Brinker International Reports Increases In Second Quarter Fiscal 2014 EPS And Comparable Restaurant Sales

 

 

Company sales increased 2.3 percent to $684.4 million and restaurant operating margin improved approximately 30 basis points to 16.0 percent compared to 15.7 percent for the second quarter of fiscal 2013

Brinker International

Brinker International, Inc. (NYSE: EAT) announced results for the fiscal second quarter ended Dec. 25, 2013.

Highlights include the following:

  • Earnings per diluted share, excluding special items, increased 18.0 percent to $0.59 compared to $0.50 for the second quarter of fiscal 2013 (see non-GAAP reconciliation below)
  • On a GAAP basis, earnings per diluted share increased 16.0 percent to $0.58 compared to $0.50 for the second quarter of fiscal 2013
  • Company sales increased 2.3 percent to $684.4 million and restaurant operating margin1 improved approximately 30 basis points to 16.0 percent compared to 15.7 percent for the second quarter of fiscal 2013
  • Brinker International comparable restaurant sales at company-owned restaurants increased 0.8 percent
  • Chili's domestic comparable restaurant sales2 includes a 0.7 percent increase for company-owned restaurants and a 0.7 percent decrease for franchised restaurants resulting in a net increase of 0.3 percent
  • Chili's international franchise comparable restaurant sales increased 1.4 percent, representing the 16th consecutive quarterly increase
  • Maggiano's comparable restaurant sales increased 0.9 percent, representing the 16th consecutive quarterly increase
  • For the first six months of fiscal 2014, cash flows provided by operating activities were $147.3 million and capital expenditures totaled $69.7 million
  • The company repurchased approximately 0.6 million shares of its common stock for $26.8 million in the second quarter and a total of approximately 2.2 million shares for $93.1 million year-to-date
  • The company paid a dividend of 24 cents per share in the second quarter, an increase of 20 percent over the prior year second quarter

"We remain encouraged about the trajectory of our business as results from this past quarter demonstrate our steady progress of driving top-line sales, while increasing value for our shareholders," said Wyman Roberts, Chief Executive Officer and President.

Table 1: Monthly and Q2 comparable restaurant sales

Q2 14 and Q2 13, company-owned, reported brands and franchise; percentage

Oct

Nov

Dec

Q2 14

Q2 13

Brinker International

0.7

5.8

(3.6)

0.8

0.9

  Chili's Company-Owned1

     Comparable Restaurant Sales

0.8

6.7

(4.9)

0.7

1.0

     Pricing Impact

1.2

2.0

1.5

1.5

1.6

     Mix-Shift

1.5

1.3

0.4

1.1

1.3

     Traffic

(1.9)

3.4

(6.8)

(1.9)

(1.9)

  Maggiano's

     Comparable Restaurant Sales

0.5

0.0

1.8

0.9

0.6

     Pricing Impact

1.8

1.6

1.3

1.5

2.3

     Mix-Shift

1.0

(1.6)

(1.1)

(0.5)

0.7

     Traffic

(2.3)

0.0

1.6

(0.1)

(2.4)

Franchise2

0.0

2.4

  U.S. Comparable Restaurant Sales

(0.7)

2.2

  International Comparable Restaurant Sales

1.4

2.7

Domestic3

0.3

1.4

System-wide4

0.5

1.5

1

Chili's company-owned comparable restaurant sales do not include sales generated by the 11 restaurants acquired in Canada in June 2013. Acquired or newly opened restaurants are not included in this calculation until 18 months of operations are completed.

2

Revenues generated by franchisees are not included in revenues on the consolidated statements of income; however, we generate royalty revenue and advertising fees based on franchisee revenues, where applicable. We believe including franchisee comparable restaurant sales provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development.

3

Domestic comparable restaurant sales percentages are derived from sales generated by company-owned and franchise operated Chili's restaurants in the United States.

4

System-wide comparable restaurant sales are derived from sales generated by company-owned Chili's and Maggiano's restaurants in addition to the sales generated at franchisee operated restaurants.

Quarterly Operating Performance

CHILI'S second quarter company sales increased to $576.7 million from $563.3 million in the prior year primarily due to the acquisition of 11 restaurants in Canada, as well as increases in comparable restaurant sales and domestic restaurant capacity. As compared to the prior year, Chili's operating margin improved. Cost of sales was favorably impacted by mix changes related to the introduction of new menu items, improved waste control and menu pricing, partially offset by unfavorable commodity pricing primarily related to meat and poultry. Restaurant labor was positively impacted by improved labor productivity resulting from the installation of new kitchen equipment and server initiatives, coupled with leverage related to higher revenue, partially offset by higher restaurant manager bonuses. Restaurant expense was negatively impacted by higher advertising accruals and workers' compensation insurance expenses.

MAGGIANO'S second quarter company sales of $107.7 million increased 1.8 percent primarily driven by increases in menu pricing and restaurant capacity. As compared to the prior year, Maggiano's restaurant operating margin was negatively impacted primarily by costs associated with strategic initiatives including a new point of sale system, new restaurant development and unfavorable facilities costs. Cost of sales was positively impacted by favorable commodity pricing on bread, steak, dairy and seafood as well as increased menu pricing, partially offset by unfavorable mix changes.

FRANCHISE AND OTHER revenues totaled $20.0 million for the quarter, a decrease of 2.9 percent compared to $20.6 million in the prior year driven primarily by lower domestic royalty income, as well as lower international franchise and development fees. International comparable restaurant sales increased 1.4 percent, while U.S. franchise comparable restaurant sales decreased 0.7 percent. Brinker franchisees generated approximately $390 million in sales1 for the second quarter of fiscal 2014.

Other

Depreciation and amortization expense increased $0.6 million for the quarter primarily due to investments in the Chili's reimage program, kitchen equipment, and software as well as the acquisition of 11 restaurants in Canada, partially offset by an increase in fully depreciated assets.

General and administrative expense decreased $0.7 million primarily due to lower performance-based and other compensation costs partially offset by an increase in professional fees and higher stock-based compensation costs.

Excluding the impact of special items, the effective income tax rate decreased to 31.3 percent in the current quarter compared to 32.7 percent in the prior year primarily due to the impact of tax credits for workforce programs and deductions related to increased stock option exercises.

Non-GAAP Reconciliation

Brinker believes excluding special items from its financial results provides investors with a clearer perspective of the company's ongoing operating performance and a more relevant comparison to prior period results. Special items in the second quarter of fiscal 2014 consist primarily of charges associated with the impairment of restaurants and other fixed assets.

Table 2: Reconciliation of net income excluding special items

Q2 14 and Q2 13; $ millions and $ per diluted share after-tax

Q2 14

EPS Q2 14

Q2 13

EPS Q2 13

Net Income

39.7

0.58

37.2

0.50

Other (Gains) and Charges, net of taxes1

0.8

0.01

0.1

0.00

Net Income excluding Special Items

40.5

0.59

37.3

0.50

1

Pre-tax Other gains and charges was $1.2 million and $0.2 million in the second quarter of fiscal 2014 and 2013, respectively.

Guidance Policy

Brinker provides annual guidance as it relates to comparable restaurant sales, earnings per diluted share, and other key line items in the income statement and will only provide updates if there is a material change versus the original guidance. Consistent with prior practice, management will not discuss intra-period sales or other key operating results not yet reported as the limited data may not accurately reflect the final results of the period or quarter referenced.

Forward Calendar

  • SEC Form 10-Q for second quarter fiscal 2014 filing on or before Feb. 3, 2014; and
  • Third quarter earnings release, before market opens, April 23, 2014.

About Brinker

Brinker International, Inc. is one of the world's leading casual dining restaurant companies. Founded in 1975 and based in Dallas, Texas, as of Dec. 25, 2013, Brinker owned, operated, or franchised 1,602 restaurants under the names Chili's® Grill & Bar (1,557 restaurants) and Maggiano's Little Italy® (45 restaurants).

BRINKER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

Thirteen Week Periods Ended

Twenty-Six Week Periods Ended

Dec. 25, 2013

Dec. 26, 2012

Dec. 25, 2013

Dec. 26, 2012

Revenues:

Company sales

$

684,385

$

669,129

 

$

1,348,887

 

$

1,332,797

Franchise and other revenues (a)

20,010

20,635

 

39,432

 

40,474

Total revenues

704,395

689,764

 

1,388,319

 

1,373,271

Operating costs and expenses:

Company restaurants (excluding depreciation and amortization)

Cost of sales

185,179

184,591

 

365,837

 

369,286

Restaurant labor

219,919

217,177

 

438,635

 

436,043

Restaurant expenses

169,877

162,191

 

336,831

 

325,244

Company restaurant expenses

574,975

563,959

 

1,141,303

 

1,130,573

Depreciation and amortization

33,538

32,979

 

66,694

 

65,608

General and administrative

30,362

31,030

 

64,783

 

68,303

Other gains and charges (b)

1,221

230

 

2,227

 

677

Total operating costs and expenses

640,096

628,198

 

1,275,007

 

1,265,161

Operating income

64,299

61,566

 

113,312

 

108,110

Interest expense

7,047

7,066

 

14,060

 

13,955

Other, net

(461)

(726)

 

(1,043)

 

(1,523)

Income before provision for income taxes

57,713

55,226

 

100,295

 

95,678

Provision for income taxes

17,969

18,049

 

31,339

 

30,637

Net income

$

39,744

$

37,177

 

$

68,956

 

$

65,041

Basic net income per share

$

0.59

$

0.51

 

$

1.03

 

$

0.89

Diluted net income per share

$

0.58

$

0.50

 

$

1.00

 

$

0.86

Basic weighted average shares outstanding

66,811

72,560

 

66,752

 

73,232

Diluted weighted average shares outstanding

68,628

74,720

 

68,715

 

75,639

(a)

Franchise and other revenues includes royalties, development fees and franchise fees, banquet service charge income, and gift card activity (breakage and discounts).

(b)

Other gains and charges include:

Thirteen Week Periods Ended

Twenty-Six Week Periods Ended

Dec. 25, 2013

Dec. 26, 2012

Dec. 25, 2013

Dec. 26, 2012

Restaurant impairment charges

$

1,285

$

661

$

1,285

$

661

Restaurant closure charges

265

2,148

1,107

2,582

Gains on the sale of assets, net

(579)

(2,349)

(579)

(2,350)

Other

250

(230)

414

(216)

$

1,221

$

230

$

2,227

$

677

 

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

Dec. 25, 2013

June 26, 2013

ASSETS

Current assets

$

247,141

$

198,591

Net property and equipment (a)

1,026,402

1,035,815

Total other assets

216,025

218,197

Total assets

$

1,489,568

$

1,452,603

LIABILITIES AND SHAREHOLDERS' EQUITY

Current installments of long-term debt

$

27,737

$

27,596

Current liabilities

401,218

362,615

Long-term debt, less current installments

806,215

780,121

Other liabilities

130,905

132,914

Total shareholders' equity

123,493

149,357

Total liabilities and shareholders' equity

$

1,489,568

$

1,452,603

(a)

At Dec. 25, 2013, the company owned the land and buildings for 189 of the 881 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $141.5 million and $118.4 million, respectively.

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Twenty-Six Week Periods Ended

Dec. 25, 2013

Dec. 26, 2012

Cash Flows From Operating Activities:

Net income

$

68,956

$

65,041

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

66,694

65,608

Stock-based compensation

8,196

9,314

Restructure charges and other impairments

2,091

3,027

Net loss (gain) on disposal of assets

2,051

(96)

Changes in assets and liabilities

(667)

(11,617)

Net cash provided by operating activities

147,321

131,277

Cash Flows from Investing Activities:

Payments for property and equipment

(69,692)

(69,752)

Proceeds from sale of assets

833

5,335

Net cash used in investing activities

(68,859)

(64,417)

Cash Flows from Financing Activities:

Purchases of treasury stock

(93,101)

(131,445)

Borrowings on revolving credit facility

80,000

110,000

Payments on revolving credit facility

(40,000)

Payments of dividends

(31,345)

(27,677)

Excess tax benefits from stock-based compensation

14,569

6,939

Payments on long-term debt

(13,260)

(13,190)

Proceeds from issuances of treasury stock

7,963

22,515

Net cash used in financing activities

(75,174)

(32,858)

Net change in cash and cash equivalents

3,288

34,002

Cash and cash equivalents at beginning of period

59,367

59,103

Cash and cash equivalents at end of period

$

62,655

$

93,105

 

 

BRINKER INTERNATIONAL, INC.

RESTAURANT SUMMARY

Second Quarter

Openings

Fiscal 2014

Total Restaurants

Dec. 25, 2013

Projected Openings Fiscal

2014

Company-Owned Restaurants:

Chili's Domestic

824

6-8

Chili's International

1

12

2-4

Maggiano's

1

45

1-2

2

881

9-14

Franchise Restaurants:

Chili's Domestic

442

4-5

Chili's International

6

279

32-35

6

721

36-40

Total Restaurants:

Chili's Domestic

1,266

10-13

Chili's International

7

291

34-39

Maggiano's

1

45

1-2

8

1,602

45-54

 



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