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Texas Roadhouse Franchise: Costs, Profits, and More

Texas Roadhouse restaurant exterior

Introduction

Texas Roadhouse is a family steak restaurant of Southwestern cuisine with locations all across America. The restaurant has 360 locations in 47 states. This franchise goes by the slogan “Legendary Food, Legendary Service ” which is a testament on how they run their business. Have you ever thought about running your own Texas Roadhouse? After all, Texas Roadhouse is a franchise where you can own and operate your own restaurant. Owning a franchise is a lot of work and money so it is necessary to take critical consideration before making an investment. Below is all the information about owning Texas Roadhouse that all prospective franchisees should know beforehand.

History of Texas Roadhouse

Texas Roadhouse originated in Clarksville, Indiana in 1993. Kent Taylor opened the restaurant with the mission of catering to all ages for a welcoming environment and for great food. The franchise grew rapidly and became international. The first international restaurant opened in Dubai, and then expanded to China.

Jerry Morgan recently became CEO of Texas Roadhouse when Kent Taylor, the founder and CEO of Texas Roadhouse passed on March, 18, 2021. Jerry Morgan succeeded Kent Taylor and soon after was running the whole company.

Litigation History

Equal Employment Opportunity Commission vs Texas RoadHouse: Texas Roadhouse faced a lawsuit with the U.S. Equal Employment Opportunity Commission. There were alleged violations of age discrimination within Texas Roadhouse of applicants being denied to work there because they were over the age of 40. The Equal Employment Opportunity Commission wanted money for the applicants and costs as well as injunctive relief meaning to stop discriminating against older applicants and to rework their system. Texas Roadhouse denied the allegations and the trial began on January 9, 2017. The first trial couldn’t be read to a consensus and the second trial was planned to take place in May 2017. But before the second trial Texas Roadhouse agreed to a fund of 12 million dollars, and in addition to make the extra effort of hiring workers over the age of 40. This was under the Consent Decree which applied to all Texas Roadhouse restaurants and it expired recently on September 30, 2020. 

 

 
Logo of Texas Roadhouse

 

Additional Cost Breakdown

Additional Cost Breakdown

Architectural / Engineering / Site Evaluation$95,000 – $200,000
Builders Risk and OCP Insurance$5,000 – $12,000
Performance BondsRenovation: $12,000 – $25,000
New Buildout: $14,000 – $38,000
Furniture, Decor, and Fixtures $180,000 – $220,000
EquipmentRenovation: $250,000 – $650,000
Build-out: $800,000 – $950,000
Signs$39,000 – $90,000
Insurance$40,000 – $80,000
Initial Inventory$38,500 – $62,000
Supplies$20,000 – $35,000
Smallwares$37,000 – $55,000
Computer Hardware / Software; POS System/Network Cabling Fees$55,000 – $75,000
Marketing and Promotional Materials$1,000 – $5,000
Training Costs / Opening Assistance$90,00 – $110,000
Licenses, Permits, Incorporation$7,000 – $80,000
Liquor Licenses$2,000 – $500,000
Utility and Telephone Deposits$5,000 – $50,000
Other pre-opening costs not listed above$130,000 – $255,000
Additional Funds (3 months)$442,000 – $641,500
TotalRenovation: $2,093,500 to $4,685,500
New Build-out: $2,790,500 to $4,963,500

As seen on the chart, the cost of a franchise can range from 2 million to almost 5 million dollars. There are large ranges when it comes to the costs of owning a franchise. The architecture of the building could cost upwards from $95,000 to $200,000. Furthermore, equipment ranges from $250,000 to $915,000 depending on whether you would want to renovate or build the franchise from scratch. Although many don’t think about licensing, this can also be pricey. Licenses for selling liquor can range from $2,000 to $500,000, which is quite a significant gap. These are the most costly factors in building a Texas Roadhouse franchise but some of these costs can be determined by the investor, depending on whether they want to spend more money on building the franchise or save on some ends. 

 

Initial Training Fee

For your first restaurant the initial training of up to five managers and Operating Principle is free. However, for the second restaurant the initial fee is $3,500 per person and this includes training and the cost of materials.

 

Site Evaluation Fee

Texas Roadhouse provides one on-site evaluation where the restaurant chain will determine if the site needs additional evaluation. If so, it will cost $500 and as well as travel expenses for the evaluation.

 

Construction Inspection Fee

Texas Roadhouse will inspect the construction of the new restaurant and there is no additional charge for this. If there needs to be additional inspections it will cost $500 not including the travel expenses that need to be paid.

 

Open Crew Assistance

The franchise offers trained representatives to help you through opening up a restaurant. There are expenses for each representative such as traveling,lodging, meals, supplies and opening t-shirts. Coordinators get paid $14 per hour and trainers get paid $13 an hour in addition to overtime wages and per diem. As well you will need meat cutters which will cost a minimum of $13 per hour. 

 

Ongoing Costs and Fees

 

Royalty Fee

The royalty fee for a Texas Roadhouse franchise is 4.0%. 

 

Marketing and Promotional Costs

There is a marketing fund that the franchisee has to contribute to which is .3% of your gross sales and a maximum of 2.5% of your gross sales. The marketing fund is for national or regional marketing of Texas Roadhouse. The local marketing fee is 2% of gross sales every month on this. There is also a marketing fee which is .5% of gross sales. This is for marketing research as well as promotional and marketing materials. Both the marketing fund and marketing fee will not exceed more than 3%. Both of these are due on the 10th of the month after. 

 
Outside of Texas Roadhouse building

How Much Do Franchise Owners Make?

 

Texas Roadhouse does not provide financial information on the performances of their existing franchise. The information will be provided when the franchisor is seriously considering buying a unit and has evidence to prove this. According to their FDD, Texas Roadhouse does not make predictions on how a franchise will perform and instead provides actual records of that outlet. 

Number of Units Opened/Closed 

Number of Units Opened/Closed

YearFranchised UnitsCompany-owned unitsTotal Units
2017   
Start of the Year73413486
End of the Year70440510
Net change-3+27+24
2018   
Start of the Year70440510
End of the Year69464533
Net change-1+24+23
2019   
Start of the Year69484533
End of the Year69484553
Net change0+20+20

The number of units of Texas Roadhouse is overall a net positive, where most franchise outlets last until the end of the year and the number of total units generally increases. One interesting thing to take note of is that company owned outlets have been steadily increasing over the past three years, while the number of franchised units has either decreased or stayed the same. Furthermore, there are significantly more company-owned units than franchised units, an indicator that Texas Roadhouse pours more of their resources and money into their company-owned units than franchised units. This is a common practice among major brand name food and beverage franchises, because the more expansive a restaurant network, the more likely they are to try and retain control by focusing their energy into expanding more internally.

This is a good sign when considering buying a franchise where it’s important to have a high probability the restaurant will withstand at least a year in the industry. The net change is positive and there is a consistent increase of around 20 outlets forming each year. A majority of the Texas Roadhouse franchises didn’t go out of business and of the ones that did only 3 went out of business in 2017 and 1 in 2018. However, these numbers are out of 73 and 70 franchises, indicating a relatively high stability rate.

Texas Roadhouse Financial Statements

    Annual Earnings: Income Statement

(thousands of dollars)
December 31, 2019December 25, 2018December 26, 2017
Revenue   
Restaurant and other sales$ 2,734,177$ 2,437,115$ 2,203,017
Franchise royalties and fees$ 21,986$ 20,334$ 16,514
Total Revenues2,756,1632,457,4992,219,531
Costs and Expenses   
Restaurant operating costs (excluding depreciation and amortization)   
Cost of sales$ 883,357$ 795,300$ 721,550
Labor$ 905,614$ 793,384$ 687,485
Rent$ 52,531$ 48,791$ 44,807
Other operating$ 418,448$ 375,447$ 342,702
Pre-opening$ 20,156$ 19,051$ 19,274
Depreciation and Amortization$ 115,544$ 101,216$ 93,499
Impairment and Closure, net$ (899)$ 278$ 654
General and administrative$ 149,389$136,163$123,294
Total Costs and Expenses$ 2,544,140$ 2,269,660$ 2,033,325
Income from Operations$ 212,023$ 187,789$ 186,206
Interest Income (Expense), net$ 1,514$ (591)$ (1,577)
Equity income from investments in unconsolidated affiliates$ 378$ 1,353$ 1,488
Income before taxes$213,915$ 188,551$186,117
Provision for income taxes$ 32,397$ 24,257$ 48,581
Net income including noncontrolling interests$ 181,518$ 164,294$ 137,536
Less: Net income attributable to noncontrolling interests$ 7,066$ 6,069$ 6,010
Net income attributable to Texas Roadhouse Inc, $ 174,452$ 158,255$ 131,526
Other comprehensive income (loss), net of tax   
Basic$ 50,751,185$ 43,421,715$ 35,715,372
Diluted$ 50,751,185$ 43,421,715$ 45,319,971
Foreign currency translation adjustment3(189)155
Total comprehensive income$ 174,455$ 158,036$ 131,681
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries   
Basic$2.47$2.21$1.85
Diluted$2.46$2.20$1.84
Weighted average shares outstanding   
Basic70,50971,46770,989
Diluted70,91671,96471,527
Cash dividends declared per share$ 1.20$ 1.00$ 0.84

This income statement shows the annual revenue in 2019 was about $2.7 billion and the franchise’s royalties was almost $2.2 million, making the total revenue $2,756,163 billion. The operating expenses are also very high, which could possibly mean that the franchise has little profitability. In fact, looking at the net income attributable to Texas Roadhouse, their net income in 2019 amounted to about $174 million.

 Annual Cash Flows Statement

(thousands of dollars)
December 31, 2019December 25, 2018December 26, 2017
Cash flows from operating activities   
Net income including noncontrolling interests $ 181,518$ 164,294$ 137,536
Adjustments to reconcile net income to net cash provided by operating activities   
Depreciation and amortization115,544101,21693,499
Deferred income taxes6,33512,319(5,069)
Loss on disposition of assets 5,8856,0084,961
Impairment and closure costs(1,283)105600
Contribution from executive officer—-1,000—-
Equity income from investments in unconsolidated affiliates2,1701,6941,202
Distributions of income received from investments in unconsolidated affiliates 1,8376561,424
Provision for doubtful accounts(22)(9)10
Share based compensation expense35,50033,98326,934
Changes in operating working capital   
Changes in other operating assets and liabilities   
Receivables (5,774)(15,597)(20,379)
Inventories(1,414)(2,495)(48)
Prepaid expenses(2,049)(3,023)(1,211)
Other assets(12,823)(4,290)(7,401)
Accounts payable4078,8821,601
Deferred revenue – gift cards16,99135,51926,678
Accrued wages5,5404,4813,631
Prepaid income taxes and income taxes payable5,554(8,581)3,448
Accrued taxes and liabilities5,8022,6342,299
Other accrued liabilities (3,773)7,5695,148
Operating lease right of use assets and lease liabilities5,826—–——
Deferred rent—-5,9386,038
Other liabilities15,0753,6128,154
Net cash provided by operating activities 374,298352,868286,373
Cash flows from investing activities    
Capital expenditures – property and equipment (214,340)(155,980)(161,628)
Acquisition of franchise restaurants, net of cash acquired(1,536)(2,165)(16,528)
Proceeds from sale of property and equipment1,056—-—-
Net cash used in investing activities(214,820)(158,145)(178,156)
Proceeds from sale-leaseback transactions22,49948,3648,424
Net cash used for investing activities(47,857)(218,045)(106,894)
Cash flows from financing activities   
Debt issuance costs —-—–(476)
Proceeds from noncontrolling interest contributions—–2,5513,457
Distributions to noncontrolling interest holders(6,357)(5,746)(5,171)
Acquisition of non controlling interest(743)(122)—-
Proceeds from restricted stock and other deposits, net62418740
Indirect repurchase of shares for minimum tax witholdings (12,471)(14,067)(11,639)
Principal payments on long-term debt—-(50,000)(558)
Proceeds from exercise of stock options—-—–1,558
Repurchase of shares of common stock(139,849)—-2,692
Dividends paid to shareholders(102,366)(68,550)(58,154)
Net cash used in financing activities(261,724)(135,516)(70,243)
Net (decrease) increase in cash and cash equivalents(102,246)59,20737,974
Cash and cash equivalents, beginning of period$ 210,125$ 150,918$ 112,944
Cash and cash equivalents, end of period$ 107,879$ 210,125$ 150,918
Supplemental disclosures of cash flow information   
Interest paid, net of amounts capitalized $ 738$ 896$ 1,216
Income taxes paid$ 20,440$ 20,519$ 50,201
Capital expenditures included in current liabilities$ 15,416$ 7,332$ 12,156

Above is the cash flow statement of Texas Roadhouse. In the beginning of 2019, Texas Roadhouse had $ 181,518,000 in net income. By the end of the year, Texas Roadhouse ended with $107,879,000 in cash and cash equivalents. This is a decrease of about $100,000,000 in cash equivalents compared to the amount in the beginning of the year. This makes Texas Roadhouse a profitable business with a sizable amount of cash they hold every year. Most of their cash comes from operating activities, and most of their cash is lost in their investing and financing activities. 

 

 

 

Conclusion

Texas Roadhouse is not as profitable as one may think, although the likelihood of the franchise surviving is relatively high. The fact that Texas Roadhouse does not disclose the financial information of their franchisees is also highly unusual, especially for a large and expansive franchise system like Texas Roadhouse. Nevertheless, Texas Roadhouse still appears to be a profitable franchise, making billions of dollars in revenue and hundreds of millions of dollars in net profits. However, one factor to consider is that Texas Roadhouse has high upfront investment costs, with the minimum total investment cost being around $2 million. 

 

If you are serious about investing in a Texas Roadhouse franchise, looking through the financials more thoroughly and evaluating whether this is the right option for you is necessary. Franchises are a huge investment, but research is an important first step of buying a franchise. 

 

Think Texas Roadhouse is the right franchise for you, or interested in exploring other franchise opportunities? Make sure to check out Vetted Biz’s website for listings of other similar franchises in the restaurant industry. 

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