DALLAS, Aug. 13, 2019 // PRNewswire // - Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal fourth quarter and year ended June 26, 2019.
Highlights include the following:
"The fourth quarter marked our 5th consecutive quarter of positive same store sales and our sixth consecutive quarter to out-perform the category in traffic", said Wyman Roberts, CEO and President. "Our continued focus on improving the guest experience and providing everyday value is a long term strategy that continues to deliver solid results."
Quarterly Operating Performance
Company Sales and Company Restaurant Expenses
Chili's Company sales in the fourth quarter of fiscal 2019 increased 2.0% to $701.9 million from $688.2 million in the fourth quarter of fiscal 2018 primarily due to an increase in comparable restaurant sales driven by an increase in To Go sales. As compared to the fourth quarter of fiscal 2018, Chili's restaurant operating margin(1) declined. This was primarily driven by Chili's Restaurant expenses, as a percentage of Company sales, which increased compared to the fourth quarter of fiscal 2018 primarily due to higher rent expenses associated with the new operating leases entered into during fiscal 2019 as part of the sale leaseback transactions and the impact of adopting ASC 606, partially offset by sales leverage. Cost of sales, as a percentage of Company sales, increased compared to the fourth quarter of fiscal 2018 primarily due to unfavorable menu item mix and produce commodity pricing, partially offset by increased menu pricing. These increases were partially offset by Restaurant labor, as a percentage of Company sales, which decreased compared to the fourth quarter of fiscal 2018 due to lower manager expenses, lower employee health insurance expenses and sales leverage impact, partially offset by higher wage rates.
Maggiano's Company sales in the fourth quarter of fiscal 2019 decreased 0.3% to $102.9 million from $103.2 million in the fourth quarter of fiscal 2018 primarily due to a decrease in comparable restaurant sales. As compared to the fourth quarter of fiscal 2018, Maggiano's restaurant operating margin(1) declined. This was primarily driven by Cost of sales, as a percentage of Company sales, which increased compared to the fourth quarter of fiscal 2018 primarily due to unfavorable menu item mix and commodity pricing, partially offset by increased menu pricing. These increases were partially offset by a decrease in Restaurant labor, as a percentage of Company sales, primarily due to lower manager expenses, partially offset by sales deleverage. Restaurant expenses, as a percentage of Company sales remained flat compared to the fourth quarter of fiscal 2018.
(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 fourth quarter of fiscal 2019 increased 14.0% to $29.3 million from $25.7 million in the fourth quarter of fiscal 2018 primarily due to the adoption of ASC 606 during fiscal 2019. Please refer to "REVENUE RECOGNITION UPDATE" section below for more details on the new revenue standard. Brinker franchisees generated approximately $331.7 million in sales(2) in the fourth 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 expenses in the fourth quarter of fiscal 2019 increased $0.4 million compared to the fourth quarter of fiscal 2018 primarily due to additions for existing restaurants primarily related to Chili's remodels, an increase in capital leases, and new restaurants additions, partially offset by an increase in fully depreciated assets, the reduction of restaurants assets sold as part of the sale leaseback transactions and restaurant closures.
General and administrative expenses in the fourth quarter of fiscal 2019 increased $5.2 million compared to the fourth quarter of fiscal 2018 primarily due to higher performance-based compensation expenses and increased rent expenses related to the new corporate headquarters.
Income Taxes
On a GAAP basis, the effective income tax rate in the fourth quarter of fiscal 2019 decreased to 5.1% compared to 20.4% in the fourth quarter of fiscal 2018. This decrease was driven primarily by the positive impact of the lower statutory tax rate due to the Tax Cuts and Jobs Act of 2017 (the "Tax Act") that was enacted during fiscal 2018. The Tax Act lowered the federal statutory tax rate from 35.0% to 21.0% effective January 1, 2018. The decrease was also driven by an increase in the FICA tax credit and foreign tax deduction. Excluding the impact of special items (see non-GAAP reconciliation below for details), the effective income rate decreased to 10.1% in the fourth quarter of fiscal 2019 compared to 19.8% in the fourth quarter of fiscal 2018.
Fiscal 2020 Outlook
We estimate earnings per diluted share, excluding special items, will be in the range of $4.15 to $4.35. We believe providing estimated guidance for fiscal 2020 earnings per diluted share, excluding special items, provides investors the appropriate insight into our ongoing operating performance. Estimated earnings are based on the following:
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 during fiscal 2020, reconciliations to the appropriate GAAP measures will be provided.
Comparable Restaurant Sales
The tables below present the percentage change in company-owned and franchise comparable restaurant sales in the quarter and year-to-date comparative periods as described below:
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 reconciliations are presented in millions, except per diluted 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 expenses, 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 expenses, substantially all of which is related to restaurant-level assets, is excluded because such expenses represent historical costs which do not reflect current cash outlays for the restaurants. General and administrative expenses include primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices and are 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 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 reconciliations are presented in millions, except percentages.
Reconciliation of Free Cash Flow
FY 19
Brinker believes presenting free cash flow provides a useful measure to evaluate the cash flow available for reinvestment after considering the capital requirements and expenditures of our business operations (in millions).
During the fifty-two week period ended June 26, 2019, Cash flows provided by operating activities - GAAP included a reduction of $78.6 millioncash tax payments related to the gain on the sale leaseback transactions. The cash proceeds received from the sale leaseback transactions of $485.9 million are recorded in Cash flows provided by investing activities during the fifty-two week period ended June 26, 2019.
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, August 13, 2019 at 9 a.m. CDT:
http://investors.brinker.com/events/event-details/q4-2019-brinker-international-earnings-conference-call
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 August 27, 2019.
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 June 26, 2019, Brinker owned, operated, or franchised 1,665 restaurants under the names Chili's® Grill & Bar (1,612 restaurants) and Maggiano's Little Italy® (53 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. The forward-looking statements in the press release are based on information available to us as of the date any such statements are made and we assume no obligation to update these forward-looking statements except as required by law. 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 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 in the fourth quarter and fiscal year ended June 26, 2019.
The following table presents a comparative view of the thirteen and fifty-two week period ended June 26, 2019 results prepared in accordance with ASC 606 versus Legacy GAAP.
Mika Ware
Investor Relations
Investor.relations@brinker.com
Aisha Fletcher
Media Relations
Media.requests@brinker.com
800) 775-7290
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SOURCE Brinker International, Inc.
Brinker International, Inc. is one of the world's leading casual dining restaurant companies.