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Texas Roadhouse, Inc. - Quarter Report: 2023 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27, 2023

OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission File Number 000-50972

Texas Roadhouse, Inc.

(Exact name of registrant specified in its charter)

Delaware

20-1083890

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification Number)

6040 Dutchmans Lane, Suite 200

Louisville, Kentucky 40205

(Address of principal executive offices) (Zip Code)

(502) 426-9984

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

TXRH

NASDAQ Global Select Market

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  

Accelerated Filer  

Non-accelerated Filer  

Smaller Reporting Company  

Emerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No  

The number of shares of common stock outstanding were 66,748,428 on July 26, 2023.

Table of Contents

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1 — Financial Statements (Unaudited) — Texas Roadhouse, Inc. and Subsidiaries

3

Condensed Consolidated Balance Sheets —June 27, 2023 and December 27, 2022

3

Condensed Consolidated Statements of Income — For the 13 and 26 Weeks Ended June 27, 2023 and June 28, 2022

4

Condensed Consolidated Statements of Stockholders’ Equity — For the 13 and 26 Weeks Ended June 27, 2023 and June 28, 2022

5

Condensed Consolidated Statements of Cash Flows — For the 26 Weeks Ended June 27, 2023 and June 28, 2022

7

Notes to Condensed Consolidated Financial Statements

8

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

29

Item 4 — Controls and Procedures

29

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings

31

Item 1A — Risk Factors

31

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3 — Defaults Upon Senior Securities

31

Item 4 — Mine Safety Disclosures

31

Item 5 — Other Information

32

Item 6 — Exhibits

32

Signatures

33

2

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

    

June 27, 2023

    

December 27, 2022

Assets

Current assets:

Cash and cash equivalents

$

107,324

$

173,861

Receivables, net of allowance for doubtful accounts of $51 at June 27, 2023 and $50 at December 27, 2022

 

60,537

 

150,264

Inventories, net

 

38,121

 

38,015

Prepaid income taxes

 

1,402

 

5,097

Prepaid expenses and other current assets

 

25,901

 

29,604

Total current assets

 

233,285

 

396,841

Property and equipment, net of accumulated depreciation of $1,019,637 at June 27, 2023 and $968,036 at December 27, 2022

 

1,360,132

 

1,270,349

Operating lease right-of-use assets, net

662,730

630,258

Goodwill

 

169,684

 

148,732

Intangible assets, net of accumulated amortization of $19,426 at June 27, 2023 and $17,905 at December 27, 2022

 

4,986

 

5,607

Other assets

 

84,174

 

73,878

Total assets

$

2,514,991

$

2,525,665

Liabilities and Stockholders’ Equity

Current liabilities:

Current portion of operating lease liabilities

$

27,015

$

25,490

Accounts payable

 

120,653

 

105,560

Deferred revenue-gift cards

 

226,130

 

335,403

Accrued wages

 

67,164

 

54,544

Income taxes payable

1,963

434

Accrued taxes and licenses

 

40,673

 

35,264

Other accrued liabilities

 

88,385

 

95,315

Total current liabilities

 

571,983

 

652,010

Operating lease liabilities, net of current portion

712,800

677,874

Long-term debt

 

 

50,000

Restricted stock and other deposits

 

8,594

 

7,979

Deferred tax liabilities, net

 

22,454

 

20,979

Other liabilities

 

100,910

 

89,161

Total liabilities

 

1,416,741

 

1,498,003

Texas Roadhouse, Inc. and subsidiaries stockholders’ equity:

Preferred stock ($0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding)

 

 

Common stock ($0.001 par value, 100,000,000 shares authorized, 66,843,456 and 66,973,311 shares issued and outstanding at June 27, 2023 and December 27, 2022, respectively)

 

67

 

67

Additional paid-in-capital

 

 

13,139

Retained earnings

 

1,082,915

 

999,432

Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity

 

1,082,982

 

1,012,638

Noncontrolling interests

 

15,268

 

15,024

Total equity

 

1,098,250

 

1,027,662

Total liabilities and equity

$

2,514,991

$

2,525,665

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

13 Weeks Ended

26 Weeks Ended

    

June 27, 2023

    

June 28, 2022

    

June 27, 2023

    

June 28, 2022

Revenue:

Restaurant and other sales

$

1,164,385

$

1,018,057

$

2,331,968

$

1,999,029

Franchise royalties and fees

6,818

6,549

13,591

13,063

Total revenue

 

1,171,203

 

1,024,606

 

2,345,559

 

2,012,092

Costs and expenses:

Restaurant operating costs (excluding depreciation and amortization shown separately below):

Food and beverage

 

401,204

347,041

811,915

684,437

Labor

 

391,337

333,042

777,156

654,913

Rent

 

17,996

16,714

35,824

33,082

Other operating

 

171,092

152,524

338,621

296,678

Pre-opening

 

5,671

5,323

11,048

9,614

Depreciation and amortization

 

37,413

34,420

73,640

68,040

Impairment and closure, net

 

78

411

133

(235)

General and administrative

 

51,000

49,213

100,865

89,507

Total costs and expenses

 

1,075,791

 

938,688

 

2,149,202

 

1,836,036

Income from operations

 

95,412

 

85,918

 

196,357

 

176,056

Interest income (expense), net

 

996

(395)

2,234

(792)

Equity income from investments in unconsolidated affiliates

 

287

545

1,042

879

Income before taxes

$

96,695

$

86,068

$

199,633

$

176,143

Income tax expense

 

12,270

11,531

26,604

24,278

Net income including noncontrolling interests

84,425

74,537

$

173,029

$

151,865

Less: Net income attributable to noncontrolling interests

 

2,154

2,118

4,371

4,244

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

$

82,271

$

72,419

$

168,658

$

147,621

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

Basic

$

1.23

$

1.07

$

2.52

$

2.16

Diluted

$

1.22

$

1.07

$

2.51

$

2.15

Weighted average shares outstanding:

Basic

 

66,974

67,654

66,995

68,370

Diluted

 

67,229

67,890

67,261

68,631

Cash dividends declared per share

$

0.55

$

0.46

$

1.10

$

0.92

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share and per share data)

(unaudited)

For the 13 Weeks Ended June 27, 2023

    

    

    

    

    

Total Texas

    

    

 

Additional

Roadhouse, Inc.

 

Par

Paid-in-

Retained

and

Noncontrolling

 

Shares

Value

Capital

Earnings

Subsidiaries

Interests

Total

 

Balance, March 28, 2023

 

67,000,306

$

67

$

6,240

$

1,048,941

$

1,055,248

$

15,291

$

1,070,539

Net income

 

 

 

 

82,271

 

82,271

 

2,154

 

84,425

Distributions to noncontrolling interest holders

 

 

 

 

 

 

(2,177)

 

(2,177)

Dividends declared ($0.55 per share)

 

 

 

 

(36,820)

 

(36,820)

 

 

(36,820)

Shares issued under share-based compensation plans including tax effects

 

82,547

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(25,422)

 

 

(2,809)

 

 

(2,809)

 

 

(2,809)

Repurchase of shares of common stock, including excise tax

(213,975)

(12,021)

(11,477)

(23,498)

(23,498)

Share-based compensation

 

 

 

8,590

 

 

8,590

 

 

8,590

Balance, June 27, 2023

 

66,843,456

$

67

$

$

1,082,915

$

1,082,982

$

15,268

$

1,098,250

For the 13 Weeks Ended June 28, 2022

    

    

    

    

    

Total Texas

    

    

Additional

Roadhouse, Inc.

Par

Paid-in-

Retained

and

Noncontrolling

Shares

Value

Capital

Earnings

Subsidiaries

Interests

Total

Balance, March 29, 2022

 

68,459,769

$

68

$

32,754

$

986,958

$

1,019,780

$

15,479

$

1,035,259

Net income

 

 

 

 

72,419

 

72,419

 

2,118

 

74,537

Distributions to noncontrolling interest holders

 

 

 

 

 

 

(2,130)

 

(2,130)

Acquisition of noncontrolling interest

(1,395)

(1,395)

(340)

(1,735)

Dividends declared ($0.46 per share)

 

 

 

 

(30,752)

 

(30,752)

 

 

(30,752)

Shares issued under share-based compensation plans including tax effects

 

97,387

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(30,473)

 

 

(2,499)

 

 

(2,499)

 

 

(2,499)

Repurchase of shares of common stock

(1,673,387)

(1)

(38,352)

(89,800)

(128,153)

(128,153)

Share-based compensation

 

 

 

9,492

 

 

9,492

 

 

9,492

Balance, June 28, 2022

 

66,853,296

$

67

$

$

938,825

$

938,892

$

15,127

$

954,019

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share and per share data)

(unaudited)

For the 26 Weeks Ended June 27, 2023

    

    

    

    

    

Total Texas

    

    

 

Additional

Roadhouse, Inc.

 

Par

Paid-in-

Retained

and

Noncontrolling

 

Shares

Value

Capital

Earnings

Subsidiaries

Interests

Total

 

Balance, December 27, 2022

66,973,311

$

67

$

13,139

$

999,432

$

1,012,638

$

15,024

$

1,027,662

Net income

 

 

 

 

168,658

 

168,658

 

4,371

 

173,029

Distributions to noncontrolling interest holders

 

 

 

 

 

 

(4,127)

 

(4,127)

Dividends declared ($1.10 per share)

 

 

 

 

(73,698)

 

(73,698)

 

 

(73,698)

Shares issued under share-based compensation plans including tax effects

 

256,167

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(79,296)

 

 

(8,239)

 

 

(8,239)

 

 

(8,239)

Repurchase of shares of common stock, including excise tax

(306,726)

(21,644)

(11,477)

(33,121)

(33,121)

Share-based compensation

 

 

 

16,744

 

 

16,744

 

 

16,744

Balance, June 27, 2023

 

66,843,456

$

67

$

$

1,082,915

$

1,082,982

$

15,268

$

1,098,250

For the 26 Weeks Ended June 28, 2022

    

    

    

    

    

Total Texas

    

    

Additional

Roadhouse, Inc.

Par

Paid-in-

Retained

and

Noncontrolling

Shares

Value

Capital

Earnings

Subsidiaries

Interests

Total

Balance, December 28, 2021

 

69,382,418

$

69

$

114,504

$

943,551

$

1,058,124

$

15,360

$

1,073,484

Net income

 

 

 

 

147,621

 

147,621

 

4,244

 

151,865

Distributions to noncontrolling interest holders

 

 

 

 

 

 

(4,137)

 

(4,137)

Acquisition of noncontrolling interest

(1,395)

(1,395)

(340)

(1,735)

Dividends declared ($0.92 per share)

 

 

 

 

(62,547)

 

(62,547)

 

 

(62,547)

Shares issued under share-based compensation plans including tax effects

 

302,355

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(97,472)

 

 

(8,664)

 

 

(8,664)

 

 

(8,664)

Repurchase of shares of common stock

(2,734,005)

(2)

(123,057)

(89,800)

(212,859)

(212,859)

Share-based compensation

 

 

 

18,612

 

 

18,612

 

 

18,612

Balance, June 28, 2022

 

66,853,296

$

67

$

$

938,825

$

938,892

$

15,127

$

954,019

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

26 Weeks Ended

    

June 27, 2023

    

June 28, 2022

Cash flows from operating activities:

Net income including noncontrolling interests

$

173,029

$

151,865

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

73,640

 

68,040

Deferred income taxes

 

1,767

 

3,906

Loss on disposition of assets

 

3,475

 

1,991

Impairment and closure costs

 

39

 

386

Equity income from investments in unconsolidated affiliates

 

(1,042)

 

(879)

Distributions of income received from investments in unconsolidated affiliates

 

358

 

619

Provision for doubtful accounts

 

1

 

27

Share-based compensation expense

 

16,744

 

18,612

Changes in operating working capital, net of acquisitions:

Receivables

 

90,501

 

115,998

Inventories

 

303

 

84

Prepaid expenses and other current assets

 

5,111

 

4,294

Other assets

 

(10,119)

 

13,852

Accounts payable

 

14,365

 

4,301

Deferred revenue—gift cards

 

(110,436)

 

(93,175)

Accrued wages

 

12,620

 

16,395

Prepaid income taxes and income taxes payable

 

5,224

 

6,611

Accrued taxes and licenses

 

5,346

 

1,284

Other accrued liabilities

 

(7,624)

 

(8,339)

Operating lease right-of-use assets and lease liabilities

 

3,178

 

3,385

Other liabilities

 

11,753

 

(10,554)

Net cash provided by operating activities

 

288,233

 

298,703

Cash flows from investing activities:

Capital expenditures—property and equipment

 

(154,580)

(108,567)

Acquisition of franchise restaurants, net of cash acquired

(39,153)

(33,069)

Proceeds from sale of investments in unconsolidated affiliates

632

316

Proceeds from the sale of property and equipment

 

 

2,188

Proceeds from sale leaseback transactions

7,097

Net cash used in investing activities

 

(186,004)

 

(139,132)

Cash flows from financing activities:

Payments on revolving credit facility

(50,000)

(25,000)

Distributions to noncontrolling interest holders

 

(4,127)

(4,137)

Acquisition of noncontrolling interest

(1,735)

Proceeds from restricted stock and other deposits, net

 

356

137

Indirect repurchase of shares for minimum tax withholdings

 

(8,239)

(8,664)

Repurchase of shares of common stock

 

(33,058)

(212,859)

Dividends paid to shareholders

 

(73,698)

(62,547)

Net cash used in financing activities

 

(168,766)

 

(314,805)

Net decrease in cash and cash equivalents

 

(66,537)

 

(155,234)

Cash and cash equivalents—beginning of period

 

173,861

335,645

Cash and cash equivalents—end of period

$

107,324

$

180,411

Supplemental disclosures of cash flow information:

Interest paid, net of amounts capitalized

$

638

$

139

Income taxes paid

$

19,613

$

13,784

Capital expenditures included in current liabilities

$

36,268

$

24,906

See accompanying notes to condensed consolidated financial statements.

7

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Texas Roadhouse, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(tabular amounts in thousands, except share and per share data)

(unaudited)

(1)  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Texas Roadhouse, Inc., our wholly-owned subsidiaries and subsidiaries in which we have a controlling interest (collectively, the "Company," "we," "our" and/or "us") as of June 27, 2023 and December 27, 2022 and for the 13 and 26 weeks ended June 27, 2023 and June 28, 2022.

As of June 27, 2023, we owned and operated 614 restaurants and franchised an additional 95 restaurants in 49 states and ten foreign countries. Of the 614 company restaurants, there were 594 wholly-owned restaurants and 20 majority-owned restaurants. Of the 614 company restaurants, we operated 566 as Texas Roadhouse restaurants, 41 as Bubba’s 33 restaurants and seven as Jaggers restaurants. Of the 95 Texas Roadhouse franchise restaurants, there were 54 domestic restaurants and 41 international restaurants.

As of June 28, 2022, we owned and operated 582 restaurants and franchised an additional 96 restaurants in 49 states and ten foreign countries. Of the 582 company restaurants, there were 562 wholly-owned restaurants and 20 majority-owned restaurants. Of the 582 company restaurants, we operated 541 as Texas Roadhouse restaurants, 37 as Bubba’s 33 restaurants and four as Jaggers restaurants. Of the 96 Texas Roadhouse franchise restaurants, there were 62 domestic restaurants and 34 international restaurants.

As of June 27, 2023 and June 28, 2022, we owned a 5.0% to 10.0% equity interest in 19 and 23 domestic franchise restaurants, respectively. These unconsolidated restaurants are accounted for using the equity method. Our investments in these unconsolidated affiliates are included in other assets in our unaudited condensed consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our unaudited condensed consolidated statements of income under equity income from investments in unconsolidated affiliates. All significant intercompany balances and transactions for these unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reporting of revenue and expenses during the periods to prepare these unaudited condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). Significant items subject to such estimates and assumptions include the carrying amounts of property and equipment, goodwill, obligations related to insurance reserves, leases, legal reserves, gift card breakage and third party fees and income taxes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, except that certain information and footnotes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results for the 13 and 26 weeks ended June 27, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 2023. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2022.

Our significant interim accounting policies include the recognition of income taxes using an estimated annual effective tax rate.

8

Table of Contents

(2) Recent Accounting Pronouncements

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting. These changes are intended to simplify the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. We adopted this guidance during the 13 weeks ended June 27, 2023 and the adoption did not have a material impact on our unaudited condensed consolidated financial statements.

(3)   Long-term Debt

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.

On May 19, 2023, we amended the credit facility to provide for the transition from LIBOR to the Secured Overnight Financing Rate ("SOFR") as the benchmark rate for purposes of calculating interest on outstanding borrowings. Pursuant to the amendment, we are required to pay interest on outstanding borrowings at the Term SOFR, plus a fixed adjustment of 0.10% and a variable adjustment of 0.875% to 1.875% depending on our leverage ratio. At the time of transition to the Term SOFR, we had no outstanding borrowings under the credit facility.

As of June 27, 2023, we had no outstanding balance on the credit facility and had $284.9 million of availability, net of $15.1 million of outstanding letters of credit. As of December 27, 2022, we had $50.0 million outstanding on the credit facility 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 unaudited condensed consolidated balance sheet.

The interest rate for the credit facility as of June 27, 2023 and June 28, 2022 was 6.07% and 2.13%, respectively.

The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants. We were in compliance with all financial covenants as of June 27, 2023.

(4) Revenue

The following table disaggregates our revenue by major source:

13 Weeks Ended

26 Weeks Ended

June 27, 2023

June 28, 2022

June 27, 2023

June 28, 2022

Restaurant and other sales

$

1,164,385

$

1,018,057

$

2,331,968

$

1,999,029

Franchise royalties

6,045

5,771

12,064

11,470

Franchise fees

773

778

1,527

1,593

Total revenue

$

1,171,203

$

1,024,606

$

2,345,559

$

2,012,092

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The following table presents a rollforward of deferred revenue-gift cards:

13 Weeks Ended

26 Weeks Ended

June 27, 2023

June 28, 2022

June 27, 2023

June 28, 2022

Beginning balance

$

240,729

$

221,479

$

335,403

$

300,657

Gift card activations, net

67,991

59,637

118,554

101,661

Gift card redemptions and breakage

(82,590)

(72,687)

(227,827)

(193,889)

Ending balance

$

226,130

$

208,429

$

226,130

$

208,429

We recognized restaurant sales of $45.5 million and $165.1 million for the 13 and 26 weeks ended June 27, 2023, respectively, related to amounts in deferred revenue as of December 27, 2022. We recognized restaurant sales of $39.5 million and $141.6 million for the 13 and 26 weeks ended June 28, 2022, respectively, related to amounts in deferred revenue as of December 28, 2021.

(5) Income Taxes

A reconciliation of the statutory federal income tax rate to our effective tax rate for the 13 and 26 weeks ended June 27, 2023 and June 28, 2022 is as follows:

13 Weeks Ended

   

26 Weeks Ended

   

June 27, 2023

   

June 28, 2022

   

June 27, 2023

   

June 28, 2022

Tax at statutory federal rate

21.0

%  

21.0

%  

21.0

%  

21.0

%

State and local tax, net of federal benefit

3.7

3.8

3.7

3.8

FICA tip tax credit

(11.1)

(10.8)

(10.6)

(10.3)

Work opportunity tax credit

(1.1)

(1.7)

(1.1)

(1.5)

Stock compensation

(0.8)

0.2

(0.5)

Net income attributable to noncontrolling interests

(0.4)

(0.4)

(0.4)

(0.4)

Officers compensation

0.7

0.6

0.7

0.6

Other

0.7

0.7

0.5

0.6

Total

12.7

%  

13.4

%  

13.3

%  

13.8

%

Our effective tax rate was 12.7% and 13.4% for the 13 weeks ended June 27, 2023 and June 28, 2022, respectively. Our effective tax rate was 13.3% and 13.8% for the 26 weeks ended June 27, 2023 and June 28, 2022, respectively. The reductions in our tax rate for the 13 and 26 weeks ended June 27, 2023 as compared to the prior year periods were primarily driven by an increase in the excess tax benefit for stock compensation.

(6)

Commitments and Contingencies

The estimated cost of completing capital project commitments at June 27, 2023 and December 27, 2022 was $245.1 million and $205.7 million, respectively.

As of June 27, 2023 and December 27, 2022, we were contingently liable for $10.8 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 June 27, 2023 and 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.

During the 13 and 26 weeks ended June 27, 2023, we bought most of our beef from four suppliers. We have no material minimum purchase commitments with our vendors that extend beyond a year.

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Occasionally, we are a defendant in litigation arising in the ordinary course of business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns.  None of these types of litigation, most of which are covered by insurance, has had a material adverse effect on us and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.

(7)   Acquisitions

On December 28, 2022, the first day of the 2023 fiscal year, we completed the acquisition of eight franchise Texas Roadhouse restaurants located in Maryland and Delaware, including four in which we previously held a 5.0% equity interest. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $39.1 million, net of cash acquired, for 100% of the entities. The transactions in which we held an equity interest were accounted for as a step acquisition and we recorded a gain of $0.6 million on our previous investments in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income.

These transactions were accounted for using the acquisition method as defined in Accounting Standards Codification ("ASC") 805, Business Combinations. These acquisitions are consistent with our long-term strategy to increase net income and earnings per share.

The following table summarizes the consideration paid for these acquisitions, and the estimated preliminary fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for measurement-period adjustments through June 27, 2023.

Inventory

$

410

Other assets

293

Property and equipment

 

17,763

Operating lease right-of-use assets

4,775

Goodwill

 

20,067

Intangible assets

 

1,700

Deferred revenue-gift cards

(1,164)

Current portion of operating lease liabilities

 

(110)

Operating lease liabilities, net of current portion

(4,665)

$

39,069

The aggregate purchase price is preliminary as we are finalizing working capital adjustments. Intangible assets represent reacquired franchise rights which will be amortized over a weighted-average useful life of 2.2 years. We expect all of the goodwill and intangible asset amortization will be deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.

Pro forma financial detail and operating results for the 13 and 26 weeks ended June 27, 2023 have not been presented as the results of the acquired restaurants are not material to our unaudited condensed consolidated financial position, results of operations or cash flows.

On March 30, 2022, we completed the acquisition of one franchise Texas Roadhouse restaurant located in Nebraska in which we previously held a 5.49% equity interest. Pursuant to the terms of the acquisition agreement, we paid a total purchase price of $6.6 million, net of cash acquired, for 100% of the entity. The transaction was accounted for as a step acquisition and we recorded a gain of $0.3 million on our previous investment in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income and comprehensive income.

On December 29, 2021, the first day of the 2022 fiscal year, we completed the acquisition of seven franchise Texas Roadhouse restaurants located in South Carolina and Georgia. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $26.5 million, net of cash acquired. These acquisitions are consistent with our long-term strategy to increase net income and earnings per share. The transactions were accounted for using the acquisition method as defined in ASC 805, Business Combinations.

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The following table summarizes the consideration paid for these acquisitions, and the estimated fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for final measurement-period adjustments.

Inventory

$

321

Other assets

222

Property and equipment

4,841

Operating lease right-of-use assets

1,221

Goodwill

22,616

Intangible assets

6,100

Deferred revenue-gift cards

(947)

Current portion of operating lease liabilities

(47)

Operating lease liabilities, net of current portion

(1,174)

$

33,153

Intangible assets represent reacquired franchise rights which will be amortized over a weighted-average useful life of 3.4 years. We expect all of the goodwill and intangible asset amortization will be deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.

(8)   Related Party Transactions

As of June 27, 2023 and June 28, 2022, we had four franchise restaurants and one majority-owned company restaurant owned in part by a current officer of the Company. The franchise entities paid us fees of $0.5 million for both of the 13 week periods ended June 27, 2023 and June 28, 2022. The franchise entities paid us fees of $1.0 million and $0.9 million for the 26 weeks ended June 27, 2023 and June 28, 2022, respectively.

(9)   Earnings Per Share

The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding.  The diluted earnings per share calculations show the effect of the weighted-average restricted stock units from our equity incentive plans. Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met.

For all periods presented, the weighted-average shares of nonvested stock units that were outstanding but not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect were not significant.

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The following table sets forth the calculation of earnings per share and weighted-average shares outstanding (in thousands) as presented in the accompanying unaudited condensed consolidated statements of income:

13 Weeks Ended

26 Weeks Ended

    

June 27, 2023

    

June 28, 2022

    

June 27, 2023

    

June 28, 2022

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

$

82,271

$

72,419

$

168,658

$

147,621

Basic EPS:

Weighted-average common shares outstanding

 

66,974

67,654

66,995

68,370

Basic EPS

$

1.23

$

1.07

$

2.52

$

2.16

Diluted EPS:

Weighted-average common shares outstanding

 

66,974

67,654

66,995

68,370

Dilutive effect of nonvested stock units

 

255

236

266

261

Shares-diluted

 

67,229

 

67,890

 

67,261

 

68,631

Diluted EPS

$

1.22

$

1.07

$

2.51

$

2.15

(10) Fair Value Measurements

At June 27, 2023 and December 27, 2022, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values based on the short-term nature of these instruments. At December 27, 2022, the fair value of our credit facility approximated its carrying value since it is a variable rate credit facility (Level 2). There were no transfers among levels within the fair value hierarchy during the 13 and 26 weeks ended June 27, 2023.

The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:

Fair Value Measurements

 

    

Level

    

June 27, 2023

    

December 27, 2022

 

Deferred compensation plan—assets

 

1

$

72,626

$

61,835

Deferred compensation plan—liabilities

 

1

$

(72,504)

$

(61,668)

We report the accounts of the deferred compensation plan in other assets and the corresponding liability in other liabilities in our unaudited condensed consolidated financial statements. These investments are considered trading securities and are reported at fair value based on quoted market prices. The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, are recorded in general and administrative expense in the unaudited condensed consolidated statements of income.

The following table presents the fair value of our assets measured on a nonrecurring basis:

Fair Value Measurements

    

    

June 27,

    

December 27,

Level

2023

2022

Long-lived assets held for use

3

$

$

2,000

Long-lived assets held for use include the land and building for one underperforming restaurant that was impaired to fair value at December 27, 2022 using Level 3 inputs.

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(11) Stock Repurchase Program

On March 17, 2022, our Board of Directors (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 under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases are determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions and other corporate considerations.

For the 13 and 26 weeks ended June 27, 2023, we paid $23.4 million and $33.1 million to repurchase 213,975 shares and 306,726 shares of our common stock, respectively. For the 13 and 26 weeks ended June 28, 2022, we paid $128.1 million and $212.9 million to repurchase 1,673,387 shares and 2,734,005 shares of our common stock, respectively. As of June 27, 2023, $133.8 million remained under our authorized stock repurchase program.

(12) 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. In addition, corporate-related segment assets, depreciation and amortization, and capital expenditures are also included in Other.

Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin 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 to evaluate restaurant-level operating efficiency and performance.

In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-opening and general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We 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.

Restaurant and other sales for all operating segments are derived primarily from food and beverage sales. We do not rely on any major customer as a source of sales and the customers and assets of our reportable segments are located predominantly in the United States. There are no material transactions between reportable segments.

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The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:

For the 13 Weeks Ended June 27, 2023

Texas Roadhouse

Bubba's 33

Other

Total

Restaurant and other sales

$

1,096,252

$

61,560

$

6,573

$

1,164,385

Restaurant operating costs (excluding depreciation and amortization)

924,047

51,928

5,654

981,629

Restaurant margin

$

172,205

$

9,632

$

919

$

182,756

Depreciation and amortization

$

30,768

$

3,434

$

3,211

$

37,413

Capital expenditures

76,455

9,750

1,642

87,847

For the 13 Weeks Ended June 28, 2022

Texas Roadhouse

Bubba's 33

Other

Total

Restaurant and other sales

$

960,153

$

54,612

$

3,292

$

1,018,057

Restaurant operating costs (excluding depreciation and amortization)

799,102

47,037

3,182

849,321

Restaurant margin

$

161,051

$

7,575

$

110

$

168,736

Depreciation and amortization

$

28,104

$

3,302

$

3,014

$

34,420

Capital expenditures

51,316

6,415

1,807

59,538

For the 26 Weeks Ended June 27, 2023

Texas Roadhouse

Bubba's 33

Other

Total

Restaurant and other sales

$

2,197,178

$

122,929

$

11,861

$

2,331,968

Restaurant operating costs (excluding depreciation and amortization)

1,847,983

104,844

10,689

1,963,516

Restaurant margin

$

349,195

$

18,085

$

1,172

$

368,452

Depreciation and amortization

$

60,656

$

6,881

$

6,103

$

73,640

Capital expenditures

133,592

16,005

4,983

154,580

For the 26 Weeks Ended June 28, 2022

Texas Roadhouse

Bubba's 33

Other

Total

Restaurant and other sales

$

1,886,882

$

105,837

$

6,310

$

1,999,029

Restaurant operating costs (excluding depreciation and amortization)

1,572,364

90,469

6,277

1,669,110

Restaurant margin

$

314,518

$

15,368

$

33

$

329,919

Depreciation and amortization

$

55,645

$

6,492

$

5,903

$

68,040

Capital expenditures

90,993

13,792

3,782

108,567

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A reconciliation of restaurant margin to income from operations is presented below. We do not allocate interest income (expense), net and equity income from investments in unconsolidated affiliates to reportable segments.

13 Weeks Ended

26 Weeks Ended

June 27, 2023

June 28, 2022

June 27, 2023

June 28, 2022

Restaurant margin

$

182,756

$

168,736

$

368,452

$

329,919

Add:

Franchise royalties and fees

6,818

6,549

13,591

13,063

Less:

Pre-opening

5,671

5,323

11,048

9,614

Depreciation and amortization

37,413

34,420

73,640

68,040

Impairment and closure, net

78

411

133

(235)

General and administrative

51,000

49,213

100,865

89,507

Income from operations

$

95,412

$

85,918

$

196,357

$

176,056

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

This report contains forward-looking statements based on our current expectations, estimates and projections about our industry and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 27, 2022, and in Part II, Item 1A in this Form 10-Q, along with disclosures in our other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors that may affect our business, results of operations or financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our Company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements, except as may be required by applicable law. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.

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 Company in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to three restaurant concepts with 709 restaurants in 49 states and ten foreign countries. As of June 27, 2023, our 709 restaurants included:

614 company restaurants, of which 594 were wholly-owned and 20 were majority-owned.  The results of operations of company restaurants are included in our unaudited condensed consolidated statements of 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 unaudited condensed consolidated statements of income. Of the 614 company restaurants, we operated 566 as Texas Roadhouse restaurants, 41 as Bubba’s 33 restaurants and seven as Jaggers restaurants.

95 franchise restaurants, of which 19 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 from investments in unconsolidated affiliates in our unaudited condensed consolidated statements of income. Additionally, we provide various management services to these 19 franchise restaurants. All of the franchise restaurants are operated as Texas Roadhouse restaurants. Of the 95 franchise restaurants, 54 were domestic restaurants and 41 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 50 of the 54 domestic franchise restaurants.

Throughout this report, we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise noted.

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Table of Contents

Presentation of Financial and Operating Data

Throughout this report, the 13 weeks ended June 27, 2023, and June 28, 2022, are referred to as Q2 2023 and Q2 2022, respectively. The 26 weeks ended June 27, 2023, and June 28, 2022, are referred to as 2023 YTD and 2022 YTD, respectively. Fiscal years 2023 and 2022 will be 52 weeks in length, while the quarters for those years were or will be 13 weeks in length.

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 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 quarterly or 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 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 levels higher than the 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 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.

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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 unaudited condensed consolidated statements of 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, 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/or 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 consist 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 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, outside services, 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 consist principally of opening team 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 many 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 comprise 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

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employees and market partners 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 on our debt or financing obligations including the amortization of loan fees offset by capitalized interest.

Equity Income from Unconsolidated Affiliates.   Equity income includes our percentage share of net income earned by unconsolidated affiliates and our share of any gain on the sale of these affiliates. As of June 27, 2023, and June 28, 2022, we owned a 5.0% to 10.0% equity interest in 19 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.

Q2 2023 Financial Highlights

Total revenue increased $146.6 million or 14.3% to $1,171.2 million in Q2 2023 compared to $1,024.6 million in Q2 2022 primarily due to an increase in store weeks and an increase in comparable restaurant sales. Store weeks and comparable restaurant sales increased 5.6% and 9.1%, respectively, at company restaurants in Q2 2023 compared to Q2 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 guest traffic along with an increase in our per person average check.

Net income increased $9.9 million or 13.6% to $82.3 million in Q2 2023 compared to $72.4 million in Q2 2022 primarily due to higher restaurant margin dollars, as described below, partially offset by an increase in general and administrative expense and an increase in depreciation and amortization expense. Diluted earnings per share increased 14.7% to $1.22 in Q2 2023 from $1.07 in Q2 2022 primarily due to the increase in net income.

Restaurant margin dollars increased $14.0 million or 8.3% to $182.8 million in Q2 2023 compared to $168.7 million in Q2 2022 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 15.7% in Q2 2023 compared to 16.6% in Q2 2022.  The decrease in restaurant margin, as a percentage of restaurant and other sales, was due to commodity inflation and wage and other labor inflation partially offset by higher sales.

We repurchased 213,975 shares of common stock for $23.4 million in Q2 2023. We also paid a quarterly dividend of $0.55 per share of common stock, which represented a 20% increase compared to our quarterly dividend of $0.46 per share in Q2 2022.

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Results of Operations

(in thousands)

13 Weeks Ended

26 Weeks Ended

June 27, 2023

June 28, 2022

June 27, 2023

June 28, 2022

  

$

  

%

  

$

  

%

  

$

  

%

  

$

  

%

Consolidated Statements of Income:

Revenue:

Restaurant and other sales

1,164,385

99.4

1,018,057

99.4

2,331,968

99.4

1,999,029

99.4

Franchise royalties and fees

6,818

0.6

6,549

0.6

13,591

0.6

13,063

0.6

Total revenue

1,171,203

100.0

1,024,606

100.0

2,345,559

100.0

2,012,092

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

401,204

34.5

347,041

34.1

811,915

34.8

684,437

34.2

Labor

391,337

33.6

333,042

32.7

777,156

33.3

654,913

32.8

Rent

17,996

1.5

16,714

1.6

35,824

1.5

33,082

1.7

Other operating

171,092

14.7

152,524

15.0

338,621

14.5

296,678

14.8

(As a percentage of total revenue)

Pre-opening

5,671

0.5

5,323

0.5

11,048

0.5

9,614

0.5

Depreciation and amortization

37,413

3.2

34,420

3.4

73,640

3.1

68,040

3.4

Impairment and closure, net

78

NM

411

NM

133

NM

(235)

NM

General and administrative

51,000

4.4

49,213

4.8

100,865

4.3

89,507

4.4

Total costs and expenses

1,075,791

91.9

938,688

91.6

2,149,202

91.6

1,836,036

91.3

Income from operations

95,412

8.1

85,918

8.4

196,357

8.4

176,056

8.7

Interest income (expense), net

996

0.1

(395)

NM

2,234

0.1

(792)

NM

Equity income from investments in unconsolidated affiliates

287

NM

545

NM

1,042

NM

879

NM

Income before taxes

96,695

8.3

86,068

8.4

199,633

8.5

176,143

8.8

Income tax expense

12,270

1.0

11,531

1.1

26,604

1.1

24,278

1.2

Net income including noncontrolling interests

84,425

7.2

74,537

7.3

173,029

7.4

151,865

7.5

Net income attributable to noncontrolling interests

2,154

0.2

2,118

0.2

4,371

0.2

4,244

0.2

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

82,271

7.0

72,419

7.1

168,658

7.2

147,621

7.3

NM — Not meaningful

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Reconciliation of Income from Operations to Restaurant Margin

(in thousands)

13 Weeks Ended

26 Weeks Ended

June 27, 2023

June 28, 2022

June 27, 2023

June 28, 2022

Income from operations

$

95,412

$

85,918

$

196,357

$

176,056

Less:

Franchise royalties and fees

6,818

6,549

13,591

13,063

Add:

Pre-opening

5,671

5,323

11,048

9,614

Depreciation and amortization

37,413

34,420

73,640

68,040

Impairment and closure, net

78

411

133

(235)

General and administrative

51,000

49,213

100,865

89,507

Restaurant margin

$

182,756

$

168,736

$

368,452

$

329,919

Restaurant margin $/store week

$

22,961

$

22,390

$

23,232

$

22,006

Restaurant margin (as a percentage of restaurant and other sales)

15.7%

16.6%

15.8%

16.5%

See above for the definition of restaurant margin.

Restaurant Unit Activity

    

Total

Texas Roadhouse

Bubba's 33

    

Jaggers

Balance at December 27, 2022

 

697

652

40

 

5

Company openings

 

9

6

1

2

Company closings

Franchise openings - Domestic

1

1

Franchise openings - International

 

3

3

Franchise closings

(1)

(1)

Balance at June 27, 2023

 

709

661

41

 

7

 

June 27, 2023

 

June 28, 2022

Company - Texas Roadhouse

 

566

541

Company - Bubba's 33

 

41

37

Company - Jaggers

 

7

4

Franchise - Texas Roadhouse - U.S.

 

54

62

Franchise - Texas Roadhouse - International

 

41

34

Total

 

709

 

678

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Q2 2023 compared to Q2 2022 and 2023 YTD compared to 2022 YTD

Restaurant and Other Sales 

Restaurant and other sales increased 14.4% in Q2 2023 compared to Q2 2022 and 16.7% in 2023 YTD compared to 2022 YTD. 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.

    

Q2 2023

    

Q2 2022

    

2023 YTD

    

2022 YTD

 

Company Restaurants:

Increase in store weeks

 

5.6

%

6.4

%

5.8

%

6.5

%

Increase in average unit volume

 

8.7

%

7.4

%

10.6

%

11.3

%

Other(1)

 

0.0

%

0.2

%

0.2

%

0.7

%

Total increase in restaurant sales

 

14.3

%

14.0

%

16.6

%

18.5

%

Other sales

0.1

%

0.1

%

0.1

%

%

Total increase in restaurant and other sales

14.4

%

14.1

%

16.7

%

18.5

%

Store weeks

 

7,960

7,536

15,860

14,992

Comparable restaurant sales

 

9.1

%

7.6

%

11.0

%

11.7

%

Texas Roadhouse restaurants:

Store weeks

7,343

7,006

14,647

13,942

Comparable restaurant sales

 

9.4

%

7.6

%

11.2

%

11.5

%

Average unit volume (in thousands)

$

1,946

$

1,781

$

3,912

$

3,525

Weekly sales by group:

Comparable restaurants (533, 503, 527 and 499 units)

$

149,847

$

137,599

$

150,770

$

136,096

Average unit volume restaurants (20, 22, 22 and 20 units)(2)

$

144,554

$

132,222

$

143,496

$

130,576

Restaurants less than six months old (13, 16, 17, and 22 units)

$

158,608

$

145,756

$

157,585

$

139,534

Bubba's 33 restaurants:

Store weeks

526

478

1,046

946

Comparable restaurant sales

3.9

%

8.1

%

6.4

%

14.3

%

Average unit volume (in thousands)

$

1,514

$

1,475

$

3,044

$

2,864

Weekly sales by group:

Comparable restaurants (35, 31, 34 and 30 units)

$

117,906

$

110,740

$

117,181

$

109,896

Average unit volume restaurants (3, 4, 3 and 4 units)(2)

$

99,324

$

134,386

$

115,846

$

111,997

Restaurants less than six months old (3, 2, 4, and 3 units)

$

123,594

$

128,134

$

120,459

$

135,393

(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 during the period.

(2)Average unit volume includes 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 increases in restaurant sales for Q2 2023 and 2023 YTD were primarily attributable to an increase in store weeks and an increase in comparable restaurant sales. The increases in store weeks were driven by the opening of new

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restaurants and the acquisition of franchise restaurants. The increases in comparable restaurant sales were driven by an increase in guest traffic count along with an increase in our per person average check as shown in the table below.

Q2 2023

    

Q2 2022

    

2023 YTD

    

2022 YTD

    

Guest traffic counts

4.7

%

(0.8)

%

6.2

%

3.0

%

Per person average check

4.4

%

8.4

%

4.8

%

8.7

%

Comparable restaurant sales growth

9.1

%

7.6

%

11.0

%

11.7

%

The increase in Q2 2023 guest traffic counts was due to an increase in dining room traffic. To-go sales as a percentage of restaurant sales were 12.6% for Q2 2023 compared to 13.1% for Q2 2022.

Per person average check includes the benefit of a menu price increase of approximately 2.2% implemented in Q2 2023 and menu price increases of approximately 3.2% and 2.9% implemented in Q2 2022 and Q4 2022, respectively.

In 2023 YTD, we opened seven Texas Roadhouse and Bubba’s 33 company restaurants and completed the acquisition of eight domestic franchise restaurants. As of June 27, 2023, an additional 24 Texas Roadhouse and Bubba’s 33 company restaurants were under construction. In addition, we opened two Jaggers company restaurants in 2023 YTD.

In total for 2023, we plan to open as many as 28 Texas Roadhouse and Bubba’s 33 company restaurants, and we expect store week growth of approximately 6% across all concepts, including the impact of the eight franchise restaurants acquired at the beginning of the fiscal year.

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 ($3.5) million in both Q2 2023 and Q2 2022, and was ($8.6) million in both 2023 YTD and 2022 YTD.

Franchise Royalties and Fees

Franchise royalties and fees increased by $0.3 million or 4.1% in Q2 2023 compared to Q2 2022 and increased by $0.5 million, or 4.0% in 2023 YTD compared with 2022 YTD. The increases in both periods were due to comparable restaurant sales growth and new store openings partially offset by decreased royalties related to the eight franchise restaurants that were acquired.

In 2023 YTD, our existing franchise partners opened one domestic Texas Roadhouse restaurant and three international Texas Roadhouse restaurants. In addition, we had one franchise store close during the period. In total for 2023, we expect as many as 13 international and domestic franchise openings including three Jaggers franchise openings.

Food and Beverage Costs  

Food and beverage costs, as a percentage of restaurant and other sales, increased to 34.5% in Q2 2023 compared to 34.1% in Q2 2022 and increased to 34.8% in 2023 YTD compared to 34.2% in 2022 YTD. The increases were primarily due to commodity inflation partially offset by the benefit of a higher guest check. Commodity inflation was 6.0% and 7.4% in Q2 2023 and 2023 YTD, respectively, with higher costs across the basket.

In total for 2023, we expect commodity inflation of 5% to 6% for the year with prices locked for approximately 50% of our remaining forecasted costs and the remainder subject to floating market prices.

Restaurant Labor Expenses

Restaurant labor expenses, as a percentage of restaurant and other sales, increased to 33.6% in Q2 2023 compared to 32.7% in Q2 2022 and increased to 33.3% in 2023 YTD compared to 32.8% in 2022 YTD. The increases in both periods were primarily due to wage and other labor inflation of 7.0% and 7.4% in Q2 2023 and 2023 YTD, respectively.

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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. A higher mix of dining room sales versus to-go sales also contributed to the increase. In addition, there was an increase in group insurance expense due to unfavorable claims experience of $2.8 million and $5.0 million in Q2 2023 and 2023 YTD, respectively. The increase was partially offset by the benefit of a higher guest check.

In total for 2023, we expect wage and other labor inflation of 6% to 7% for the year driven by labor market pressures, increases in state-mandated minimum and tipped wage rates and increased investment in our people.

Restaurant Rent Expense

  

Restaurant rent expense, as a percentage of restaurant and other sales, decreased to 1.5% in Q2 2023 compared to 1.6% in Q2 2022 and decreased to 1.5% in 2023 YTD compared to 1.7% in 2022 YTD. The decreases in both periods were primarily due to the 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, decreased to 14.7% in Q2 2023 compared to 15.0% in Q2 2022 and decreased to 14.5% in 2023 YTD compared to 14.8% in 2022 YTD. The decreases in both periods were primarily due to an increase in average unit volume and lower supplies and bonus expense partially offset by higher repair and maintenance costs and equipment rent.

Pre-opening Expenses  

Pre-opening expenses were $5.7 million in Q2 2023 compared to $5.3 million in Q2 2022 and $11.0 million in 2023 YTD compared to $9.6 million in 2022 YTD. Pre-opening costs will fluctuate from quarter to quarter based on wage inflation, 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 Expense 

Depreciation and amortization expenses, as a percentage of total revenue, decreased to 3.2% in Q2 2023 compared to 3.4% in Q2 2022 and decreased to 3.1% in 2023 YTD compared to 3.4% in 2022 YTD. The decreases in both periods were primarily due to the increase in average unit volume partially offset by higher depreciation at our newer restaurants.

Impairment and Closure Costs, Net

Impairment and closure costs, net was $0.1 million in Q2 2023 compared to $0.4 million in Q2 2022 and was $0.1 million in 2023 YTD compared to ($0.2) million in 2022 YTD. For Q2 2022, impairment and closure costs, net included the impairment of an operating lease right-of-use asset at a restaurant that was relocated. For 2022 YTD, impairment and closure costs, net included this impairment as well as a gain of $0.7 million associated with the sale of land and building on a site that was previously classified as assets held for sale.

General and Administrative Expenses

General and administrative expenses, as a percentage of total revenue, decreased to 4.4% in Q2 2023 compared to 4.8% in Q2 2022 and decreased to 4.3% in 2023 YTD compared to 4.4% in 2022 YTD. The decreases in both periods were primarily driven by the increase in average unit volume, partially offset by the increase in salary and incentive compensation including the separation payout, net of restricted stock forfeitures, of $2.6 million related to the retirement of an executive officer in Q1 2023, and increased software hosting fees.

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Table of Contents

Interest Income (Expense), Net

Interest income (expense), net was $1.0 million and ($0.4) million in Q2 2023 and Q2 2022, respectively, and was $2.2 million and ($0.8) million in 2023 YTD and 2022 YTD, respectively. The increases in both periods were primarily driven by increased earnings on our cash and cash equivalents and decreased borrowings on our revolving credit facility.

Equity Income from Unconsolidated Affiliates 

Equity income was $0.3 million in Q2 2023 compared to $0.5 million in Q2 2022 and was $1.0 million in 2023 YTD compared to $0.9 million in 2022 YTD. The decrease in Q2 2023 was primarily due to Q2 2022 including a $0.3 million gain on the acquisition of one of these affiliates. The increase in 2023 YTD was primarily due to a $0.6 million gain on the acquisition of four of these affiliates in Q1 2023.

Income Tax Expense

Our effective tax rate decreased to 12.7% in Q2 2023 compared to 13.4% in Q2 2022 and was 13.3% in 2023 YTD compared to 13.8% in 2022 YTD. The decreases were primarily driven by an increase in the excess tax benefit for stock compensation. For 2023, we expect an effective income tax rate of 13% to 14% based on forecasted operating results, excluding the impact of any legislative changes enacted.

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 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. 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.

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Table of Contents

The following table presents a summary of restaurant margin by segment (in thousands):

13 Weeks Ended

June 27, 2023

June 28, 2022

Texas Roadhouse

$

172,205

15.7

%

$

161,051

16.8

%

Bubba's 33

 

9,632

15.6

 

7,575

13.9

Other

 

919

14.0

 

110

3.3

Total

$

182,756

15.7

%

$

168,736

16.6

%

26 Weeks Ended

June 27, 2023

June 28, 2022

Texas Roadhouse

$

349,195

15.9

%

$

314,518

16.7

%

Bubba's 33

 

18,085

14.7

 

15,368

14.5

Other

 

1,172

9.9

 

33

0.5

Total

$

368,452

15.8

%

$

329,919

16.5

%

For our Texas Roadhouse reportable segment, restaurant margin dollars increased $11.2 million or 6.9% in Q2 2023 and increased $34.7 million or 11.0% in 2023 YTD. The increases in both periods were due to higher sales, primarily driven by an increase in store weeks and an increase in comparable restaurant sales, which was partially offset by commodity and wage and other inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, decreased to 15.7% in Q2 2023 from 16.8% in Q2 2022 and decreased to 15.9% in 2023 YTD from 16.7% in 2022 YTD. The decrease in both periods was due to commodity and wage and other labor inflation which was partially offset by the benefit of higher sales.

For our Bubba’s 33 reportable segment, restaurant margin dollars increased $2.1 million or 27.2% in Q2 2023 and increased $2.7 million or 17.7% in 2023 YTD. The increases in both periods were due to higher sales, primarily driven by an increase in store weeks and an increase in comparable restaurant sales, which was primarily offset by wage and other labor inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, increased to 15.6% in Q2 2023 from 13.9% in Q2 2022 and increased to 14.7% in 2023 YTD from 14.5% in 2022 YTD. The increase in both periods was due to higher sales 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):

26 Weeks Ended

    

June 27, 2023

    

June 28, 2022

Net cash provided by operating activities

$

288,233

$

298,703

Net cash used in investing activities

 

(186,004)

 

(139,132)

Net cash used in financing activities

 

(168,766)

 

(314,805)

Net decrease in cash and cash equivalents

$

(66,537)

$

(155,234)

Net cash provided by operating activities was $288.2 million in 2023 YTD compared to $298.7 million in 2022 YTD. This decrease was primarily due to an unfavorable change in working capital partially offset by an increase in net income and non-cash items including depreciation and amortization.

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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Table of Contents

Net cash used in investing activities was $186.0 million in 2023 YTD compared to $139.1 million in 2022 YTD. 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.

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 of five to 30 years (including renewal periods) or purchase the land when appropriate. As of June 27, 2023, we had developed 155 of the 614 company restaurants on land that we own.

The following table presents a summary of capital expenditures (in thousands):

   

26 Weeks Ended

June 27, 2023

    

June 28, 2022

New company restaurants

$

90,431

$

61,425

Refurbishment or expansion of existing restaurants

 

52,722

 

38,067

Relocation of existing restaurants

7,923

7,724

Capital expenditures related to Support Center office

3,504

1,351

Total capital expenditures

$

154,580

$

108,567

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 opening 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. In 2023, we expect our capital expenditures to be approximately $300 million as we plan to open as many as 28 Texas Roadhouse and Bubba’s 33 restaurants. 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.

As of June 27, 2023, the estimated cost of completing capital project commitments over the next 12 months was approximately $245.1 million. See note 6 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations.

Net cash used in financing activities was $168.8 million in 2023 YTD compared to $314.8 million in 2022 YTD. The decrease is primarily due to a decrease in the amount of share repurchases partially offset by increased payments on our revolving credit facility as well as an increase in our quarterly dividend payment.

On March 17, 2022, our Board of Directors (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.

During 2023 YTD and 2022 YTD, we paid $33.1 million and $212.9 million, respectively, to repurchase 306,726 shares and 2,734,005 shares, respectively, of our common stock. As of June 27, 2023, $133.8 million remained under our authorized stock repurchase program.

On May 11, 2023, our Board authorized the payment of a quarterly cash dividend of $0.55 per share of common stock which represented a 20% increase compared to the quarterly dividend of $0.46 per share of common stock declared in 2022. The payment of quarterly dividends totaled $73.7 million and $62.5 million in 2023 YTD and 2022 YTD, respectively.

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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Table of Contents

As of June 27, 2023, we had no outstanding balance on the credit facility and had $284.9 million of availability, net of $15.1 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 YTD, 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 unaudited condensed consolidated balance sheet.

The interest rate for the credit facility as of June 27, 2023 and June 28, 2022 was 6.07% and 2.13%, respectively.

The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants. We were in compliance with all financial covenants as of June 27, 2023.

Guarantees

As of June 27, 2023 and December 27, 2022, we were contingently liable for $10.8 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 June 27, 2023 and 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates on variable rate debt and changes in commodity prices. Our exposure to interest rate fluctuations is limited to our outstanding bank debt. The terms of the revolving credit facility (the "credit facility") require us to pay interest on outstanding borrowings at the Secured Overnight Financing Rate ("SOFR"), plus a fixed adjustment of 0.10%, plus a variable adjustment of 0.875% to 1.875% depending on our leverage ratio. As of June 27, 2023, we had no outstanding borrowings on our credit facility.

In an effort to secure high quality, low-cost ingredients used in the products sold in our restaurants, we employ various purchasing and pricing contract techniques. When purchasing certain types of commodities, we may be subject to prevailing market conditions resulting in unpredictable price volatility. For certain commodities, we may also enter into contracts that are either fixed price agreements or fixed volume agreements where the price is negotiated with reference to fluctuating market prices. We currently do not use financial instruments to hedge commodity prices, but we will continue to evaluate their effectiveness. Extreme and/or long-term increases in commodity prices could adversely affect our future results, especially if we are unable, primarily due to competitive reasons, to increase menu prices. Additionally, if there is a time lag between the increasing commodity prices and our ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not to pass on the cost increases, our short-term financial results could be negatively affected.

We are subject to business risk as our beef supply is highly dependent upon four vendors. If these vendors are unable to fulfill their obligations under their contracts, we may encounter supply shortages and/or higher costs to secure adequate supply and a possible loss of sales, any of which would harm our business. To date, we have been able to properly manage any supply shortages but have experienced increased costs.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to, and as defined in, Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of our management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 27, 2023.

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Changes in Internal Control

There were no changes in the Company’s internal control over financial reporting that occurred during the 13 weeks ended June 27, 2023 that materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns. None of these types of litigation, most of which are covered by insurance, has had a material adverse effect on us during the periods covered by this report and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended December 27, 2022, under the heading "Special Note Regarding Forward-looking Statements" and in the Form 10-K Part I, Item 1A, Risk Factors. There have been no material changes from the risk factors previously disclosed in our Form 10-K for the fiscal year ended December 27, 2022.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program which authorized us to 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 program have been made through open market transactions. The timing and the amount of any repurchases through this program 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.

For the 13 weeks ended June 27, 2023, we paid $23.4 million to repurchase 213,975 shares of our common stock. As of June 27, 2023, $133.8 million remained authorized for stock repurchases.

    

    

    

    

Maximum Number

(or Approximate

Total Number of

Dollar Value)

Shares Purchased

of Shares that

Total Number

Average

as Part of Publicly

May Yet Be

of Shares

Price Paid

Announced Plans

Purchased Under the

Period

Purchased

per Share

or Programs

Plans or Programs

March 29 to April 25

 

$

 

$

157,253,537

April 26 to May 23

 

53,303

$

109.12

 

53,303

$

151,437,200

May 24 to June 27

 

160,672

$

109.66

 

160,672

$

133,817,946

Total

 

213,975

 

213,975

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5.  OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.

    

Description

10.1

Employment Agreement between Texas Roadhouse Management Corp. and David Christopher Monroe dated May 17, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated May 17, 2023 (File No. 000-50972))

10.2

Amendment No. 3 to Amended and Restated Credit Agreement dated May 19, 2023 by and among Texas Roadhouse, Inc., the lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8K dated May 19, 2023 (File No. 00050972))

31.1

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TEXAS ROADHOUSE, INC.

Date: August 4, 2023

By:

/s/ GERALD L. MORGAN

Gerald L. Morgan

Chief Executive Officer

(Principal Executive Officer)

Date: August 4, 2023

By:

/s/ D. CHRISTOPHER MONROE

D. Christopher Monroe

Chief Financial Officer

(Principal Financial Officer)

Date: August 4, 2023

By:

/s/ KEITH V. HUMPICH

Keith V. Humpich

Vice President of Finance

(Principal Accounting Officer)

33