3.4% at domestic franchise restaurants;
• Restaurant margin, as a percentage of restaurant and other sales, increased 117 basis points to 17.1% as the benefit of the 53rd week, a higher average check, and labor productivity were partially offset by wage rate and commodity inflation.  Restaurant margin dollars increased 28.6% to $122.9 million from $95.6 million in the prior year;
• Diluted earnings per share increased 45.4% to $0.61 from $0.42 in the prior year.  Diluted earnings per share were positively impacted by $0.10 to $0.11 as a result of the 53rd week;
• 11 company restaurants, including two Bubba’s 33 restaurants, and three international franchise restaurants were opened; and
• The Company repurchased 170,187 shares of common stock for $8.9 million. 

Results for the year-to-date period included the following highlights:

• Comparable restaurant sales increased 4.7% at company restaurants and 3.8% at domestic franchise restaurants;
• Restaurant margin, as a percentage of restaurant and other sales, decreased six basis points to 17.3%, as higher labor costs driven by wage rate and other inflation was offset by lower cost of sales due to the benefit of a higher average check.  Restaurant margin dollars increased 11.8% to $474.2 million from $424.2 million in the prior year;
• Diluted earnings per share increased 11.9% to $2.46 from $2.20 in the prior year.  Diluted earnings per share were positively impacted by $0.10 to $0.11 as a result of the 53rd week;
• 22 company restaurants, including three Bubba’s 33 restaurants, and nine, primarily international, franchise restaurants were opened; and
• The Company repurchased 2,625,245 shares of common stock for $139.8 million. 

Kent Taylor, Chief Executive Officer of Texas Roadhouse, Inc., commented, “We are very pleased to end the year on a strong note, highlighted by our double digit revenue growth and improved restaurant margins in the second half of the year.  Fourth quarter comparable restaurant sales grew 4.4% at company restaurants, which represents our 40th consecutive quarter of growth.  This is certainly a credit to our operators, who for 10 straight years have found ways to continue to grow sales.  In addition, our healthy cash flow allowed us to increase our quarterly cash dividend to $0.36 per share in 2020 which is our seventh straight year of increasing our dividends by double digits.”

Taylor continued, “We are off to a solid start in 2020, with comparable restaurant sales growth of 6.4% for the first seven weeks of the year.  In addition, our development pipeline remains strong and we continue to target at least 30 company restaurant openings for the year.”

2020 Outlook

Comparable restaurant sales at company restaurants for the first seven weeks of our first quarter of fiscal 2020 increased 6.4% compared to the prior year period.

Management reiterated the following expectations for 2020:

• Positive comparable restaurant sales growth;
• At least 30 company restaurant openings;
• Store week growth of 3.5% to 4.5%, including the negative impact of lapping the 53rd week from 2019;
• Commodity cost inflation of 1.0% to 2.0%;
• Mid-single digit growth in labor dollars per store week; and
• An income tax rate of 14.0% to 15.0%.

Management updated the following expectations for 2020:

• Total capital expenditures of $210 million to $220 million.

Cash Dividend Payment

On February 20, 2020, our Board of Directors authorized the payment of a quarterly cash dividend of $0.36 per share of common stock.  This payment, which will be distributed on March 27, 2020 to shareholders of record at the close of business on March 11, 2020, represents a 20% increase from the cash dividend of $0.30 per share of common stock declared during each quarter of 2019.  Since the inception of our dividend program in 2011, our cash dividend per share of common stock has increased an average of 18.2% per year.

Non-GAAP Measures

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”).  Within our press release, we make reference to restaurant margin (in dollars and as a percentage of sales).  Restaurant margin represents restaurant and other sales less restaurant-level operating costs, including cost of sales, labor, rent and other operating costs.  Restaurant margin should not be considered in isolation, or as an alternative, to income from operations.  This non-GAAP measure is not indicative of overall company performance and profitability in that this measure does not accrue directly to the benefit of shareholders due to the nature of the costs excluded.  Restaurant margin is widely regarded as a useful metric by which 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 also 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 also exclude impairment and closure expense as we believe this provides a clearer perspective of 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 accompanying financial tables.

Conference Call

Texas Roadhouse is hosting a conference call today, February 20, 2020 at 5:00 p.m. Eastern Time to discuss these results.  The dial-in number is [phone] or [phone] for international calls.  A replay of the call will be available for one week following the conference call.  To access the replay, please dial [phone] or [phone] for international calls, and use 8963721 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 has grown to over 610 restaurants system-wide in 49 states and ten 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 Texas Roadhouse.  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; breaches of security; conditions beyond our control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting our customers or food supplies; food safety and food-borne illness concerns; 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, except as required by applicable law.

Contacts:

Investor RelationsTonya Robinson(502) 515-7269

MediaTravis Doster(502) 638-5457

Texas Roadhouse, Inc. and SubsidiariesCondensed Consolidated Statements of Income(in thousands, except per share data)(unaudited)
	14 and 13 Weeks Ended							53 and 52 Weeks Ended
	December 31, 2019				December 25, 2018			December 31, 2019				December 25, 2018
Revenue:
Restaurant and other sales	$	719,457			$	600,936		$	2,734,177			$	2,437,115
Franchise royalties and fees		5,781				4,976			21,986				20,334
Total revenue		725,238				605,912			2,756,163				2,457,449
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Cost of sales		233,221				196,476			883,357				795,300
Labor		237,902				200,086			905,614				793,384
Rent		13,358				12,491			52,531				48,791
Other operating		112,093				96,295			418,448				375,477
Pre-opening		7,355				5,522			20,156				19,051
Depreciation and amortization		30,970				25,724			115,544				101,216
Impairment and closure, net		(1,293	)			150			(899	)			278
General and administrative		38,221				35,961			149,389				136,163
Total costs and expenses		671,827				572,705			2,544,140				2,269,660
Income from operations		53,411				33,207			212,023				187,789
Interest (expense) income, net		(12	)			219			1,514				(591	)
Equity income from investments in unconsolidated affiliates		278				203			378				1,353
Income before taxes		53,677				33,629			213,915				188,551
Provision for income taxes		9,066				1,936			32,397				24,257
Net income including noncontrolling interests		44,611				31,693			181,518				164,294
Less: Net income attributable to noncontrolling interests		1,925				1,361			7,066				6,069
Net income attributable to Texas Roadhouse, Inc. and subsidiaries	$	42,686			$	30,332		$	174,452			$	158,225
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries:
Basic	$	0.61			$	0.42		$	2.47			$	2.21
Diluted	$	0.61			$	0.42		$	2.46			$	2.20
Weighted average shares outstanding:
Basic		69,431				71,584			70,509				71,467
Diluted		69,888				72,182			70,916				71,964
Cash dividends declared per share	$	0.30			$	0.25		$	1.20			$	1.00

Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
	December 31, 2019				December 25, 2018
Cash and cash equivalents	$	107,879			$	210,125
Other current assets, net		140,020				134,894
Property and equipment, net		1,056,563				956,676
Operating lease right-of-use asset, net		499,801				-
Goodwill		124,748				123,220
Intangible assets, net		1,234				1,959
Other assets		53,320				42,402
Total assets	$	1,983,565			$	1,469,276
Current liabilities		417,220				385,142
Operating lease liabilities, net of current portion		538,710				-
Other liabilities		96,466				123,426
Texas Roadhouse, Inc. and subsidiaries stockholders' equity		915,994				945,569
Noncontrolling interests		15,175				15,139
Total liabilities and equity	$	1,983,565			$	1,469,276
Note: Beginning in 2019, we adopted Accounting Standards Codification 842, Leases, which requires the recognition of an operating lease right-of-use asset and operating lease liability for virtually all leases.

Texas Roadhouse, Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows(in thousands)(unaudited)
	53 and 52 Weeks Ended
	December 31, 2019				December 25, 2018
Cash flows from operating activities:
Net income including noncontrolling interests	$	181,518			$	164,294
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		115,544				101,216
Share-based compensation expense		35,500				33,983
Other noncash adjustments, net		12,374				18,726
Change in working capital		29,362				34,649
Net cash provided by operating activities		374,298				352,868
Cash flows from investing activities:
Capital expenditures - property and equipment		(214,340	)			(155,980	)
Acquisition of franchise restaurants, net of cash acquired		(1,536	)			(2,165	)
Proceeds from sale of property and equipment		1,056				-
Net cash used in investing activities		(214,820	)			(158,145	)
Cash flows from financing activities:
Principal payments on long-term debt		-				(50,000	)
Repurchase of shares of common stock		(139,849	)			-
Dividends paid		(102,366	)			(68,550	)
Other financing activities, net		(19,509	)			(16,966	)
Net cash used in financing activities		(261,724	)			(135,516	)
Net (decrease) increase in cash and cash equivalents		(102,246	)			59,207
Cash and cash equivalents - beginning of period		210,125				150,918
Cash and cash equivalents - end of period	$	107,879			$	210,125

Texas Roadhouse, Inc. and Subsidiaries
Reconciliation of Income from Operations to Restaurant Margin
(in thousands)
(unaudited)
	14 and 13 Weeks Ended								53 and 52 Weeks Ended
	December 31, 2019				December 25, 2018				December 31, 2019				December 25, 2018
Income from operations	$	53,411			$	33,207			$	212,023			$	187,789
Less:
Franchise royalties and fees		5,781				4,976				21,986				20,334
Add:
Pre-opening		7,355				5,522				20,156				19,051
Depreciation and amortization		30,970				25,724				115,544				101,216
Impairment and closure, net		(1,293	)			150				(899	)			278
General and administrative		38,221				35,961				149,389				136,163
Restaurant margin	$	122,883			$	95,588			$	474,227			$	424,163
Restaurant margin (as a percentage of restaurant and other sales)		17.1	%			15.9	%			17.3	%			17.4	%

Texas Roadhouse, Inc. and Subsidiaries
Supplemental Financial and Operating Information
($ amounts in thousands, except weekly sales by group)
(unaudited)
	Fourth Quarter								Change				Year to Date								Change
	2019				2018				vs LY				2019				2018				vs LY
Restaurant openings
Company - Texas Roadhouse		9				10			(1	)				19				23			(4	)
Company - Bubba's 33		2				1			1					3				5			(2	)
Company - Other		0				0			0					0				0			0
Franchise - Texas Roadhouse - U.S.		0				0			0					1				0			1
Franchise - Texas Roadhouse - International		3				1			2					8				5			3
Total		14				12			2					31				33			(2	)
Restaurant acquisitions/dispositions
Company		1				1			0					1				1			0
Franchise		(1	)			(1	)		0					(1	)			(1	)		0
Total		0				0			0					0				0			0
Restaurant closures
Company - Texas Roadhouse		0				0			0					0				0			0
Franchise - Texas Roadhouse - International		0				0			0					(2	)			0			(2	)
Total		0				0			0					(2	)			0			(2	)
Restaurants open at the end of the quarter
Company - Texas Roadhouse		484				464			20
Company - Bubba's 33		28				25			3
Company - Other		2				2			0
Franchise - Texas Roadhouse - U.S.		69				69			0
Franchise - Texas Roadhouse - International		28				22			6
Total		611				582			29
Company restaurants
Restaurant and other sales	$	719,457			$	600,936			19.7		%		$	2,734,177			$	2,437,115			12.2		%
Store weeks		7,118				6,307			12.9		%			26,473				24,693			7.2		%
Comparable restaurant sales growth (1)		4.4		%		5.6		%						4.7		%		5.4		%
Texas Roadhouse restaurants only:
Comparable restaurant sales growth (1)		4.3		%		5.6		%						4.6		%		5.4		%
Average unit volume (2)	$	1,434			$	1,251			14.6		%		$	5,555			$	5,209			6.6		%
Average unit volume, 2018 adjusted (3)	$	1,434			$	1,380			4.0		%		$	5,555			$	5,338			4.1		%
Weekly sales by group:
Comparable restaurants (448 units)	$	102,824
Average unit volume restaurants (21 units) (4)	$	94,379
Restaurants less than 6 months old (15 units)	$	106,328
Restaurant operating costs (as a % of restaurant and other sales)
Cost of sales		32.4		%		32.7		%	(28	)	bps			32.3		%		32.6		%	(32	)	bps
Labor		33.1		%		33.3		%	(23	)	bps			33.1		%		32.6		%	57		bps
Rent		1.9		%		2.1		%	(22	)	bps			1.9		%		2.0		%	(8	)	bps
Other operating		15.6		%		16.0		%	(44	)	bps			15.3		%		15.4		%	(10	)	bps
Total		82.9		%		84.1		%	(117	)	bps			82.7		%		82.6		%	6		bps
Restaurant margin		17.1		%		15.9		%	117		bps			17.3		%		17.4		%	(6	)	bps
Restaurant margin ($ in thousands)	$	122,883			$	95,588			28.6		%		$	474,227			$	424,163			11.8		%
Restaurant margin $/Store week	$	17,264			$	15,156			13.9		%		$	17,914			$	17,177			4.3		%
Franchise restaurants
Franchise royalties and fees	$	5,781			$	4,976			16.2		%		$	21,986			$	20,334			8.1		%
Store weeks		1,330				1,192			11.6		%			4,953				4,670			6.1		%
Comparable restaurant sales growth (1)		3.0		%		2.7		%						3.0		%		2.2		%
U.S. franchise restaurants only:
Comparable restaurant sales growth (1)		3.4		%		4.8		%						3.8		%		4.3		%
Average unit volume (2)	$	1,489			$	1,308			13.8		%		$	5,732			$	5,389			6.4		%
Average unit volume, 2018 adjusted (3)	$	1,489			$	1,440			3.4		%		$	5,732			$	5,521			3.8		%
Pre-opening expense	$	7,355			$	5,522			33.2		%		$	20,156			$	19,051			5.8		%
Depreciation and amortization	$	30,970			$	25,724			20.4		%		$	115,544			$	101,216			14.2		%
As a % of revenue		4.3		%		4.2		%	2		bps			4.2		%		4.1		%	7		bps
General and administrative expenses	$	38,221			$	35,961			6.3		%		$	149,389			$	136,163			9.7		%
As a % of revenue		5.3		%		5.9		%	(66	)	bps			5.4		%		5.5		%	(12	)	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.  Q4 2019 and 2019 YTD include 14 and 53 weeks, respectively, while Q4 2018 and 2018 YTD include 13 and 52 weeks.
(3)  For comparative purposes, Q4 2018 and 2018 YTD were adjusted to include 14 and 53 weeks, respectively.
(4)  Average unit volume restaurants include restaurants open a full six and up to 18 months before the beginning of the period measured.
Amounts may not foot due to rounding.