Texas Roadhouse(US:TXRH)2021-11-05 13:25PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information for Texas Roadhouse, Inc., including financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1 — Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Texas Roadhouse, Inc. as of September 28, 2021, and for the 13 and 39-week periods then ended, including the Balance Sheets, Statements of Income, Statement of Stockholders' Equity, and Statements of Cash Flows, along with accompanying notes Condensed Consolidated Balance Sheets As of September 28, 2021, total assets increased to $2.44 billion from $2.33 billion at year-end 2020, driven by higher cash and property and equipment, while total liabilities slightly decreased to $1.36 billion, primarily due to a reduction in deferred revenue from gift cards and repayment of the current portion of long-term debt, and total equity grew to $1.08 billion from $943.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 28, 2021 | December 29, 2020 | | :--- | :--- | :--- | | Total Current Assets | $537,915 | $510,651 | | Total Assets | $2,442,553 | $2,325,161 | | Total Current Liabilities | $443,854 | $506,318 | | Total Liabilities | $1,361,946 | $1,382,110 | | Total Equity | $1,080,607 | $943,051 | Condensed Consolidated Statements of Income and Comprehensive Income For the third quarter of 2021, total revenues increased 37.7% year-over-year to $868.9 million, and net income attributable to the company rose to $52.6 million from $29.2 million in Q3 2020, while for the 39-week period, revenues grew 45.9% to $2.57 billion, with net income reaching $192.2 million, a significant recovery from $11.7 million in the prior-year period, and diluted EPS for Q3 2021 was $0.75, up from $0.42 Income Statement Summary (in thousands, except per share data) | Metric | Q3 2021 (13 Weeks) | Q3 2020 (13 Weeks) | YTD 2021 (39 Weeks) | YTD 2020 (39 Weeks) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $868,943 | $631,185 | $2,568,360 | $1,760,134 | | Income from Operations | $61,698 | $34,976 | $232,353 | $3,448 | | Net Income Attributable to Company | $52,606 | $29,230 | $192,236 | $11,706 | | Diluted EPS | $0.75 | $0.42 | $2.74 | $0.17 | | Cash Dividends Declared per Share | $0.40 | $— | $0.80 | $0.36 | Condensed Consolidated Statement of Stockholders' Equity For the 39 weeks ended September 28, 2021, total stockholders' equity increased from $943.1 million to $1.08 billion, primarily driven by net income of $198.6 million, partially offset by dividend payments of $55.8 million and common stock repurchases of $14.7 million - Key changes in stockholders' equity for the 39 weeks ended September 28, 2021 include: - Net income: +$192.2 million - Dividends declared: -$55.8 million - Repurchase of common stock: -$14.7 million - Share-based compensation: +$30.8 million15 Condensed Consolidated Statements of Cash Flows For the 39 weeks ended September 28, 2021, net cash from operating activities was $348.7 million, a significant increase from $146.0 million in the prior year period, driven by higher net income, while net cash used in investing activities was $133.4 million, mainly for capital expenditures, and net cash used in financing activities was $141.9 million, reflecting debt repayment, dividend payments, and share repurchases, in contrast to net cash provided by financing activities in 2020 Cash Flow Summary (in thousands) | Activity | 39 Weeks Ended Sep 28, 2021 | 39 Weeks Ended Sep 29, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $348,709 | $146,035 | | Net cash used in investing activities | ($133,413) | ($115,322) | | Net cash (used in) provided by financing activities | ($141,888) | $190,044 | | Net increase in cash and cash equivalents | $73,408 | $220,757 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information supporting the financial statements, covering topics such as the basis of presentation, COVID-19 uncertainties, accounting policies, long-term debt amendments, revenue recognition, income taxes, commitments, share-based compensation, and the stock repurchase program, with the company operating 555 company restaurants and franchising 99 additional restaurants as of September 28, 2021 - As of September 28, 2021, the company owned and operated 555 restaurants and franchised an additional 99 restaurants, an increase from 526 company-owned and 97 franchised restaurants as of September 29, 20202021 - On May 4, 2021, the company amended its revolving credit facility, increasing borrowing capacity to $300.0 million (with an option for an additional $200.0 million) and extending the maturity to May 1, 2026, with $50.0 million of an incremental facility repaid as part of the amendment3032 - The effective tax rate for the 39 weeks ended September 28, 2021 was 13.5%, compared to a non-meaningful rate in the prior year period heavily impacted by tax credits on near break-even pre-tax income39 - For the 39 weeks ended September 28, 2021, the company repurchased 161,034 shares of common stock for $14.7 million, with $133.1 million remaining available under the stock repurchase program as of September 28, 202161 Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for Q3 2021, highlighting a strong recovery from the COVID-19 pandemic with significant revenue and net income growth driven by increased comparable restaurant sales and the full reopening of dining rooms, while addressing ongoing challenges such as commodity cost inflation, particularly in beef, and a competitive labor market, with long-term strategies focusing on restaurant expansion, improving profitability, and returning capital to shareholders through reinstated dividends and share repurchases - All domestic company and franchise locations were operating without restriction as of September 28, 2021, a significant improvement from the limited capacity restrictions in place as of September 29, 202064 - The company is experiencing significant commodity cost inflation, primarily for beef, and expects this trend to continue, also facing challenges in attracting and retaining employees in a competitive job market, leading to increased labor costs6668 - Long-term strategies include expanding the restaurant base with 26-29 new company restaurants planned for 2021, maintaining profitability despite inflation, leveraging infrastructure, and returning capital to shareholders75768286 Results of Operations Q3 2021 revenue grew 37.7% to $862.8 million, driven by a 30.2% increase in comparable restaurant sales and a 5.2% increase in store weeks, with restaurant margin improving to 15.7% from 14.5% in Q3 2020 due to sales leverage despite a 13.9% increase in commodity inflation, and labor costs as a percentage of sales decreased due to higher average unit volumes, offsetting wage rate pressures Key Operating Metrics (Company Restaurants) | Metric | Q3 2021 | Q3 2020 | 2021 YTD | 2020 YTD | | :--- | :--- | :--- | :--- | :--- | | Increase in store weeks | 5.2% | 4.6% | 4.8% | 4.7% | | Comparable restaurant sales | 30.2% | (6.3)% | 39.5% | (16.0)% | | Guest traffic count growth | 23.6% | N/A | 29.1% | N/A | - Food and beverage costs rose to 34.6% of sales in Q3 2021 from 32.1% in Q3 2020, driven by 13.9% commodity inflation, primarily in beef costs, with the company expecting approximately 10% commodity inflation for the full year 2021132133 - Labor costs as a percentage of sales decreased to 33.2% in Q3 2021 from 34.7% in Q3 2020, as sales leverage from higher volumes offset increased wage rates and labor market pressures, with the company anticipating continued wage inflation of approximately 6% in 2022134138 Liquidity and Capital Resources The company's liquidity remains strong, with cash and cash equivalents increasing by $73.4 million year-to-date to $436.6 million, operating activities generating $348.7 million in cash, and capital expenditures expected to be approximately $200.0 million for 2021, while the company reinstated its quarterly dividend at $0.40 per share and resumed its stock repurchase program, and the revolving credit facility was amended, increasing capacity to $300 million and extending the maturity to 2026 Year-to-Date Capital Expenditures (in thousands) | Category | 2021 YTD | 2020 YTD | | :--- | :--- | :--- | | New company restaurants | $79,200 | $55,081 | | Refurbishment or expansion | $50,154 | $37,222 | | Total capital expenditures | $139,001 | $117,521 | - The quarterly cash dividend was reinstated at $0.40 per share on April 28, 2021, after being suspended in March 2020, with total dividends paid in YTD 2021 amounting to $55.8 million158 - The share repurchase program was resumed on August 2, 2021, with the company repurchasing $14.7 million of its common stock during YTD 2021, and $133.1 million remaining authorized for repurchases as of September 28, 2021159 Item 3 — Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in interest rates on its variable-rate debt and fluctuations in commodity prices, with a one-percentage-point increase in interest rates estimated to increase annual interest expense by $1.9 million as of September 28, 2021, and faces price volatility for key commodities, particularly beef, relying heavily on three main beef suppliers, which poses a business risk - The company had $190.0 million in variable-rate debt outstanding as of September 28, 2021, and a hypothetical 1% increase in interest rates would increase annual interest expense by $1.9 million172173 - The company is subject to unpredictable price volatility for commodities and does not currently use financial instruments to hedge prices, with its beef supply highly dependent on three vendors, creating a concentration risk174177 Item 4 — Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 28, 2021, with no significant changes to the company's internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report178 - No significant changes in internal control over financial reporting occurred during the third quarter of 2021179 PART II. OTHER INFORMATION This section provides additional information not covered in Part I, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1 — Legal Proceedings The company is occasionally involved in ordinary course litigation, such as 'slip and fall' accidents and employment-related claims, none of which are expected to have a material adverse effect on the business - As of the report date, the company is not party to any litigation that it believes could have a material adverse effect on its business182 Item 1A — Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 29, 2020 - No material changes to risk factors have occurred since the last Annual Report on Form 10-K183 Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds The company resumed its stock repurchase program on August 2, 2021, after suspending it in March 2020, repurchasing 161,034 shares for approximately $14.7 million during the third quarter of 2021, with $133.1 million remaining authorized for future repurchases as of September 28, 2021 Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | June 30 to July 27 | — | $— | | July 28 to August 24 | 84,635 | $90.11 | | August 25 to September 28 | 76,399 | $92.37 | | Total | 161,034 | N/A | - As of September 28, 2021, $133.1 million remained available for purchase under the company's stock repurchase program184 Item 3 — Defaults Upon Senior Securities The company reports no defaults upon senior securities - The company reports no defaults upon senior securities186 Item 4 — Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company187 Item 5 — Other Information The company reports no other information for this item - The company reports no other information for this item188 Item 6 — Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and XBRL data files - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer under Sections 302 and 906 of the Sarbanes-Oxley Act189