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

 

 

Earnings per diluted share, excluding special items, increased 16.7 percent to $0.84 compared to $0.72 for the third quarter of fiscal 2013

Brinker International

Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal third quarter ended March 26, 2014.

Highlights include the following:

  • Earnings per diluted share, excluding special items, increased 16.7 percent to $0.84 compared to $0.72 for the third quarter of fiscal 2013 (see non-GAAP reconciliation below)
  • On a GAAP basis, earnings per diluted share increased 15.5 percent to $0.82 compared to $0.71 for the third quarter of fiscal 2013
  • Company sales increased 2.0 percent to $739.2 million and restaurant operating margin1 improved approximately 80 basis points to 18.7 percent compared to 17.9 percent for the third quarter of fiscal 2013
  • Brinker International comparable restaurant sales at company-owned restaurants increased 0.7 percent
  • Chili's domestic comparable restaurant sales2 includes a 0.7 percent increase for company-owned restaurants and a 0.1 percent increase for franchise operated restaurants
  • Chili's international franchise comparable restaurant sales increased 0.6 percent, representing the 17th consecutive quarterly increase
  • Maggiano's comparable restaurant sales increased 0.2 percent, representing the 17th consecutive quarterly increase
  • For the first nine months of fiscal 2014, cash flows provided by operating activities were $277.1 million and capital expenditures totaled $114.0 million
  • The company repurchased approximately 1.9 million shares of its common stock for $98.7 million in the third quarter and a total of approximately 4.1 million shares for $191.8 million year-to-date
  • The company paid a dividend of 24 cents per share in the third quarter, an increase of 20 percent over the prior year third quarter

"Brinker delivered another solid quarter of results," said Wyman Roberts, Chief Executive Officer and President. "The effectiveness of our strategies enabled us to deliver double digit EPS growth, positive comp sales, and improved operating margins."     

Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses as a percent of Company sales.

Chili's domestic comparable restaurant sales is defined as comparable restaurant sales generated from company-owned and franchise operated Chili's restaurants in the United States.

Table 1: Monthly and Q3 comparable restaurant sales

Q3 14 and Q3 13, company-owned, reported brands and franchise; percentage

Jan

Feb

March

Q3 14

Q3 13

Brinker International

0.1

1.3

0.7

0.7

(0.9)

  Chili's Company-Owned1

     Comparable Restaurant Sales

0.0

1.5

0.9

0.7

(1.1)

     Pricing Impact

1.1

1.2

1.2

1.1

1.5

     Mix-Shift

0.0

1.5

1.1

0.8

0.6

     Traffic

(1.1)

(1.2)

(1.4)

(1.2)

(3.2)

  Maggiano's

     Comparable Restaurant Sales

0.8

0.3

(0.8)

0.2

0.4

     Pricing Impact

1.6

1.3

1.5

1.5

1.6

     Mix-Shift

0.4

0.1

(2.2)

(0.4)

(0.2)

     Traffic

(1.2)

(1.1)

(0.1)

(0.9)

(1.0)

Franchise2

0.2

1.3

  U.S. Comparable Restaurant Sales

0.1

(0.3)

  International Comparable Restaurant Sales

0.6

5.1

Domestic3

0.5

(0.8)

System-wide4

0.5

(0.2)

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 comprehensive 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 franchise operated restaurants.

 

Quarterly Operating Performance

CHILI'S third quarter company sales increased to $645.8 million from $632.6 million in the prior year primarily due to the acquisition of 11 restaurants in Canada, as well as increases in domestic restaurant capacity and comparable restaurant sales. As compared to the prior year, Chili's operating margin improved. Cost of sales, as a percent of company sales, was favorably impacted by the introduction of new menu items, improved waste control, efficiency gains related to new kitchen equipment and menu pricing. Commodity pricing was flat with higher meat and seafood costs offset by other items. Restaurant labor, as a percent of company sales, was positively impacted by favorable health insurance expenses coupled with leverage related to higher revenue, partially offset by higher restaurant manager salaries and bonuses. Restaurant expenses, as a percent of company sales, were negatively impacted by higher advertising and utilities expense.

MAGGIANO'S third quarter company sales of $93.4 million increased 1.4 percent primarily driven by increases in restaurant capacity and menu pricing. As compared to the prior year, Maggiano's restaurant operating margin improved slightly. Cost of sales, as a percent of company sales, was positively impacted by favorable commodity pricing and increased menu pricing, partially offset by unfavorable mix changes. Restaurant labor, as a percent of company sales, was positively impacted by lower performance based compensation. Restaurant expenses, as a percent of company sales, were negatively impacted by higher advertising and facilities costs.

FRANCHISE AND OTHER revenues totaled $19.2 million for the third quarter, an increase of 6.1 percent compared to $18.1 million in the prior year driven primarily by other revenues. International comparable restaurant sales increased 0.6 percent and U.S. franchise comparable restaurant sales increased 0.1 percent. Brinker franchisees generated approximately $414 million in sales1 for the third quarter of fiscal 2014.

Other

Depreciation and amortization expense increased $1.0 million for the quarter primarily due to investments in the Chili's reimage program, kitchen equipment, as well as the acquisition of 11 restaurants in Canada, partially offset by an increase in fully depreciated assets.

On a GAAP basis, the effective income tax rate increased to 30.4 percent in the current quarter from 28.7 percent in the prior year.  Excluding the impact of special items, the effective income tax rate increased to 30.6 percent in the current quarter compared to 28.9 percent in the prior year. The increase in the effective tax rates was primarily due to increased earnings and lower tax credits as the impact of tax benefits related to special items was equivalent for each quarter.

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 third quarter of fiscal 2014 consist primarily of charges associated with closed restaurants.

Table 2: Reconciliation of net income excluding special items

Q3 14 and Q3 13; $ millions and $ per diluted share after-tax

Q3 14

EPS Q3 14

Q3 13

EPS Q3 13

Net Income

56.3

0.82

52.0

0.71

Other (Gains) and Charges, net of taxes1

1.3

0.02

0.9

0.01

Net Income excluding Special Items

57.6

0.84

52.9

0.72

1

Pre-tax Other gains and charges were $2.1 million and $1.6 million in the third 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 comprehensive 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 third quarter fiscal 2014 filing on or before May 5, 2014; and
  • Fourth quarter earnings release, before market opens, Aug. 7, 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 March 26, 2014, Brinker owned, operated, or franchised 1,608 restaurants under the names Chili's® Grill & Bar (1,563 restaurants) and Maggiano's Little Italy® (45 restaurants).

BRINKER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(Unaudited)

Thirteen Week Periods Ended

Thirty-Nine Week Periods Ended

March 26, 2014

March 27, 2013

March 26, 2014

March 27, 2013

Revenues:

Company sales

$

739,200

$

724,693

$

2,088,087

$

2,057,490

Franchise and other revenues (a)

19,208

18,066

58,640

58,540

Total revenues

758,408

742,759

2,146,727

2,116,030

Operating costs and expenses:

Company restaurants (excluding depreciation and amortization)

Cost of sales

195,439

198,316

561,276

567,602

Restaurant labor

233,890

231,822

672,525

667,865

Restaurant expenses

171,574

164,537

508,405

489,781

Company restaurant expenses

600,903

594,675

1,742,206

1,725,248

Depreciation and amortization

34,218

33,222

100,912

98,830

General and administrative

34,009

33,986

98,792

102,289

Other gains and charges (c)

2,088

1,550

4,315

2,227

Total operating costs and expenses

671,218

663,433

1,946,225

1,928,594

Operating income

87,190

79,326

200,502

187,436

Interest expense

7,068

7,085

21,128

21,040

Other, net

(693)

(573)

(1,736)

(2,096)

Income before provision for income taxes

80,815

72,814

181,110

168,492

Provision for income taxes

24,552

20,863

55,891

51,500

Net income

$

56,263

$

51,951

$

125,219

$

116,992

Basic net income per share

$

0.85

$

0.73

$

1.88

$

1.61

Diluted net income per share

$

0.82

$

0.71

$

1.83

$

1.56

Basic weighted average shares outstanding

66,479

71,067

66,661

72,511

Diluted weighted average shares outstanding

68,342

73,341

68,591

74,873

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment (b)

$

(1,108)

$

$

(1,862)

$

Other comprehensive loss

(1,108)

(1,862)

Comprehensive income

$

55,155

$

51,951

$

123,357

$

116,992

(a)

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

(b)

The company's Canadian operation uses the Canadian dollar as its functional currency. The foreign currency translation adjustment included in the company's comprehensive income represents the unrealized impact of translating the financial statements of the Canadian entity to U.S. dollars. This amount is not included in net income and would only be realized upon disposition of the business.

(c)

Other gains and charges include:

Thirteen Week Periods Ended

Thirty-Nine Week Periods Ended

March 26, 2014

March 27, 2013

March 26, 2014

March 27, 2013

Restaurant impairment charges

$

$

$

1,285

$

661

Restaurant closure charges

1,224

305

2,330

2,887

Severance and other benefits

717

1,269

1,110

1,269

Gains on the sale of assets, net

(81)

(579)

(2,430)

Other

147

57

169

(160)

$

2,088

$

1,550

$

4,315

$

2,227

 

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

March 26, 2014

June 26, 2013

ASSETS

Current assets

$

195,156

$

198,591

Net property and equipment (a)

1,037,409

1,035,815

Total other assets

217,513

218,197

Total assets

$

1,450,078

$

1,452,603

LIABILITIES AND SHAREHOLDERS' EQUITY

Current installments of long-term debt

$

27,810

$

27,596

Current liabilities

388,484

362,615

Long-term debt, less current installments

817,259

780,121

Other liabilities

128,419

132,914

Total shareholders' equity

88,106

149,357

Total liabilities and shareholders' equity

$

1,450,078

$

1,452,603

(a)

At March 26, 2014, the company owned the land and buildings for 190 of the 880 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $142.9 million and $118.2 million, respectively.

 

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Thirty-Nine Week Periods Ended

March 26, 2014

March 27, 2013

Cash Flows From Operating Activities:

Net income

$

125,219

$

116,992

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

Depreciation and amortization

100,912

98,830

Stock-based compensation

12,990

12,909

Restructure charges and other impairments

3,836

3,792

Net loss on disposal of assets

3,208

1,115

Changes in assets and liabilities

30,935

(11,002)

Net cash provided by operating activities

277,100

222,636

Cash Flows from Investing Activities:

Payments for property and equipment

(113,980)

(98,690)

Proceeds from sale of assets

833

6,535

Net cash used in investing activities

(113,147)

(92,155)

Cash Flows from Financing Activities:

Purchases of treasury stock

(191,811)

(191,799)

Borrowings on revolving credit facility

98,000

110,000

Payments on revolving credit facility

(40,000)

Payments of dividends

(47,556)

(42,161)

Excess tax benefits from stock-based compensation

17,972

7,811

Payments on long-term debt

(19,890)

(19,785)

Proceeds from issuances of treasury stock

24,574

32,042

Net cash used in financing activities

(158,711)

(103,892)

Net change in cash and cash equivalents

5,242

26,589

Cash and cash equivalents at beginning of period

59,367

59,103

Cash and cash equivalents at end of period

$

64,609

$

85,692

 

 

 

BRINKER INTERNATIONAL, INC.

RESTAURANT SUMMARY

Third Quarter

Openings

Fiscal 2014

Total Restaurants

March 26, 2014

Projected Openings Fiscal

2014

Company-Owned Restaurants:

Chili's Domestic

2

823

6-8

Chili's International

12

2-4

Maggiano's

45

1-2

2

880

9-14

Franchise Restaurants:

Chili's Domestic

441

3

Chili's International

10

287

31-33

10

728

34-36

Total Restaurants:

Chili's Domestic

2

1,264

9-11

Chili's International

10

299

33-37

Maggiano's

45

1-2

12

1,608

43-50

 



Logos, product and company names mentioned are the property of their respective owners.