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 14, 2024 was 158.
On February 14, 2024, our Board declared a quarterly dividend of $0.61 per share of common stock which will be distributed on March 26, 2024 to shareholders of record at the close of business on March 13, 2024. 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 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 26, 2023, we have paid $683.5 million through our authorized stock repurchase programs to repurchase 21,496,468 shares of our common stock at an average price per share of $31.80. 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. All repurchases to date have been made through open market transactions. In 2023, we paid $50.0 million to repurchase 455,026 shares of our common stock. For the 13 weeks ended December 26, 2023, we paid $4.8 million to repurchase 40,707 shares of our common stock. As of December 26, 2023, $116.9 million remains authorized for stock repurchases.
The following table includes information regarding purchases of our common stock made by us during the quarter ended December 26, 2023:
Total Number
Maximum Number
of Shares
(or Approximate
Purchased as
Dollar Value) of
Part of Publicly
Shares that May
Total Number
Average
Announced
Yet Be Purchased
of Shares
Price Paid
Plans or
Under the Plans
Period
Purchased
per Share
Programs
or Programs
September 27 to October 24
—
$
—
—
$
121,683,492
October 25 to November 21
—
$
—
—
$
121,683,492
November 22 to December 26
40,707
$
117.92
40,707
$
116,883,508
Total
40,707
40,707
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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 S&P 500 Index as well as the industry specific S&P Composite 1500 Restaurant Sub-Index for the five year period ended December 26, 2023, 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, 2018 and the reinvestment of all dividends paid during the period of the securities comprising the indices.
Note: The stock price performance shown on the graph below does not indicate future performance.
Comparison of Cumulative Total Return Since December 26, 2018
12/26/2018
12/31/2019
12/29/2020
12/28/2021
12/27/2022
12/26/2023
Texas Roadhouse, Inc.
$
100.00
$
101.28
$
143.02
$
164.44
$
176.61
$
235.74
S&P 500
$
100.00
$
140.25
$
164.74
$
214.60
$
174.52
$
221.20
S&P Composite 1500 Restaurant Sub-Index
$
100.00
$
129.15
$
153.58
$
187.65
$
173.39
$
198.08
ITEM 6 . RESERVED
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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. (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-29), "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 2022 compared to fiscal year 2021, see Part II, Item 7 of our 2022 Form 10-K.
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 business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to three concepts with 741 restaurants in 49 states and ten foreign countries. As of December 26, 2023, our 741 restaurants included:
● 635 company restaurants, of which 615 were wholly-owned and 20 were majority- owned. 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 net income attributable to noncontrolling interests in our consolidated statements of income and comprehensive income. Of the 635 company restaurants, we operated 582 as Texas Roadhouse restaurants, 45 as Bubba’s 33 restaurants and eight as Jaggers restaurants.
● 106 franchise restaurants, of which 20 we have a 5.0% to 10.0% ownership interest. The income derived from our minority interests in these franchise restaurants is reported in the line item equity income (loss) from investments in unconsolidated affiliates in our consolidated statements of income and comprehensive income. Of the 106 franchise restaurants, 56 were domestic Texas Roadhouse restaurants, two were domestic Jaggers restaurants and 48 were international Texas Roadhouse restaurants.
We have contractual arrangements that grant us the right to acquire at pre-determined formulas the remaining interests in 18 of the 20 majority-owned company restaurants and 53 of the 58 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 2023 and fiscal year 2022 were both 52 weeks in length, and the fourth quarters were both 13 weeks in length.
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 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 opened our first two Jaggers franchise restaurants in 2023.
In 2023, we opened 30 company restaurants while our franchise partners opened 15 restaurants. The company restaurants included 22 Texas Roadhouse restaurants, five Bubba’s 33 restaurants, and three Jaggers
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restaurants. The franchise restaurants included ten international Texas Roadhouse restaurants, three domestic Texas Roadhouse restaurants and two domestic Jaggers restaurants.
In 2023, we also completed the acquisition of eight domestic franchise Texas Roadhouse restaurants for an aggregate purchase price of $39.1 million.
● Maintaining and/or Improving Restaurant Level Profitability. We continue to focus on driving comparable restaurant sales to maintain or improve restaurant 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 and kitchen efficiency, 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 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 declared our first quarterly dividend of $0.08 per share of common stock which has consistently grown over time. In 2023, the Board declared a quarterly cash dividend of $0.55 per share of common stock. On February 14, 2024, the Board declared a quarterly cash dividend of $0.61 per share of common stock, representing an 11% increase compared to the quarterly dividend declared in the prior year period.
In 2008, the Board approved our first stock repurchase program. 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 2023, we paid $50.0 million to repurchase 455,026 shares of our common stock. As of December 26, 2023, $116.9 million remained authorized for stock repurchases. From inception through December 26, 2023, we have paid $683.5 million through our authorized stock repurchase programs to repurchase 21,496,468 shares of our common stock at an average price per share of $31.80.
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 reflect the change in sales for all company restaurants across all concepts, unless otherwise noted, 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
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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 growth levels lower than the 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 growth levels higher than company average.
● Store Weeks and New Restaurant Openings. Store weeks represent the number of weeks that all company restaurants across all concepts, 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 simultaneously with a store closure in the same trade area to be a relocation.
● Restaurant Margin. Restaurant margin (in dollars, as a percentage of restaurant and other sales and per store week) 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 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.
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 our consolidated statements of income and comprehensive income. 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.
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 relate 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
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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, profit sharing incentive compensation for our restaurant managing partners and market partners, utilities, supplies, general liability insurance, advertising, repairs and maintenance, property taxes and outside services.
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 consist principally of opening and training team compensation and benefits, travel expenses, rent, food, beverage and other initial supplies and expenses. The majority of pre-opening costs incurred relate to the hiring and training of employees due to the significant investment we make in training our people. 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 each restaurant.
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 comprise expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth. This includes salary, incentive-based and share-based compensation expense related to executive officers and Support Center employees, salary and share-based compensation expense related to market partners, software hosting fees, professional fees, group insurance, advertising expense and the realized and unrealized holding gains and losses related to the investments in our deferred compensation plan.
Interest Income (Expense), Net. Interest income (expense), net includes earnings on cash and cash equivalents and is reduced by interest expense, net of capitalized interest, on our debt or financing obligations including the amortization of loan fees.
Equity Income from Investments in Unconsolidated Affiliates. Equity income 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 December 26, 2023 and December 27, 2022, we owned a 5.0% to 10.0% equity interest in 20 and 23 domestic franchise restaurants, respectively.
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.
2023 Financial Highlights
Total revenue increased $616.8 million or 15.4% to $4.6 billion in 2023 compared to $4.0 billion in 2022 primarily due to an increase in comparable restaurant sales and an increase in store weeks. Comparable restaurant sales and store weeks increased 10.1% and 5.8%, respectively, at company restaurants in 2023. The increase in comparable restaurant sales was due to an increase in guest traffic along with an increase in per person average check. The increase in store weeks was due to new store openings and the acquisition of franchise restaurants.
Net income increased $35.1 million or 13.0% to $304.9 million in 2023 compared to $269.8 million in 2022 primarily due to higher restaurant margin dollars, as described below, partially offset by higher general and
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administrative expenses and higher depreciation and amortization expenses. Diluted earnings per share increased 14.3% to $4.54 from $3.97 in the prior year primarily due to the increase in net income.
Restaurant margin dollars increased $80.5 million or 12.8% to $708.0 million in 2023 compared to $627.5 million in 2022 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 15.4% in 2023 compared to 15.7% in 2022. The decrease in restaurant margin, as a percentage of restaurant and other sales, was due to commodity inflation, wage and other labor inflation and higher general liability insurance expense partially offset by higher sales.
We repurchased 455,026 shares of common stock for $50.0 million in 2023. We also paid a quarterly dividend of $0.55 per share of common stock, which totaled $147.2 million.
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Results of Operations
Fiscal Year Ended
2023
2022
$
%
$
%
(In thousands)
Consolidated Statements of Income:
Revenue:
Restaurant and other sales
4,604,554
99.4
3,988,791
99.3
Franchise royalties and fees
27,118
0.6
26,128
0.7
Total revenue
4,631,672
100.0
4,014,919
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
1,593,852
34.6
1,378,192
34.6
Labor
1,539,124
33.4
1,319,959
33.1
Rent
72,766
1.6
66,834
1.7
Other operating
690,848
15.0
596,305
14.9
(As a percentage of total revenue)
Pre-opening
29,234
0.6
21,883
0.5
Depreciation and amortization
153,202
3.3
137,237
3.4
Impairment and closure, net
275
NM
1,600
NM
General and administrative
198,382
4.3
172,712
4.3
Total costs and expenses
4,277,683
92.4
3,694,722
92.0
Income from operations
353,989
7.6
320,197
8.0
Interest income (expense), net
2,984
0.1
(124)
NM
Equity income from investments in unconsolidated affiliates
1,351
NM
1,239
NM
Income before taxes
358,324
7.7
321,312
8.0
Income tax expense
44,649
1.0
43,715
1.1
Net income including noncontrolling interests
313,675
6.8
277,597
6.9
Net income attributable to noncontrolling interests
8,799
0.2
7,779
0.2
Net income attributable to Texas Roadhouse, Inc. and subsidiaries
304,876
6.6
269,818
6.7
NM – Not meaningful
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Reconciliation of Income from Operations to Restaurant Margin
Fiscal Year Ended
2023
2022
(In thousands, except per store week)
Income from operations
$ 353,989
$ 320,197
Less:
Franchise royalties and fees
27,118
26,128
Add:
Pre-opening
29,234
21,883
Depreciation and amortization
153,202
137,237
Impairment and closure, net
275
1,600
General and administrative
198,382
172,712
Restaurant margin
$ 707,964
$ 627,501
Restaurant margin $/store week
$ 22,090
$ 20,721
Restaurant margin (as a percentage of restaurant and other sales)
15.4%
15.7%
Restaurant Unit Activity
Total
Texas Roadhouse
Bubba's 33
Jaggers
Balance at December 27, 2022
697
652
40
5
Company openings
30
22
5
3
Franchise openings - Domestic
5
3
—
2
Franchise openings - International
10
10
—
—
Franchise closings
(1)
(1)
—
—
Balance at December 26, 2023
741
686
45
10
December 26, 2023
December 27, 2022
Company - Texas Roadhouse
582
552
Company - Bubba's 33
45
40
Company - Jaggers
8
5
Total company
635
597
Franchise - Texas Roadhouse - Domestic
56
62
Franchise - Jaggers - Domestic
2
—
Franchise - Texas Roadhouse - International
48
38
Total franchise
106
100
Total
741
697
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Restaurant and Other Sales
Restaurant and other sales increased 15.4% in 2023 compared to 2022. 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.
2023
2022
Company Restaurants:
Increase in store weeks
5.8
%
6.1
%
Increase in average unit volume
9.7
%
9.4
%
Other(1)
—
%
0.4
%
Total increase in restaurant sales
15.5
%
15.9
%
Other sales
(0.1)
%
0.1
%
Total increase in restaurant and other sales
15.4
%
16.0
%
Store weeks
32,050
30,284
Comparable restaurant sales
10.1
%
9.7
%
Texas Roadhouse restaurants:
Store weeks
29,528
28,127
Comparable restaurant sales
10.3
%
9.7
%
Average unit volume (in thousands)
$
7,642
$
6,943
Weekly sales by group:
Comparable restaurants (527 and 499 units)
$
147,274
$
134,085
Average unit volume restaurants (22 and 20 units)(2)
$
139,688
$
128,665
Restaurants less than six months old (33 and 33 units)
$
146,614
$
135,401
Bubba's 33 restaurants:
Store weeks
2,167
1,936
Comparable restaurant sales
5.5
%
10.5
%
Average unit volume (in thousands)
$
5,921
$
5,620
Weekly sales by group:
Comparable restaurants (34 and 30 units)
$
113,972
$
108,132
Average unit volume restaurants (3 and 4 units)(2)
$
112,698
$
107,636
Restaurants less than six months old (8 and 6 units)
$
114,312
$
121,791
(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 2023 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 by an increase in guest traffic count along with an increase in our per person average check as shown in the table below.
2023
2022
Guest traffic counts
5.4
%
1.9
%
Per person average check
4.7
%
7.8
%
Comparable restaurant sales growth
10.1
%
9.7
%
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The increase in 2023 guest traffic counts was driven by an increase in dining room traffic. To-go sales as a percentage of restaurant sales were 12.6% in 2023 compared to 13.3% in 2022 and average weekly to-go sales were $18,088 in 2023 compared to $17,504 in 2022.
Per person average check includes the benefit of menu price increases of approximately 2.2% and 2.7% implemented in Q2 2023 and Q4 2023, respectively, as well as increases of 3.2% and 2.9% implemented in Q2 2022 and Q4 2022, respectively.
In 2023, we opened 30 company restaurants, which included 22 Texas Roadhouse restaurants, five Bubba’s 33 restaurants and three Jaggers restaurants. We also completed the acquisition of eight domestic Texas Roadhouse franchise restaurants.
In 2024, we expect store week growth of approximately 8% across all concepts, including a benefit of 2% from the 53 rd 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 $(12.7) million and $(6.4) million for 2023 and 2022, respectively. The change was driven primarily by increased third-party gift card fee amortization from increased gift card sales and a decrease in our breakage adjustment recorded in 2023 of $3.7 million compared to $6.6 million recorded in 2022. The breakage adjustment relates 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.
Franchise Royalties and Fees
Franchise royalties and fees increased by $1.0 million or 3.8% compared to 2022 primarily due to comparable restaurant sales growth and new store openings partially offset by decreased royalties related to the eight franchise restaurants acquired in 2023. Franchise comparable restaurant sales increased 9.6% in 2023.
In 2023, our existing franchise partners opened three domestic Texas Roadhouse restaurants and ten international Texas Roadhouse restaurants. Additionally, our first two domestic Jaggers franchise restaurants opened in 2023.
Food and Beverage Costs
Food and beverage costs, as a percentage of restaurant and other sales, remained flat at 34.6% in both periods presented as the benefit of a higher guest check was offset by commodity inflation. Commodity inflation was 5.6% in 2023 primarily due to higher beef costs.
For 2024, we currently expect commodity cost inflation of approximately 5% 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 33.4% in 2023 compared to 33.1% in 2022. This increase was primarily due to wage and other labor inflation of 6.6% in 2023. 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, there was an increase in group insurance expense due to unfavorable claims experience of $7.6 million, as compared to the prior year period. The increase was partially offset by a decrease in workers’ compensation expense due to favorable claims experience of $2.5 million, as compared to the prior year period, as well as the benefit of a higher guest check.
In 2024, we anticipate our labor costs will continue to be pressured by wage and other labor inflation of 4% to 5% driven by labor market pressures, increases in state-mandated minimum and tipped wages and increased investment in our people.
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Restaurant Rent Expense
Restaurant rent expense, as a percentage of restaurant and other sales, decreased to 1.6% in 2023 compared to 1.7% in 2022. The decrease was primarily due to an increase in average unit volume and was 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 15.0% in 2023 compared to 14.9% in 2022. The increase was primarily due to higher general liability insurance expense partially offset by an increase in average unit volume and lower supplies expense. The increase in general liability insurance expense in 2023 was due to unfavorable claims experience and increased retention levels which resulted in additional expense of $9.8 million as compared to 2022 which included a benefit of $4.9 million.
Restaurant Pre-opening Expenses
Pre-opening expenses were $29.2 million in 2023 compared to $21.9 million in 2022 driven by an increase in the number and timing of new restaurant openings. 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 3.3% in 2023 compared to 3.4% in 2022. The decrease was primarily due to the increase in average unit volume partially offset by higher depreciation expense at our newer restaurants.
Impairment and Closure Costs, Net
Impairment and closure costs, net were $0.3 million and $1.6 million in 2023 and 2022, respectively. In 2023, impairment and closure costs, net primarily related to ongoing closure costs of relocated stores. 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 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.
General and Administrative Expenses
General and administrative expenses, as a percentage of total revenue, remained flat at 4.3% in both periods presented. A separation payout, net of restricted stock forfeitures, of $2.6 million related to the retirement of an executive officer in the first quarter of 2023, and increased software hosting fees were offset by an increase in average unit volume.
Interest Income (Expense), Net
Interest income (expense), net was $3.0 million in 2023 compared to $(0.1) million in 2022. The increase was primarily driven by increased earnings on our cash and cash equivalents and decreased borrowings on our credit facility.
Equity Income from Unconsolidated Affiliates
Equity income was $1.4 million in 2023 compared to $1.2 million in 2022. The increase was primarily due to a $0.6 million gain on the acquisition of four of these affiliates in 2023 as compared to a $0.3 million gain on the acquisition of one of these affiliates in 2022.
Income Tax Expense
Our effective tax rate decreased to 12.5% in 2023 compared to 13.6% in 2022. The decrease was primarily due to an increase in the FICA tip tax credit and an increase in excess tax benefits related to share-based compensation. For 2024, we expect an effective tax rate of approximately 14% 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):
Fiscal Year Ended
December 26, 2023
December 27, 2022
Texas Roadhouse
$
671,158
15.5
%
$
600,197
16.0
%
Bubba's 33
33,942
13.7
26,934
12.7
Other
2,864
11.2
370
2.6
Total
$
707,964
15.4
%
$
627,501
15.7
%
In our Texas Roadhouse reportable segment, restaurant margin dollars increased $71.0 million or 11.8% in 2023. 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 15.5% in 2023 from 16.0% in 2022. Restaurant margin was negatively impacted by commodity inflation, driven by beef, and wage and other labor inflation which was partially offset by the benefit of higher sales.
In our Bubba’s 33 reportable segment, restaurant margin dollars increased $7.0 million or 26.0% in 2023. In addition, restaurant margin, as a percentage of restaurant and other sales, increased to 13.7% in 2023 from 12.7% in 2022. These increases were primarily due to higher sales and commodity deflation, driven by poultry, partially offset by wage and other labor inflation.
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
2023
2022
Net cash provided by operating activities
$
564,984
$
511,725
Net cash used in investing activities
(367,167)
(263,734)
Net cash used in financing activities
(267,432)
(409,775)
Net decrease in cash and cash equivalents
$
(69,615)
$
(161,784)
Net cash provided by operating activities was $565.0 million in 2023 compared to $511.7 million in 2022. This increase was due to an increase in net income, an increase in depreciation and amortization expense and a favorable change in working capital.
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.
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Net cash used in investing activities was $367.2 million in 2023 compared to $263.7 million in 2022. 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. The increase in the refurbishment of existing restaurants is primarily due to increased maintenance needs driven by the high sales volumes at our 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 26, 2023, 155 of the 635 company restaurants have been developed on land which we own.
The following table presents a summary of capital expenditures (in thousands):
Fiscal Year Ended
2023
2022
New company restaurants
$
201,234
$
139,210
Refurbishment or expansion of existing restaurants
119,785
84,414
Relocation of existing restaurants
20,629
18,478
Capital expenditures related to Support Center office
5,386
4,019
Total capital expenditures
$
347,034
$
246,121
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 restaurants or relocating existing restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant base.
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.
Net cash used in financing activities was $267.4 million in 2023 compared to $409.8 million in 2022. The decrease is primarily due to a decrease in the amount of share repurchases partially offset by an increase in our quarterly dividend payments.
On March 17, 2022, our 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. All repurchases to date under our stock repurchase programs have been made through open market transactions.
In 2023, we paid $50.0 million to repurchase 455,026 shares of our common stock. In 2022, we paid $212.9 million to repurchase 2,734,005 shares of our common stock. As of December 26, 2023, $116.9 million remained under our authorized stock repurchase program.
On February 14, 2023, our Board authorized the payment of a quarterly 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 $147.2 million and $124.1 million in 2023 and 2022, respectively. On February 14, 2024, our Board declared a quarterly cash dividend of $0.61 per share of common stock.
We paid distributions of $8.0 million and $7.8 million in 2023 and 2022, respectively, to equity holders of our majority-owned company restaurants.
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.
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As of December 26, 2023, we had no outstanding balance on the credit facility and had $295.3 million of availability, net of $4.7 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, 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 consolidated balance sheet.
The interest rate for the credit facility as of December 26, 2023 and December 27, 2022 was 6.23% and 5.21%, respectively.
The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants, including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio. The credit facility permits us to incur additional secured or unsecured indebtedness, except for the incurrence of secured indebtedness that in the aggregate is equal to or greater than $125.0 million and 20% of our consolidated tangible net worth. We were in compliance with all financial covenants as of December 26, 2023.
Contractual Obligations
The following table summarizes the amount of payments due under specified contractual obligations as of December 26, 2023 (in thousands):
Payments Due by Period
Less than
More than
Total
1 year
1 - 3 Years
3 - 5 Years
5 years
Obligations under finance leases
2,758
9
42
78
2,629
Interest(1)
4,207
314
622
608
2,664
Real estate operating lease obligations
1,332,486
73,511
144,658
146,018
968,299
Capital obligations
237,425
237,425
—
—
—
Total contractual obligations(2)
$
1,576,876
$
311,259
$
145,322
$
146,704
$
973,592
(1) Includes interest on our financing leases and assumes a constant interest rate until maturity.
(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.
Guarantees
As of December 26, 2023 and December 27, 2022, we were contingently liable for $10.4 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 December 26, 2023 or 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.
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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 the remaining useful life of the primary asset, which is the building or the operating lease right-of-use asset. 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. Based on our reviews performed on the cash flows of our restaurants, the carrying amount associated with restaurants deemed at risk for impairment is not material to our consolidated financial statements.
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 2023, we recorded impairment and closure costs, net of $0.3 million related to ongoing closure costs of relocated stores. Refer to Note 17 in the consolidated financial statements for further discussion regarding impairment and closure costs recorded in 2023, 2022 and 2021.
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, up to the amount of goodwill recorded. 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. Our reporting units are at the concept level. An entity may first assess qualitative factors 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 26, 2023, our Texas Roadhouse reporting unit had allocated goodwill of $169.7 million. No other reporting units had goodwill balances.
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 Texas Roadhouse reporting unit. 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.
Effects of Inflation
During recent years, we have operated during periods of high inflation, led primarily by commodity cost and wage
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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 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.