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, 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 | ||||
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 | ||||
