DALLAS - Jan. 30, 2018 // PRNewswire // - Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal second quarter ended Dec. 27, 2017.
Highlights include the following:
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CHILI'S second quarter company sales decreased 1.3 percent to $623.6 million from $632.1 million in the prior year primarily due to a decline in comparable restaurant sales. As compared to the prior year, Chili's restaurant operating margin1 declined. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates, partially offset by lower employee health insurance costs and incentive bonuses. Cost of sales, as a percent of company sales, increased slightly compared to the prior year due to unfavorable product mix on beef, ribs and chicken and unfavorable commodity pricing on produce, partially offset by increased menu pricing and favorable commodity pricing on beef. Restaurant expenses, as a percent of company sales, decreased due to lower advertising and repairs and maintenance expenses, partially offset by sales deleverage.
MAGGIANO'S second quarter company sales increased 2.1 percent to $119.1 million from $116.6 million in the prior year primarily due to an increase in comparable restaurant sales. As compared to the prior year, Maggiano's restaurant operating margin1 improved. Restaurant expenses, as a percent of company sales, decreased primarily due to sales leverage and lower property taxes, preopening and workers' compensation insurance expenses. Restaurant labor, as a percent of company sales, decreased compared to the prior year due to sales leverage and lower incentive bonuses, partially offset by higher wage rates. Cost of sales, as a percent of company sales, was negatively impacted by unfavorable commodity pricing, partially offset by increased menu pricing.
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 increased 6.3 percent to $23.7 million for the second quarter of fiscal 2018 compared to $22.3 million in the prior year second quarter primarily due to higher gift card-related revenues. Brinker franchisees generated approximately $324 million in sales2 for the second quarter of fiscal 2018.
2Royalty revenues are recognized based on the sales generated and reported to the Company by franchisees.
Other
Depreciation and amortization expense decreased $1.7 million for the current quarter compared to the second quarter of fiscal 2017 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 $0.5 million for the current quarter compared to the second quarter of fiscal 2017 primarily due to lower compensation-related expenses.
Income Taxes
The Tax Act was enacted on December 22, 2017 with an effective date of January 1, 2018. The enactment date occurred prior to the end of the second quarter of fiscal 2018 and therefore the federal statutory tax rate changes stipulated by the Tax Act were reflected in the current quarter. The Tax Act lowered the federal statutory tax rate from 35 percent to 21 percent effective January 1, 2018. Brinker's federal statutory tax rate for fiscal 2018 is now 28 percent, representing a blended tax rate for the current fiscal year based on the number of days in the fiscal year before and after the effective date. For subsequent years, our federal statutory tax rate will be 21%. We were also required to revalue our deferred tax accounts using the new federal statutory tax rate in the period in which the Tax Act was enacted. The Company's deferred tax position is a net asset and as a result, the reduction in the federal statutory tax rate resulted in a one-time non-cash adjustment to our net deferred tax balance of $8.7 million with a corresponding increase to the provision for income taxes in the second quarter of fiscal 2018.
On a GAAP basis, the effective income tax rate increased to 38.3 percent in the second quarter of fiscal 2018 from 28.2 percent in the second quarter of fiscal 2017. This increase was driven by the revaluation of the Company's deferred tax accounts pursuant to the Tax Act, partially offset by the positive impact of lowering the federal statutory tax rate and lower profits. Excluding the impact of special items and the revaluation of the Company's deferred tax accounts, the effective income tax rate decreased to 19.5 percent in the second quarter of fiscal 2018 compared to 28.1 percent in the second quarter of fiscal 2017 primarily due to the lower corporate tax rate and lower profits.
The Tax Act will have a material impact on the Company's effective tax rate for fiscal 2018. The Company estimates adjusted earnings per diluted share, excluding special items and the revaluation of the Company's deferred tax accounts, for fiscal 2018 will be in the range of $3.42 to $3.52 including the effective rate impact of the Tax Act. Previously, the Company expected the effective income tax rate excluding the impact of special items to be approximately 27 to 29 percent for fiscal 2018. The Company's effective tax rate excluding the impact of special items and the revaluation of the deferred tax accounts is now expected to be approximately 20 to 22 percent. The Company believes providing estimated fiscal 2018 earnings per diluted share guidance provides investors the appropriate insight into the Company's ongoing operating performance.
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 statements of comprehensive income and will only provide updates if there is a material change versus the original guidance. We are unable to reliably forecast special items such as restaurant impairments, restaurant closures, reorganization charges and legal settlements without unreasonable effort. As such, we do not present a reconciliation of forecasted non-GAAP measures to the corresponding GAAP measures. If special items are reported in the remainder of fiscal 2018, reconciliations to the appropriate GAAP measures will be provided.
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 financial results. Non-GAAP disclosures should not be viewed as a substitute for financial 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.
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Webcast Information
Investors and interested parties are invited to listen to today's conference call, as management will provide further details of the quarter. The call will broadcast live on Brinker's website at 9 a.m. CST today (Jan. 30) -
http://investors.brinker.com/phoenix.zhtml?c=119205&p=irol-EventDetails&EventId=5266817
For those who are unable to listen to the live broadcast, a replay of the call will be available shortly thereafter and will remain on Brinker's website until the end of the day Feb. 27, 2018.
Additional financial information, including statements of income which detail operations excluding special items, franchise and other revenues, and comparable restaurant sales trends by brand, is also available on Brinker's website under the Financial Information section of the Investor tab.
Forward Calendar
- SEC Form 10-Q for the second quarter of fiscal 2018 filing on or before Feb. 5, 2018; and
- Third quarter earnings release, before market opens, May 1, 2018.
Brinker International, Inc. is one of the world's leading casual dining restaurant companies. Founded in 1975 and based in Dallas, Texas, as of December 27, 2017, Brinker owned, operated, or franchised 1,682 restaurants under the names Chili's® Grill & Bar (1,630 restaurants) and Maggiano's Little Italy® (52 restaurants).
The statements contained in this release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which could cause actual results to differ materially from our historical results or from those projected in forward-looking statements. These risks and uncertainties are, in many instances, beyond our control. Such risks and uncertainties include, among other things, general business and economic conditions, financial and credit market conditions, litigation, reduced disposable income, the impact of competition, the impact of mergers, acquisitions, divestitures and other strategic transactions, franchisee success, the seasonality of the company's business, increased minimum wages, increased health care costs, adverse weather conditions, loss of key management personnel, product availability, actions of activist shareholders, terrorist acts, consumer perception of food safety, changes in consumer taste, health epidemics or pandemics, changes in demographic trends, availability of employees, unfavorable publicity, the company's ability to meet its business strategy plan, material weaknesses in internal control over financial reporting, governmental regulations, tax reform, inflation, technology failures, and failure to protect the security of data of our guests and teammates, as well as the risks described under the caption "Risk Factors" in our Annual Report on Form 10-K and future filings with the Securities and Exchange Commission.
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Mika Ware
Investor Relations
Investor.relations@brinker.com
Aisha Fletcher
Media Relations
Media.requests@brinker.com
(800) 775-7290
6820 LBJ Freeway, Dallas, Texas 75240
SOURCE Brinker International, Inc.
Brinker International, Inc. is one of the world's leading casual dining restaurant companies.