Brinker International Results

Brinker International Reports First Quarter Results

Brinker's total revenues decreased 0.5 percent to $758.5 million compared to the first quarter of fiscal 2016 and company sales decreased 0.4 percent to $737.4 million compared to the first quarter of fiscal 2016

Brinker International

Brinker International, Inc. (NYSE: EAT) yesterday announced results for the fiscal first quarter ended Sept. 28, 2016.

Highlights include the following:

  • On a GAAP basis, earnings per diluted share decreased 22.2 percent to $0.42 compared to $0.54 for the first quarter of fiscal 2016
  • Earnings per diluted share, excluding special items, decreased 12.5 percent to $0.49 compared to $0.56 for the first quarter of fiscal 2016 (see non-GAAP reconciliation below)
  • Brinker's total revenues decreased 0.5 percent to $758.5 million compared to the first quarter of fiscal 2016 and company sales decreased 0.4 percent to $737.4 million compared to the first quarter of fiscal 2016
  • Chili's company-owned comparable restaurant sales decreased 1.4 percent
  • Maggiano's comparable restaurant sales decreased 0.6 percent
  • Chili's franchise comparable restaurant sales decreased 0.6 percent, which includes a 1.6 percent decrease for U.S. franchise restaurants, partially offset by an increase of 0.9 percent for international franchise restaurants
  • Operating income,  as a percent of total revenues, declined approximately 190 basis points to 5.5 percent compared to 7.4 percent for the first quarter of fiscal 2016
  • Restaurant operating margin,  as a percent of company sales, declined approximately 130 basis points to 13.3 percent compared to 14.6 percent for the first quarter of fiscal 2016 (see non-GAAP reconciliation below)
  • For the first three months of fiscal 2017, cash flows provided by operating activities were $66.2 million and capital expenditures totaled $27.1 million. Free cash flow was approximately $39.1 million (see non-GAAP reconciliation below)
  • The company closed the private offering of $350 million of its 5.0% senior notes due 2024, entered into a $300 million accelerated share repurchase agreement ("ASR") and amended the revolving credit agreement to increase the borrowing amount available from $750 million to $1 billion
  • The company spent $350 million to repurchase shares including the $300 million for the ASR. The company received an initial delivery of approximately 4.6 million shares of common stock pursuant to the ASR agreement and repurchased approximately 1.0 million additional shares of common stock in the open market for a total of 5.6 million shares

"We remain optimistic about our growth plans despite a choppy first quarter and are seeing traction with stronger comparable restaurant sales for Chili's in October," said Wyman Roberts, chief executive officer and president. "In the first quarter, the casual dining category was more challenging than we anticipated, but we are gaining share and are rolling out multiple growth platforms - craft beer taps, happy hour, To Go, Plenti points for My Chili's Rewards loyalty program - that we expect will build through the second half and beyond."

Table 1: Q1 comparable restaurant sales1

Company-owned, reported brands and franchise; percentage

Q1 17

Q1 16

Brinker International

(1.3)

(1.6)

  Chili's Company-Owned

     Comparable Restaurant Sales

(1.4)

(1.6)

     Pricing Impact2

1.2

1.4

     Mix-Shift2,3

1.5

(1.6)

     Traffic2

(4.1)

(1.4)

  Maggiano's

     Comparable Restaurant Sales

(0.6)

(1.7)

     Pricing Impact2

2.3

2.8

     Mix-Shift2,3

(1.3)

(0.9)

     Traffic2

(1.6)

(3.6)

Chili's Franchise4

(0.6)

2.2

  U.S. Comparable Restaurant Sales

(1.6)

0.8

  International Comparable Restaurant Sales

0.9

4.8

Chili's Domestic5

(1.3)

(1.1)

System-wide6

(1.1)

(0.5)

1

Comparable restaurant sales includes all restaurants that have been in operation for more than 18 months.

2

Reclassifications have been made between pricing impact, mix-shift and traffic in the prior year to conform with current year classification.

3

Mix shift is calculated as the year over year percentage change in company sales resulting from the change in menu items ordered by guests.

4

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.

5

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.

6

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 first quarter company sales decreased 0.7 percent to $648.6 million from $653.1 million in the prior year primarily due to a decline in comparable restaurant sales, partially offset by an increase in restaurant capacity. As compared to the prior year, Chili's restaurant operating margin1 declined. Restaurant expenses, as a percent of company sales, increased due to higher advertising and repairs and maintenance expenses, partially offset by lower workers' compensation insurance expenses. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates.  Cost of sales, as a percent of company sales, decreased due to increased menu pricing and favorable commodity pricing related to poultry and burger meat, partially offset by unfavorable menu item mix and commodity pricing primarily related to avocados.

MAGGIANO'S first quarter company sales increased 1.6 percent to $88.8 million from $87.4 million in the prior year primarily due to an increase in restaurant capacity, partially offset by 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 increased menu pricing and favorable commodity pricing, partially offset by unfavorable menu item mix. Restaurant labor, as a percent of company sales, decreased compared to the prior year due to a lower incentive bonuses, partially offset by higher wage rates. Restaurant expenses, as a percent of company sales, were flat compared to the prior year.

1Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses and excludes Depreciation and amortization expenses. (See non-GAAP reconciliation below)

FRANCHISE AND OTHER revenues decreased 4.5 percent to $21.1 million for the first quarter compared to $22.1 million in the prior year. Brinker franchisees generated approximately $331 million in sales2 for the first quarter of fiscal 2017.

2Royalty revenues are recognized based on the sales generated and reported to the company by franchisees.

Other

Depreciation and amortization expense decreased $0.3 million for the quarter primarily due to an increase in fully depreciated assets and restaurant closures, partially offset by depreciation on asset replacements and new restaurant openings.

General and administrative expense decreased approximately $0.6 million primarily due to lower payroll and legal expenses, partially offset by higher performance-based compensation.

On a GAAP basis, the effective income tax rate decreased to 29.5 percent in the current quarter from 31.9 percent in the prior year quarter. Excluding the impact of special items, the effective income tax rate decreased to 30.9 percent in the current quarter compared to 32.1 percent.  The effective income tax rates decreased in the current quarter primarily due to lower profits and the impact of tax credits.

Non-GAAP Measures

Brinker management uses certain non-GAAP measures in analyzing operating performance and believes that the presentation of these measures in this release provides investors with information that is beneficial to gaining an understanding of the company's operating results. Non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  Reconciliations of these non-GAAP measures are included in the tables below.

Table 2: Reconciliation of net income excluding special items

Q1 17 and Q1 16; $ millions and $ per diluted share after-tax

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 first quarter of fiscal 2017 consist primarily of charges related to restaurant closures and information technology restructuring.

Q1 17

EPS Q1 17

Q1 16

EPS Q1 16

Net Income

23.2

0.42

33.2

0.54

Special items1

6.1

0.11

1.7

0.03

Income tax effect related to special items

(2.3)

(0.04)

(0.7)

(0.01)

Special items, net of taxes

3.8

0.07

1.0

0.02

Net Income excluding special items

27.0

0.49

34.2

0.56

1

See footnote "b" to the consolidated statements of comprehensive income for additional details on the composition of these amounts.

Table 3: Calculation of restaurant operating margin and reconciliation to operating income

Q1 17 and Q1 F16; $ millions

Brinker believes presenting restaurant operating margin provides a useful metric by which to evaluate restaurant-level operating efficiency and performance.

Q1F17

Q1F16

Company sales

737.4

740.5

  Cost of sales

192.3

196.6

  Restaurant labor

250.6

246.6

  Restaurant expenses

196.6

189.2

Restaurant operating margin

97.9

108.1

Divided by company sales

737.4

740.5

Restaurant operating margin as a percent of company sales

13.3

%

14.6

%

Restaurant operating margin

97.9

108.1

Franchise and other revenues

21.1

22.1

Depreciation and amortization

(38.9)

(39.2)

General and administrative

(32.5)

(33.1)

Other gains and charges

(6.1)

(1.7)

Operating income

41.5

56.2

Divided by total revenues

758.5

762.6

Operating income as a percent of total revenues

5.5

%

7.4

%

Table 4: Reconciliation of free cash flow

Q1 17; $ millions

Brinker believes presenting free cash flow provides a useful measure to evaluate the cash flow available for reinvestment after considering the capital requirements of our business operations.

Thirteen Week

Period Ended

Sept. 28, 2016

Cash flows provided by operating activities

66.2

Capital expenditures

(27.1)

Free cash flow

39.1

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.

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 Sept. 28, 2016, Brinker owned, operated, or franchised 1,652 restaurants under the names Chili's® Grill & Bar (1,601 restaurants) and Maggiano's Little Italy® (51 restaurants).

BRINKER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(Unaudited)

Thirteen Week Periods Ended

Sept. 28, 2016

Sept. 23, 2015

Revenues:

Company sales

$

737,410

$

740,481

Franchise and other revenues (a)

21,082

22,078

Total revenues

758,492

762,559

Operating costs and expenses:

Company restaurants (excluding depreciation and amortization)

Cost of sales

192,302

196,603

Restaurant labor

250,570

246,577

Restaurant expenses

196,643

189,173

Company restaurant expenses

639,515

632,353

Depreciation and amortization

38,886

39,171

General and administrative

32,537

33,111

Other gains and charges (b)

6,078

1,677

Total operating costs and expenses

717,016

706,312

Operating income

41,476

56,247

Interest expense

8,809

7,767

Other, net

(299)

(273)

Income before provision for income taxes

32,966

48,753

Provision for income taxes

9,733

15,546

Net income

$

23,233

$

33,207

Basic net income per share

$

0.42

$

0.55

Diluted net income per share

$

0.42

$

0.54

Basic weighted average shares outstanding

54,844

60,225

Diluted weighted average shares outstanding

55,576

61,208

Other comprehensive loss:

Foreign currency translation adjustment (c)

$

(481)

$

(2,805)

Other comprehensive loss

(481)

(2,805)

Comprehensive income

$

22,752

$

30,402

(a)

Franchise and other revenues primarily includes royalties, development fees, franchise fees, Maggiano's banquet service charge income, gift card breakage and discounts, tabletop gaming revenue, Chili's retail food product royalties and delivery fee income.

(b) 

Other gains and charges include:

Thirteen Week Periods Ended

Sept. 28, 2016

Sept. 23, 2015

Restaurant closure charges

$

2,506

$

Information technology restructuring

2,491

Severance

293

2,159

Acquisition costs

580

Gain on the sale of assets, net

(1,762)

Other

788

700

$

6,078

$

1,677

(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.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

Sept. 28, 2016

June 29, 2016

ASSETS

Current assets

$

174,453

$

176,774

Net property and equipment (a)

1,028,108

1,043,152

Total other assets

255,965

249,534

Total assets

$

1,458,526

$

1,469,460

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current installments of long-term debt

$

3,848

$

3,563

Other current liabilities

421,773

428,880

Long-term debt, less current installments

1,441,979

1,110,693

Other liabilities

141,991

139,423

Total shareholders' deficit

(551,065)

(213,099)

Total liabilities and shareholders' deficit

$

1,458,526

$

1,469,460

(a)

At Sept. 28, 2016, the company owned the land and buildings for 191 of the 1,000 company-owned restaurants. The net book values of the land totaled $143.2 million and the buildings totaled $103.6 million associated with these restaurants.

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Thirteen Week Periods Ended

Sept. 28, 2016

Sept. 23, 2015

Cash Flows From Operating Activities:

Net income

$

23,233

$

33,207

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

Depreciation and amortization

38,886

39,171

Stock-based compensation

4,034

4,189

Restructure charges and other impairments

5,150

574

Net loss (gain) on disposal of assets

481

(1,233)

Changes in assets and liabilities

(5,564)

(30,022)

Net cash provided by operating activities

66,220

45,886

Cash Flows from Investing Activities:

Payments for property and equipment

(27,111)

(23,731)

Payment for purchase of restaurants

(105,577)

Proceeds from sale of assets

2,756

Net cash used in investing activities

(27,111)

(126,552)

Cash Flows from Financing Activities:

Proceeds from issuances of long-term debt

350,000

Purchases of treasury stock

(349,963)

(51,061)

Payments on revolving credit facility

(83,000)

Borrowings on revolving credit facility

70,000

155,500

Payments of dividends

(18,298)

(18,076)

Payments for deferred financing costs

(9,183)

Proceeds from issuances of treasury stock

3,396

1,306

Excess tax benefits from stock-based compensation

1,538

4,752

Payments on long-term debt

(890)

(849)

Net cash (used in) provided by financing activities

(36,400)

91,572

Net change in cash and cash equivalents

2,709

10,906

Cash and cash equivalents at beginning of period

31,446

55,121

Cash and cash equivalents at end of period

$

34,155

$

66,027

BRINKER INTERNATIONAL, INC.

RESTAURANT SUMMARY

First Quarter

Openings

Fiscal 2017

Total Restaurants

Sept. 28, 2016

Projected Openings

Fiscal 2017

Company-Owned Restaurants:

Chili's Domestic

2

936

5-6

Chili's International

13

1

Maggiano's

1

51

2

3

1,000

8-9

Franchise Restaurants:

Chili's Domestic

1

317

5-8

Chili's International

4

335

35-40

5

652

40-48

Total Restaurants:

Chili's Domestic

3

1,253

10-14

Chili's International

4

348

36-41

Maggiano's

1

51

2

8

1,652

48-57

 



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