Brinker International Reports Year-Over-Year Increase In Second Quarter EPS
Earnings per diluted share, excluding special items, increased 9.9 percent to $0.78 compared to $0.71 for the second quarter of fiscal 2015
Brinker International, Inc. (NYSE: EAT) yesterday announced results for the fiscal second quarter ended Dec. 23, 2015.
Highlights include the following:
- Earnings per diluted share, excluding special items, increased 9.9 percent to $0.78 compared to $0.71 for the second quarter of fiscal 2015
- On a GAAP basis, earnings per diluted share increased 25.0 percent to $0.80 compared to $0.64 for the second quarter of fiscal 2015
- Brinker International total revenues increased 6.2 percent to $788.6 million and company sales increased 6.7 percent to $765.7 million attributable to the 103 restaurants acquired with the Pepper Dining transaction in the first quarter of fiscal 2016
- Chili's company-owned comparable restaurant sales decreased 2.8 percent
- Maggiano's comparable restaurant sales decreased 1.8 percent
- Chili's franchise comparable restaurant sales increased 0.9 percent which includes a 2.6 percent increase for international franchise restaurants, partially offset by a 0.1 percent decrease for U.S. franchise restaurants
- Restaurant operating margin,1 as a percent of company sales, declined approximately 30 basis points to 16.1 percent compared to 16.4 percent for the second quarter of fiscal 2015
- For the first six months of fiscal 2016, cash flows provided by operating activities were $155.6 million and capital expenditures totaled $52.2 million. Free cash flow2 was approximately $103.4 million
- The company repurchased approximately 1.9 million shares of its common stock for $89.0 million in the second quarter and a total of approximately 2.8 million shares for $140.1 million year-to-date
- The company declared a dividend of 32 cents per share to be paid in the third quarter, representing a 14.3% increase over the prior year
- The company reaffirms earnings per diluted share, excluding special items, to increase 15 to 18 percent in fiscal 2016 in the range of $3.55 to $3.65
"Our second quarter earnings reflect solid performance despite top-line challenges," said Wyman Roberts, chief executive officer and president. "We believe our current initiatives will improve sales during the remainder of the fiscal year and help deliver our annual earnings guidance."
1 Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant Labor and Restaurant expenses. Restaurant operating margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance. Restaurant operating margin is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to operating income or other similarly titled measures of other companies.
2 Free cash flow is defined as cash flows provided by operating activities less capital expenditures.
|
Table 1: Q2 comparable restaurant sales |
||||||
|
Q2 16 |
Q2 15 |
|||||
|
Brinker International |
(2.6) |
3.7 |
||||
|
Chili's Company-Owned1 |
||||||
|
Comparable Restaurant Sales |
(2.8) |
4.0 |
||||
|
Pricing Impact2 |
0.8 |
1.7 |
||||
|
Mix-Shift2 |
0.4 |
0.6 |
||||
|
Traffic2 |
(4.0) |
1.7 |
||||
|
Maggiano's |
||||||
|
Comparable Restaurant Sales |
(1.8) |
2.3 |
||||
|
Pricing Impact2 |
2.3 |
2.4 |
||||
|
Mix-Shift2 |
(1.2) |
(1.6) |
||||
|
Traffic2 |
(2.9) |
1.5 |
||||
|
Chili's Franchise3 |
0.9 |
3.2 |
||||
|
U.S. Comparable Restaurant Sales |
(0.1) |
4.9 |
||||
|
International Comparable Restaurant Sales |
2.6 |
(0.5) |
||||
|
Chili's Domestic4 |
(2.1) |
4.2 |
||||
|
System-wide5 |
(1.6) |
3.5 |
||||
|
1 |
Chili's company-owned comparable restaurant sales includes 103 Chili's restaurants acquired from a franchisee in the first quarter of fiscal 2016. |
|
2 |
Reclassifications have been made between pricing impact, mix-shift and traffic in the prior year to conform with current year classification. |
|
3 |
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 franchise comparable restaurant sales provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development. |
|
4 |
Chili's Domestic comparable restaurant sales percentages are derived from sales generated by company-owned and franchise operated Chili's restaurants in the United States. |
|
5 |
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 second quarter company sales increased 8.1 percent to $651.0 million from $602.0 million in the prior year primarily due to an increase in restaurant capacity resulting from the acquisition of 103 Chili's restaurants on June 25, 2015, partially offset by a decline in comparable restaurant sales. As compared to the prior year, Chili's restaurant operating margin1 declined primarily due to the impact of the recently acquired restaurants. Cost of sales, as a percent of company sales, was positively impacted by favorable menu pricing and commodity pricing related to burger meat, cheese, seafood, and avocados, partially offset by unfavorable menu item mix and commodity pricing primarily related to steak and chicken. Restaurant expenses, as a percent of company sales, increased slightly due to higher repairs and maintenance and rent expenses, partially offset by decreased advertising, workers' compensation insurance expenses and operations supervision expenses. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates, partially offset by lower incentive bonus and productivity initiatives.
MAGGIANO'S second quarter company sales decreased 0.9 percent to $114.7 million from $115.8 million in the prior year primarily due to a decline in comparable restaurant sales. As compared to the prior year, Maggiano's restaurant operating margin1 improved. Cost of sales, as a percent of company sales, was positively impacted by menu item changes, increased menu pricing and favorable commodity pricing. Restaurant expenses, as a percent of company sales, increased compared to prior year due to higher preopening and repair and maintenance expenses, partially offset by lower advertising expenses. Restaurant labor, as a percent of company sales, increased compared to prior year due to higher wage rates.
1 Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses. Restaurant operating margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance. Restaurant operating margin is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to operating income or other similarly titled measures of other companies.
FRANCHISE AND OTHER revenues decreased 8.8 percent to $22.9 million for the second quarter compared to $25.1 million in the prior year driven primarily by a decrease in royalty revenues resulting from the acquisition of 103 Chili's restaurants from a former franchisee. Brinker franchisees generated approximately $338 million in sales2 for the second quarter of fiscal 2016.
2Royalty revenues are recognized based on the sales generated and reported to the company by franchisees.
Other
Depreciation and amortization expense increased $3.0 million for the quarter primarily due to depreciation on acquired restaurants, asset replacements and new restaurant openings, partially offset by an increase in fully depreciated assets.
General and administrative expense decreased approximately $0.8 million primarily due to lower performance-based compensation, partially offset by the termination of accounting and information technology support fees resulting from the acquisition of 103 Chili's restaurants.
On a GAAP basis, the effective income tax rate increased to 30.1 percent in the current quarter from 29.7 percent in the prior year quarter. The effective income tax rate increased due to higher profits, partially offset by an increase in the FICA Tip Credit and the positive impact of the resolution of certain tax positions. Excluding the impact of special items, the effective income tax rate increased to 31.3 percent in the current quarter compared to 30.7 percent in the prior year quarter. The effective income tax rate increased due to higher profits, partially offset by an increase in the FICA Tip Credit.
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.
|
Table 2: Reconciliation of net income excluding special items |
||||||||||||
|
Q2 16 |
EPS Q2 16 |
Q2 15 |
EPS Q2 15 |
|||||||||
|
Net Income |
47.7 |
0.80 |
41.3 |
0.64 |
||||||||
|
Other (Gains) and Charges, net of taxes1 |
0.0 |
0.0 |
5.1 |
0.07 |
||||||||
|
Adjustment for tax items2 |
(0.8) |
(0.02) |
— |
— |
||||||||
|
Net Income excluding Special Items |
46.9 |
0.78 |
46.4 |
0.71 |
||||||||
|
1 |
Pre-tax Other gains and charges included a gain of $0.1 million and a charge of $8.3 million in the second quarter of fiscal 2016 and 2015, respectively. See footnote "b" to the consolidated statements of comprehensive income for additional details. |
|
2 |
Discrete tax items result from the resolution of certain tax positions which directly impacts tax expense. |
Guidance Policy
Brinker provides annual guidance as it relates to comparable restaurant sales, earnings per diluted share, excluding special items, and other key line items in the statement of comprehensive income 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.
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. 23, 2015, Brinker owned, operated, or franchised 1,646 restaurants under the names Chili's® Grill & Bar (1,595 restaurants) and Maggiano's Little Italy® (51 restaurants).
|
BRINKER INTERNATIONAL, INC. |
||||||||||||||||
|
Thirteen Week Periods Ended |
Twenty-Six Week Periods Ended |
|||||||||||||||
|
Dec. 23, 2015 |
Dec. 24, 2014 |
Dec. 23, 2015 |
Dec. 24, 2014 |
|||||||||||||
|
Revenues: |
||||||||||||||||
|
Company sales |
$ |
765,672 |
$ |
717,768 |
$ |
1,506,153 |
$ |
1,404,632 |
||||||||
|
Franchise and other revenues (a) |
22,938 |
25,130 |
45,016 |
49,284 |
||||||||||||
|
Total revenues |
788,610 |
742,898 |
1,551,169 |
1,453,916 |
||||||||||||
|
Operating costs and expenses: |
||||||||||||||||
|
Company restaurants (excluding depreciation and amortization) |
||||||||||||||||
|
Cost of sales |
203,799 |
193,762 |
400,402 |
378,547 |
||||||||||||
|
Restaurant labor |
247,596 |
227,733 |
494,173 |
455,009 |
||||||||||||
|
Restaurant expenses |
190,660 |
178,898 |
379,833 |
354,436 |
||||||||||||
|
Company restaurant expenses |
642,055 |
600,393 |
1,274,408 |
1,187,992 |
||||||||||||
|
Depreciation and amortization |
39,114 |
36,072 |
78,285 |
71,614 |
||||||||||||
|
General and administrative |
31,909 |
32,660 |
65,020 |
65,294 |
||||||||||||
|
Other gains and charges (b) |
(87) |
8,291 |
1,590 |
9,224 |
||||||||||||
|
Total operating costs and expenses |
712,991 |
677,416 |
1,419,303 |
1,334,124 |
||||||||||||
|
Operating income |
75,619 |
65,482 |
131,866 |
119,792 |
||||||||||||
|
Interest expense |
7,907 |
7,349 |
15,674 |
14,348 |
||||||||||||
|
Other, net |
(560) |
(611) |
(833) |
(1,114) |
||||||||||||
|
Income before provision for income taxes |
68,272 |
58,744 |
117,025 |
106,558 |
||||||||||||
|
Provision for income taxes |
20,578 |
17,438 |
36,124 |
32,514 |
||||||||||||
|
Net income |
$ |
47,694 |
$ |
41,306 |
$ |
80,901 |
$ |
74,044 |
||||||||
|
Basic net income per share |
$ |
0.81 |
$ |
0.65 |
$ |
1.35 |
$ |
1.15 |
||||||||
|
Diluted net income per share |
$ |
0.80 |
$ |
0.64 |
$ |
1.34 |
$ |
1.13 |
||||||||
|
Basic weighted average shares outstanding |
59,198 |
63,590 |
59,712 |
64,129 |
||||||||||||
|
Diluted weighted average shares outstanding |
59,899 |
64,963 |
60,553 |
65,613 |
||||||||||||
|
Other comprehensive loss: |
||||||||||||||||
|
Foreign currency translation adjustment (c) |
$ |
(460) |
$ |
(3,529) |
$ |
(3,265) |
$ |
(4,336) |
||||||||
|
Other comprehensive loss |
(460) |
(3,529) |
(3,265) |
(4,336) |
||||||||||||
|
Comprehensive income |
$ |
47,234 |
$ |
37,777 |
$ |
77,636 |
$ |
69,708 |
||||||||
|
(a) |
Franchise and other revenues primarily includes royalties, development fees, franchise fees, banquet service charge income, gift card activity (breakage and discounts), tabletop device revenue, Chili's retail food product royalties and delivery fee income. |
|
(b) |
Other gains and charges include: |
|
Thirteen Week Periods Ended |
Twenty-Six Week Periods Ended |
||||||||||||||
|
Dec. 23, 2015 |
Dec. 24, 2014 |
Dec. 23, 2015 |
Dec. 24, 2014 |
||||||||||||
|
Litigation |
$ |
(2,032) |
$ |
5,800 |
$ |
(2,032) |
$ |
5,800 |
|||||||
|
Restaurant impairment charges |
468 |
747 |
525 |
747 |
|||||||||||
|
Severance |
209 |
— |
2,368 |
— |
|||||||||||
|
Acquisition costs |
— |
— |
580 |
— |
|||||||||||
|
Loss (Gain) on the sale of assets, net |
— |
1,069 |
(1,762) |
1,093 |
|||||||||||
|
Restaurant closure charges |
— |
509 |
— |
1,381 |
|||||||||||
|
Impairment of liquor licenses |
— |
175 |
— |
175 |
|||||||||||
|
Other |
1,268 |
(9) |
1,911 |
28 |
|||||||||||
|
$ |
(87) |
$ |
8,291 |
$ |
1,590 |
$ |
9,224 |
||||||||
|
(c) |
The foreign currency translation adjustment included in comprehensive income on the consolidated statements of comprehensive income represents the unrealized impact of translating the financial statements of the Canadian restaurants and the Mexican joint venture from their respective functional currencies to U.S. dollars. This amount is not included in net income and would only be realized upon disposition of the businesses. |
|
BRINKER INTERNATIONAL, INC. |
||||||||
|
Dec. 23, 2015 |
June 24, 2015 |
|||||||
|
ASSETS |
||||||||
|
Current assets |
$ |
253,938 |
$ |
189,717 |
||||
|
Net property and equipment (a) |
1,071,232 |
1,032,044 |
||||||
|
Total other assets |
254,714 |
214,112 |
||||||
|
Total assets |
$ |
1,579,884 |
$ |
1,435,873 |
||||
|
LIABILITIES AND SHAREHOLDERS' DEFICIT |
||||||||
|
Current installments of long-term debt |
$ |
3,605 |
$ |
3,439 |
||||
|
Other current liabilities |
445,405 |
415,036 |
||||||
|
Long-term debt, less current installments |
1,156,493 |
970,825 |
||||||
|
Other liabilities |
139,313 |
125,033 |
||||||
|
Total shareholders' deficit |
(164,932) |
(78,460) |
||||||
|
Total liabilities and shareholders' deficit |
$ |
1,579,884 |
$ |
1,435,873 |
||||
|
(a) |
At Dec. 23, 2015, the company owned the land and buildings for 191 of the 999 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $141.7 million and $110.7 million, respectively. |
|
BRINKER INTERNATIONAL, INC. |
||||||||
|
Twenty-Six Week Periods Ended |
||||||||
|
Dec. 23, 2015 |
Dec. 24, 2014 |
|||||||
|
Cash Flows From Operating Activities: |
||||||||
|
Net income |
$ |
80,901 |
$ |
74,044 |
||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
|
Depreciation and amortization |
78,285 |
71,614 |
||||||
|
Stock-based compensation |
7,522 |
6,992 |
||||||
|
Restructure charges and other impairments |
1,229 |
8,326 |
||||||
|
Net (gain) loss on disposal of assets |
(274) |
2,974 |
||||||
|
Changes in assets and liabilities |
(12,098) |
(1,485) |
||||||
|
Net cash provided by operating activities |
155,565 |
162,465 |
||||||
|
Cash Flows from Investing Activities: |
||||||||
|
Payments for property and equipment |
(52,199) |
(79,481) |
||||||
|
Payment for purchase of restaurants |
(105,577) |
— |
||||||
|
Proceeds from sale of assets |
2,756 |
1,950 |
||||||
|
Net cash used in investing activities |
(155,020) |
(77,531) |
||||||
|
Cash Flows from Financing Activities: |
||||||||
|
Borrowings on revolving credit facility |
207,500 |
83,000 |
||||||
|
Purchases of treasury stock |
(140,089) |
(112,789) |
||||||
|
Payments of dividends |
(37,363) |
(35,409) |
||||||
|
Payments on revolving credit facility |
(20,000) |
— |
||||||
|
Excess tax benefits from stock-based compensation |
4,907 |
10,351 |
||||||
|
Payments on long-term debt |
(1,024) |
(13,338) |
||||||
|
Proceeds from issuances of treasury stock |
1,691 |
3,975 |
||||||
|
Net cash provided by (used in) financing activities |
15,622 |
(64,210) |
||||||
|
Net change in cash and cash equivalents |
16,167 |
20,724 |
||||||
|
Cash and cash equivalents at beginning of period |
55,121 |
57,685 |
||||||
|
Cash and cash equivalents at end of period |
$ |
71,288 |
$ |
78,409 |
||||
|
BRINKER INTERNATIONAL, INC. |
|||||||||
|
Second Quarter Openings Fiscal 2016 |
Total Restaurants Dec. 23, 2015 |
Projected Openings |
|||||||
|
Company-Owned Restaurants: |
|||||||||
|
Chili's Domestic |
4 |
935 |
11-13 |
||||||
|
Chili's International |
— |
13 |
— |
||||||
|
Maggiano's |
2 |
51 |
2 |
||||||
|
6 |
999 |
13-15 |
|||||||
|
Franchise Restaurants: |
|||||||||
|
Chili's Domestic |
2 |
326 |
8-10 |
||||||
|
Chili's International |
11 |
321 |
25-30 |
||||||
|
13 |
647 |
33-40 |
|||||||
|
Total Restaurants: |
|||||||||
|
Chili's Domestic |
6 |
1,261 |
19-23 |
||||||
|
Chili's International |
11 |
334 |
25-30 |
||||||
|
Maggiano's |
2 |
51 |
2 |
||||||
|
19 |
1,646 |
46-55 |
|||||||
