Brinker International Reports Third Quarter Results

DALLAS - April 19, 2016 // PRNewswire // - Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal third quarter ended March 23, 2016.

Highlights include the following:

  • Earnings per diluted share, excluding special items, increased 6.4 percent to $1.00 compared to $0.94 for the third quarter of fiscal 2015
  • On a GAAP basis, earnings per diluted share decreased 2.0 percent to $1.00 compared to $1.02 for the third quarter of fiscal 2015
  • Brinker International total revenues increased 5.2 percent to $824.6 million and company sales increased 5.7 percent to $805.1 million, primarily attributable to the 103 restaurants acquired with the Pepper Dining transaction in the first quarter of fiscal 2016
  • Chili's company-owned comparable restaurant sales decreased 4.1 percent
  • Maggiano's comparable restaurant sales increased 0.2 percent
  • Chili's franchise comparable restaurant sales decreased 1.7 percent which includes a 2.2 percent and 0.7 percent decrease for U.S. and international franchise restaurants, respectively
  • Restaurant operating margin,1 as a percent of company sales, declined approximately 150 basis points to 17.4 percent compared to 18.9 percent for the third quarter of fiscal 2015
  • For the first nine months of fiscal 2016, cash flows provided by operating activities were $299.6 million and capital expenditures totaled $76.1 million. Free cash flow2 was approximately $223.5 million
  • The company repurchased approximately 2.6 million shares of its common stock for $126.1 million in the third quarter and a total of approximately 5.4 million shares for $266.2 million year-to-date
  • The company declared a dividend of 32 cents per share to be paid in the fourth quarter, representing a 14.3% increase over the prior year

"While we continue to deliver strong cash flow and positive earnings growth through the year, we are disappointed in our recent sales performance," said Wyman Roberts, chief executive officer and president. "Our focus going forward is to more aggressively invest in our brands to grow comp sales and capture market share."

1 Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant Labor and Restaurant expenses. Restaurant operating margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance. 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 or other similarly titled measures of other companies.

2Free cash flow is defined as cash flows provided by operating activities less capital expenditures.

 

Table 1: Q3 comparable restaurant sales

Company-owned, reported brands and franchise; percentage

 
   

Q3 16

 

Q3 15

Brinker International

 

(3.6)

 

1.7

  Chili's Company-Owned1

       

     Comparable Restaurant Sales

 

(4.1)

 

1.9

     Pricing Impact2

 

1.1

 

0.8

     Mix-Shift2

 

(0.3)

 

1.5

     Traffic2

 

(4.9)

 

(0.4)

  Maggiano's

       

     Comparable Restaurant Sales

 

0.2

 

0.1

     Pricing Impact2

 

1.5

 

2.4

     Mix-Shift2

 

(2.4)

 

(1.2)

     Traffic2

 

1.1

 

(1.1)

         

Chili's Franchise3

 

(1.7)

 

2.5

  U.S. Comparable Restaurant Sales

 

(2.2)

 

3.1

  International Comparable Restaurant Sales

 

(0.7)

 

1.2

         

Chili's Domestic4

 

(3.6)

 

2.2

System-wide5

 

(3.1)

 

2.0

 

     

1

 

Chili's company-owned comparable restaurant sales includes 103 Chili's restaurants acquired from a franchisee in the first quarter of fiscal 2016.

2

 

Reclassifications have been made between pricing impact, mix-shift and traffic in the prior year to conform with current year classification.

3

 

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.

4

 

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.

5

 

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 6.1 percent to $703.5 million from $662.9 million in the prior year primarily due to an increase in restaurant capacity resulting from the acquisition of 103 Chili'srestaurants on June 25, 2015, partially offset by a decline in comparable restaurant sales. As compared to the prior year, Chili's restaurant operating margin1declined. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates, health insurance expenses and sales deleverage, partially offset by lower incentive bonus. Restaurant expenses, as a percent of company sales, increased due to sales deleverage and higher repairs and maintenance and rent expenses.  Cost of sales, as a percent of company sales, increased slightly due to unfavorable menu item mix and commodity pricing primarily related to steak, produce and chicken, partially offset by increased menu pricing and favorable commodity pricing related to burger meat, cheese and seafood.

MAGGIANO'S third quarter company sales increased 2.8 percent to $101.6 million from $98.8 million in the prior year primarily due to an increase in restaurant capacity. As compared to the prior year, Maggiano's restaurant operating margin1 improved. Restaurant expenses, as a percent of company sales, decreased compared to prior year due to lower advertising and utilities expenses, partially offset by higher preopening expenses. Cost of sales, as a percent of company sales, was positively impacted by increased menu pricing, favorable commodity pricing and menu item changes. Restaurant labor, as a percent of company sales, increased compared to prior year due to higher wage rates and health insurance expense.

1Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses.  Restaurant operating margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance. 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 or other similarly titled measures of other companies.

FRANCHISE AND OTHER revenues decreased 13.3 percent to $19.5 million for the third quarter compared to $22.5 million in the prior year driven primarily by a decrease in royalty revenues resulting from the acquisition of 103 Chili's restaurants from a former franchisee. Brinker franchisees generated approximately $346 million in sales2 for the third quarter of fiscal 2016.

2Royalty revenues are recognized based on the sales generated and reported to the company by franchisees.

Other

Depreciation and amortization expense increased $2.5 million for the quarter primarily due to depreciation on acquired restaurants, asset replacements and new restaurant openings, partially offset by an increase in fully depreciated assets.

General and administrative expense decreased approximately $5.0 million primarily due to lower performance-based compensation.

On a GAAP basis, the effective income tax rate decreased to 26.4 percent in the current quarter from 32.1 percent in the prior year quarter.  The effective income tax rate decreased primarily due to lower profits and the benefits associated with the release of the valuation allowance for state tax net operating losses and the resolution of certain tax positions. Excluding the impact of special items, the effective income tax rate decreased to 30.1 percent in the current quarter compared to 31.5 percent in the prior year quarter primarily due to lower profits.

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.

Table 2: Reconciliation of net income excluding special items

Q3 16 and Q3 15; $ millions and $ per diluted share after-tax

 
   

Q3 16

 

EPS Q3 16

 

Q3 15

 

EPS Q3 15

Net Income

 

57.5

 

1.00

 

65.4

 

1.02

Other (Gains) and Charges, net of taxes1

 

2.4

 

0.04

 

(5.2)

 

(0.08)

     Adjustment for tax items2

 

(2.6)

 

(0.04)

 

 

Net Income excluding Special Items

 

57.3

 

1.00

 

60.2

 

0.94

 

     

1

 

Pre-tax Other gains and charges includes a charge of $3.9 million and a gain of $8.5 million in the third quarter of fiscal 2016 and 2015, respectively. See footnote "b" to the consolidated statements of comprehensive income for additional details.

2

 

Discrete tax items result from the benefit associated with the release of the valuation allowance for state net operating losses as well as the resolution of certain tax positions which directly impacts tax expense.

Guidance Policy

Brinker provides annual guidance as it relates to comparable restaurant sales, earnings per diluted share, excluding special items, and other key line items in the statement of comprehensive income 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 19). 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 17, 2016.

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 the third quarter of fiscal 2016 filing on or before May 2, 2016; and
  • Fourth quarter earnings release, before market opens, Aug. 11, 2016.

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 23, 2016, Brinker owned, operated, or franchised 1,647 restaurants under the names Chili's® Grill & Bar (1,596 restaurants) and Maggiano's Little Italy® (51 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 23, 2016

 

March 25, 2015

 

March 23, 2016

 

March 25, 2015

Revenues:

               

Company sales

 

$

805,145

   

$

761,736

   

$

2,311,298

   

$

2,166,368

 

Franchise and other revenues (a)

 

19,494

   

22,479

   

64,510

   

71,763

 

Total revenues

 

824,639

   

784,215

   

2,375,808

   

2,238,131

 

Operating costs and expenses:

                       

Company restaurants (excluding depreciation and amortization)

                       

Cost of sales

 

215,362

   

203,960

   

615,764

   

582,507

 

Restaurant labor

 

262,701

   

240,105

   

756,874

   

695,114

 

Restaurant expenses

 

187,216

   

173,611

   

567,049

   

528,047

 

Company restaurant expenses

 

665,279

   

617,676

   

1,939,687

   

1,805,668

 

Depreciation and amortization

 

39,050

   

36,599

   

117,335

   

108,213

 

General and administrative

 

30,170

   

35,194

   

95,190

   

100,488

 

Other gains and charges (b)

 

3,864

   

(8,477)

   

5,454

   

747

 

Total operating costs and expenses

 

738,363

   

680,992

   

2,157,666

   

2,015,116

 

Operating income

 

86,276

   

103,223

   

218,142

   

223,015

 

Interest expense

 

8,403

   

7,361

   

24,077

   

21,709

 

Other, net

 

(277)

   

(454)

   

(1,110)

   

(1,568)

 

Income before provision for income taxes

 

78,150

   

96,316

   

195,175

   

202,874

 

Provision for income taxes

 

20,648

   

30,889

   

56,772

   

63,403

 

Net income

 

$

57,502

   

$

65,427

   

$

138,403

   

$

139,471

 
                         

Basic net income per share

 

$

1.01

   

$

1.04

   

$

2.36

   

$

2.19

 
                         

Diluted net income per share

 

$

1.00

   

$

1.02

   

$

2.33

   

$

2.14

 
                         

Basic weighted average shares outstanding

 

56,673

   

62,891

   

58,699

   

63,719

 
                         

Diluted weighted average shares outstanding

 

57,407

   

64,091

   

59,505

   

65,108

 
                         

Other comprehensive loss:

                       

Foreign currency translation adjustment (c)

 

$

(29)

   

$

(2,847)

   

$

(3,294)

   

$

(7,183)

 

Other comprehensive loss

 

(29)

   

(2,847)

   

(3,294)

   

(7,183)

 

Comprehensive income

 

$

57,473

   

$

62,580

   

$

135,109

   

$

132,288

 
                         

 

(a) 

Franchise and other revenues primarily includes royalties, development fees, 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.

   

(b) 

Other gains and charges include:

 

 

Thirteen Week Periods Ended

 

Thirty-Nine Week Periods Ended

 

March 23, 2016

 

March 25, 2015

 

March 23, 2016

 

March 25, 2015

Restaurant impairment charges

$

3,413

   

$

   

$

3,937

   

$

747

 

(Gain) Loss on the sale of assets, net

(1,096)

   

   

(2,858)

   

1,093

 

Impairment of investment

1,000

   

   

1,000

   

 

Acquisition costs

120

   

   

700

   

 

Restaurant closure charges

89

   

76

   

89

   

1,457

 

Litigation

   

(8,553)

   

(2,032)

   

(2,753)

 

Severance

   

   

2,368

   

 

Impairment of liquor licenses

   

   

   

175

 

Other

338

   

   

2,250

   

28

 
 

$

3,864

   

$

(8,477)

   

$

5,454

   

$

747

 

 

(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 23, 2016

 

June 24, 2015

             

ASSETS

           

Current assets

 

$

196,724

   

$

187,224

 

Net property and equipment (a)

 

1,053,024

   

1,032,044

 

Total other assets

 

239,440

   

216,605

 

Total assets

 

$

1,489,188

   

$

1,435,873

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

           

Current installments of long-term debt

 

$

3,605

   

$

3,439

 

Other current liabilities

 

418,686

   

415,036

 

Long-term debt, less current installments

 

1,174,660

   

970,825

 

Other liabilities

 

135,899

   

125,033

 

Total shareholders' deficit

 

(243,662)

   

(78,460)

 

Total liabilities and shareholders' deficit

 

$

1,489,188

   

$

1,435,873

 

 

(a)

At March 23, 2016, the company owned the land and buildings for 191 of the 997 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $141.7 million and $108.2 million, respectively.

 

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
   

Thirty-Nine Week Periods Ended

   

March 23, 2016

 

March 25, 2015

Cash Flows From Operating Activities:

           

Net income

 

$

138,403

   

$

139,471

 

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

           

Depreciation and amortization

 

117,335

   

108,213

 

Stock-based compensation

 

12,095

   

11,587

 

Restructure charges and other impairments

 

5,937

   

8,402

 

Net (gain) loss on disposal of assets

 

(633)

   

3,819

 

Changes in assets and liabilities

 

26,444

   

3,415

 

Net cash provided by operating activities

 

299,581

   

274,907

 

Cash Flows from Investing Activities:

           

Payments for property and equipment

 

(76,090)

   

(107,108)

 

Payment for purchase of restaurants

 

(105,577)

   

 

Proceeds from sale of assets

 

4,256

   

1,950

 

Net cash used in investing activities

 

(177,411)

   

(105,158)

 

Cash Flows from Financing Activities:

           

Purchases of treasury stock

 

(266,157)

   

(217,019)

 

Borrowings on revolving credit facility

 

256,500

   

442,750

 

Payments of dividends

 

(56,192)

   

(53,248)

 

Payments on revolving credit facility

 

(50,000)

   

(177,000)

 

Excess tax benefits from stock-based compensation

 

5,365

   

16,920

 

Payments on long-term debt

 

(2,547)

   

(188,758)

 

Proceeds from issuances of treasury stock

 

4,725

   

14,965

 

Payments for deferred financing costs

 

   

(2,501)

 

Net cash used in financing activities

 

(108,306)

   

(163,891)

 

Net change in cash and cash equivalents

 

13,864

   

5,858

 

Cash and cash equivalents at beginning of period

 

55,121

   

57,685

 

Cash and cash equivalents at end of period

 

$

68,985

   

$

63,543

 

 

 

BRINKER INTERNATIONAL, INC.

RESTAURANT SUMMARY

 
   

Third Quarter

Openings

Fiscal 2016

 

Total Restaurants

March 23, 2016

 

Projected Openings Fiscal 2016

Company-Owned Restaurants:

           

Chili's Domestic

 

 

933

 

11-13

Chili's International

 

 

13

 

Maggiano's

 

 

51

 

2

   

 

997

 

13-15

Franchise Restaurants:

           

Chili's Domestic

 

4

 

325

 

8-10

Chili's International

 

7

 

325

 

25-30

   

11

 

650

 

33-40

Total Restaurants:

           

Chili's Domestic

 

4

 

1,258

 

19-23

Chili's International

 

7

 

338

 

25-30

Maggiano's

 

 

51

 

2

   

11

 

1,647

 

46-55

SOURCE Brinker International, Inc.

Contacts:

Joe Taylor
Investor Relations
(972) 770-9040

Aisha Fletcher
Media Relations
Media.requests@brinker.com
(800) 775-7290

###

Share this Story:

Comments:

comments powered by Disqus

Franchise News Room »


News By Industry »


Featured Opportunities

ProSource Wholesale
ProSource is America's largest wholesale home improvement franchise; a truly unique B2B franchise model. Our owners enjoy strong cash flow with...
Arby's
Fast Crafted® Restaurant Brand Specializing in Freshly-Sliced, Deli-Inspired Meats & Sandwiches 
Fantastic Sams
Fantastic Sams® is one of the most recognized brands in the hair care industry with nearly 1,200 full-service salons in North America and 40 years...
Wayback Burgers
Wayback Burgers is strategically poised to grow dynamically. This could be your opportunity to partner with a leader in a rapidly growing food market...
Chronic Tacos
Chronic Tacos is a California inspired authentic Mexican grill that celebrates the individuality of our customers. We have developed restaurants...

Subscribe to Franchising.com Express

A Franchise Update Media Production
Franchise Update Media | P.O. Box 20547 // San Jose, CA 95160 // PH. (408) 402-5681
Copyright © 2001 - 2017. All Rights Reserved.

In Loving Memory Of Timothy Gardner (1987-2014)