DALLAS - Oct. 30, 2018 // PRNewswire // - Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal first quarter ended September 26, 2018.
Highlights include the following:
"Brinker's strong performance this quarter is the result of the continued execution of our strategy to drive traffic and gain market share," said Wyman Roberts, Chief Executive Officer and President. "We are committed to delivering a quality guest experience while offering a compelling value proposition, a combination we believe is key to our long term success."
Quarterly Operating Performance
Company Sales and Company Restaurant Expenses
Chili's Company sales in the first quarter of fiscal 2019 increased 2.0% to $640.3 million from $627.6 million in the first quarter of fiscal 2018 primarily due to an increase in comparable restaurant sales. As compared to the first quarter of fiscal 2018, Chili's restaurant operating margin(1) declined. Chili's Restaurant expenses, as a percent of Company sales, increased compared to the first quarter of fiscal 2018 primarily due to higher rent expense associated with the new operating leases entered into as part of the sale leaseback transactions and the impact of adopting the new revenue accounting standard ("ASC 606"). Cost of sales, as a percent of Company sales, increased compared to the first quarter of fiscal 2018 primarily due to unfavorable menu item mix. Restaurant labor, as a percent of Company sales, increased compared to the first quarter of fiscal 2018 due to higher wage rates and employee health insurance expenses.
Maggiano's Company sales in the first quarter of fiscal 2019 decreased 1.5% to $88.0 million from $89.3 million in the first quarter of fiscal 2018 due to a decrease in restaurant capacity. As compared to the first quarter of fiscal 2018, Maggiano's restaurant operating margin(1) improved. This was primarily driven by Cost of sales, as a percent of Company sales, that decreased compared to the first quarter of fiscal 2018 primarily due to favorable menu item mix.
(1) Restaurant 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
Franchise and other revenues in the first quarter of fiscal 2019 increased 13.3% to $25.5 million from $22.5 million primarily related to the adoption of ASC 606 during the first quarter of fiscal 2019, please refer to "REVENUE RECOGNITION UPDATE" section below for more details on the new revenue standard. Brinker franchisees generated approximately $320.7 million in sales(2) in the first quarter of fiscal 2019.
(2) Royalty revenues are recognized based on the sales generated and reported to the Company by franchisees.
Other
Depreciation and amortization expense in the first quarter of fiscal 2019 decreased $1.5 million compared to the first quarter of fiscal 2018 primarily due to an increase in fully depreciated assets and restaurant closures, partially offset by additions for existing restaurants primarily related to the Chili's remodels and new restaurants.
General and administrative expense in the first quarter of fiscal 2019 increased $1.5 million compared to the first quarter of fiscal 2018 primarily due to higher payroll expenses and professional service fees.
Income Taxes
On a GAAP basis, the effective income tax rate in the first quarter of fiscal 2019 decreased to 17.9% compared to 34.8% in the first quarter of fiscal 2018 primarily due to the Tax Cuts and Jobs Act of 2017 (the "Tax Act") that was enacted on December 22, 2017. The Tax Act lowered the federal statutory tax rate from 35.0% to 21.0% effective January 1, 2018. Our fiscal 2019 effective income tax rate is further lowered due to an increase in the FICA tax credit benefit, partially offset by the impact of the sale leaseback transactions.
The tax gains related to the sale leaseback transactions were recognized for tax purposes when the transaction was completed. A tax liability of approximately $73.6 million related to the gain was included in Income taxes payable in the Consolidated Balance Sheets as of September 26, 2018. This liability will be subsequently paid in the second quarter of fiscal 2019.
Comparable Restaurant Sales
The table below presents the percent change in company-owned and franchise comparable restaurant sales in the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018, and the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017:
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.
Reconciliation of Net Income and Earnings Per Share Excluding Special Items
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. The following reconciliation is presented in millions, except per share amounts.
Reconciliation of Restaurant Operating Margin
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 as an indicator of financial performance. Restaurant operating margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations. This non-GAAP measure is not indicative of overall company performance and profitability in that this measure does not directly accrue benefit to the shareholders due to the nature of costs excluded. We define Restaurant operating margin as Company sales less Company restaurant expenses, including Cost of sales, Restaurant labor and Restaurant expenses. We believe this metric provides a more useful comparison between periods and enables investors to focus on the performance of restaurant-level operations by excluding revenues not related to food and beverage sales at company-owned restaurants, corporate General and administrative expense, Depreciation and amortization, and Other (gains) and charges.
Restaurant operating margin excludes Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams such as banquet service charges, digital entertainment revenues and gift card breakage. Depreciation and amortization expense, substantially all of which is related to restaurant-level assets, is excluded because such expense represents historical costs which do not reflect current cash outlays for the restaurants. General and administrative expense includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices and is therefore excluded. We believe that excluding special items, included within Other (gains) and charges, from Restaurant operating margin provides investors with a clearer perspective of the Company's ongoing operating performance and a more useful comparison to prior period results. Restaurant operating margin as presented may not be comparable to other similarly titled measures of other companies in our industry.
The adoption of the new revenue standard, ASC 606, in first quarter of fiscal 2019 changed the presentation and recording of certain items contained within Franchise and other revenues, Operating income, and Restaurant operating margin. The adoption did not have a significant impact, for more details about the impact of adopting the new revenue standard please refer to the "REVENUE RECOGNITION UPDATE" section below. The following reconciliation is presented in millions, except percentages.
Reconciliation of Free Cash Flow
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 (in millions).
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 today, October 30, 2018 at 9 a.m. CDT:
http://investors.brinker.com/phoenix.zhtml?c=119205&p=irol-eventDetails&EventId=5275870
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 November 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
Brinker International, Inc. is one of the world's leading casual dining restaurant companies. Based in Dallas, Texas, as of September 26, 2018, Brinker owned, operated, or franchised 1,686 restaurants under the names Chili's® Grill & Bar (1,634 restaurants) and Maggiano's Little Italy® (52 restaurants).
Forward Looking Statements
The statements and tables 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, the impact of competition, changes in consumer preferences, consumer perception of food safety, reduced disposable income, unfavorable publicity, increased minimum wages, governmental regulations, the impact of mergers, acquisitions, divestitures and other strategic transactions, the Company's ability to meet its business strategy plan, loss of key management personnel, failure to hire and retain high-quality restaurant management, the impact of social media, failure to protect the security of data of our guests and team members, product availability, regional business and economic conditions, litigation, franchisee success, inflation, changes in the retail industry, technology failures, failure to protect our intellectual property, outsourcing, impairment of goodwill or assets, failure to maintain effective internal control over financial reporting, actions of activist shareholders, adverse weather conditions, terrorist acts, health epidemics or pandemics, and tax reform, 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.
REVENUE RECOGNITION UPDATE
Effective in the first quarter of fiscal 2019, we adopted ASC 606 and did not elect to restate the prior year financial statements to reflect the application of the standard. The primary impact of the adoption is the change in presentation of advertising fees received from franchisees and the timing of recognition for franchise related revenues and gift card breakage. Under ASC 606, advertising fees are now presented on a gross basis as a component of Franchise and other revenues. Under the previous revenue accounting guidance ("Legacy GAAP"), the advertising fees were recorded as a reduction to advertising expenses within Restaurant expenses in the Consolidated Statements of Comprehensive Income. The recognition timing change for franchise related fees and gift card breakage, both recorded in Franchise and other revenues, did not have a significant impact to our results of operations during the first quarter of fiscal 2019.
The following table presents a comparative view of the fiscal 2019 first quarter results prepared in accordance with ASC 606 versus Legacy GAAP.
We relocated two company-owned restaurants in the first quarter of fiscal 2019. In fiscal 2019, we plan to relocate a total of five company-owned restaurants. Relocations are not included in the above table.
Mika Ware
Investor Relations
Investor.relations@brinker.com
Aisha Fletcher
Media Relations
Media.requests@brinker.com
(800) 775-7290
6820 LBJFreeway, Dallas, Texas 75240
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SOURCE Brinker International, Inc.
Brinker International, Inc. is one of the world's leading casual dining restaurant companies.