Brinker International Reports Increases In Third Quarter Fiscal 2015 EPS And Comparable Restaurant Sales

DALLAS, April 21, 2015 // PRNewswire // -- Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal third quarter ended March 25, 2015.

Highlights include the following:

  • Earnings per diluted share, excluding special items, increased 11.9 percent to $0.94 compared to $0.84for the third quarter of fiscal 2014
  • On a GAAP basis, earnings per diluted share increased 24.4 percent to $1.02 compared to $0.82 for the third quarter of fiscal 2014
  • Brinker International company sales increased 3.0 percent to $761.7 million and comparable restaurant sales at company-owned restaurants increased 1.7 percent. Comparable restaurant sales increased 2.6 percent excluding the impact of Christmas Day moving to the third quarter
  • Chili's company-owned comparable restaurant sales increased 1.9 percent
  • Maggiano's comparable restaurant sales increased 0.1 percent, representing the 21st consecutive quarterly increase
  • Chili's franchise comparable restaurant sales increased 2.5 percent which includes a 3.1 percent increase for U.S. franchise restaurants and a 1.2 percent increase for international franchise restaurants
  • Restaurant operating margin,as a percent of company sales, improved approximately 30 basis points to 18.9 percent compared to 18.6 percent for the third quarter of fiscal 2014
  • For the first nine months of fiscal 2015, cash flows provided by operating activities were $274.9 millionand capital expenditures totaled $107.1 million. Free cash flow2 was approximately $167.8 million
  • The company repurchased approximately 1.7 million shares of its common stock for $104.2 million in the third quarter and a total of approximately 3.9 million shares for $217.0 million year-to-date
  • The company paid a dividend of 28 cents per share in the third quarter, an increase of 17 percent over the prior year third quarter, and declared a dividend of 28 cents per share to be paid in the fourth quarter

"Brinker delivered another solid quarter of double digit EPS growth," said Wyman Roberts, Chief Executive Officer and President. "We believe our ongoing culinary and technology innovations will drive traffic and help us deliver a differentiated guest experience."

Table 1: Q3 comparable restaurant sales

Q3 F15 and Q3 F14, company-owned, reported brands and franchise; percentage

         
 

Q3 15

 

Q3 14

Brinker International

 

1.7

 

0.7

  Chili's Company-Owned

       

     Comparable Restaurant Sales

 

1.9

 

0.7

     Pricing Impact

 

0.6

 

1.1

     Mix-Shift

 

1.5

 

0.8

     Traffic

 

(0.2)

 

(1.2)

  Maggiano's

       

     Comparable Restaurant Sales

 

0.1

 

0.2

     Pricing Impact

 

2.5

 

1.5

     Mix-Shift

 

(1.1)

 

(0.4)

     Traffic

 

(1.3)

 

(0.9)

         

Chili's Franchise1

 

2.5

 

0.2

  U.S. Comparable Restaurant Sales

 

3.1

 

0.1

  International Comparable Restaurant Sales

 

1.2

 

0.6

         

Chili's Domestic2

 

2.2

 

0.5

System-wide3

 

2.0

 

0.5

         

 

1

 

Revenues generated by franchisees are not included in revenues on the consolidated statements of comprehensive income; however, we generate royalty revenue and advertising fees based on franchisee revenues, where applicable. We believe including franchise comparable restaurant sales provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development.

     

2

 

Chili's Domestic comparable restaurant sales percentages are derived from sales generated by company-owned and franchise operated Chili's restaurants in the United States.

     

3

 

System-wide comparable restaurant sales are derived from sales generated by company-owned Chili's and Maggiano's restaurants in addition to the sales generated at franchise operated restaurants.

Quarterly Operating Performance

CHILI'S third quarter company sales increased 2.6 percent to $662.9 million from $645.8 million in the prior year primarily due to increases in comparable restaurant sales and restaurant capacity. As compared to the prior year, Chili's restaurant operating margin1,2 improved. Restaurant expenses, as a percent of company sales, decreased due to leverage related to higher company sales and lower workers' compensation insurance expense, partially offset by equipment charges associated with tabletop devices2 and higher credit card fees. Restaurant labor, as a percent of company sales, was favorably impacted by leverage related to higher company sales coupled with lower health insurance expense, partially offset by increased wage rates. Cost of sales, as a percent of company sales, was negatively impacted by menu item mix and unfavorable commodity pricing primarily related to burger meat, which is market based, as well as unfavorable pricing related to fajita beef and salmon, partially offset by favorable menu pricing and efficiency gains related to new fryer equipment.

MAGGIANO'S third quarter company sales increased 5.8 percent to $98.8 million from $93.4 million in the prior year primarily due to increases in restaurant capacity. As compared to the prior year, Maggiano's restaurant operating margin1 improved. Restaurant expenses, as a percent of company sales, were positively impacted by lower workers' compensation insurance expense coupled with leverage related to higher company sales, partially offset by higher utilities expense. Cost of sales, as a percent of company sales, was positively impacted by menu item changes and increased menu pricing, partially offset by unfavorable commodity pricing on beef, seafood, cheese and produce. Restaurant labor, as a percent of company sales, was negatively impacted by higher performance-based compensation, partially offset by leverage related to higher company sales.

1 Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses.

2 As compared to the prior year, the Chili's restaurant operating margin metric was negatively impacted by the classification of revenues and expenses associated with tabletop devices. The revenues associated with tabletop devices are included in Franchise and other revenues while the associated equipment charges are included in Restaurant expenses, a component of the restaurant operating margin calculation.

Franchise And Other revenues increased 11.9 percent to $22.5 million for the third quarter compared to $20.1 million in the prior year driven primarily by the revenues associated with tabletop devices, royalty revenues related to Chili's new retail food products, and higher royalty income primarily driven by international franchise restaurant openings. U.S. franchise comparable restaurant sales increased 3.1 percent and international comparable restaurant sales increased 1.2 percent. Brinker franchisees generated approximately $424 million in sales3 for the third quarter of fiscal 2015.

3 Royalty revenues are recognized based on the sales generated and reported to the company by franchisees.

Other

Depreciation and amortization expense increased $2.4 million for the quarter primarily due to investments in the Chili's reimage program, new restaurant openings and new fryer equipment, partially offset by an increase in fully depreciated assets.

General and administrative expense increased $1.2 million primarily due to an increase in technology and innovation expenditures made in support of sales driving initiatives.

On a GAAP basis, the effective income tax rate increased to 32.1 percent in the current quarter from 30.4 percent in the prior year quarter primarily due to increased earnings, partially offset by the impact of tax credit changes. Excluding the impact of special items, the effective income tax rate increased to 31.5 percent in the current quarter compared to 30.6 percent in the prior year primarily due to increased earnings, partially offset by the impact of tax credit changes.

Non-GAAP Reconciliation

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. Special items in the third quarter of fiscal 2015 consist primarily of proceeds received from a lawsuit settlement.

Table 2: Reconciliation of net income excluding special items

Q3 15 and Q3 14; $ millions and $ per diluted share after-tax

 
   

Q3 15

 

EPS Q3 15

 

Q3 14

 

EPS Q3 14

Net Income

 

65.4

 

1.02

 

56.3

 

0.82

Other (Gains) and Charges, net of taxes1

 

(5.2)

 

(0.08)

 

1.3

 

0.02

Net Income excluding Special Items

 

60.2

 

0.94

 

57.6

 

0.84

                 

 

 

1

Pre-tax Other gains and charges included a gain of $8.5 million and a charge of $2.1 million in the third quarter of fiscal 2015 and 2014, respectively. See footnote "b" to the consolidated statements of comprehensive income for additional details.

Guidance Policy

Brinker provides annual guidance as it relates to comparable restaurant sales, earnings per diluted share, and other key line items in the comprehensive income statement and will only provide updates if there is a material change versus the original guidance. Consistent with prior practice, management will not discuss intra-period sales or other key operating results not yet reported as the limited data may not accurately reflect the final results of the period or quarter referenced.

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 the Brinker website (www.brinker.com) at 9 a.m. CDT today (April 21). 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 the Brinker website until the end of the day May 21, 2015.

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 the Brinker website under the Financial Information section of the Investor tab.

Forward Calendar

- SEC Form 10-Q for third quarter fiscal 2015 filing on or before May 4, 2015; and
- Fourth quarter earnings release, before market opens, Aug. 6, 2015.

About Brinker

Brinker International, Inc. is one of the world's leading casual dining restaurant companies. Founded in 1975 and based in Dallas, Texas, as of March 25, 2015, Brinker owned, operated, or franchised 1,629 restaurants under the names Chili's® Grill & Bar (1,580 restaurants) and Maggiano's Little Italy® (49 restaurants).

Forward-Looking Statements

The statements contained in this release that are not historical facts are forward-looking statements. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business and economic conditions, financial and credit market conditions, credit availability, reduced disposable income, the impact of competition, the impact of mergers, acquisitions, divestitures and other strategic transactions, franchisee success, the seasonality of the company's business, increased minimum wages, increased health care costs, adverse weather conditions, future commodity prices, product availability, fuel and utility costs and availability, terrorist acts, consumer perception of food safety, changes in consumer taste, health epidemics or pandemics, changes in demographic trends, availability of employees, unfavorable publicity, the company's ability to meet its business strategy plan, acts of God, governmental regulations, inflation, technology failures, and failure to protect the security of data of our guests and teammates.

 

 

BRINKER INTERNATIONAL, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(In thousands, except per share amounts)

 

(Unaudited)

         
   

Thirteen Week Periods Ended

 

Thirty-Nine Week Periods Ended

   

March 25, 2015

 

March 26, 2014

 

March 25, 2015

 

March 26, 2014

Revenues:

                 

Company sales

 

$

761,736

   

$

739,200

   

$

2,166,368

   

$

2,088,087

 

Franchise and other revenues (a)

 

22,479

   

20,093

   

71,763

   

61,528

 

Total revenues

 

784,215

   

759,293

   

2,238,131

   

2,149,615

 

Operating costs and expenses:

                 

Company restaurants (excluding depreciation and amortization)

                 

Cost of sales

 

203,960

   

195,439

   

582,507

   

561,276

 

Restaurant labor

 

240,105

   

233,890

   

695,114

   

672,525

 

Restaurant expenses

 

173,611

   

172,459

   

528,047

   

511,293

 

Company restaurant expenses

 

617,676

   

601,788

   

1,805,668

   

1,745,094

 

Depreciation and amortization

 

36,599

   

34,218

   

108,213

   

100,912

 

General and administrative

 

35,194

   

34,009

   

100,488

   

98,792

 

Other gains and charges (b)

 

(8,477)

   

2,088

   

747

   

4,315

 

Total operating costs and expenses

 

680,992

   

672,103

   

2,015,116

   

1,949,113

 

Operating income

 

103,223

   

87,190

   

223,015

   

200,502

 

Interest expense

 

7,361

   

7,068

   

21,709

   

21,128

 

Other, net

 

(454)

   

(693)

   

(1,568)

   

(1,736)

 

Income before provision for income taxes

 

96,316

   

80,815

   

202,874

   

181,110

 

Provision for income taxes

 

30,889

   

24,552

   

63,403

   

55,891

 

Net income

 

$

65,427

   

$

56,263

   

$

139,471

   

$

125,219

 
                   

Basic net income per share

 

$

1.04

   

$

0.85

   

$

2.19

   

$

1.88

 
                   

Diluted net income per share

 

$

1.02

   

$

0.82

   

$

2.14

   

$

1.83

 
                   

Basic weighted average shares outstanding

 

62,891

   

66,479

   

63,719

   

66,661

 
                   

Diluted weighted average shares outstanding

 

64,091

   

68,342

   

65,108

   

68,591

 
                   

Other comprehensive loss:

                 

Foreign currency translation adjustment (c)

 

$

(2,847)

   

$

(1,108)

   

$

(7,183)

   

$

(1,862)

 

Other comprehensive loss

 

(2,847)

   

(1,108)

   

(7,183)

   

(1,862)

 

Comprehensive income

 

$

62,580

   

$

55,155

   

$

132,288

   

$

123,357

 
                   

 

   

(a)  

Franchise and other revenues primarily includes royalties, development fees and franchise fees, banquet service charge income, gift card activity (breakage and discounts), tabletop device revenue, Chili's retail food product royalties and delivery fee income. Beginning in fiscal 2015, income primarily related to Maggiano's delivery is included in Franchise and other revenues on the consolidated statements of comprehensive income. This income was previously included in Restaurant expenses. The prior year consolidated statements of comprehensive income has been adjusted to conform to the fiscal 2015 presentation. This adjustment has no effect on net income previously reported. 

   

(b)

Other gains and charges include:

   
   

 

 

Thirteen Week Periods Ended

 

Thirty-Nine Week Periods Ended

       
 

March 25, 2015

 

March 26, 2014

 

March 25, 2015

 

March 26, 2014

Litigation

$

(8,553)

   

$

   

$

(2,753)

   

$

 

Restaurant impairment charges

   

   

747

   

1,285

 

Restaurant closure charges

76

   

1,224

   

1,457

   

2,330

 

Loss (Gain) on the sale of assets, net

   

   

1,093

   

(579)

 

Impairment of liquor licenses

   

   

175

   

 

Other

   

864

   

28

   

1,279

 
 

$

(8,477)

   

$

2,088

   

$

747

   

$

4,315

 

 

   

(c)  

The foreign currency translation adjustment included in comprehensive income on the consolidated statements of comprehensive income represents the unrealized impact of translating the financial statements of the Canadian restaurants and the Mexican joint venture from their respective functional currencies to U.S. dollars. This amount is not included in net income and would only be realized upon disposition of the businesses.

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 
   

March 25, 2015

 

June 25, 2014

         

ASSETS

           

Current assets

 

$

190,046

   

$

210,854

 

Net property and equipment (a)

 

1,037,425

   

1,056,454

 

Total other assets

 

209,848

   

223,296

 

Total assets

 

$

1,437,319

   

$

1,490,604

 

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

       

Current installments of long-term debt

 

3,115

   

$

27,884

 

Other current liabilities

 

403,526

   

438,226

 

Long-term debt, less current installments

 

933,207

   

832,302

 

Other liabilities

 

129,600

   

129,098

 

Total shareholders' (deficit) equity

 

(32,129)

   

63,094

 

Total liabilities and shareholders' (deficit) equity

 

$

1,437,319

   

$

1,490,604

 

 

   

(a)   

At March 25, 2015, the company owned the land and buildings for 189 of the 889 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $142.2 million and $115.3 million, respectively.

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

     
   

Thirty-Nine Week Periods Ended

   

March 25, 2015

 

March 26, 2014

Cash Flows From Operating Activities:

       

Net income

 

$

139,471

      

$

125,219

 

Adjustments to reconcile net income to net cash provided by operating activities:

       

Depreciation and amortization

 

108,213

   

100,912

 

Stock-based compensation

 

11,587

   

12,990

 

Restructure charges and other impairments

 

8,402

   

3,836

 

Net loss on disposal of assets

 

3,819

   

3,208

 

Changes in assets and liabilities

 

3,415

   

30,935

 

Net cash provided by operating activities

 

274,907

   

277,100

 

Cash Flows from Investing Activities:

       

Payments for property and equipment

 

(107,108)

   

(113,980)

 

Proceeds from sale of assets

 

1,950

   

833

 

Net cash used in investing activities

 

(105,158)

   

(113,147)

 

Cash Flows from Financing Activities:

       

Borrowings on revolving credit facility

 

442,750

   

98,000

 

Purchases of treasury stock

 

(217,019)

   

(191,811)

 

Payments on long-term debt

 

(188,758)

   

(19,890)

 

Payments on revolving credit facility

 

(177,000)

   

(40,000)

 

Payments of dividends

 

(53,248)

   

(47,556)

 

Excess tax benefits from stock-based compensation

 

16,920

   

17,972

 

Proceeds from issuances of treasury stock

 

14,965

   

24,574

 

Payments for deferred financing costs

 

(2,501)

   

 

Net cash used in financing activities

 

(163,891)

   

(158,711)

 

Net change in cash and cash equivalents

 

5,858

   

5,242

 

Cash and cash equivalents at beginning of period

 

57,685

   

59,367

 

Cash and cash equivalents at end of period

 

$

63,543

   

$

64,609

 

 

BRINKER INTERNATIONAL, INC.

RESTAURANT SUMMARY

 
   

Third Quarter

Openings

Fiscal 2015

 

Total Restaurants

March 25, 2015

 

Projected Openings 
Fiscal 2015

Company-Owned Restaurants:

           

Chili's Domestic

 

2

   

827

   

8-10

 

Chili's International

 

   

13

   

1

 

Maggiano's

 

   

49

   

3

 
   

2

   

889

   

12-14

 

Franchise Restaurants:

           

Chili's Domestic

 

1

   

435

   

5

 

Chili's International

 

2

   

305

   

28-30

 
   

3

   

740

   

33-35

 

Total Restaurants:

           

Chili's Domestic

 

3

   

1,262

   

13-15

 

Chili's International

 

2

   

318

   

29-31

 

Maggiano's

 

   

49

   

3

 
   

5

   

1,629

   

45-49

 

SOURCE Brinker International, Inc.

###

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