DALLAS, Jan. 29, 2020 /PRNewswire /- Brinker International, Inc. (NYSE: EAT) today announced results for the second quarter of fiscal 2020 ended December 25, 2019.
Highlights include the following:
"Our second quarter of fiscal 2020 combined positive top line growth and effective P&L management, which resulted in double digit adjusted EPS growth," said Wyman Roberts, CEO and President. "Our strategic focus on core execution, value and convenience allows us to build positive results on top of previous positive results."
Company Sales and Company Restaurant Expenses
Chili's Company sales in the second quarter of fiscal 2020 increased 13.7% to $728.4 million from $640.6 million in the second quarter of fiscal 2019 primarily due to revenues generated from the 116 Chili's restaurants acquired in the first quarter of fiscal 2020, and a 2.0% increase in comparable restaurant sales.
As compared to the second quarter of fiscal 2019, Chili's restaurant operating margin(1) increased. Restaurant expenses, as a percentage of Company sales, decreased compared to the second quarter of fiscal 2019 primarily due to sales leverage, partially offset by expenses related to growth in off-premise. Cost of sales, as a percentage of Company sales, decreased compared to the second quarter of fiscal 2019 primarily due to increased menu pricing, partially offset by unfavorable commodity pricing and menu item mix. Restaurant labor, as a percentage of Company sales, increased compared to the second quarter of fiscal 2019 due to higher hourly labor wage rates, partially offset by sales leverage.
Maggiano's Company sales in the second quarter of fiscal 2020 decreased to $119.1 million from $120.9 million in the second quarter of fiscal 2019 primarily due to a 1.4% decrease in comparable restaurant sales that included 0.5% of negative weather impact. As compared to the second quarter of fiscal 2019, Maggiano's restaurant operating margin(1) decreased. Restaurant labor, as a percentage of Company sales, increased primarily due to higher hourly labor wage rates. Restaurant expenses and Cost of sales, as a percentage of Company sales, were both flat compared to the second 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 second quarter of fiscal 2020 decreased 25.3% to $21.8 million from $29.2 million in the second 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. In the second quarter of fiscal 2020, Brinker franchisees generated approximately $247.4 million in sales.(2)
(2) Royalty revenues are recognized based on the sales generated and reported to the Company by franchisees.
Income Taxes
On a GAAP basis, the effective income tax rate in the second quarter of fiscal 2020 decreased to 3.8% compared to 8.6% in the second quarter of fiscal 2019. The decrease was primarily driven by the impact of additional expense related to special items during the second quarter of fiscal 2020. Excluding the impact of special items (see non-GAAP reconciliation below for details), the effective income rate increased to 10.5% in the second quarter of fiscal 2020 compared to 10.2% in the second quarter of fiscal 2019.
Fiscal 2020 Outlook and Guidance Policy
Brinker now increases our financial outlook with the following guidance changes based on year-to-date performance and estimates for the remainder of fiscal 2020:
We reaffirm the other aspects of our full-year fiscal 2020 financial guidance as previously communicated in our August 13, 2019 earnings release and provided below for reference.
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.
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 Net Income 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 because 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 revenues streams such as banquet service charges, digital entertainment revenues and gift card breakage. Depreciation and amortization expenses, substantially all of which are 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).
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, January 29, 2020 at 9 a.m. CST:
http://investors.brinker.com/events/event-details/q2-2020-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 February 12, 2020.
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.
Brinker International, Inc. is one of the world's leading casual dining restaurant companies. Based in Dallas, Texas, as of December 25, 2019, Brinker owned, operated, or franchised 1,675 restaurants under the names Chili's® Grill & Bar (1,622 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.