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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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For the quarterly period ended March 26, 2024

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OR

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For the transition period from           to

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Commission File Number 000-50972

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Texas Roadhouse, Inc.

(Exact name of registrant specified in its charter)

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6040 Dutchmans Lane

Louisville, Kentucky 40205

(Address of principal executive offices) (Zip Code)

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(502) 426-9984

(Registrant’s telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   ☒  No  ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   ☒  No  ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐  No  ☒

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The number of shares of common stock outstanding were 66,790,637 on April 24, 2024.

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TABLE OF CONTENTS

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PART I — FINANCIAL INFORMATION

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ITEM 1 — FINANCIAL STATEMENTS

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Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

See accompanying notes to condensed consolidated financial statements.

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Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

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See accompanying notes to condensed consolidated financial statements.

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Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share and per share data)

(unaudited)

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See accompanying notes to condensed consolidated financial statements.

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Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

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See accompanying notes to condensed consolidated financial statements.

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Texas Roadhouse, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(tabular amounts in thousands, except per share data)

(unaudited)

(1)  Basis of Presentation

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The accompanying unaudited condensed consolidated financial statements include the accounts of Texas Roadhouse, Inc., our wholly owned subsidiaries and subsidiaries in which we have a controlling interest (collectively, the "Company," "we," "our" and/or "us") as of March 26, 2024 and December 26, 2023 and for the 13 weeks ended March 26, 2024 and March 28, 2023.

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The Company maintains three restaurant concepts operating as Texas Roadhouse, Bubba’s 33, and Jaggers. As of March 26, 2024, we owned and operated 644 restaurants and franchised an additional 109 restaurants in 49 states and ten foreign countries. Of the 109 franchise restaurants, there were 59 domestic restaurants and 50 international restaurants. As of March 26, 2023, we owned and operated 611 restaurants and franchised an additional 93 restaurants in 49 states and ten foreign countries. Of the 93 franchise restaurants, there were 54 domestic restaurants and 39 international restaurants.

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As of March 26, 2024 and March 28, 2023, we owned a majority interest in 20 company restaurants. The operating results of these majority-owned restaurants are consolidated and the portion of income attributable to noncontrolling interests is reflected in the line item net income attributable to noncontrolling interests in our unaudited condensed consolidated statements of income.

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As of March 26, 2024 and March 28, 2023, we owned a 5.0% to 10.0% equity interest in 20 and 19 domestic franchise restaurants, respectively. These unconsolidated restaurants are accounted for using the equity method. Our investments in these unconsolidated affiliates are included in other assets in our unaudited condensed consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our unaudited condensed consolidated statements of income under equity income from investments in unconsolidated affiliates. All significant intercompany balances and transactions for these unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.

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We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reporting of revenue and expenses during the periods to prepare these unaudited condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). Significant items subject to such estimates and assumptions include the valuation of property and equipment, goodwill, lease liabilities and right-of-use assets, obligations related to insurance reserves, legal reserves, income taxes, and gift card breakage. Actual results could differ from those estimates.

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In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, except that certain information and footnotes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results for the 13 weeks ended March 26, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 26, 2023.

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Our significant interim accounting policies include the recognition of income taxes using an estimated annual effective tax rate.

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(2) Recent Accounting Pronouncements

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In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure. This ASU primarily provides enhanced disclosures about significant segment expenses including requiring segment disclosures to include a description of other segment items by reportable segment and any additional measures of a segment’s profit or loss used by the chief operating decision maker ("CODM") when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods as well as the title of the CODM and an explanation of how the CODM uses the reported measure of segment profit or loss in assessing performance and allocating resources. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are currently assessing the impact of this new standard on our segment reporting disclosures and expect to provide additional detail and disclosures under this new guidance.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU primarily provides enhanced disclosures about an entity’s income tax including requiring consistent categories and greater disaggregation of the information included in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendments in this update are effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. We are currently assessing the impact of this new standard on our income tax disclosures and expect to provide additional detail and disclosures under this new guidance.

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(3)   Long-term Debt

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We maintain a revolving credit facility (the "credit facility") with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A. and PNC Bank, N.A. The credit facility is an unsecured, revolving credit agreement and has a borrowing capacity of up to $300.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders. The credit facility has a maturity date of May 1, 2026.

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We are required to pay interest on outstanding borrowings at the Term Secured Overnight Financing Rate ("SOFR"), plus a fixed adjustment of 0.10% and a variable adjustment of 0.875% to 1.875% depending on our leverage ratio.

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As of March 26, 2024 and December 26, 2023, we had no outstanding borrowings under the credit facility and had $295.3 million of availability, net of $4.7 million of outstanding letters of credit.

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The interest rate for the credit facility as of March 26, 2024 and March 28, 2023 was 6.20% and 5.47%, respectively. ​

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The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants, including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio. The credit facility permits us to incur additional secured or unsecured indebtedness, except for the incurrence of secured indebtedness that in the aggregate is equal to or greater than $125.0 million and 20% of our consolidated tangible net worth. We were in compliance with all financial covenants as of March 26, 2024.

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(4) Revenue

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The following table disaggregates our revenue by major source:

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The following table presents a rollforward of deferred revenue-gift cards:

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We recognized restaurant sales of $137.9 million for the 13 weeks ended March 26, 2024 related to amounts in deferred revenue as of December 26, 2023. We recognized restaurant sales of $119.6 million for the 13 weeks ended March 28, 2023 related to amounts in deferred revenue as of December 27, 2022.

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(5) Income Taxes

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The effective tax rate was 13.9% for the 13 weeks ended March 26, 2024 and March 28, 2023. During the 13 weeks ended March 26, 2024, a decrease in the benefit of the FICA tip and work opportunity tax credits, which was driven by increased profitability, was offset by an increase in the excess tax benefits related to stock compensation.

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The estimated cost of completing capital project commitments at March 26, 2024 and December 26, 2023 was $236.5 million and $237.4 million, respectively.

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As of March 26, 2024 and December 26, 2023, we were contingently liable for $10.1 million and $10.4 million, respectively, for seven lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of March 26, 2024 and December 26, 2023, as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

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During the 13 weeks ended March 26, 2024 and March 28, 2023, we bought our beef primarily from four suppliers. Although there are a limited number of beef suppliers, we believe that other suppliers could provide a similar product on comparable terms. We have no material minimum purchase commitments with our vendors that extend beyond a year.

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Occasionally, we are a defendant in litigation arising in the ordinary course of business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns.  None of these types of litigation, most of which are covered by insurance at varying retention levels, has had a material adverse effect on us and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.

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(7)   Acquisitions

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On December 28, 2022, the first day of the 2023 fiscal year, we completed the acquisition of eight franchise Texas Roadhouse restaurants located in Maryland and Delaware, including four in which we previously held a 5.0% equity interest. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $39.1 million, net of cash acquired, for 100% of the entities. The transactions in which we held an equity interest were accounted for as step acquisitions, and we recorded a gain of $0.6 million on our previous investments in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income.

These transactions were accounted for using the acquisition method as defined in Accounting Standards Codification 805, Business Combinations. These acquisitions are consistent with our long-term strategy to increase net income and earnings per share.

The following table summarizes the consideration paid for these acquisitions and the estimated fair value of the assets acquired and the liabilities assumed at the acquisition date, which are adjusted for final measurement-period adjustments.

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Intangible assets represent reacquired franchise rights which are being amortized over a weighted-average useful life of 2.2 years. We expect all of the goodwill will be deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.

(8)   Related Party Transactions

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As of March 26, 2024 and March 28, 2023, we had four franchise restaurants and one majority-owned company restaurant owned in part by a current officer of the Company. We recognized revenue of $0.5 million for both of the 13 weeks ended March 26, 2024 and March 28, 2023, respectively, related to the four franchise restaurants.

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(9)   Earnings Per Share

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The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding.  The diluted earnings per share calculations show the effect of the weighted-average restricted stock units from our equity incentive plans. Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met.

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For all periods presented, the weighted-average shares of nonvested stock units that were outstanding but not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect were not significant.

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The following table sets forth the calculation of earnings per share and weighted-average shares outstanding as presented in the accompanying unaudited condensed consolidated statements of income:

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(10) Fair Value Measurements

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At March 26, 2024 and December 26, 2023, the fair values of cash and cash equivalents, accounts receivable, and accounts payable approximated their carrying values based on the short-term nature of these instruments. There were no transfers among levels within the fair value hierarchy during the 13 weeks ended March 26, 2024.

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The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:

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We report the accounts of the deferred compensation plan in other assets and the corresponding liability in other liabilities in our unaudited condensed consolidated balance sheets. These investments are considered trading securities and are reported at fair value based on quoted market prices. The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, are recorded in general and administrative expense in the unaudited condensed consolidated statements of income.

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(11) Stock Repurchase Program

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On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program under which we may repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases are determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions, and other corporate considerations, including complying with Rule 10b5-1 trading arrangements under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

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For the 13 weeks ended March 26, 2024, we paid $8.9 million to repurchase 60,262 shares of our common stock. For the 13 weeks ended March 28, 2023, we paid $9.6 million to repurchase 92,751 shares of our common stock. As of March 26, 2024, $107.9 million remained under our authorized stock repurchase program.

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(12) Segment Information

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We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba’s 33, Jaggers, and our retail initiatives as separate operating segments. Our reportable segments are Texas Roadhouse and Bubba’s 33. The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants.

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The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants. Our remaining operating segments, which include the results of our domestic company and franchise Jaggers restaurants and the results of our retail initiatives, are included in Other. In addition, corporate-related segment assets, depreciation and amortization, and capital expenditures are also included in Other.

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Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent, and other operating costs. Restaurant margin also includes sales and operating costs related to our non-royalty based retail initiatives. Restaurant margin is used by our CODM to evaluate restaurant-level operating efficiency and performance.

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In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry.

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Restaurant and other sales for all operating segments are derived primarily from food and beverage sales. We do not rely on any major customer as a source of sales and the customers and assets of our reportable segments are located predominantly in the United States. There are no material transactions between reportable segments.

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The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:

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A reconciliation of restaurant margin to income from operations is presented below. We do not allocate interest income, net and equity income from investments in unconsolidated affiliates to reportable segments.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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CAUTIONARY STATEMENT

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This report contains forward-looking statements based on our current expectations, estimates, and projections about our industry and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will", and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 26, 2023, and in Part II, Item 1A in this Form 10-Q, along with disclosures in our other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors that may affect our business, results of operations, or financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our Company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements, except as may be required by applicable law. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties, and other factors that may affect our business, results of operations, or financial condition.

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Our Company

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Texas Roadhouse, Inc. is a growing restaurant company operating predominantly in the casual dining segment. Our late founder, W. Kent Taylor, started the Company in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to three concepts with 753 restaurants in 49 states and ten foreign countries. As of March 26, 2024, our 753 restaurants included:

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We have contractual arrangements that grant us the right to acquire at pre-determined formulas the remaining equity interests in 18 of the 20 majority-owned company restaurants and 54 of the 59 domestic franchise restaurants.

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Throughout this report, we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise noted.

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Presentation of Financial and Operating Data

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Throughout this report, the 13 weeks ended March 26, 2024 and March 28, 2023, are referred to as Q1 2024 and Q1 2023, respectively. Fiscal year 2024 will be 53 weeks in length, while the fourth quarter will be 14 weeks in length. Fiscal year 2023 was 52 weeks in length, while the quarters were 13 weeks in length.

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Key Measures We Use to Evaluate Our Company

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Key measures we use to evaluate and assess our business include the following:

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In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section below.

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Other Key Definitions

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Q1 2024 Financial Highlights

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Total revenue increased $146.9 million or 12.5% to $1,321.2 million in Q1 2024 compared to $1,174.4 million in Q1 2023 primarily due to an increase in comparable restaurant sales and store weeks. Comparable restaurant sales and store weeks increased 8.4% and 4.9%, respectively, at company restaurants in Q1 2024 compared to Q1 2023. The increase in comparable restaurant sales was due to an increase in guest traffic along with an increase in our per person average check. The increase in store weeks was due to new store openings.

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Net income increased $26.8 million or 31.0% to $113.2 million in Q1 2024 compared to $86.4 million in Q1 2023 primarily due to higher restaurant margin dollars, as described below, partially offset by higher general and administrative, pre-opening, and depreciation and amortization expenses. Diluted earnings per share increased 31.4% to $1.69 in Q1 2024 from $1.28 in Q1 2023 primarily due to the increase in net income.

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Restaurant margin dollars increased $42.8 million or 23.0% to $228.4 million in Q1 2024 compared to $185.7 million in Q1 2023 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, increased to 17.4% in Q1 2024 compared to 15.9% in Q1 2023.  The increase in restaurant margin, as a percentage of restaurant and other sales, was driven by higher sales partially offset by higher general liability insurance expense. The benefit of a higher average guest check and labor productivity more than offset wage and other labor inflation of 4.3% and commodity inflation of 0.9%.

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In addition, we incurred $77.7 million of capital expenditures, paid dividends of $40.8 million, and repurchased $8.9 million of common stock.

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Results of Operations

(in thousands)

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NM — Not meaningful

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See above for the definition of restaurant margin.

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Restaurant Unit Activity

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Q1 2024 compared to Q1 2023

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Restaurant and Other Sales 

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Restaurant and other sales increased 12.6% in Q1 2024 compared to Q1 2023. The following table summarizes certain key drivers and/or attributes of restaurant sales at company restaurants for the periods presented. Company restaurant count activity is shown in the restaurant unit activity table above.

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The increase in restaurant sales for Q1 2024 was primarily attributable to an increase in store weeks and an increase in comparable restaurant sales. The increase in store weeks was driven by the opening of new restaurants. The increase in comparable restaurant sales was driven by an increase in guest traffic counts along with an increase in our per person average check as shown in the table below.

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The increase in Q1 2024 guest traffic counts includes an increase in dine-in and to-go traffic. To-go sales as a percentage of restaurant sales were 13.1% for Q1 2024 compared to 12.8% for Q1 2023.

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Per person average check includes the benefit of menu price increases of approximately 2.2% and 2.7% implemented in Q2 2023 and Q4 2023, respectively. We implemented a menu price increase of 2.2% in early Q2 2024.

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In Q1 2024, we opened nine Texas Roadhouse company restaurants. In 2024, we expect store week growth of approximately 8% across all concepts, including a benefit of 2% from the 53rd week.

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Other sales include the net impact of the amortization of third party gift card fees and gift card breakage income, sales related to our non-royalty based retail products, and content revenue related to our tabletop kiosk devices. The net impact of these amounts was a reduction to other sales of $6.1 million in Q1 2024 and $5.1 million in Q1 2023.

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Franchise Royalties and Fees

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Franchise royalties and fees increased by $0.3 million or 4.3% in Q1 2024 compared to Q1 2023. The increase was due to comparable restaurant sales growth and new store openings partially offset by a reclassification of $0.6 million related to certain items that were previously reported in general and administrative expense in our unaudited condensed consolidated statements of income.

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In Q1 2024, our existing franchise partners opened two international Texas Roadhouse restaurants and one Jaggers domestic franchise restaurant.

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Food and Beverage Costs  

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Food and beverage costs, as a percentage of restaurant and other sales, decreased to 33.9% in Q1 2024 compared to 35.2% in Q1 2023. The decrease in Q1 2024 was primarily driven by the benefit of a higher average guest check partially offset by commodity inflation of 0.9% primarily due to higher beef costs.

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In total for 2024, we expect commodity inflation of approximately 3% for the year with prices locked for approximately 60% of our remaining forecasted costs and the remainder subject to floating market prices.

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Restaurant Labor Expenses

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Restaurant labor expenses, as a percentage of restaurant and other sales, decreased to 32.5% in Q1 2024 compared to 33.0% in Q1 2023. The decrease was primarily driven by the benefit of a higher average guest check and labor productivity partially offset by wage and other labor inflation of 4.3% in Q1 2024. Wage and other labor inflation was driven by higher wage and benefit expense due to labor market pressures along with increases in state-mandated minimum and tipped wage rates and increased investment in our people.

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In 2024, we anticipate our labor costs will continue to be pressured by wage and other labor inflation of 4% to 5%.

Restaurant Rent Expense

Restaurant rent expense, as a percentage of restaurant and other sales, was 1.5% in Q1 2024 and Q1 2023. In Q1 2024, increase in average unit volume was offset by higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants.

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Restaurant Other Operating Expenses

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Restaurant other operating expenses, as a percentage of restaurant and other sales, increased to 14.7% in Q1 2024 compared to 14.3% in Q1 2023. The increase was driven by an increase in general liability insurance expense of $4.4 million, as compared to the prior year period, and higher incentive compensation expense partially offset by an increase in average unit volume and lower supplies expense. The increase in general liability insurance expense was due to unfavorable claims experience and an increase in retention levels.

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Pre-opening Expenses  

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Pre-opening expenses were $8.1 million in Q1 2024 compared to $5.4 million in Q1 2023 driven by an increase in the number and timing of new store openings. Pre-opening costs will fluctuate from quarter to quarter based on specific pre-opening costs incurred for each restaurant, the number and timing of restaurant openings, and the number and timing of restaurant managers hired.

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Depreciation and Amortization Expense 

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Depreciation and amortization expense, as a percentage of total revenue, was 3.1% in Q1 2024 and Q1 2023. In Q1 2024, the increase in average unit volume was offset by higher depreciation at our newer restaurants.

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Impairment and Closure Costs, Net

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Impairment and closure costs, net was $0.2 million in Q1 2024 and was not significant in Q1 2023. In Q1 2024, impairment and closure costs, net included closure costs related to a planned restaurant relocation.

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General and Administrative Expenses

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General and administrative expenses, as a percentage of total revenue, decreased to 4.0% in Q1 2024 compared to 4.2% in Q1 2023. The decrease was driven by an increase in average unit volume and a separation payout of $2.6 million in Q1 2023 related to the retirement of an executive officer partially offset by an increase in incentive compensation expense.

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Interest Income, Net

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Interest income, net was $1.4 million and $1.2 million in Q1 2024 and Q1 2023, respectively. The increase was driven by increased earnings on our cash and cash equivalents and decreased borrowings on our revolving credit facility.

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Equity Income from Investments in Unconsolidated Affiliates 

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Equity income was $0.3 million in Q1 2024 compared to $0.8 million in Q1 2023. The decrease in Q1 2024 was primarily driven by a $0.6 million gain on the acquisition of four of these affiliates in Q1 2023.

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Income Tax Expense

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Our effective tax rate was 13.9% in Q1 2024 and Q1 2023. In Q1 2024, a decrease in the benefit of the FICA tip and work opportunity tax credits, which was driven by increased profitability, was offset by an increase in the excess tax benefits related to stock compensation. For 2024, we expect an effective tax rate of approximately 14% based on forecasted operating results.

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Segment Information

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We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba's 33, Jaggers, and our retail initiatives as separate operating segments. Our reportable segments are Texas Roadhouse and Bubba's 33. The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants. The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants. Our remaining operating segments, which include the results of our domestic company and franchise Jaggers restaurants and the results of our retail initiatives, are included in Other. In addition, corporate-related segment assets, depreciation and amortization, and capital expenditures are also included in Other.

Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent, and other operating costs. Restaurant margin also includes sales and operating costs related to our non-royalty based retail initiatives that is included in Other. Restaurant margin is used by our CODM to evaluate restaurant-level operating efficiency and performance. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section above.

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The following table presents a summary of restaurant margin by segment (in thousands):

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