uploads/2014/12/Revenue-vs-Same-Store-Sales-Growth-2014-12-2721.jpg

Analyzing Texas Roadhouse’s Profitability And 2 Key Expenses

By

Updated

Profitability analysis

In the last part of this series, we looked at Texas Roadhouse’s (TXRH) operating profits and margins over five years. Let’s look at how the net income or bottom line has performed over the same period.

Between operating income and net income, the company incurs two expenses that affect its profitability: income tax expense and interest expense. If the company is highly leveraged, meaning it has a lot of debt, it may incur huge interest costs. But this interest income helps lower taxes as well due to its tax-exempt status.

Article continues below advertisement

Interest and tax expense

In 2013, TXRH had an interest expense of $2.2 million and a total debt of $51.2 million on its balance sheet. The debt almost remained unchanged from $51.6 million in 2012, and interest expenses were $2.3 million during the same period.

The effective tax rate for TXRH in 2013 was 28.8%, which was lower compared to the 32.01% in 2012. Over the past ten years, the average effective tax rate for TXRH has been about 31%.

Tax rate lower for peers in 2013

The effective tax rate for The Cheesecake Factory (CAKE) in 2013 was 26.9%. Darden Restaurants (DRI), which operated LongHorn Steakhouse, had an effective tax rate of 13.3%, while Bloomin’ Brands (BLMN) had an effective tax rate of 17.8%.

While the tax rate significantly differs for different companies, it can positively or negatively impact the bottom line. You may consider the Consumer Discretionary Select Sector SPDR Fund (XLY) to mitigate this company-specific risk.

In the next part of this series, we’ll learn about a regulation that could affect the profitability of TXRH.

Advertisement

More From Market Realist