Texas Roadhouse Franchise Cost & Profits (2023)
Written by: Patrick Findaro
Last Updated by Rocio Torres: January 24, 2023Free Download Our Exclusive E2 Visa Business Guide
Download NowThis article is based on its most recent FDD.
Texas Roadhouseis a family steak restaurant of Southwestern cuisine with locations all across America. There are 69 Texas Roadhouse franchises and 507 company-owned locations. Texas Roadhouse goes by the slogan Legendary Food, Legendary Service» which is a testament to 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.
Contents
Listen to this article
History of Texas Roadhouse Franchise
Texas Roadhouse franchise originated in Clarksville, Indiana in 1993. Kent Taylor opened the restaurant with the mission of catering to all ages with a welcoming environment and for great food. This franchise grew rapidly and became international. Their 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 franchise 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.
Also, 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.
Their 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, in addition to making 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.
Texas Roadhouse Franchise Cost
| Franchise Fee | $40,000 |
| Leasehold / Building Improvements | Renovation: $605,000 to $1,500,000. New Build-out $1,500,000 to $3,000,000 |
| Architectural / Engineering / Site Evaluation | $95,000 – $200,000 |
| Builders Risk and OCP Insurance | $5,000 – $12,000 |
| Performance Bonds | Renovation: $12,000 – $25,000 New Buildout: $14,000 – $38,000 |
| Furniture, Decor, and Fixtures | $180,000 – $220,000 |
| Equipment | Renovation: $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 |
| Total | Renovation: $2,093,500 to $4,685,500 New Build-out: $2,790,500 to $4,963,500 |
So, the Texas Roadhouse franchise cost can range from 2 million to almost 5 million dollars. You know by now, there are large ranges when it comes to the costs of owning a franchise. See, 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 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 by opening up a restaurant. Here, 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.
Texas Roadhouse Franchise Fees
Royalty Fee
The royalty fee for a Texas Roadhouse franchise is 4.0%.
Marketing and Promotional Texas Roadhouse Franchise 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. But the local marketing fee is 2% of gross sales every month on this. Also, there is 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.
How Much Does a Texas Roadhouse Franchise Owner Make?
Texas Roadhouse does not provide financial information on the performances of their existing franchise. 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
System-wide Outlet Summary for years ended— December 25, 2018, December 31, 2019 and December 29, 2020
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2018 | 70 | 69 | -1 |
| 2019 | 69 | 69 | 0 | |
| 2020 | 69 | 69 | 0-1 | |
| Company-Owned | 2018 | 440 | 464 | 24 |
| 2019 | 464 | 484 | 20 | |
| 2020 | 484 | 507 | +23 | |
| Total Outlets | 2018 | 510 | 533 | 23 |
| 2019 | 553 | 533 | 20 | |
| 2020 | 553 | 575 | +22 |
More company-owned units than franchised units
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. Many major restaurant chains, like Starbucks, Panda Express and Chipotle have the majority of units corporate-owned. It is important to understand how the franchisor divides time between the corporate-owned locations vs. franchisee-owned locations.
Financial Statements
Annual Earnings: Income Statement
| (thousands of dollars) | December 29, 2020 | December 91, 2019 | December 25, 2018 |
|---|---|---|---|
Revenue | |||
| Restaurant and other sales | $ 2,380,177 | $ 2,734,177 | $ 2,437,115 |
| Franchise royalties and fees | $ 17,946 | $ 21,986 | $ 20,334 |
| Total Revenues | $ 2,398,123 | $ 2,756,163 | $ 2,457,499 |
| Costs and Expenses | |||
Restaurant operating costs (excluding depreciation and amortization) | |||
| Food and Beverage | $ 780,646 | $ 883,357 | $ 795,300 |
| Labor | $ 875,764 | $ 905,614 | $ 793,384 |
| Rent | $ 54,401 | $ 52,531 | $ 48,791 |
| Other operating | $ 403,726 | $ 418,448 | $ 375,447 |
| Pre-opening | $ 20,099 | $ 20,156 | $ 19,051 |
| Depreciation and Amortization | $ 117,877 | $ 115,544 | $ 101,216 |
| Impairment and Closure, net | $ 2,263 | $ (899) | $ 278 |
| General and administrative | $ 119,503 | $ 149,389 | $ 136,163 |
| Total Costs and Expenses | $ 2,374,279 | $ 2,544,140 | $ 2,269,660 |
| Income from Operations | $ 23,844 | $ 212,023 | $ 187,789 |
| Interest Income (Expense), net | $ 4,091 | $ 1,514 | $ (591) |
Equity income from investments in unconsolidated affiliates | $ (500) | $ 378 | $ 1,353 |
| Income before taxes | $ 19,253 | $213,915 | $ 188,551 |
| Provision for income taxes | — | $ 32,397 | $ 24,257 |
Net income including noncontrolling interests | $ 34,925 | $ 181,518 | $ 164,294 |
| Less: Net income attributable to noncontrolling interests | $ 3,670 | $ 7,066 | $ 6,069 |
| Net income attributable to Texas Roadhouse Inc, | $ 31,255 | $ 174,452 | $ 158,255 |
Other comprehensive income (loss), net of tax | |||
| Basic | (—) | $ 50,751,185 | $ 43,421,715 |
| Diluted | (—) | $ 50,751,185 | $ 43,421,715 |
Foreign currency translation adjustment | 119 | 3 | (189) |
| Total comprehensive income | $ 31,374 | $ 174,455 | $ 158,036 |
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries | |||
| Basic | $0.45 | $2.47 | $2.21 |
| Diluted | $0.45 | $2.46 | $2.20 |
| Weighted average shares outstanding | |||
| Basic | 69.438 | 70,509 | 71,467 |
| Diluted | 69.893 | 70,916 | 71,964 |
| Cash dividends declared per share | $ 0.36 | $ 1.20 | $ 1.00 |
Additional Notes
This income statement shows the annual revenue in 2020 was about $2.38 billion and the franchise fees/ royalties were almost $17 million, making the total revenue $2.40 billion. 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 2020 amounted to about $31 million.
Cashflow Statements
Annual Cash Flows Statement
| (thousands of dollars) | December 29, 2020 | December 31, 2019 | December 25, 2018 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Net income including noncontrolling interests | $ 34,925 | $ 181,518 | $ 164,294 |
| Adjustments to reconcile net income to net cash provided by operating activities | |||
| Depreciation and amortization | 117,877 | 115,544 | 101,216 |
| Deferred income taxes | $ (19,932) | 6,335 | 12,319 |
| Loss on disposition of assets | $ 3,144 | 5,885 | 6,008 |
| Impairment and closure costs | $ 2,290 | (1,283) | 105 |
| Contribution from executive officer | — | —- | 1,000 |
| Equity income from investments in unconsolidated affiliates | 500 | (378) | (1,353) |
| Distributions of income received from investments in unconsolidated affiliates | 329 | 1,837 | 656 |
| Provision for doubtful accounts | (1) | (22) | (9) |
| Share based compensation expense | 29,431 | 35,500 | 33,983 |
Changes in operating working capital |
|||
| Changes in other operating assets and liabilities | |||
| Receivables | 1,058 | (5,774) | (15,597) |
| Inventories | (2,017) | (1,414) | (2,495) |
| Prepaid expenses | (2,133) | (2,049) | (3,023) |
| Other assets | (12,698) | (12,823) | (4,290) |
| Accounts payable | 490 | 407 | 8,882 |
| Deferred revenue – gift cards | 23,458 | 16,991 | 35,519 |
| Accrued wages | 12,283 | 5,540 | 4,481 |
| Prepaid income taxes and income taxes payable | 372 | 5,554 | (8,581) |
| Accrued taxes and liabilities | (5,700) | 5,802 | 2,634 |
| Other accrued liabilities | 4,099 | (3,773) | 7,569 |
| Operating lease right of use assets and lease liabilities | 4,635 | 5,826 | —– |
| Deferred rent | — | —- | 5,938 |
| Other liabilities | 38,028 | 15,075 | 3,612 |
| Net cash provided by operating activities | 230,438 | 374,298 | 352,868 |
Cash flows from investing activities |
|||
| Capital expenditures – property and equipment | (154,401) | (214,340) | (155,980) |
| Acquisition of franchise restaurants, net of cash acquired | (10,580) | (1,536) | (2,165) |
| Proceeds from sale of property and equipment | 1,709 | 1,056 | —- |
| Net cash used in investing activities | (161,105) | (214,820) | (158,145) |
| Proceeds from sale-leaseback transactions | 2,167 | — | — |
| Net cash used for investing activities | (—) | (47,857) | (218,045) |
Cash flows from financing activities |
|||
| Debt issuance costs | (641) | —- | —– |
| Proceeds from noncontrolling interest contributions | 133 | —– | 2,551 |
| Distributions to noncontrolling interest holders | (3,432) | (6,357) | (5,746) |
| Acquisition of non controlling interest | — | (743) | (122) |
| Proceeds from restricted stock and other deposits, net | (823) | 62 | 418 |
| Indirect repurchase of shares for minimum tax witholdings | (11,684) | (12,471) | (14,067) |
| Principal payments on long-term debt | — | —- | (50,000) |
| Proceeds from exercise of stock options | (—) | —- | —– |
| Repurchase of shares of common stock | (12,621) | (139,849) | —- |
| Dividends paid to shareholders | (24,989) | (102,366) | (68,550) |
| Net cash used in financing activities | (185,943) | (261,724) | (135,516) |
| (decrease) Net increase in cash and cash equivalents | 255,276 | (102,246) | 59,207 |
| Cash and cash equivalents, beginning of period | 107,879 | $ 210,125 | $ 150,918 |
| Cash and cash equivalents, end of period | $ 363,155 | $ 107,879 | $ 210,125 |
Supplemental disclosures of cash flow information |
|||
| Interest paid, net of amounts capitalized | $ 3,890 | $ 738 | $ 896 |
| Income taxes paid | $ 3,776 | $ 20,440 | $ 20,519 |
| Capital expenditures included in current liabilities | $ 14,808 | $ 15,416 | $ 7,332 |
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. Many major restaurant chains, like Starbucks, Panda Express and Chipotle have the majority of units corporate owned.
It is important to understand how the franchisor divides time between the corporate owned locations vs. franchisee owned locations.
You see, 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.
Financial Statements
Annual Earnings: Income Statement
| (thousands of dollars) | December 29, 2020 | December 91, 2019 | December 25, 2018 |
|---|---|---|---|
Revenue |
|||
| Restaurant and other sales | $ 2,380,177 | $ 2,734,177 | $ 2,437,115 |
| Franchise royalties and fees | $ 17,946 | $ 21,986 | $ 20,334 |
| Total Revenues | $ 2,398,123 | $ 2,756,163 | $ 2,457,499 |
| Costs and Expenses | |||
Restaurant operating costs (excluding depreciation and amortization) |
|||
| Food and Beverage | $ 780,646 | $ 883,357 | $ 795,300 |
| Labor | $ 875,764 | $ 905,614 | $ 793,384 |
| Rent | $ 54,401 | $ 52,531 | $ 48,791 |
| Other operating | $ 403,726 | $ 418,448 | $ 375,447 |
| Pre-opening | $ 20,099 | $ 20,156 | $ 19,051 |
| Depreciation and Amortization | $ 117,877 | $ 115,544 | $ 101,216 |
| Impairment and Closure, net | $ 2,263 | $ (899) | $ 278 |
| General and administrative | $ 119,503 | $ 149,389 | $ 136,163 |
| Total Costs and Expenses | $ 2,374,279 | $ 2,544,140 | $ 2,269,660 |
| Income from Operations | $ 23,844 | $ 212,023 | $ 187,789 |
| Interest Income (Expense), net | $ 4,091 | $ 1,514 | $ (591) |
Equity income from investments in unconsolidated affiliates |
$ (500) | $ 378 | $ 1,353 |
| Income before taxes | $ 19,253 | $213,915 | $ 188,551 |
| Provision for income taxes | — | $ 32,397 | $ 24,257 |
Net income including noncontrolling interests |
$ 34,925 | $ 181,518 | $ 164,294 |
| Less: Net income attributable to noncontrolling interests | $ 3,670 | $ 7,066 | $ 6,069 |
| Net income attributable to Texas Roadhouse Inc, | $ 31,255 | $ 174,452 | $ 158,255 |
Other comprehensive income (loss), net of tax |
|||
| Basic | (—) | $ 50,751,185 | $ 43,421,715 |
| Diluted | (—) | $ 50,751,185 | $ 43,421,715 |
Foreign currency translation adjustment |
119 | 3 | (189) |
| Total comprehensive income | $ 31,374 | $ 174,455 | $ 158,036 |
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries |
|||
| Basic | $0.45 | $2.47 | $2.21 |
| Diluted | $0.45 | $2.46 | $2.20 |
| Weighted average shares outstanding | |||
| Basic | 69.438 | 70,509 | 71,467 |
| Diluted | 69.893 | 70,916 | 71,964 |
| Cash dividends declared per share | $ 0.36 | $ 1.20 | $ 1.00 |
Above is the cash flow statement of Texas Roadhouse. In the beginning of 2019, Texas Roadhouse had $ 34 million in net income. By the end of the year, Texas Roadhouse ended with $363 million in cash and cash equivalents. This is an increase of about $256 million in cash equivalents compared to the amount in the beginning of the year. And 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 its franchisees is also 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 in 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 Food And Beverage Industry.