Item 5. Market for Registrant’s Common Equity
ITEM 5—MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Nasdaq Global Select Market under the symbol TXRH.
The number of holders of record of our common stock as of February 15, 2023 was 159.
On February 14, 2023, our Board of Directors (the "Board") declared a quarterly dividend of $0.55 per share of common stock which will be distributed on March 24, 2023 to shareholders of record at the close of business on March 8, 2023. The declaration and payment of cash dividends on our common stock is at the discretion of our Board, and any decision to declare a dividend will be based on a number of factors including, but not limited to, earnings, financial condition, applicable covenants under our amended credit facility and other contractual restrictions, or other factors deemed relevant.
Unregistered Sales of Equity Securities
There were no equity securities sold by the Company during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act of 1933, as amended.
Issuer Repurchases of Securities
In 2008, our Board approved our first stock repurchase program. From inception through December 27, 2022, we have paid $633.5 million through our authorized stock repurchase programs to repurchase 21,041,442 shares of our common stock at an average price per share of $30.11. On March 17, 2022, 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 have been made through open market transactions. In 2022, we paid $212.9 million to repurchase 2,734,005 shares of our common stock. This includes $133.1 million repurchased under our current authorized stock repurchase program and $79.7 million repurchased under our prior authorization. For the 13 week period ended December 27, 2022, we did not repurchase any shares of our common stock. As of December 27, 2022, $166.9 million remains authorized for stock repurchases.
33
Table of Contents
Stock Performance Graph
The following graph sets forth the cumulative total shareholder return experienced by holders of the Company’s common stock compared to the cumulative total return of the broad market indices of the S&P 500 Index and Russell 3000 Index as well as the industry specific indices of the S&P Composite 1500 Restaurant Sub-Index and Russell 3000 Restaurant Index for the five year period ended December 27, 2022, the last trading day of our fiscal year. The graph assumes the values of the investment in our common stock and each index was $100 on December 26, 2017 and the reinvestment of all dividends paid during the period of the securities comprising the indices.
Historically, we have presented the performance graph by comparing our cumulative total shareholder return against the Russell 3000 Index and Russell 3000 Restaurant Index. In 2022, we transitioned to the S&P 500 Index and S&P Composite 1500 Restaurant Sub-Index as these are more widely utilized industry indices. The performance graph below presents all the indices used for this transition year.
Note: The stock price performance shown on the graph below does not indicate future performance.
Comparison of Cumulative Total Return Since December 26, 2017
12/26/2017
12/24/2018
12/31/2019
12/29/2020
12/28/2021
12/27/2022
Texas Roadhouse, Inc.
$
100.00
$
106.69
$
108.05
$
152.59
$
175.44
$
188.43
S&P 500
$
100.00
$
89.44
$
125.44
$
147.34
$
191.93
$
156.08
S&P Composite 1500 Restaurant Sub-Index
$
100.00
$
104.87
$
135.44
$
161.06
$
196.79
$
181.84
Russell 3000
$
100.00
$
88.62
$
123.87
$
148.62
$
188.83
$
151.48
Russell 3000 Restaurant Index
$
100.00
$
100.16
$
130.00
$
147.41
$
170.36
$
159.21
ITEM 6— RESERVED
34
Table of Contents
ITEM 7—MANAGEMENT’S DISCUSSIO N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below of the financial condition and results of operations for Texas Roadhouse, Inc. (collectively, the "Company," "we," "our" and/or "us") should be read in conjunction with the consolidated financial statements and the notes to such financial statements (pages F-1 to F-28), "Forward-looking Statements" (page 3) and Risk Factors set forth in Item 1A. For discussion and analysis of our financial condition and results of operations for fiscal year 2021 compared to fiscal year 2020, see Part II, Item 7 of our 2021 Form 10-K.
Our Company
Texas Roadhouse, Inc. is a growing restaurant company operating predominately in the casual dining segment. Our late founder, W. Kent Taylor, started the business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to three concepts with 697 restaurants in 49 states and ten foreign countries. As of December 27, 2022, our 697 restaurants included:
● 597 "company restaurants," of which 577 were wholly-owned and 20 were majority- owned. Of the 597 restaurants we owned and operated at the end of 2022, we operated 552 as Texas Roadhouse restaurants, 40 as Bubba’s 33 restaurants and five as Jaggers restaurants. The results of operations of company restaurants are included in our consolidated statements of income and comprehensive income. The portion of income attributable to noncontrolling interests in company restaurants that are majority-owned is reflected in the line item entitled "Net income attributable to noncontrolling interests" in our consolidated statements of income and comprehensive income.
● 100 "franchise restaurants," 23 of which we have a 5.0% to 10.0% ownership interest. All of the franchise restaurants operated as Texas Roadhouse restaurants. The income derived from our minority interests in these franchise restaurants is reported in the line item entitled "Equity income from investments in unconsolidated affiliates" in our consolidated statements of income and comprehensive income. Additionally, we provide various management services to these 23 franchise restaurants, as well as five additional franchise restaurants in which we have no ownership interest. Of the 100 franchise restaurants, 62 were domestic restaurants and 38 were international restaurants.
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 58 of the 62 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
We operate on a fiscal year that ends on the last Tuesday in December. Fiscal year 2022 and fiscal year 2021 were both 52 weeks in length, and the fourth quarters were both 13 weeks in length.
COVID-19 and Related Impacts
The Company has been subject to risks and uncertainties as a result of the COVID-19 pandemic (the "pandemic"). These include federal, state and local restrictions on restaurants, some of which limited capacity or seating in dining rooms while others allowed to-go or curbside service only. In 2022, all of our domestic company and franchise locations operated without restriction. We also experienced and expect to continue to experience commodity inflation and certain food and supply shortages as well as a more competitive labor market. To the extent these challenges persist, we will continue to experience increased costs.
Long-term Strategies to Grow Earnings Per Share and Create Shareholder Value
Our long-term strategies with respect to increasing net income and earnings per share, along with creating shareholder value, include the following:
● Expanding Our Restaurant Base. We continue to evaluate opportunities to develop restaurants in existing markets and in new domestic and international markets. Domestically, we remain focused primarily on markets
35
Table of Contents
where we believe a significant demand for our restaurants exists because of population size, income levels, the presence of shopping and entertainment centers and a significant employment base. In addition, we continue to pursue opportunities to acquire domestic franchise locations to expand our company restaurant base.
We have entered into area development and franchise agreements for the development and operation of Texas Roadhouse restaurants in numerous foreign countries and one U.S. territory. We have also entered into area development agreements for Jaggers, our fast-casual concept. We expect our first Jaggers franchise restaurant to open in 2023.
In 2022, we opened 23 company restaurants while our franchise partners opened seven restaurants internationally. The company restaurants included 18 Texas Roadhouse restaurants, four Bubba’s 33 restaurants, and one Jaggers restaurant. In 2023, we plan to open approximately 25 to 30 Texas Roadhouse and Bubba’s 33 company restaurants and three Jaggers company restaurants. In addition, we expect as many as nine Texas Roadhouse international and domestic franchise openings and three Jaggers domestic franchise openings in 2023.
In 2022, we completed the acquisition of eight domestic franchise Texas Roadhouse restaurants for an aggregate purchase price of $33.1 million. On our first day of fiscal year 2023, we completed the acquisition of eight domestic franchise Texas Roadhouse restaurants for an aggregate purchase price of approximately $39.0 million.
● Maintaining and/or Improving Restaurant Level Profitability. We continue to focus on driving comparable restaurant sales to maintain or improve store level profitability. This includes a pricing strategy that balances the impacts of inflationary pressures with our long-term value positioning. In terms of driving traffic at our restaurants, we remain focused on encouraging repeat visits by our guests and attracting new guests through our continued commitment to operational standards relating to food and service quality. To attract new guests and increase the frequency of visits of our existing guests, we continue to drive various localized marketing programs, focus on speed of service, increase throughput by adding seats and parking at certain restaurants and continue to enhance the guest digital experience.
At our high volume restaurants, we continue to look for opportunities to increase our dining room capacity by adding on to our existing building and/or to increase our parking capacity by leasing or purchasing property that adjoins our site. We also continue to make a number of building modifications and/or expansions to existing restaurants in order to better accommodate our increased dine-in and to-go sales. These modifications include room expansions which add additional guest seating, the addition of to-go areas, and cooler expansions to accommodate higher inventory levels.
In recent years, we have relocated several existing Texas Roadhouse locations at or near the end of their associated lease or as a result of eminent domain which allowed us to move to a better site, update them to a current prototypical design, construct a larger building with more seats and greater number of available parking spaces, accommodate increased to-go sales and/or obtain more favorable lease terms. We continue to evaluate these opportunities particularly as it relates to older locations with strong sales.
● Leveraging Our Scalable Infrastructure. To support our growth, we have made investments in our infrastructure across all critical functions, including the development of new strategic initiatives. Whether we are able to leverage our infrastructure in future years by growing our general and administrative costs at a slower rate than our revenue will depend, in part, on our new restaurant openings, our comparable restaurant sales growth rate going forward and the level of investment we continue to make in our infrastructure.
● Returning Capital to Shareholders. We continue to evaluate opportunities to return capital to our shareholders, including the payment of dividends and repurchase of common stock. In 2011, our Board of Directors (the "Board") declared our first quarterly dividend of $0.08 per share of common stock which has consistently grown over time. In 2022, the Board declared a quarterly cash dividend of $0.46 per share of common stock. On February 14, 2023, the Board declared a quarterly cash dividend of $0.55 per share of common stock, representing a 20% increase compared to the quarterly dividend declared in the prior year period.
36
Table of Contents
In 2008, the Board approved our first stock repurchase program. From inception through December 27, 2022, we have paid $633.5 million through our authorized stock repurchase programs to repurchase 21,041,442 shares of our common stock at an average price per share of $30.11. On March 17, 2022, the Board approved a stock repurchase program under which we may repurchase up to $300.0 million of our common stock. In 2022, we paid $212.9 million to repurchase 2,734,005 shares of our common stock. This includes $133.1 million repurchased under our current authorized stock repurchase program and $79.7 million repurchased under our prior authorization. As of December 27, 2022, $166.9 million remains authorized for stock repurchases.
Key Measures We Use To Evaluate Our Company
Key measures we use to evaluate and assess our business include the following:
● Comparable Restaurant Sales. Comparable restaurant sales reflects the change in sales for all company restaurants over the same period of the prior year for the comparable restaurant base. We define the comparable restaurant base to include those restaurants open for a full 18 months before the beginning of the period measured excluding restaurants permanently closed during the period. Comparable restaurant sales can be impacted by changes in guest traffic counts or by changes in the per person average check amount. Menu price changes, the mix of menu items sold and the mix of dine-in versus to-go sales can affect the per person average check amount.
● Average Unit Volume. Average unit volume represents the average annual restaurant sales for Texas Roadhouse and Bubba’s 33 restaurants open for a full six months before the beginning of the period measured excluding sales of restaurants permanently closed during the period. Historically, average unit volume growth is less than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels lower than company average. At times, average unit volume growth may be more than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels higher than company average.
● Store Weeks and New Restaurant Openings. Store weeks represent the number of weeks that all company restaurants, unless otherwise noted, were open during the reporting period. Store weeks include weeks in which a restaurant is temporarily closed. Store week growth is driven by new restaurant openings and franchise acquisitions. New restaurant openings reflect the number of restaurants opened during a particular fiscal period, excluding store relocations. We consider store openings that occur simultaneous with a store closure in the same trade area to be a relocation.
● Restaurant Margin. 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 is not a measurement determined in accordance with U.S. generally accepted accounting principles ("GAAP") and 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 core restaurant-level operating efficiency and performance over various reporting periods on a consistent basis.
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 core restaurant-level operational efficiency and performance. We also exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. 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 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.
37
Table of Contents
Other Key Definitions
Restaurant and Other Sales. Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all company restaurants. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from restaurant sales in the consolidated statements of income and comprehensive income. Other sales include the amortization of fees associated with our third-party gift card sales net of the amortization of gift card breakage income.
Franchise Royalties and Fees. Franchise royalties consist of royalties, as defined in our franchise agreement, paid to us by our domestic and international franchisees. Domestic and international franchisees also typically pay an initial franchise fee and/or development fee for each new restaurant or territory.
Food and Beverage Costs. Food and beverage costs consists of the costs of raw materials and ingredients used in the preparation of food and beverage products sold in our company restaurants. Approximately half of our food and beverage costs relates to beef.
Restaurant Labor Expenses. Restaurant labor expenses include all direct and indirect labor costs incurred in operations except for profit sharing incentive compensation expenses earned by our restaurant managing partners and market partners. These profit sharing expenses are reflected in restaurant other operating expenses. Restaurant labor expenses also include share-based compensation expense related to restaurant-level employees.
Restaurant Rent Expense. Restaurant rent expense includes all rent, except pre-opening rent, associated with the leasing of real estate and includes base, percentage and straight-line rent expense.
Restaurant Other Operating Expenses. Restaurant other operating expenses consist of all other restaurant- level operating costs, the major components of which are credit card fees, utilities, supplies, repairs and maintenance, equipment rent, property taxes, profit sharing incentive compensation for our restaurant managing partners and market partners and general liability insurance.
Pre-opening Expenses. Pre- opening expenses, which are charged to operations as incurred, consist of expenses incurred before the opening of a new or relocated restaurant and are comprised principally of opening and training team compensation and benefits, travel expenses, rent, food, beverage and other initial supplies and expenses. On average, approximately 70% of total pre-opening costs incurred per restaurant opening relate to the hiring and training of employees. Pre-opening costs vary by location depending on a number of factors, including the size and physical layout of each location; the number of management and hourly employees required to operate each restaurant; the availability of qualified restaurant staff members; the cost of travel and lodging for different geographic areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining final licenses and permits to open the restaurants.
Depreciation and Amortization Expenses. Depreciation and amortization expenses include the depreciation of fixed assets and amortization of intangibles with definite lives, substantially all of which relates to restaurant-level assets.
Impairment and Closure Costs, Net. Impairment and closure costs, net include any impairment of long- lived assets, including property and equipment, operating lease right-of-use assets and goodwill, and expenses associated with the closure of a restaurant. Closure costs also include any gains or losses associated with a relocated restaurant or the sale of a closed restaurant and/or assets held for sale as well as lease costs associated with closed or relocated restaurants.
General and Administrative Expenses. General and administrative expenses are comprised of expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth. This includes software hosting fees, professional fees, group insurance, advertising expense, salary and share-based compensation expense related to executive officers, Support Center employees and market partners and the realized and unrealized holding gains and losses related to the investments in our deferred compensation plan.
Interest Expense, Net. Interest expense, net includes interest expense on our debt or financing obligations including the amortization of loan fees reduced by earnings on cash and cash equivalents and capitalized interest.
Equity Income (loss) from Unconsolidated Affiliates. Equity income (loss) includes our percentage share of net income earned by unconsolidated affiliates and our share of any gain on the acquisition of these affiliates. As of
38
Table of Contents
December 27, 2022 and December 28, 2021, we owned a 5.0% to 10.0% equity interest in 23 and 24 domestic franchise restaurants, respectively. Additionally, we had a 40% equity interest in four non- Texas Roadhouse restaurants as part of a joint venture agreement with a casual dining restaurant operator in China that we fully impaired in 2021.
Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests represents the portion of income attributable to the other owners of the majority- owned restaurants. Our consolidated subsidiaries include 20 majority-owned restaurants for all periods presented.
2022 Financial Highlights
Total revenue increased $551.0 million or 15.9% to $4.0 billion in 2022 compared to $3.5 billion in 2021 primarily due to an increase in store weeks and an increase in comparable restaurant sales. Store weeks and comparable restaurant sales increased 6.1% and 9.7%, respectively, at company restaurants in 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 per person average check and an increase in guest traffic.
Net income increased $24.5 million or 10.0% to $269.8 million in 2022 compared to $245.3 million in 2021 primarily due to higher restaurant margin dollars, as described below, partially offset by higher general and administrative expenses and higher depreciation and amortization expense. Diluted earnings per share increased 13.5% to $3.97 from $3.50 in the prior year due to the increase in net income and the benefit of share repurchases.
Restaurant margin dollars increased $45.8 million or 7.9% to $627.5 million in 2022 compared to $581.7 million in 2021 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 15.7% in 2022 compared to 16.9% in 2021. The decrease in restaurant margin, as a percentage of restaurant and other sales, was due to commodity and wage and other labor inflation partially offset by higher sales.
39
Table of Contents
Results of Operations
Fiscal Year Ended
2022
2021
$
%
$
%
(In thousands)
Consolidated Statements of Income:
Revenue:
Restaurant and other sales
3,988,791
99.3
3,439,176
99.3
Franchise royalties and fees
26,128
0.7
24,770
0.7
Total revenue
4,014,919
100.0
3,463,946
100.0
Costs and expenses:
(As a percentage of restaurant and other sales)
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Food and beverage
1,378,192
34.6
1,156,628
33.6
Labor
1,319,959
33.1
1,123,003
32.7
Rent
66,834
1.7
60,005
1.7
Other operating
596,305
14.9
517,808
15.1
(As a percentage of total revenue)
Pre-opening
21,883
0.5
24,335
0.7
Depreciation and amortization
137,237
3.4
126,761
3.7
Impairment and closure, net
1,600
NM
734
NM
General and administrative
172,712
4.3
157,480
4.5
Total costs and expenses
3,694,722
92.0
3,166,754
91.4
Income from operations
320,197
8.0
297,192
8.6
Interest expense, net
124
NM
3,663
0.1
Equity income (loss) from investments in unconsolidated affiliates
1,239
NM
(637)
NM
Income before taxes
321,312
8.0
292,892
8.5
Income tax expense
43,715
1.1
39,578
1.1
Net income including noncontrolling interests
277,597
6.9
253,314
7.3
Net income attributable to noncontrolling interests
7,779
0.2
8,020
0.2
Net income attributable to Texas Roadhouse, Inc. and subsidiaries
269,818
6.7
245,294
7.1
NM – Not meaningful
Reconciliation of Income from Operations to Restaurant Margin
Fiscal Year Ended
2022
2021
(In thousands, except per store week)
Income from operations
$ 320,197
$ 297,192
Less:
Franchise royalties and fees
26,128
24,770
Add:
Pre-opening
21,883
24,335
Depreciation and amortization
137,237
126,761
Impairment and closure, net
1,600
734
General and administrative
172,712
157,480
Restaurant margin
$ 627,501
$ 581,732
Restaurant margin $/store week
$ 20,721
$ 20,389
Restaurant margin (as a percentage of restaurant and other sales)
15.7%
16.9%
40
Table of Contents
Restaurant Unit Activity
Total
Texas Roadhouse
Bubba's 33
Jaggers
Balance at December 28, 2021
667
627
36
4
Company openings
23
18
4
1
Company closings
—
—
—
—
Franchise openings - Domestic
—
—
—
—
Franchise openings - International
7
7
—
—
Franchise closings
—
—
—
—
Balance at December 27, 2022
697
652
40
5
December 27, 2022
December 28, 2021
Company - Texas Roadhouse
552
526
Company - Bubba's 33
40
36
Company - Jaggers
5
4
Franchise - Texas Roadhouse - U.S.
62
70
Franchise - Texas Roadhouse - International
38
31
Total
697
667
41
Table of Contents
Restaurant and Other Sales
Restaurant and other sales increased 16.0% in 2022 compared to 2021. 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.
2022
2021
Company Restaurants:
Increase in store weeks
6.1
%
5.0
%
Increase in average unit volume
9.4
%
36.7
%
Other(1)
0.4
%
2.6
%
Total increase in restaurant sales
15.9
%
44.3
%
Other sales
0.1
%
0.2
%
Total increase in restaurant and other sales
16.0
%
44.5
%
Store weeks
30,284
28,531
Comparable restaurant sales
9.7
%
37.8
%
Texas Roadhouse restaurants:
Store weeks
28,127
26,622
Comparable restaurant sales
9.7
%
37.6
%
Average unit volume (in thousands)
$
6,962
$
6,358
Weekly sales by group:
Comparable restaurants (499 and 473 units)
$
134,085
$
123,064
Average unit volume restaurants (20 and 18 units)(2)
$
128,665
$
104,545
Restaurants less than six months old (33 and 35 units)
$
135,401
$
124,142
Bubba's 33 restaurants:
Store weeks
1,936
1,747
Comparable restaurant sales
10.5
%
43.0
%
Average unit volume (in thousands)
$
5,620
$
5,090
Weekly sales by group:
Comparable restaurants (30 and 25 units)
$
108,132
$
101,097
Average unit volume restaurants (4 and 5 units)(2)
$
107,636
$
81,813
Restaurants less than six months old (6 and 6 units)
$
121,791
$
115,554
(1) Includes the impact of the year-over-year change in sales volume of all Jaggers restaurants, along with Texas Roadhouse and Bubba’s 33 restaurants open less than six months before the beginning of the period measured and, if applicable, the impact of restaurants permanently closed or acquired during the period.
(2) Average unit volume restaurants include restaurants open a full six to 18 months before the beginning of the period measured, excluding sales from restaurants permanently closed during the period, if applicable.
The increase in restaurant sales for 2022 was primarily attributable to an increase in store weeks and an increase in comparable restaurant sales. The increase in store weeks was driven by the opening of new restaurants and the acquisition of franchise restaurants. The increase in comparable restaurant sales growth was driven primarily by increases in our per person average check as shown in the table below.
2022
2021
Guest traffic counts
1.9
%
27.6
%
Per person average check
7.8
%
10.2
%
Comparable restaurant sales growth
9.7
%
37.8
%
42
Table of Contents
The increase in 2022 guest traffic counts was due to an increase in dining room traffic partially offset by a decrease in to-go traffic. The increase in dining room traffic counts was primarily driven by all of our company locations operating without capacity restrictions for the entire 2022 period. To-go sales as a percentage of total restaurant sales were 13.3% in 2022 compared to 17.1% in 2021.
Per person average check includes the benefit of menu price increases of approximately 3.2% and 2.9% implemented in Q2 2022 and Q4 2022, respectively, as well as increases of 1.8% and 4.2% implemented in Q2 2021 and Q4 2021, respectively.
In 2022, we opened 23 company restaurants, which included 18 Texas Roadhouse restaurants, four Bubba’s 33 restaurants and one Jaggers restaurant. We also completed the acquisition of eight franchise restaurants.
In 2023, we plan to open approximately 25 to 30 Texas Roadhouse and Bubba’s 33 company restaurants and three Jaggers company restaurants. On December 28, 2022, the first day of our 2023 fiscal year, we completed the acquisition of eight domestic franchise restaurants for an aggregate purchase price of approximately $39.0 million. In total, we expect store week growth of at least 6% in 2023, including the impact of the franchise restaurants acquired.
Other sales primarily represents the net impact of amortization of third-party gift card fees and gift card breakage income. The net impact was ($6.4) million and ($6.1) million for 2022 and 2021, respectively. The change was driven primarily by favorable adjustments of $6.6 million and $4.8 million recorded in 2022 and 2021, respectively. These adjustments related to a change in our estimate of breakage due to a shift in our historic redemption pattern which indicated that the percentage of gift cards sold that are not expected to be redeemed had increased. This shift in redemption patterns was primarily due to the increase in sales through our third-party gift card program. As a result, we adjusted our expected breakage assumptions on unredeemed gift cards. The adjustments were partially offset by an increase in amortization of third-party fees due to an increase in sales through our third-party gift card program.
Franchise Royalties and Fees
Franchise royalties and fees increased by $1.4 million or 5.5% compared to 2021 due to comparable restaurant sales growth and new store openings partially offset by decreased royalties related to the eight franchise acquisitions in 2022. Franchise comparable restaurant sales increased 10.3% in 2022.
In 2022, our franchise partners opened seven Texas Roadhouse international restaurants. In 2023, we expect as many as nine Texas Roadhouse international and domestic franchise openings and three Jaggers domestic franchise openings.
Food and Beverage Costs
Food and beverage costs, as a percentage of restaurant and other sales, increased to 34.6% in 2022 from 33.6% in 2021 primarily due to commodity inflation partially offset by the benefit of a higher guest check. Commodity inflation was 10.8% in 2022, with higher costs across the basket.
For 2023, we currently expect commodity cost inflation of 5% to 6% for the year with prices locked for approximately 40% of our forecasted costs and the remainder subject to floating market prices.
Restaurant Labor Expenses
Restaurant labor expense, as a percentage of restaurant and other sales, increased to 33.1% in 2022 compared to 32.7% in 2021. This increase was primarily due to wage and other labor inflation of 8.3% in 2022. Wage and other labor inflation was primarily due to higher wage and benefit expense driven by labor market pressures along with increases in state-mandated minimum and tipped wage rates and increased investment in our people. In addition, a higher mix of dining room sales versus to-go sales also contributed to the increase. The increase was partially offset by the benefit of a higher guest check as well as a decrease in group insurance and workers’ compensation expense due to favorable claims experience of $7.2 million as compared to the prior year.
43
Table of Contents
In 2023, we anticipate our labor costs will continue to be pressured by wage and other labor inflation of 5% to 6% driven by labor market pressures, increases in state-mandated minimum and tipped wages and increased investment in our people.
Restaurant Rent Expense
Restaurant rent expense, as a percentage of restaurant and other sales, remained flat at 1.7% in both periods presented. The increase in average unit volume was 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, decreased to 14.9% in 2022 compared to 15.1% in 2021. The decrease was primarily due to the increase in average unit volume and lower supplies and bonus expense partially offset by higher credit card charges and repair and maintenance costs.
Restaurant Pre-opening Expenses
Pre-opening expenses were $21.9 million in 2022 compared to $24.3 million in 2021. Pre-opening costs will fluctuate from period to period based on the specific 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 Expenses
Depreciation and amortization expenses, as a percentage of revenue, decreased to 3.4% in 2022 compared to 3.7% in 2021. The decrease was primarily due to the increase in average unit volume partially offset by higher depreciation at new restaurants and increased amortization of intangible assets generated from franchise restaurant acquisitions.
Impairment and Closure Costs, Net
Impairment and closure costs, net were $1.6 million and $0.7 million in 2022 and 2021, respectively. In 2022, impairment and closure costs, net included $1.7 million related to the impairment of land, building and operating lease right-of-use assets at three restaurants, two of which have relocated and $0.6 million related to ongoing closure costs. This was partially offset by a $0.7 million gain on the sale of land and building that was previously classified as assets held for sale. In 2021, impairment and closure costs, net included the impairment of the fixed assets and operating lease right-of-use assets at two restaurants, both of which have relocated.
General and Administrative Expenses
General and administrative expenses, as a percentage of total revenue, decreased to 4.3% in 2022 compared to 4.5% in 2021. The decrease was primarily driven by the increase in average unit volume and lower legal settlement expense partially offset by increased managing partner conference expense of $2.5 million.
Interest Expense, Net
Interest expense was $0.1 million in 2022 compared to $3.7 million in 2021. The decrease was primarily driven by increased earnings on our cash and cash equivalents and decreased borrowings on our amended revolving credit facility.
Income Taxes
Our effective tax rate increased to 13.6% in 2022 compared to 13.5% in 2021. The increase was primarily due to lower excess tax benefits related to our share-based compensation program partially offset by an increase in the FICA tip tax credit. For 2023, we expect our effective tax rate to be approximately 14% based on forecasted operating results, excluding the impact of any legislative changes enacted.
44
Table of Contents
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 Jaggers restaurants and the results of our retail initiatives, are included in Other.
Management uses restaurant margin as the 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. Restaurant margin is used by our chief operating decision maker ( "CODM" ) 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):
52 Weeks Ended
December 27, 2022
December 28, 2021
Texas Roadhouse
$
600,197
16.0
%
$
552,039
16.9
%
Bubba's 33
26,934
12.7
28,862
16.6
Other
370
2.6
831
7.6
Total
$
627,501
15.7
%
$
581,732
16.9
%
In our Texas Roadhouse reportable segment, restaurant margin dollars increased $48.2 million or 8.7% in 2022. The increase was primarily due to higher sales which were partially offset by commodity and wage and other labor inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, decreased to 16.0% in 2022 from 16.9% in 2021. Restaurant margin was negatively impacted by commodity and wage and other labor inflation which was partially offset by the benefit of an increase in comparable restaurant sales.
In our Bubba’s 33 reportable segment, restaurant margin dollars decreased $1.9 million or 6.7% in 2022. In addition, restaurant margin, as a percentage of restaurant and other sales, decreased to 12.7% in 2022 from 16.6% in 2021. These decreases were primarily driven by commodity and wage and other labor inflation which was partially offset by the benefit of an increase in comparable restaurant sales.
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):
Fiscal Year Ended
2022
2021
Net cash provided by operating activities
$
511,725
$
468,826
Net cash used in investing activities
(263,734)
(195,104)
Net cash used in financing activities
(409,775)
(301,232)
Net decrease in cash and cash equivalents
$
(161,784)
$
(27,510)
Net cash provided by operating activities was $511.7 million in 2022 compared to $468.8 million in 2021. This increase was primarily due to an increase in net income, an increase in non-cash items such as depreciation and amortization and a favorable increase in working capital. The favorable increase in working capital was partially offset by the final remittance of our deferred payroll tax liability of $23.0 million related to the Coronavirus Aid, Relief, and Economic Security Act.
Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital. 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.
45
Table of Contents
Net cash used in investing activities was $263.7 million in 2022 compared to $195.1 million in 2021. The increase was due to the acquisition of eight franchise restaurants for a net purchase price of $33.1 million as well as an increase in capital expenditures, primarily driven by an increase in new company restaurant construction and refurbishments and relocations of existing restaurants.
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 generally of five to 30 years (including renewal periods) or purchase the land when appropriate. As of December 27, 2022, 150 of the 597 company restaurants have been developed on land which we own.
The following table presents a summary of capital expenditures (in thousands):
2022
2021
New company restaurants
$
139,210
$
123,044
Refurbishment or expansion of existing restaurants
84,414
64,146
Relocation of existing restaurants
18,478
8,374
Capital expenditures related to Support Center office
4,019
5,128
Total capital expenditures
$
246,121
$
200,692
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 new restaurant construction costs 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 $265 million as we currently plan to open approximately 25 to 30 Texas Roadhouse and Bubba’s 33 company restaurants. We also expect to have as many as four relocations in 2023. In addition, on the first day of our 2023 fiscal year, we completed the acquisition of eight domestic franchise restaurants for an aggregate purchase price of approximately $39.0 million. 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 amended credit facility.
Net cash used in financing activities was $409.8 million in 2022 compared to $301.2 million in 2021. The increase is primarily due to the significant increases in share repurchases and our dividend payment. These increases were partially offset by a decrease in repayments made on our amended revolving credit facility.
On March 17, 2022, 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. The timing and amount of any repurchases 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.
In 2022, we paid $212.9 million to repurchase 2,734,005 shares of our common stock. This includes $133.1 million repurchased under our current authorized stock repurchase program and $79.7 million repurchased under our prior authorization. In 2021, we paid $51.6 million to repurchase 584,932 shares of our common stock. As of December 27, 2022, $166.9 million remained under our authorized stock repurchase program.
On February 17, 2022, our Board authorized the payment of a quarterly dividend of $0.46 per share of common stock. The payment of dividends totaled $124.1 million and $83.7 million in 2022 and 2021, respectively. On February 14, 2023, our Board declared a quarterly cash dividend of $0.55 per share of common stock.
We paid distributions of $7.8 million and $8.2 million in 2022 and 2021, respectively, to equity holders of our majority-owned company restaurants.
46
Table of Contents
On May 4, 2021, we entered into an agreement to amend our revolving credit facility with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A. and PNC Bank, N.A. The amended revolving credit facility remains 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 amendment also extended the maturity date to May 1, 2026.
The terms of the amendment require us to pay interest on outstanding borrowings at the London Interbank Offered Rate ("LIBOR") plus a margin of 0.875% to 1.875% and pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the amended revolving credit facility, in each case depending on our leverage ratio. The agreement also provides an Alternate Base Rate that may be substituted for LIBOR.
As of December 27, 2022, we had $50.0 million outstanding on the amended revolving credit facility and $233.5 million of availability, net of $16.5 million of outstanding letters of credit. As of December 28, 2021, we had $100.0 million outstanding on the amended revolving credit facility and $189.1 million of availability, net of $10.9 million of outstanding letters of credit. These outstanding amounts are included as long-term debt on our consolidated balance sheets.
The interest rate for the $50.0 million outstanding as of December 27, 2022 was 5.21%. The interest rate for the $100.0 million outstanding as of December 28, 2021 was 0.98%.
The lenders’ obligation to extend credit pursuant to the amended revolving credit facility depends on us maintaining certain financial covenants. We were in compliance with all financial covenants as of December 27, 2022 and December 28, 2021.
Contractual Obligations
The following table summarizes the amount of payments due under specified contractual obligations as of December 27, 2022 (in thousands):
Payments Due by Period
Less than
More than
Total
1 year
1 - 3 Years
3 - 5 Years
5 years
Long-term debt obligation, including current maturities
$
50,000
$
—
—
$
50,000
$
—
Obligations under finance leases
2,750
—
—
—
2,750
Interest(1)
13,208
2,919
5,840
1,484
2,965
Real estate operating lease obligations
1,191,064
66,675
132,401
130,574
861,414
Capital obligations
205,663
205,663
—
—
—
Total contractual obligations(2)
$
1,462,685
$
275,257
$
138,241
$
182,058
$
867,129
(1) Includes interest on our revolving credit facility and interest on our financing leases. We used the interest rate on our amended revolving credit facility as of December 27, 2022 for our variable rate debt and assumed $50.0 million remains outstanding on our amended revolving credit facility through the respective maturity for all borrowings. We assumed a constant interest rate until maturity on our financing leases.
(2) Unrecognized tax benefits under Accounting Standards Codification 740, Income Taxes, are not significant and excluded from this amount.
We have no material minimum purchase commitments with our vendors that extend beyond a year. Refer to Notes 5, 8 and 13 to the consolidated financial statements for details of contractual obligations.
47
Table of Contents
Guarantees
As of December 27, 2022 and December 28, 2021, we were contingently liable for $11.3 million and $12.2 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 liabilities have been recorded as of 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.
Critical Accounting Policies and Estimates
The above discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. Our significant accounting policies are described in Note 2 to the accompanying consolidated financial statements. Critical accounting policies are those that we believe are most important to portraying our financial condition and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments or uncertainties regarding the application of these policies may result in significantly different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the consolidated financial statements.
Impairment of Long-lived Assets. We evaluate long- lived assets related to each restaurant to be held and used in the business, such as property and equipment, operating lease right-of-use assets and intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying amount of a restaurant may not be recoverable. For the purposes of this evaluation, we define the asset group at the individual restaurant level. When we evaluate the restaurants, cash flows are the primary indicator of impairment. Recoverability of assets to be held and used is measured by comparison of the carrying amount of the restaurant to estimated undiscounted future cash flows expected to be generated by the restaurant. Under our policies, trailing 12- month cash flow results under a predetermined amount at the individual restaurant level signals a potential impairment. In our evaluation of restaurants that do not meet the cash flow threshold, we estimate future undiscounted cash flows from operating the restaurant over its estimated useful life, which is usually a period of 25 years. In the estimation of future cash flows, we consider the period of time the restaurant has been open, the trend of operations over such period and future periods and expectations for future sales growth. We limit assumptions about important factors such as trend of future operations and sales growth to those that are supportable based upon our plans for the restaurant and actual results at comparable restaurants. Both qualitative and quantitative information are considered when evaluating for potential impairments. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, these factors could cause us to realize a material impairment charge.
If assets are determined to be impaired, we measure the impairment charge by calculating the amount by which the asset carrying amount exceeds its estimated fair value. The determination of asset fair value is also subject to significant judgment. We generally measure estimated fair value by discounting estimated future cash flows. When fair value is measured by discounting estimated future cash flows, the assumptions used are consistent with what we believe hypothetical market participants would use. We also use a discount rate that is commensurate with the risk inherent in the projected cash flows. If these assumptions change in the future, we may be required to record impairment charges for these assets.
In 2022, we recorded impairment and closure costs, net of $1.6 million. This included $1.7 million related to the impairment of land, building and operating lease right-of-use assets at three restaurants, two of which have relocated and $0.6 million related to ongoing closure costs. This was partially offset by a gain of $0.7 million associated with the sale of land and building that was previously classified as assets held for sale. Refer to Note 17 in the consolidated financial statements for further discussion regarding closures and impairments recorded in 2022, 2021 and 2020.
Goodwill. Goodwill is tested annually for impairment and is tested more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the fair value of the reporting unit. Goodwill is required to be tested for impairment at the reporting unit level, or the level of internal reporting that reflects the way in which an entity manages its businesses. A reporting unit is defined as an operating segment, or one level below an operating segment. An entity may first assess qualitative factors
48
Table of Contents
in order to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The entity may also elect to bypass the qualitative assessment and determine the fair value of the reporting unit and compare it to its carrying amount. The fair value of the reporting unit may be based on several valuation approaches including capitalization of earnings, discounted cash flows, comparable public company market multiples and comparable acquisition market multiples. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the fair value of the reporting unit.
At December 27, 2022, our Texas Roadhouse reporting unit had allocated goodwill of $148.7 million. No other reporting units had goodwill balances. In 2021, due to a change in our management reporting structure, we changed the designation of our operating segment and reporting unit to be at the concept level from the restaurant level. As a result of this change, in 2021, we performed the goodwill impairment analysis at both the individual restaurant and concept level to substantiate that our goodwill was not impaired under either reporting unit definition. In 2022, we performed the goodwill impairment analysis at the concept level.
In performing the qualitative assessment, we reviewed factors such as macroeconomic conditions, industry and market considerations, cost factors, changes in management or key personnel, sustained decreases in share price and the overall financial performance of the Company’s reporting units at the concept level. As a result of the qualitative assessment, no indicators of impairment were identified, and no additional indicators of impairment were identified through the end of the fourth quarter that would require additional testing. Changes in circumstances existing at the measurement date or at other times in the future could result in an impairment loss. Refer to Note 17 in the consolidated financial statements for further discussion regarding closures and impairments recorded, if any.
Effects of Inflation
We are currently operating in a period of high inflation, led primarily by commodity cost and wage and other labor inflation. Commodity cost inflation is due to increased costs incurred by our vendors related to increased labor, transportation, packaging, and raw materials costs. Wage and other labor inflation is driven by higher wage and benefit expense due to by labor market pressures along with increases in state-mandated minimum and tipped wage rates and increased investment in our people. Some of the impacts of inflation have been offset by menu price increases and other adjustments made during the year. Whether we are able and/or choose to continue to offset the effects of inflation will determine to what extent, if any, inflation affects our restaurant profitability in future periods.