DALLAS, April 29, 2020 // PRNewswire // - Brinker International, Inc. (NYSE: EAT) today announced a business update related to the novel strain of coronavirus ("COVID-19"), in addition to results for the third quarter of fiscal 2020 ended March 25, 2020.
Brinker began experiencing the impact of the COVID-19 pandemic on March 8, 2020 resulting in decreased traffic and the closure of all of our dining rooms as we transitioned to a 100% off-premise model by the end of the third quarter. We have adapted our existing to-go and delivery sales channels in order to deliver a safe and quality experience for team members and guests during this pandemic. Our strategic decision to enhance our off-premise business over the last few years including online ordering, mobile app, curbside service and third-party delivery, has enabled us to conveniently serve a significantly higher volume of off-premise guests during this pandemic.
"Before the crisis hit, Brinker's strategies were working extremely well and the third quarter was shaping up to be very strong," said Wyman Roberts, CEO. "Since COVID-19, we have focused on the safety and health of our team members and guests while shifting to a to-go and delivery only model. We have supported our team members with a relief fund of more than $15 million, and worked hard to keep as many employees as possible. Our absolute and relative sales growth is a testament to the strength of the strategies we have been working on the past few years and will ensure our continued strength post COVID-19."
In the third quarter of fiscal 2020, through March 8, 2020, our multi-year strategies were delivering comparable restaurant sales growth. Company-owned Chili's comparable restaurant sales had increased by 3.3%, and Company-owned Maggiano's comparable restaurant sales had increased by 0.6%. Our Chili's off-premise sales, which includes both to-go and delivery, also grew reaching approximately 20% of sales, with approximately 14% coming from to-go and 6% from delivery. While the spread of COVID-19 dramatically changed the full-quarter results, we believe these intra-quarter results are further evidence and provide a good foundation for our brands as they move forward our multi-year strategies.
As Chili's and Maggiano's operate in an off-premise only model, below are some current preliminary results related to Company-owned restaurants for the weeks subsequent to the third quarter of fiscal 2020:
As of April 24, 2020, we have total liquidity of $175 million, comprised of total cash and revolver availability. Given the current sales levels and reductions in expenses, we estimate an average cash burn level of approximately $5 million per week while our business is primarily operating as off-premise. As a precautionary measure, we continue to evaluate additional sources of capital as we navigate through this evolving situation, and the Company is filing an automatic shelf registration statement on Form S-3ASR to provide the Company with flexibility to access the public capital markets in order to respond to future financing and business opportunities if and when the Company deems appropriate.
We do not have any further updates on our fiscal 2020 withdrawn guidance as discussed in our April 2, 2020 press release.
THIRD QUARTER OF FISCAL 2020 RESULTS
Highlights include the following:
Quarterly Operating Performance
Company Sales and Company Restaurant Expenses
Chili's Company sales in the third quarter of fiscal 2020 increased 5.5% to $748.7 million from $709.8 million in the third quarter of fiscal 2019 primarily due to the acquisition of 116 Chili's restaurants in the first quarter of fiscal 2020 and increased off-premise sales as we transitioned to a 100% off-premise model by the end of the third quarter of fiscal 2020. These increases were partially offset by decreased net comparable restaurant sales driven by reduced dining room traffic and 10 temporarily closed restaurants due to the COVID-19 pandemic.
As compared to the third quarter of fiscal 2019, Chili's restaurant operating margin(1) decreased. Restaurant expenses, as a percentage of Company sales, increased compared to the third quarter of fiscal 2019 primarily due to sales deleverage as a result of COVID-19 and higher expenses primarily related to delivery fees in connection with the growth in off-premise sales, partially offset by lower advertising spend. Restaurant labor, as a percentage of Company sales, increased compared to the third quarter of fiscal 2019 primarily due to sales deleverage as a result of COVID-19 and higher hourly labor wage rates, partially offset by lower manager bonus expense. Food and beverage costs, as a percentage of Company sales, increased compared to the third quarter of fiscal 2019 primarily due to unfavorable commodity pricing and menu item mix, partially offset by increased menu pricing.
Maggiano's Company sales in the third quarter of fiscal 2020 decreased to $91.7 million from $101.8 million in the third quarter of fiscal 2019 primarily due to a 9.9% decrease in comparable restaurant sales driven by reduced dining and banquet room traffic due to the COVID-19 pandemic and also included 0.7% of negative weather impact. As compared to the third quarter of fiscal 2019, Maggiano's restaurant operating margin(1) decreased. Restaurant expenses, as a percentage of Company sales, increased primarily due to sales deleverage as a result of COVID-19 and higher rent expenses, partially offset by lower repairs and maintenance expenses. Restaurant labor, as a percentage of Company sales, increased primarily due to sales deleverage as a result of COVID-19 and higher hourly labor wage rates, partially offset by lower manager bonus expense. Food and beverage costs, as a percentage of Company sales, decreased primarily due to increase menu pricing, partially offset by unfavorable menu mix.
Franchise and Other Revenues
Franchise and other revenues in the third quarter of fiscal 2020 decreased 29.2% to $19.6 million from $27.7 million in the third quarter of fiscal 2019 primarily due to a decrease in royalties and franchise marketing contributions that are primarily due to the acquisition of 116 Chili's restaurants from a franchisee in the first quarter of fiscal 2020 and the adverse impact of the COVID-19 pandemic on our domestic and global franchise restaurants. In the third quarter of fiscal 2020, our franchisees generated approximately $218.0 million in sales(2).
General and Administrative Expenses
General and administrative expenses in the third quarter of fiscal 2020 decreased 42.9% to $23.3 million from $40.8 million in the third quarter of fiscal 2019 primarily due to reduced performance-based incentive compensation expenses as the COVID-19 pandemic has negatively impacted business performance metrics. Additionally, stock-based compensation declined primarily related to the acceleration of stock-based compensation expenses in the first quarter of fiscal 2020 for retirement eligible executives and the timing of grants. Retirement eligibility results in the compensation being recognized in full upon grant as there is no vesting period.
Income Taxes
On a GAAP basis, the effective income tax rate in the third quarter of fiscal 2020 decreased to a benefit of (13.2%) compared to 10.3% in the third quarter of fiscal 2019 primarily driven by reduced profitability related to the COVID-19 pandemic in the third quarter of fiscal 2020, and the FICA tax credit in fiscal 2020. The provision for income taxes includes a significant reduction in the third quarter of fiscal 2020 necessary to align the year-to-date provision for income taxes to the year-to-date income. Excluding the impact of special items (see non-GAAP reconciliation below for details), the effective income rate was 4.6% in the third quarter of fiscal 2020.
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 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 Food and beverage costs, 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).
WEBCAST INFORMATION
Investors and interested parties are invited to listen to today's conference call, as management will provide further details of the quarter.
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 May 13, 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.
FORWARD CALENDAR
Brinker International, Inc. is one of the world's leading casual dining restaurant companies. Based in Dallas, Texas, as of March 25, 2020, Brinker owned, operated, or franchised 1,675 restaurants under the names Chili's® Grill & Bar (1622 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 (such as COVID-19), 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.
Included in the Total Restaurants Open at March 25, 2020 are locations that have been temporarily closed due to the COVID-19 pandemic which include 10 Company-owned Chili's restaurants located within a closed structure or closed due to local regulations, 32 domestic Chili's franchise locations, 203 Chili's international franchise locations, and 1 Maggiano's franchise location. Additionally, during this COVID-19 pandemic with the various government restrictions, we have temporarily delayed construction of new restaurants until we are able to safely resume. We do not anticipate relocating any restaurants at this time.
SOURCE Brinker International, Inc.
Brinker International, Inc. is one of the world's leading casual dining restaurant companies.