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

2014-04-24
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  • Brinker International 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, 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.

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