Texas Roadhouse Franchise Cost & Profits (2023)

Written by: Patrick Findaro
Last Updated by Rocio Torres: January 24, 2023
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This 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

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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 ImprovementsRenovation: $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 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
texas-roadhouse

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. 

texas roadhouse

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 typeYearOutlets at the Start of the YearOutlets at the End of the YearNet Change
Franchised20187069-1
201969690
202069690-1
Company-Owned201844046424
201946448420
2020484507+23
Total Outlets201851053323
201955353320
2020553575+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, 2020December 91, 2019December 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
1193(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$2.20
Weighted average shares outstanding   
Basic69.43870,50971,467
Diluted69.89370,91671,964
Cash dividends declared per share$ 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
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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