Annual Report for Fiscal Year Ending 12-30, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis below of the financial condition and results of operations for Texas Roadhouse, Inc. (the "Company," "we," "our," and/or "us") should be read in conjunction with the consolidated financial statements and the notes to such financial statements (pages F-1 to F-28), "Forward-looking Statements" (page 3), and Risk Factors set forth in Item 1A. Further, the discussion and analysis below generally discusses 2025 items and year-to-year comparisons between 2025 and 2024. Discussions of 2024 items and year-to-year comparisons between 2024 and 2023 are not included in this Annual Report on Form 10-K and can be found in "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 28, 2025.

Our Company

Texas Roadhouse, Inc. is a growing restaurant company operating predominantly in the casual dining segment. Our late founder, W. Kent Taylor, started the business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to three concepts with 816 restaurants in 49 states, one U.S. territory, and ten foreign countries. As of December 30, 2025, our 816 restaurants included:

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 36 of the 41 domestic franchise restaurants.

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

Presentation of Financial and Operating Data

We operate on a fiscal year that ends on the last Tuesday in December. Fiscal year 2025 was 52 weeks in length, and the fourth quarter was 13 weeks in length. Fiscal year 2024 was 53 weeks in length, and the fourth quarter was 14 weeks in length.

Long-term Strategies to Grow Earnings Per Share and Create Shareholder Value

Our long-term strategies with respect to increasing net income and earnings per share, along with creating shareholder value, include the following:

We have entered into area development and franchise agreements for the development and operation of Texas Roadhouse restaurants in numerous foreign countries and one U.S. territory. We have also entered into domestic and international area development agreements for Jaggers.

In 2025, we opened 28 company restaurants while our franchise partners opened four restaurants. The company restaurants included 20 Texas Roadhouse restaurants, seven Bubba's 33 restaurants, and one Jaggers restaurant. The franchise restaurants included three international Texas Roadhouse restaurants, including one restaurant in a U.S. territory, and one domestic Jaggers restaurant.

At our high volume restaurants, we continue to look for opportunities to increase our dining room capacity by adding on to our existing building and/or to increase our parking capacity by leasing or purchasing property that adjoins our site. We also continue to make a number of building modifications and/or expansions to existing restaurants in order to better accommodate increased dine-in and to-go sales. These modifications include room expansions which add additional guest seating and cooler expansions to accommodate higher inventory levels.

In recent years, we have relocated a number of existing Texas Roadhouse locations at or near the end of their associated lease or as a result of eminent domain which allowed us to move to a better site, update them to a current prototypical design, construct a larger building with more seats and greater number of available parking spaces, accommodate increased to-go sales, and/or obtain more favorable lease terms. We continue to evaluate these opportunities particularly as it relates to older locations with strong sales.

In 2008, the Board approved our first stock repurchase program. On February 19, 2025, our Board approved a stock repurchase program for the repurchase of up to $500 million of our common stock. This stock repurchase program has no expiration date and replaces the previous stock repurchase program of $300 million which was approved on March 17, 2022.

In 2025, we paid $150.0 million, excluding excise taxes, to repurchase 869,007 shares of our common stock. From inception through December 30, 2025, we have paid $913.3 million through our authorized stock repurchase programs to repurchase 22,827,137 shares of our common stock at an average price per share of $40.01.

Key Measures We Use To Evaluate Our Company

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

In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-opening and general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We exclude pre-opening expenses as they occur at irregular intervals and would impact comparability to prior period results. We exclude depreciation and amortization expenses, substantially all of which relate to restaurant-level assets, as they represent a non-cash charge for the investment in our restaurants. We exclude impairment and closure expenses 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.

Other Key Definitions

Restaurant and Other Sales. Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all company restaurants. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from restaurant sales in our consolidated statements of income. Other sales primarily include the net impact of the amortization of third-party gift card fees and gift card breakage income and content revenue related to our tabletop kiosk devices.

Royalties and Franchise Fees. Royalties consist of franchise royalites, as defined in our franchise agreement, paid to us by our domestic and international franchisees, as well as royalties related to our royalty-based retail products. Domestic and international franchisees also typically pay an initial franchise fee and/or development fee for each new restaurant or territory.

Food and Beverage Costs. Food and beverage costs consist of the costs of raw materials and ingredients used in the preparation of food and beverage products sold in our company restaurants. Approximately half of our food and beverage costs relate to beef.

Restaurant Labor Expenses. Restaurant labor expenses include all direct and indirect labor costs incurred in operations except for profit sharing incentive compensation expenses earned by our restaurant managing partners and market partners. These profit sharing expenses are reflected in restaurant other operating expenses. Restaurant labor expenses also include share-based compensation expense related to restaurant-level employees.

Restaurant Rent Expense. Restaurant rent expense includes all rent, except pre-opening rent, associated with the leasing of real estate and includes base, percentage, and straight-line rent expense.

Restaurant Other Operating Expenses. Restaurant other operating expenses consist of all other restaurant-level operating costs, the major components of which are supplies, utilities, profit sharing incentive compensation for our restaurant managing partners and market partners, credit card fees, general liability insurance, advertising, repairs and maintenance, property taxes, and outside services.

Pre-opening Expenses. Pre-opening expenses, which are charged to operations as incurred, consist of expenses incurred before the opening of a new or relocated restaurant and consist principally of opening and training team compensation and benefits, travel expenses, rent, food, beverage, and other initial supplies and expenses. The majority of pre-opening costs incurred relate to the hiring and training of employees due to the significant investment we make in training our people. Pre-opening costs vary by location depending on a number of factors, including the size and physical layout of each location; the number of management and hourly employees required to operate each restaurant; the availability of qualified restaurant staff members; the cost of travel and lodging for different geographic areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining final licenses and permits to open each restaurant.

Depreciation and Amortization Expenses. Depreciation and amortization expenses include the depreciation of fixed assets and amortization of intangibles with definite lives, substantially all of which relates to restaurant-level assets.

Impairment and Closure Costs, Net. Impairment and closure costs, net include any impairment of long-lived assets, including property and equipment, operating lease right-of-use assets, and goodwill, and expenses associated with the closure of a restaurant. Closure costs also include any gains or losses associated with a relocated restaurant or the sale of a closed restaurant and/or assets held for sale as well as lease costs associated with closed or relocated restaurants.

General and Administrative Expenses. General and administrative expenses comprise expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth. This includes salary, incentive-based, and share-based compensation expense related to executive officers and Support Center employees, salary and share-based compensation expense related to market partners, software hosting fees, professional fees, group insurance, and the realized and unrealized holding gains and losses related to the investments in our deferred compensation plan.

Interest Income, Net. Interest income, net includes earnings on cash and cash equivalents and is reduced by interest expense, net of capitalized interest, on our debt or financing obligations including the amortization of loan fees, as applicable.

Equity Income from Investments in Unconsolidated Affiliates. Equity income includes our percentage share of net income earned by unconsolidated affiliates and our share of any gain on the acquisition of these affiliates. We owned a 5.0% to 10.0% equity interest in 14 and 20 domestic franchise restaurants as of December 30, 2025 and December 31, 2024, respectively.

Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests represents the portion of income attributable to the other owners of the majority-owned restaurants. Our consolidated subsidiaries include 20 and 19 majority-owned restaurants as of December 30, 2025 and December 31, 2024, respectively.

2025 Financial Highlights

Total revenue increased $504.7 million or 9.4% to $5.9 billion in 2025 compared to $5.4 billion in 2024 primarily due to an increase in store weeks and comparable restaurant sales partially offset by lapping the benefit of the additional week which added $114.7 million in revenue in 2024. Store weeks and comparable restaurant sales increased 5.0% and 4.9%, respectively, at company restaurants in 2025 compared to 2024. The increase in store weeks was due to new store openings and the acquisition of franchise restaurants. The increase in comparable restaurant sales was due to an increase in guest traffic along with an increase in per person average check.

Net income decreased $28.0 million or 6.5% to $405.6 million in 2025 compared to $433.6 million in 2024 primarily due to lower restaurant margin dollars, as described below, and higher depreciation and amortization expenses partially offset by lower income tax expense. In addition, income tax expense decreased due to the decrease in profitability. Diluted earnings per share decreased 5.8% to $6.10 from $6.47 in 2024 due to the decrease in net income partially offset by the impact of share repurchases. Diluted earnings per share growth was negatively impacted by approximately 4% as a result of the additional week in 2024.

Restaurant margin dollars decreased $10.1 million or 1.1% to $905.7 million in 2025 compared to $915.8 million in 2024 primarily due to an increase in food and beverage costs and lapping the benefit of the additional week in the prior year partially offset by higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 15.5% in 2025 compared to 17.1% in 2024. The decrease in restaurant margin, as a percentage of restaurant and other sales, was primarily due to commodity inflation of 6.1% and wage and other labor inflation of 3.7% partially offset by higher sales.

In addition, capital allocation spend in 2025 included capital expenditures of $388.0 million, franchise acquisitions of $107.5 million, dividends of $180.3 million, and repurchases of common stock of $150.0 million.

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Results of Operations

(in thousands)

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NM - Not meaningful

Restaurant Unit Activity

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(1) Includes a U.S. territory.

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Restaurant and Other Sales

Restaurant and other sales increased 9.5% in 2025 compared to 2024. 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 2025 was primarily attributable to an increase in store weeks and an increase in comparable restaurant sales. The increase in store weeks was driven by new store openings and the acquisition of franchise restaurants. The increase in comparable restaurant sales was driven by an increase in guest traffic count along with an increase in our per person average check as shown in the table below.

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To-go sales as a percentage of restaurant sales were 13.6% in 2025 compared to 12.8% in 2024 and average weekly to-go sales were $21,973 in 2025 compared to $19,940 in 2024.

Per person average check for 2025 includes the benefit of menu price increases of approximately 1.4% and 1.7% implemented in Q2 2025 and Q4 2025, respectively. We implemented menu price increases of approximately 2.2% and

0.9% in Q2 2024 and Q4 2024, respectively. In addition, we plan to implement a menu price increase of approximately 1.9% in Q2 2026.

In 2025, we opened 28 company restaurants, which included 20 Texas Roadhouse restaurants, seven Bubba's 33 restaurants, and one Jaggers restaurant. In 2025, we had store week growth of approximately 5.0% across all concepts, including a benefit from franchise acquisitions in 2025, offset by lapping the impact of the additional week in 2024.

In 2026, we expect store week growth of 5% to 6% across all concepts, including the impact of franchise acquisitions.

Royalties and Franchise Fees

Royalties and franchise fees decreased $0.6 million or 2.0% in 2025 compared to 2024. The decrease in 2025 was due to decreased royalties related to the franchise stores that were acquired, partially offset by increased royalties related to our royalty-based retail products that rolled out in 2024.

Food and Beverage Costs

Food and beverage costs, as a percentage of restaurant and other sales, increased to 35.0% in 2025 compared to 33.4% in 2024. The increase was primarily driven by commodity inflation of 6.1% in 2025, due to higher beef costs, and shifts within the menu, partially offset by the benefit of a higher guest check.

In 2026, we expect commodity inflation of approximately 7% for the year with prices locked for approximately 45% of our forecasted costs and the remainder subject to floating market prices.

Restaurant Labor Expenses

Restaurant labor expenses, as a percentage of restaurant and other sales, increased to 33.3% in 2025 compared to 33.1% in 2024. The increase was primarily driven by wage and other labor inflation of 3.7% in 2025, partially offset by the benefit of a higher guest check and labor productivity. 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.

In 2026, we expect wage and other labor inflation of 3% to 4%.

Restaurant Rent Expense

Restaurant rent expense, as a percentage of restaurant and other sales, increased to 1.6% in 2025 compared to 1.5% in 2024. The increase was driven by higher rent expense at our recently acquired restaurants and newer restaurants, partially offset by the increase in average unit volume.

Restaurant Other Operating Expenses

Restaurant other operating expenses, as a percentage of restaurant and other sales, decreased to 14.6% in 2025 compared to 14.9% in 2024. The decrease was driven by lower incentive compensation expense, the increase in average unit volume, and lower general liability insurance expense of $2.7 million, partially offset by higher credit card fees and utilities expenses.

Restaurant Pre-opening Expenses

Pre-opening expenses were $27.5 million in 2025 compared to $28.1 million in 2024. Pre-opening costs will fluctuate from period to period based on the specific pre-opening costs incurred for each restaurant, the number and timing of restaurant openings, and the number and timing of restaurant managers hired.

Depreciation and Amortization Expenses

Depreciation and amortization expenses, as a percentage of revenue, increased to 3.5% in 2025 compared to 3.3% in 2024. The increase was driven by higher depreciation at our newer restaurants and intangible asset amortization expense related to the acquisition of franchise rights, partially offset by the increase in average unit volume.

Impairment and Closure Costs, Net

Impairment and closure costs, net were $0.3 million and $1.2 million in 2025 and 2024, respectively. In 2025, impairment and closure costs, net related to restaurant relocations. In 2024, impairment and closure costs, net included $0.8 million related to the impairment of a building at a previously relocated store and $0.4 million related to ongoing closure costs for stores which have been relocated.

General and Administrative Expenses

General and administrative expenses, as a percentage of total revenue, decreased to 3.9% in 2025 compared to 4.2% in 2024. The decrease was driven by the increase in average unit volume, lower incentive compensation expense, and lower restricted stock expense due to lapping the impact of the shift in the timing of our restricted stock grants from quarterly to annually.

Interest Income, Net

Interest income, net was $3.1 million in 2025 compared to $6.8 million in 2024. The decrease was driven by decreased earnings on our cash and cash equivalents.

Equity Income from Investments in Unconsolidated Affiliates

Equity income was $2.9 million in 2025 compared to $1.2 million in 2024. The increase in 2025 was driven by a $2.2 million gain on the acquisition of six of these affiliates partially offset by decreased earnings from fewer affiliates.

Income Tax Expense

Our effective tax rate decreased to 13.8% in 2025 compared to 15.3% in 2024. The decrease was driven by an increase in the impact of the FICA tip tax credit.

In 2026, we expect an effective tax rate of 14% to 15% based on forecasted operating results.

Segment Information

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

The chief operating decision maker ("CODM") 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 is used by our CODM to evaluate restaurant-level operating efficiency and performance, assist in the evaluation of operating trends over time, and in making capital allocation decisions. Capital allocation decisions include approving new store openings and the refurbishment, expansion, or relocation of existing restaurants. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section above.

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

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In our Texas Roadhouse reportable segment, restaurant margin dollars decreased $13.4 million or 1.5% in 2025. The decrease was primarily due to higher food and beverage costs driven by commodity inflation and lapping the benefit of the additional week in the prior year, partially offset by higher sales.

In our Bubba's 33 reportable segment, restaurant margin dollars increased $2.8 million or 6.0% in 2025. The increase was primarily due to higher sales partially offset by higher food and beverage costs driven by commodity inflation, an increase in general liability insurance expense, and lapping the benefit of the additional week in the prior year.

Liquidity and Capital Resources

The following table presents a summary of our net cash provided by (used in) operating, investing, and financing activities (in thousands):

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Net cash provided by operating activities was $730.1 million in 2025 compared to $753.6 million in 2024. The decrease was primarily due to a decrease in net income and an unfavorable change in working capital partially offset by an increase in depreciation and amortization expense.

Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital, if necessary. Sales are primarily for cash, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverages, and supplies, thereby reducing the need for incremental working capital to support growth.

Net cash used in investing activities was $482.8 million in 2025 compared to $336.9 million in 2024. The increase was primarily due to the acquisition of franchise stores in 2025 and an increase in capital expenditures. The increase in capital expenditures is due to an increase in restaurant relocations, restaurant refurbishments and expansions, and the purchase of our Support Center for approximately $22.8 million. These increases were partially offset by a decrease in the timing of new company restaurant spend.

We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants, and the acquisition of franchise restaurants, as applicable. We either lease our restaurant site locations under operating leases for periods generally of five to 30 years (including renewal periods) or purchase the land when appropriate. As of December 30, 2025, 158 of the 714 company restaurants have been developed on land which we own.

The following table presents a summary of capital expenditures (in thousands):

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Our future capital requirements will primarily depend on the number and mix of new restaurants we open, the timing of those openings, the restaurant prototype developed in a given fiscal year, and potential franchise acquisitions. These requirements will include costs directly related to opening, maintaining, or relocating restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant base.

We intend to satisfy our capital requirements over the next 12 months with cash on hand, net cash provided by operating activities, and as needed, funds available under our revolving credit facility. In 2026, we expect capital expenditures of approximately $400 million.

Net cash used in financing activities was $357.8 million in 2025 compared to $275.7 million in 2024. The increase is primarily due to an increase in share repurchases and an increase in quarterly dividends.

On February 19, 2025, our Board authorized the payment of a quarterly dividend of $0.68 per share of common stock compared to the quarterly dividend of $0.61 per share of common stock declared in 2024. The payments of quarterly dividends totaled $180.3 million and $162.9 million in 2025 and 2024, respectively. On February 18, 2026, our Board declared a quarterly cash dividend of $0.75 per share of common stock.

On February 19, 2025, our Board approved a stock repurchase program for the repurchase of up to $500.0 million of our common stock. This stock repurchase program has no expiration date and replaces the previous stock repurchase program which was approved in 2022.

In 2025, we paid $150.0 million, excluding excise taxes, to repurchase 869,007 shares of our common stock. In 2024, we paid $79.8 million, excluding excise taxes, to repurchase 461,662 shares of our common stock. As of December 30, 2025, $380.0 million remained under our authorized stock repurchase program.

On April 24, 2025, we entered into an agreement for a revolving credit facility with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A. and PNC Bank, N.A. This credit facility superseded and replaced our previous credit facility.

The credit facility is an unsecured, revolving credit agreement and has a borrowing capacity of up to $450.0 million with the option to increase by an additional $250.0 million subject to certain limitations, including approval by the syndicate of lenders. The credit facility has a maturity date of April 24, 2030.

As of December 30, 2025, we had no outstanding borrowings under the credit facility and had $447.6 million of availability, net of $2.4 million of outstanding letters of credit. As of December 31, 2024, we had no outstanding borrowings under the previous credit facility and had $296.8 million of availability, net of $3.2 million of outstanding letters of credit.

The interest rate for the credit facility as of December 30, 2025 and December 31, 2024 was 4.81% and 5.47%, respectively.

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 December 30, 2025.

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Contractual Obligations

The following table summarizes the amount of payments due under specified contractual obligations as of December 30, 2025 (in thousands):

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We have no material minimum purchase commitments with our vendors that extend beyond a year. Refer to Notes 5, 8, and 13 to the consolidated financial statements for details of contractual obligations.

Guarantees

As of December 30, 2025 and December 31, 2024, we are contingently liable for $7.8 million for five lease guarantees and $9.4 million for seven lease guarantees, respectively. 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 December 30, 2025 or December 31, 2024, as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

Critical Accounting Policies and Estimates

The above discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. Our significant accounting policies are described in Note 2 to the accompanying consolidated financial statements. Critical accounting policies are those that we believe are most important to portraying our financial condition and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments or uncertainties regarding the application of these policies may result in significantly different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the consolidated financial statements.

Impairment of Long-lived Assets. We evaluate long-lived assets to be held and used in the business, such as property and equipment, operating lease right-of-use assets, and intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying amount of a restaurant may not be recoverable. For the purposes of this evaluation, we define the asset group at the individual restaurant level. When we evaluate the restaurants, cash flows are the primary indicator of impairment. Recoverability of assets to be held and used is measured by comparison of the carrying amount of the restaurant to estimated undiscounted future cash flows expected to be generated by the restaurant.

Under our policies, trailing 12-month cash flow results under a predetermined amount at the individual restaurant level signals a potential impairment. In our evaluation of restaurants that do not meet the cash flow threshold, we estimate future undiscounted cash flows from operating the restaurant over the remaining useful life of the primary asset, which is the building or the operating lease right-of-use asset. In the estimation of future cash flows, we consider the period of time the restaurant has been open, the trend of operations over such period, and future periods and expectations for future sales growth. We limit assumptions about important factors such as trend of future operations and sales growth to those that are supportable based upon our plans for the restaurant and actual results at comparable restaurants. Both qualitative and quantitative information are considered when evaluating for potential impairments. As we assess the

ongoing expected cash flows and carrying amounts of our long-lived assets, these factors could cause us to realize a material impairment charge. Based on our reviews performed on the cash flows of our restaurants, the carrying amount associated with restaurants deemed at risk for impairment is not material to our consolidated financial statements.

If assets are determined to be impaired, we measure the impairment charge by calculating the amount by which the asset carrying amount exceeds its estimated fair value. The determination of asset fair value is also subject to significant judgment. We generally measure estimated fair value by discounting estimated future cash flows. When fair value is measured by discounting estimated future cash flows, the assumptions used are consistent with what we believe hypothetical market participants would use. We also use a discount rate that is commensurate with the risk inherent in the projected cash flows. If these assumptions change in the future, we may be required to record impairment charges for these assets.

In 2025, we recorded impairment and closure costs of $0.3 million related to restaurant relocations. Refer to Note 17 in the consolidated financial statements for further discussion regarding impairment and closure costs recorded in 2025, 2024, and 2023.

Goodwill.Goodwill is tested annually for impairment and is tested more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the fair value of the reporting unit, up to the amount of goodwill recorded. Goodwill is required to be tested for impairment at the reporting unit level, or the level of internal reporting that reflects the way in which an entity manages its businesses. A reporting unit is defined as an operating segment, or one level below an operating segment. Our reporting units are at the concept level. An entity may first assess qualitative factors in order to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The entity may also elect to bypass the qualitative assessment and determine the fair value of the reporting unit and compare it to its carrying amount. The fair value of the reporting unit may be based on several valuation approaches including capitalization of earnings, discounted cash flows, comparable public company market multiples, and comparable acquisition market multiples.

At December 30, 2025, our Texas Roadhouse reporting unit had goodwill of $242.2 million. No other reporting units had goodwill balances.

In performing the qualitative assessment, we reviewed factors such as macroeconomic conditions, industry and market considerations, cost factors, changes in management or key personnel, sustained decreases in share price, and the overall financial performance of the Company's Texas Roadhouse reporting unit. As a result of the qualitative assessment, no indicators of impairment were identified, and no additional indicators of impairment were identified through the end of the fourth quarter that would require additional testing. Changes in circumstances existing at the measurement date or at other times in the future could result in an impairment loss.

Effects of Inflation

During recent years, we have operated during periods of inflation, led primarily by commodity inflation and wage and other labor inflation. Some of the impacts of inflation have been offset by menu price increases and other adjustments. Whether we are able and/or choose to continue to offset the effects of inflation will determine to what extent, if any, inflation affects our restaurant profitability in future periods.

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