Texas Roadhouse, Inc. Announces Fourth Quarter 2004 Results

Texas Roadhouse, Inc. Announces Fourth Quarter 2004 Results

    Restaurant Writers/Business Editors

    LOUISVILLE, Ky.--(BUSINESS WIRE)--Feb. 28, 2005--Texas Roadhouse, Inc. (NASDAQ:TXRH), today announced financial results for the thirteen and fifty-two week periods ended December 28, 2004.

Fourth Quarter Year to Date

($000's) 2004 2003 % Change 2004 2003 % Change ---- ---- -------- ---- ---- ---------

Total revenue 96,947 75,391 29 363,011 286,453 27 Income from operations 8,147 8,731 (7) 38,682 34,258 13 Net (loss) income (183) 6,157 NM 21,701 23,143 (6)

    Results for the fourth quarter and year to date 2004 include the following charges:

--	A $5.0 million after-tax or $0.14 per diluted share charge for the recognition of a deferred tax liability incurred when Texas Roadhouse became a "C" corporation in conjunction with the Company's initial public offering. This charge was previously noted in the Company's third quarter 2004 earnings release and the Company's Form 10-Q filing with the U.S. Securities and Exchange Commission;
--	A $0.7 million after-tax or $0.02 per diluted share non-cash write-off of loan fees related to the termination of a $100 million, three-year credit facility. The facility was replaced with a $150 million, five-year credit facility on October 8, 2004. This charge was previously discussed in the Company's third quarter 2004 earnings release and the Company's Form 10-Q filing with the U.S. Securities and Exchange Commission; and
--	A $0.9 million after-tax or $0.02 per diluted share cumulative adjustment to correct the Company's lease accounting. This charge is similar to those disclosed by numerous restaurant companies and is described in detail in the "Lease Accounting Adjustment" section of this press release.

    Other highlights for the quarter include:

    -- Seven company and four franchise restaurants opened during the
    quarter;

    -- Comparable restaurant sales increased 6.5% at company
    restaurants and 6.5% at franchise restaurants;

    -- Restaurant operating costs, as a percentage of sales,
    increased 229 basis points versus the fourth quarter of 2003,
    reflecting higher food and beverage costs and the
    aforementioned lease adjustment; and

    -- Restaurant pre-opening expenses increased by approximately
    $1.0 million versus the fourth quarter of 2003, reflecting a
    higher number of new restaurant openings in 2004.

    Lease Accounting Adjustment

    Like many companies in the restaurant industry, Texas Roadhouse recently reviewed its accounting practices with respect to leasing transactions, and, in consultation with its external auditors, corrected its practices. Texas Roadhouse will now conform the lease term used in calculating straight-line rent expense under certain leases that include fixed-rent escalations with the term used to amortize related leasehold improvements. As the correction relates solely to accounting treatment, it does not affect Texas Roadhouse's historical or future cash flow or the timing of payments under the related leases. As a result, the Company recorded the cumulative effect of this correction as a $1.3 million pre-tax ($0.9 million after-tax) charge, primarily to rent expense, in the fourth quarter. The pre-tax charges attributable to 2004 and prior periods were $0.3 million ($0.2 million after-tax) and $1.0 million ($0.7 million after-tax), respectively. Texas Roadhouse expects this accounting change to result in pre-tax increases of approximately $273,000 and $67,000 to rent and depreciation expense, respectively, in 2005.

    Pro Forma Earnings per Diluted Share

    Pro forma earnings per diluted share include the estimated impact of Texas Roadhouse's initial public offering and corporate reorganization completed on October 8, 2004 as if the transactions occurred at the beginning of the periods presented. Accordingly, management believes that pro forma earnings per share currently provide the most relevant comparisons for investors. In an effort to illustrate the reconciliation between GAAP revenue, net (loss) income and pro forma amounts, the Company has provided tables in the financial section of this press release.

    For the fourth quarter and year to date 2004, pro forma diluted earnings per share were ($0.01) and $0.52 respectively. These amounts include the deferred tax charge, loan fee write-off, and lease accounting correction that were previously discussed. Excluding these charges, pro forma diluted earnings per share for the fourth quarter and year to date 2004 would have been $0.17 and $0.71, respectively. For the fourth quarter and full year 2003, pro forma diluted earnings per share were $0.15 and $0.59, respectively, and only include adjustments related to the initial public offering and corporate reorganization.

    G.J. Hart, President and Chief Executive Officer of Texas Roadhouse, commented, "We are very pleased to have finished 2004 on such a strong note. We exceeded our development plan by two. restaurants, one company and one franchise, and fourth quarter comparable restaurant sales increased 6.5%. In addition, our new restaurants are achieving sales that are exceeding the system average. We believe our ongoing financial performance is a testament to the hard work of all our team members and our commitment to Legendary Food and Legendary Service."

    Acquisition of Franchise Restaurants

    Texas Roadhouse announced its intention to begin acquiring franchise restaurants. Subject to the approval of the Company's Board of Directors and the results of customary due diligence investigations, management expects to close its first round of acquisitions in the third quarter of 2005. The Company will provide more specific guidance once these acquisitions are completed.

    Outlook for 2005

    The Company reported that comparable restaurant sales for the first 8 weeks of the 13 week quarter ending March 29, 2005 increased approximately 8%. Based on this and other factors listed below, management currently estimates that it will achieve diluted earnings per share of $0.85 to $0.86 for 2005.

    -- Revenue of approximately $450 million, an increase of 23% as
    compared to 2004;

    -- New restaurant openings of 20 company and 6 franchise;

    -- Comparable restaurant sales growth of +2.0% to +3.0%;

    -- Restaurant operating costs as a percent of sales increase of
    25 to 50 basis points;

    -- Effective tax rate of 35.3%; and

    -- Weighted average diluted shares of approximately 36.5 million.

    Mr. Hart concluded, "We are very encouraged by our comparable restaurant sales performance year to date, particularly given the fact that we are lapping tough comparisons. As we enter the remainder of fiscal 2005, we are excited about pursuing our first round of franchise acquisitions and positioning the Company for solid long-term growth. Our entire team remains committed to excellence and we look forward to updating our shareholders throughout the year."

    The Company is hosting a conference call today, Monday, February 28, 2005 at 5:00 p.m. Eastern Time to discuss these results. The dial-in number is (800) 573-4842 and the pass code is 85966175. A replay of the call will be available until March 7, 2005. To access the replay, please dial (888) 286-8010, and use 38412560 as the pass code.

    There will be a simultaneous web cast conducted at the Company's web site at www.texasroadhouse.com.

    About the Company

    Texas Roadhouse is a casual dining concept that first opened in 1993 and today operates 196 restaurants in 36 states. For more information, please visit the Company's website at www.texasroadhouse.com.

    Forward-looking Statements

    Certain statements in this release that are not historical facts, including, without limitation, those relating to our anticipated financial performance for the full year 2005 are forward-looking statements that involve risks and uncertainties. Such statements are based upon the current beliefs and expectations of the management of the Company. Actual results may vary materially from those contained in forward-looking statements based on a number of factors including, without limitation, the actual number of locations opening during full year 2005, the sales at these and our other company-owned and franchised locations, our ability to control other restaurant operating costs and other factors disclosed from time to time in the Company's filings with the U.S. Securities and Exchange Commission. Investors should take such risks into account when making investment decisions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update any forward-looking statements.

Texas Roadhouse, Inc Consolidated Statements of Income (in thousands, except per share data)

13 Weeks Ended 52 Weeks Ended ----------------- ------------------- Dec. 28, Dec. 30, Dec. 28, Dec. 30, 2004 2003 2004 2003 -------- -------- --------- --------- Revenue: Restaurant sales $94,538 $73,543 $354,190 $279,519 Franchise royalties and fees 2,409 1,848 8,821 6,934 -------- -------- --------- ---------

Total revenue 96,947 75,391 363,011 286,453 -------- -------- --------- ---------

Costs and expenses: Restaurant operating costs: Cost of sales 33,258 24,507 123,531 91,904 Labor 25,818 20,248 97,196 78,070 Rent 3,142 1,709 8,261 6,005 Other operating 15,864 12,595 58,044 47,382 Pre-opening 1,677 667 5,237 2,571 Depreciation and amortization 3,313 2,243 11,005 8,562 General and administrative 5,728 4,691 21,055 17,701 -------- -------- --------- ---------

Total costs and expenses 88,800 66,660 324,329 252,195 -------- -------- --------- ---------

Income from operations 8,147 8,731 38,682 34,258 Interest expense, net 1,494 914 4,654 4,350 Minority interest (305) 1,621 5,278 6,704 Equity income (loss) from investments in unconsolidated affiliates 18 (39) 110 (61) -------- -------- --------- ---------

Income before taxes $ 6,976 $ 6,157 $ 28,860 $ 23,143 Provision for income taxes 7,159 - 7,159 - -------- -------- --------- --------- Net (loss) income (183) 6,157 21,701 23,143 ======== ======== ========= =========

Pro forma data: Historical income before taxes $ (183) $ 6,157 $ 21,701 $ 23,143 Pro forma provision for income taxes 149 2,230 7,869 $ 8,379 -------- -------- --------- ---------

Net income adjusted for pro forma provision for income taxes $ (332) $ 3,927 $ 13,832 $ 14,764 -------- -------- --------- ---------

Net income adjusted for pro forma provision for income taxes per common share: Basic $ (0.01) $ 0.17 $ 0.41 $ 0.63 -------- -------- --------- ---------

Diluted $ (0.01) $ 0.16 $ 0.39 $ 0.60 -------- -------- --------- ---------

Pro forma weighted average shares outstanding: Basic 33,508 23,614 33,463 23,440 -------- -------- --------- ---------

Diluted 36,171 24,930 35,775 24,772 -------- -------- --------- ---------

TEXAS ROADHOUSE, INC. RECONCILIATION OF REPORTED TO PRO FORMA REVENUE

Q4 Full Year ---------------- ----------------- ($ in thousands) 2004 2003 2004 2003 -------- ------- -------- --------

Reported restaurant sales $94,538 73,543 354,190 279,519 Reported franchise royalties and fees 2,409 1,848 8,821 6,934 -------- ------- -------- -------- Reported revenue 96,947 75,391 363,011 286,453

Pro Forma adjustments: Acquisition of one franchise restaurant (1) 101 888 3,042 3,580 Elimination of royalties (3) (26) (91) (107)

-------- ------- -------- -------- Pro forma revenue $97,045 76,253 365,962 289,926 ======== ======= ======== ========

(1) Represents the acquisition of the Longview, Texas restaurant on Oct. 8, 2004, which was a franchise restaurant that was acquired as part of our initial public offering and associated corporate reorganization.

TEXAS ROADHOUSE, INC. RECONCILIATION OF REPORTED TO PRO FORMA NET INCOME

Q4 Full Year ----------------- ----------------- ($ in thousands) 2004 2003 2004 2003 -------- -------- -------- --------

Reported net income (loss) $ (183) 6,157 21,701 23,143

After-tax pro forma adjustments: Elimination of acquired minority interest (1) 86 1,027 3,498 4,265 Acquisition of one franchise restaurant (2) 6 64 227 280 Interest expense (3) (124) 202 1,071 1,582 Pro forma income taxes (4) (149) (2,230) (7,868) (8,379) -------- -------- -------- -------- Pro forma net income (loss) $ (364) 5,220 18,629 20,891 ======== ======== ======== ========

Weighted average shares outstanding (000's) Basic 33,508 33,285 33,463 33,110 Diluted 36,171 35,586 35,775 35,443

Pro forma EPS Basic $ (0.01) $ 0.16 $ 0.56 $ 0.63 Diluted $ (0.01) $ 0.15 $ 0.52 $ 0.59

(1) Represents the acquisition of minority interests held in 22 majority-owned restaurants, 9 license/franchise restaurants, and Texas Roadhouse Development Corporation, all of which were acquired as part of our initial public offering and associated corporate reorganization.

(2) Represents the acquisition of the Longview, Texas restaurant which was a franchise restaurant that was acquired as part of our initial public offering and associated corporate reorganization.

(3) Represents the effect on interest expense from the application of proceeds from our initial public offering against the outstanding borrowings on our credit facility.

(4) Represents estimated income taxes had the company been subject to federal and state income taxes prior to its initial public offering and corporate reorganization. Texas Roadhouse, Inc. operated as an LLC prior to its initial public offering and corporate reorganization and was not subject to federal and state income taxes.

Texas Roadhouse, Inc. Supplemental Financial and Operating Information ($ amounts in thousands)

Fourth Quarter Year to Date 2004 2003 Change 2004 2003 Change ---- ---- ------ ---- ---- ------

Restaurant openings Company 7 2 5 19 10 9 Franchise 4 4 0 12 10 2 Total 11 6 5 31 20 11

Restaurant acquisitions (1) Company 1 0 1 1 0 1 Franchise (1) 0 (1) (1) 0 (1) Total 0 0 0 0 0 0

Restaurants open at the end of the quarter Company 107 87 20 Franchise 86 75 11 Total 193 162 31

Company-owned restaurants

Restaurant sales 94,538 73,543 28.5% 354,190 279,519 26.7% Restaurant operating weeks 1,338 1,114 20.1% 4,920 4,232 16.3% Comparable restaurant sales growth (2) 6.5% 5.1% 7.6% 3.1% Average unit volumes (3) 908 848 7.1% 3,679 3,413 7.8%

Restaurant costs (as a % of restaurant sales)

Cost of sales 35.2% 33.3% 186 bps 34.9% 32.9% 200 bps Labor 27.3% 27.5% (22)bps 27.4% 27.9% (49)bps Rent (4) 3.3% 2.3% 100 bps 2.3% 2.1% 18 bps Other operating 16.8% 17.1% (35)bps 16.4% 17.0% (56)bps Total 82.6% 80.3% 229 bps 81.0% 79.9% 113 bps

Franchise-owned restaurants

Franchise royalties and fees 2,409 1,848 30.4% 8,821 6,934 27.2% Restaurant operating weeks 1,081 934 15.7% 4,076 3,547 14.9% Comparable restaurant sales growth (2) 6.5% 4.5% 7.0% 2.7% Average unit volumes (3) 864 781 10.6% 3,679 3,351 9.8%

Pre-opening expense 1,677 667 151.4% 5,237 2,571 103.7%

General & administrative expenses 5,728 4,691 22.1% 21,055 17,701 18.9% As a % of total revenue 5.9% 6.2% (31)bps 5.8% 6.2% (38)bps

(1) Represents the acquisition of the Longview, Texas restaurant on Oct. 8, 2004, which was a franchise restaurant that was acquired as part of our initial public offering and associated corporate reorganization.

(2) Comparable restaurant sales includes sales from restaurants open 18 months as of the beginning of the measurement period.

(3) Average unit volumes includes sales from restaurants open 6 months as of the beginning of the measurement period.

(4) Rent expense as a percentage of sales includes a $1.2MM fourth quarter, 2004 adjustment for a change in lease accounting.

--30--NR/ny*

CONTACT: Texas Roadhouse, Inc. Investor Relations: Scott Colosi, 502-515-7300 or Media: Juli Hart, 502-515-7235

KEYWORD: KENTUCKY INDUSTRY KEYWORD: RESTAURANTS FOODS/BEVERAGES RETAIL EARNINGS CONFERENCE CALLS SOURCE: Texas Roadhouse, Inc.

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