Texas Roadhouse

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Company overview

Texas Roadhouse operates three concepts: Texas Roadhouse (a moderately priced, full-service steakhouse with hand-cut steaks and made-from-scratch sides), Bubba's 33 (a sports-bar concept) and Jaggers (fast casual). At 30 December 2025 the company owned and operated 714 restaurants (648 Texas Roadhouse, 56 Bubba's 33, 10 Jaggers) and franchised a further 102, 61 of them outside the US. It is overwhelmingly company-operated: restaurant and other sales were $5,847M of FY25 revenue of $5,878M. Since 2022 it has bought back domestic franchise restaurants (20 in FY25, 5 in 1H26), turning royalty income into restaurant sales and restaurant-level costs.

The stock closed at a 52-week high of $216.30 in August 2026 and fell to $153.83 within weeks before settling at $161.50 on 9 October. Three things happened at once. Casual-dining stocks sold off on 15 September 2026 after Placer.ai reported US dining foot traffic down 2.4% year on year in August. A false social-media post alleging discrimination at the chain circulated for several weeks; the company called it a "baseless rumor", and at least two brokers upgraded the shares in the week of 5 October. And restaurant margin fell 66 bp year on year in 2Q26 to 16.4% on 7.0% commodity (beef-led) inflation, while the Federal Reserve raised its target range to 3.75–4.00% on 16 September 2026 and the 10-year Treasury yield closed at 5.24% on 9 October.

Underneath the noise the operating record is strong: comparable restaurant sales rose 6.7% in 1H26 (6.2% in the first five weeks of 3Q26), average weekly sales hit a record $177,252 in 2Q26, and company-owned restaurants grew from 566 to 732 since the end of FY21. The balance sheet is essentially unlevered: $202M of cash and $50M drawn on a $450M revolver at 30 June 2026. Operating-lease liabilities were $974M at FY25 with a 17.5-year weighted remaining term (ASC 842).

You are an Associate in the Consumer & Restaurants group of an investment bank, initiating coverage ahead of a meeting with senior management. The Managing Director wants a view they can defend in front of the company and the bank's institutional clients: at $161.50, is TXRH stock cheap, fair or expensive, and why? Your memo is what gets graded here. The assignment also asks for an integrated FY26E–FY30E model in the student template, which you can attach as a supporting file. The case uses public information only and is a training exercise, not investment advice.

Your initiation memo should answer

01Recommendation and price target. Rating (Buy / Hold / Sell or Outperform / Neutral / Underperform), 12-month price target and expected total return, in the first three sentences.
02Investment thesis. Three numbered points, each tied to a number in your model.
03Business and unit economics. How TXRH makes money: store weeks × sales per store week, restaurant margin, new-unit returns. Explain why franchise buy-backs change the mix of revenue and margin.
04What the market is pricing in. Use your DCF to back out the exit multiple, perpetual growth rate or restaurant margin the current price implies, and say whether it is reasonable.
05Valuation. DCF (both terminal methods) and trading comparables, summarised in a football field. Reconcile the methods: explain why they differ.
06Risks and what would change your mind. Beef cost cycle, traffic after the September 2026 social-media episode, wage inflation, the rate environment. At least one quantified downside case.
07Catalysts and timeline. What you would watch at 3Q26 results and the FY27 outlook.

Financials ($M)

	FY22A	FY23A	FY24A	FY25A	LTM Jun-26
Weeks in fiscal year	52	52	53	52	52
Total revenue	4014.919	4631.672	5373.332	5878.075	6231.515
Restaurant and other sales	3988.791	4604.554	5341.853	5847.234	6202.520
Royalties and franchise fees	26.128	27.118	31.479	30.841	28.995
Food and beverage	1378.192	1593.852	1785.119	2049.687	2213.199
Labor	1319.959	1539.124	1764.740	1944.416	2048.012
Rent	66.834	72.766	80.560	92.321	96.776
Other operating	596.305	690.848	795.657	855.092	895.893
Restaurant margin (non-GAAP)	627.501	707.964	915.777	905.718	948.640
Restaurant margin, % of restaurant and other sales	15.7%	15.4%	17.1%	15.5%	15.3%
Pre-opening	21.883	29.234	28.090	27.502	30.354
Depreciation and amortization	137.237	153.202	178.157	206.640	222.280
General and administrative	172.712	198.382	223.264	227.328	241.843
Income from operations (EBIT)	320.197	353.989	516.519	474.740	482.795
EBITDA (EBIT + D&A), after rent	457.434	507.191	694.676	681.380	705.075
Net income attributable to TXRH	269.818	304.876	433.592	405.554	413.173
Diluted EPS ($)	3.97	4.54	6.47	6.10	6.25
Company restaurants, end of period (Jun-26 in LTM column)	597	635	666	714	732
Net cash provided by operating activities	511.725	564.984	753.629	730.067	803.314
Capital expenditures	(246.121)	(347.034)	(354.341)	(387.996)	(396.929)
Acquisitions of franchise restaurants	(33.069)	(39.153)	0.000	(113.528)	(91.428)
Cash and cash equivalents, period end	173.861	104.246	245.225	134.709	202.427
Revolver drawn, period end	50	0	0	0	50
Total operating lease liabilities, period end	703.364	770.887	854.472	974.023	1037.554

Term sheet

Mandate: Initiation of coverage on Texas Roadhouse (TXRH): rating, 12-month price target and expected total return
Company: Texas Roadhouse, Inc. (NasdaqGS: TXRH) · Louisville, Kentucky · fiscal year ends last Tuesday of December
Case date: Friday 9 October 2026 (market data as of the close). Latest filing: 10-Q for the 26 weeks to 30 June 2026.
Your role: Associate in the Consumer & Restaurants group of an investment bank, initiating coverage ahead of a meeting with the company's senior management
Share price: $161.50 at the close on 9 Oct 2026; 52-week high $216.30 (August 2026), low $153.83
Shares: 65,640,926 basic shares (10-Q 2Q26 cover, 29 Jul 2026); dilutive securities 0.224M (treasury method)
Net debt: Cash $202.4M; debt incl. finance leases $52.7M (revolver $50.0M drawn on a $450M facility); operating-lease liabilities of $1,037.6M are outside debt if EBITDA is after rent
Dividend: $0.75 quarterly (2026); $0.75 paid on 29 September 2026, deducted when you roll value forward to 9 October 2026
Assignment 1: memo: Written initiation memo to the Managing Director, no more than three pages plus up to two pages of exhibits, good enough to forward to a portfolio manager without edits
Assignment 2: model: Five-year (FY26E–FY30E) integrated model in the template: operating build, three statements that balance, debt schedule, DCF with both terminal methods, trading comparables, three sensitivity grids and a football field
Fiscal calendar: FY26 ends 29 December 2026 (52 weeks). FY30 ends 31 December 2030 and is a 53-week year; normalise the terminal year to 52 weeks before capitalising it
Tax: Use management's ~14% effective rate for FY26E; justify your rate for FY27E onwards and explain what drives it below the statutory rate
Leases: ASC 842: be explicit about whether EBITDA is before or after rent, and keep enterprise value and multiples on the same basis
Valuation date: Discount to the 30 June 2026 balance sheet date and roll the equity value forward to 9 October 2026; deduct the $0.75 dividend paid on 29 September 2026
Market inputs: Use the share price, share count, Treasury yield and peer data in the template (all dated and sourced). A different equity risk premium, beta or terminal assumption needs a dated source or a Judgment label with a rationale

Market data and valuation inputs (close of 9 Oct 2026 unless stated; from the student template's Inputs tab)

TXRH share price (close): $161.50
52-week high / low: $216.30 / $153.83
Basic shares outstanding (10-Q 2Q26 cover, 29 Jul 2026): 65,640,926
Dilutive securities (treasury method): 0.224M
Cash and cash equivalents (30 Jun 2026): $202.4M
Debt incl. finance leases (30 Jun 2026): $52.7M (revolver $50.0M drawn on a $450M facility, plus finance leases)
Non-controlling interests (30 Jun 2026, book value): $21.2M
Dividend paid between 30 Jun and 9 Oct 2026: $0.75 per share, paid 29 Sep 2026
Risk-free rate: 10-year US Treasury (CMT, 9 Oct 2026): 5.24% (20-year: 5.65%)
Equity risk premium: 4.20% (Damodaran implied ERP, 1 Oct 2026)
Pre-tax cost of debt: 5.00% (base rate 3.90% + 1.10% revolver margin)
Marginal tax rate (for unlevering beta): 25% (Judgment: 21% federal + ~4% state)
TXRH beta, 2-year weekly vs S&P 500: 0.511 raw / 0.672 Blume-adjusted
Fed funds target range: 3.75%–4.00% (FOMC, 16 Sep 2026)
Terminal growth rate and exit multiple: Your judgment: blank in the template; give a dated source or label it Judgment

Trading comparables: inputs ($M except per share; LTM = FY + YTD − prior-year YTD; equity value, EV and multiples are yours to build)

DRI · Darden Restaurants (LTM to 30 Aug 2026): Price $197.66; diluted shares 113.143M; debt incl. finance leases $4,376.1M; cash $220.5M; LTM revenue $13,366.5M; LTM EBITDA $2,133.1M; LTM net income $1,182.3M; LTM diluted EPS $10.23; beta 0.551 raw / 0.699 adjusted
EAT · Brinker International (LTM to 24 Jun 2026): Price $193.87; diluted shares 41.765M; debt incl. finance leases $444.8M; cash $110.0M; LTM revenue $5,807.4M; LTM EBITDA $836.5M; LTM net income $487.0M; LTM diluted EPS $10.87; beta 0.673 raw / 0.781 adjusted
CAKE · The Cheesecake Factory (LTM to 30 Jun 2026): Price $108.45; diluted shares 49.761M; debt incl. finance leases $562.9M; cash $195.2M; LTM revenue $3,877.2M; LTM EBITDA $317.3M; LTM net income $178.6M; LTM diluted EPS $3.69; beta 1.041 raw / 1.027 adjusted
BJRI · BJ's Restaurants (LTM to 30 Jun 2026): Price $59.87; diluted shares 21.274M; debt incl. finance leases $44.0M; cash $14.4M; LTM revenue $1,432.6M; LTM EBITDA $122.5M; LTM net income $40.9M; LTM diluted EPS $1.89; beta 1.162 raw / 1.109 adjusted
Screened out: Bloomin' Brands (BLMN) and Cracker Barrel (CBRL)

Unit economics and KPIs (company restaurants; FY22A / FY23A / FY24A (53 weeks) / FY25A unless stated)

Openings: 23 / 30 / 31 / 28 (6M26: 13)
Acquired from franchisees: 8 / 8 / 0 / 20 (6M26: 5)
Franchise restaurants, end of period: 100 / 106 / 118 / 102 (Jun-26: 100)
Store weeks: 30,284 / 32,050 / 34,464 / 36,178
Restaurant and other sales per store week ($000): 131.7 / 143.7 / 155.0 / 161.6
Average weekly sales, company restaurants: FY24 $155,285; FY25 $161,918; 6M25 $165,228; 6M26 $175,708
Comparable restaurant sales growth: 9.7% / 10.1% / 8.5% / 4.9% (26 weeks to Jun-26: 6.7%)
of which guest traffic: 1.9% / 5.4% / 4.4% / 2.8%
of which per-person average check: 7.8% / 4.7% / 4.1% / 2.1%
Capex: new company restaurants: $139.2M / $201.2M / $198.4M / $180.8M
Capex: refurbishment or expansion: $84.4M / $119.8M / $122.9M / $135.8M
Capex: relocation: $18.5M / $20.6M / $25.6M / $43.6M
Capex: Support Center: $4.0M / $5.4M / $7.4M / $27.8M
Average capital investment per new Texas Roadhouse (2026): about $8.9M, including a 10× rent factor for leased sites and pre-opening

2026 outlook (company guidance, 6 Aug 2026)

Comparable sales: Positive, including menu pricing
Store-week growth: 5–6%, including franchise acquisitions
Commodity inflation: ~5%
Wage and other labor inflation: 3–4%
Effective tax rate: ~14%
Total capital expenditures: ~$400M

Leases, tax and other items (10-K FY25 and 10-Q 2Q26)

Operating-lease liabilities: $974.0M at FY25 ($1,037.6M at 30 Jun 2026); weighted-average discount rate 6.70%; remaining term 17.5 years
Rent and real estate: FY25 rent $92.3M, about 1.6% of restaurant sales; 158 restaurants on owned sites, 556 on leased sites (487 ground leases)
Finance leases: about $2.7M (in debt)
FICA tip credit: reduced FY25 tax by $49.7M, 10.3 percentage points of pre-tax income
Gift-card deferred revenue: $448.7M at FY25; $305.9M at 30 Jun 2026 (seasonal)
Non-controlling interests: $21.2M on the balance sheet at 30 Jun 2026; $8.8M of FY25 net income
53-week years: FY24 had 53 weeks (the extra week added $114.7M of revenue, 2.1%); FY30 will have 53 weeks
Franchise acquisitions: 20 restaurants for $113.5M of cash in FY25; 5 for $71.8M in 1H26

01 Recommendation0 / 50–200

Your call (approve, approve with conditions, or decline), the size and type of loan, and the two or three reasons that decide it.

02 Business and key risks0 / 150–400

What the company does and why its cash flow holds up, then the two or three risks that drive the outcome, ranked, each with evidence from the packet.

03 Financial analysis0 / 150–400

Pro forma leverage, coverage and free cash flow with the inputs shown, the trend behind them, and what they mean for the lender.

04 Downside case0 / 120–350

One plausible stress anchored in the company's history or a named shock, carried through to leverage, coverage, liquidity and covenant headroom.

05 Structure, terms and covenants0 / 100–300

Whether the terms protect the lender against your downside, pricing against the risk, and the changes you would ask for.

06 Conditions and conclusion (optional)0 / 30–150

The conditions your approval depends on and what would change your mind.

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