DALLAS, Oct. 30, 2019 // PRNewswire // - Brinker International, Inc. (NYSE: EAT) today announced results for the first quarter of fiscal 2020 ended September 25, 2019.
Highlights include the following:
"The first quarter of fiscal 2020 represents our 6th consecutive quarter of positive comparable restaurant sales and our 7th consecutive quarter to outperform the category in traffic," said Wyman Roberts, CEO and President. "We are now lapping our year-over-year positive results and expect these trends to continue."
Chili's Restaurant Acquisition
On September 5, 2019, we acquired 116 Chili's restaurants owned by a franchisee located in the Midwest United States. The results of operations of these restaurants are included in the consolidated financial statements from the date of acquisition. We are reporting a preliminary purchase price allocation in the first quarter of fiscal 2020. We are evaluating the fair value of the assets and liabilities of the acquired restaurants through internal studies and third-party valuations.
Company Sales and Company Restaurant Expenses
Chili's Company sales in the first quarter of fiscal 2020 increased 5.8% to $677.5 million from $640.3 million in the first quarter of fiscal 2019 primarily due to an increase in comparable restaurant sales led by off-premise sales, and three weeks of revenues generated from the acquisition of the 116 Chili's restaurants. As compared to the first quarter of fiscal 2019, Chili's restaurant operating margin(1) decreased. Cost of sales, as a percentage of Company sales, increased compared to the first quarter of fiscal 2019 primarily due to unfavorable commodity pricing related to produce and menu item mix, partially offset by increased menu pricing. Restaurant expenses, as a percentage of Company sales, decreased compared to the first quarter of fiscal 2019 primarily due to sales leverage and lower marketing expenses, partially offset by higher rent expenses related to the fiscal 2019 sale leaseback transactions, and higher off-premise supplies and delivery fees. Restaurant labor, as a percentage of Company sales, was flat compared to the first quarter of fiscal 2019 due to the favorable impact of sales leverage, lower management salaries related to the Certified Shift Leader program, and lower employee health insurance expenses, fully offset by higher hourly labor wage rates and higher manager bonus from increased operating performance.
Maggiano's Company sales in the first quarter of fiscal 2020 decreased 1.8% to $86.4 million from $88.0 million in the first quarter of fiscal 2019 primarily due to a decrease in comparable restaurant sales. As compared to the first quarter of fiscal 2019, Maggiano's restaurant operating margin(1) decreased. Cost of sales, as a percentage of Company sales, increased compared to the first quarter of fiscal 2019 primarily due to unfavorable menu item mix and commodity pricing, partially offset by increased menu pricing. Restaurant labor, as a percentage of Company sales, increased due to higher hourly labor wage rates, partially offset by lower management salaries and lower employee health insurance expenses. Restaurant expenses, as a percentage of Company sales, decreased compared to the first quarter of fiscal 2019 due to lower supplies and lower repairs and maintenance expenses, partially offset by higher rent expenses due to the sale leaseback of one restaurant in the fourth quarter of fiscal 2019.
(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 2020 decreased 13.3% to $22.1 million from $25.5 million in the first quarter of fiscal 2019 primarily due to a decrease in royalties and franchise marketing contributions related to the 116 Chili's restaurants acquired from a franchisee during the first quarter of fiscal 2020. Additionally, the first quarter of fiscal 2020 franchise marketing contribution rate was lower than prior year. In the first quarter of fiscal 2020, Brinker franchisees generated approximately $298.3 million in sales(2).
(2) Royalty revenues are recognized based on the sales generated and reported to the Company by franchisees.
Other
Depreciation and amortization expenses in the first quarter of fiscal 2020 increased $1.1 million compared to the first quarter of fiscal 2019 primarily due to the Chili's remodel initiative, higher depreciation related to the prospective change in useful lives of certain fixed assets, and additional depreciation and amortization expenses related to the acquisition of 116 Chili's restaurants. These increases were partially offset by lower expense related to fully depreciated assets and retirements and reduced expenses related to the fiscal 2019 sale leaseback transactions.
General and administrative expenses in the first quarter of fiscal 2020 increased $4.2 million compared to the first quarter of fiscal 2019 primarily due to the acceleration of certain stock-based compensation expenses for newly retirement eligible executives on fiscal 2020 annual stock grants.
Income Taxes
On a GAAP basis, the effective income tax rate in the first quarter of fiscal 2020 decreased to 11.3% compared to 17.9% in the first quarter of fiscal 2019. The decrease was primarily driven by the impact of the fiscal 2019 sale leaseback transactions gain. Excluding the impact of special items (see non-GAAP reconciliation below for details), the effective income rate decreased to 10.5% in the first quarter of fiscal 2020 compared to 11.0% in the first quarter of fiscal 2019, primarily driven by an increase in the FICA tax credit in fiscal 2020.
Guidance Policy
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 table below presents the percentage change in company-owned and franchise comparable restaurant sales in the quarter 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 reconciliation is 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, advertising fees, 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, are 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 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 and expenditures 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, 2019 at 9 a.m. CDT:
http://investors.brinker.com/events/event-details/q1-2020-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 November 13, 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
SEC Form 10-Q for the first quarter of fiscal 2020 filing on or before November 4, 2019
Earnings release call for the second quarter of fiscal 2020 on January 29, 2020
Brinker International, Inc. is one of the world's leading casual dining restaurant companies. Based in Dallas, Texas, as of September 25, 2019, Brinker owned, operated, or franchised 1,672 restaurants under the names Chili's® Grill & Bar (1,619 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, third party delivery risks, 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, downgrades in our credit ratings, 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.
Mika Ware, Investor Relations, Investor.relations@brinker.com, Or Aisha Fletcher, Media Relations, Media.requests@brinker.com, (800) 775-7290, 3000 Olympus Boulevard, Dallas, Texas 75019
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SOURCE Brinker International, Inc.
Brinker International, Inc. is one of the world's leading casual dining restaurant companies.