Brinker International Reports Third Quarter Results

DALLAS - April 25, 2017 // PRNewswire // - Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal third quarter ended March 29, 2017.

Highlights include the following:

  • On a GAAP basis, earnings per diluted share in the third quarter of fiscal 2017 decreased 14.0 percent to $0.86 compared to $1.00 for the third quarter of fiscal 2016
  • Earnings per diluted share, excluding special items, in the third quarter of fiscal 2017 decreased 6.0 percent to $0.94 compared to $1.00 for the third quarter of fiscal 2016 (see non-GAAP reconciliation below)
  • Brinker's total revenues in the third quarter of fiscal 2017 decreased 1.7 percent to $810.6 million compared to the third quarter of fiscal 2016 and company sales in the third quarter of fiscal 2017 decreased 1.8 percent to $790.6 million compared to the third quarter of fiscal 2016
  • Chili's company-owned comparable restaurant sales in the third quarter of fiscal 2017 decreased 2.3 percent compared to the third quarter of fiscal 2016 but increased sequentially by 1.0 percent from the second quarter of fiscal 2017. Chili's U.S. franchise comparable restaurant sales in the third quarter of fiscal 2017 increased 0.3 percent compared to the third quarter of fiscal 2016 and also improved sequentially by 3.3 percent from the second quarter of fiscal 2017
  • Maggiano's comparable restaurant sales in the third quarter of fiscal 2017 decreased 1.6 percent compared to the third quarter of fiscal 2016
  • Chili's international franchise comparable restaurant sales in the third quarter of fiscal 2017 decreased 7.1 percent compared to the third quarter of fiscal 2016
  • Operating income, as a percent of total revenues, declined approximately 150 basis points to 9.0 percent in the third quarter of fiscal 2017 compared to 10.5 percent for the third quarter of fiscal 2016
  • Restaurant operating margin, as a percent of company sales, declined approximately 40 basis points to 17.0 percent in the third quarter of fiscal 2017 compared to 17.4 percent for the third quarter of fiscal 2016 (see non-GAAP reconciliation below) but improved sequentially by 190 basis points from the second quarter of fiscal 2017
  • For the first nine months of fiscal 2017, cash flows provided by operating activities were $243.6 million and capital expenditures totaled $79.7 million. Free cash flow was $163.9 million (see non-GAAP reconciliation below)

"Our third quarter earnings performance reflects the operational focus of our restaurant level leadership at both our brands," said Wyman Roberts, chief executive officer and president. "We are also encouraged by our progress with the strategic work designed to better position our brands and capture market share."

Table 1: Q3 comparable restaurant sales1

Company-owned, reported brands and franchise; percentage

 
   

Q3 17

 

Q3 16

Brinker International

 

(2.2)

 

(3.6)

  Chili's Company-Owned

       

     Comparable Restaurant Sales

 

(2.3)

 

(4.1)

     Pricing Impact

 

2.9

 

1.1

     Mix-Shift2

 

1.0

 

(0.3)

     Traffic

 

(6.2)

 

(4.9)

  Maggiano's

       

     Comparable Restaurant Sales

 

(1.6)

 

0.2

     Pricing Impact

 

2.4

 

1.5

     Mix-Shift2

 

1.4

 

(2.4)

     Traffic

 

(5.4)

 

1.1

         

Chili's Franchise3

 

(2.5)

 

(1.7)

  U.S. Comparable Restaurant Sales

 

0.3

 

(2.2)

  International Comparable Restaurant Sales

 

(7.1)

 

(0.7)

         

Chili's Domestic4

 

(1.7)

 

(3.6)

System-wide5

 

(2.3)

 

(3.1)

 

   

1

Comparable restaurant sales includes all restaurants that have been in operation for more than 18 months.

2

Mix shift is calculated as the year over year percentage change in company sales resulting from the change in menu items ordered by guests.

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 Chili's restaurants.

Quarterly Operating Performance

CHILI'S third quarter company sales decreased 2.0 percent to $689.6 million from $703.5 million in the prior year primarily due to a decline in comparable restaurant sales. As compared to the prior year, Chili's restaurant operating margin1 declined. Restaurant expenses, as a percent of company sales, increased due to sales deleverage, higher advertising and marketing related expenses and increased workers' compensation insurance expenses, partially offset by decreased repairs and maintenance expenses. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates and sales deleverage. Cost of sales, as a percent of company sales, decreased due to increased menu pricing and favorable commodity pricing primarily related to poultry and beef.

MAGGIANO'S third quarter company sales decreased 0.6 percent to $101.0 million from $101.6 million in the prior year primarily due to a decline in comparable restaurant sales, partially offset by an increase in restaurant capacity. As compared to the prior year, Maggiano's restaurant operating margin1 declined. Restaurant expenses, as a percent of company sales, increased primarily due to higher workers' compensation insurance and advertising expenses. Restaurant labor, as a percent of company sales, increased due to higher wages, partially offset by lower manager bonuses. Cost of sales, as a percent of company sales, was positively impacted by favorable commodity pricing and increased menu pricing, partially offset by unfavorable menu item mix.

1Restaurant 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 increased 2.6 percent to $20.0 million for the third quarter compared to $19.5 million in the prior year third quarter. Brinker franchisees generated approximately $336 million in sales2 for the third quarter of fiscal 2017.

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

Other

Depreciation and amortization expense increased $0.3 million for the quarter compared to the third quarter of fiscal 2016 primarily due to depreciation on asset replacements and new restaurant openings, partially offset by an increase in fully depreciated assets and restaurant closures.

General and administrative expense increased $5.8 million for the quarter compared to the third quarter of fiscal 2016 primarily due to higher performance-based compensation.

On a GAAP basis, the effective income tax rate increased to 28.9 percent in the current quarter from 26.4 percent in the third quarter of fiscal 2016 due to the prior year benefit associated with the resolution of certain tax positions, partially offset by lower profits. Excluding the impact of special items, the effective income tax rate decreased to 29.9 percent in the current quarter compared to 30.1 percent in the third quarter of fiscal 2016 primarily due to lower profits.

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 operating results. Non-GAAP disclosures should not be viewed as a substitute for operating 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.

Table 2: Reconciliation of net income excluding special items

Q3 17 and Q3 16; $ millions and $ per diluted share after-tax

 

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.

 

 
   

Q3 17

 

EPS Q3 17

 

Q3 16

 

EPS Q3 16

Net Income

 

42.4

 

0.86

 

57.5

 

1.00

Special items1

 

6.6

 

0.13

 

3.9

 

0.07

Income tax effect related to special items

 

(2.6)

 

(0.05)

 

(1.5)

 

(0.03)

Adjustment for tax items2

 

 

 

(2.6)

 

(0.04)

Special items, net of taxes

 

4.0

 

0.08

 

(0.2)

 

0.00

Net Income excluding special items

 

46.4

 

0.94

 

57.3

 

1.00

 

     

1

 

See footnote "b" to the consolidated statements of comprehensive income for additional details on the composition of these amounts.

2

 

Discrete tax items result from the resolution of certain tax positions which directly impacts tax expense.

 

Table 3: Reconciliation of restaurant operating margin

Q3 17 and Q3 16; $ millions

 

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 industry as a useful metric by which to evaluate  restaurant-level operating efficiency and performance of ongoing restaurant-level operations.  We define restaurant operating margin as Company sales less Company restaurant expenses, including Cost of sales, Restaurant labor and Restaurant expenses.  Restaurant expenses includes advertising expense. 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 expense, depreciation and amortization, and other gains and charges.

 

Restaurant operating margin excludes Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams such as banquet service charges, digital entertainment revenues and gift card breakage.   Depreciation and amortization expense, substantially all of which is related to restaurant-level assets, is excluded because such expenses represent historical costs which do not reflect current cash outlays for the restaurants.  General and administrative expense includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices and is 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.

 
   

Q3F17

 

Q3F16

Operating income

 

72.9

   

86.3

 

Operating income as a percent of total revenues

 

9.0

%

 

10.5

%

         

Operating income

 

72.9

   

86.3

 

Less:  Franchise and other revenues

 

(20.0)

   

(19.5)

 

Plus:  Depreciation and amortization

 

39.3

   

39.1

 

General and administrative

 

35.9

   

30.2

 

Other gains and charges

 

6.6

   

3.9

 

Restaurant operating margin

 

134.7

   

140.0

 

Restaurant operating margin as a percent of company sales

 

17.0

%

 

17.4

%

 

Table 4: Reconciliation of free cash flow

Q3 17; $ millions

 

Brinker believes presenting free cash flow provides a useful measure to evaluate the cash flow available for reinvestment after considering the capital requirements of our business operations.

 
   

Thirty-Nine Week Period
Ended March 29, 2017

Cash flows provided by operating activities

 

243.6

Capital expenditures

 

(79.7)

Free cash flow

 

163.9

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 statements of comprehensive income and will only provide updates if there is a material change versus the original guidance. We do not provide annual guidance as it relates to US GAAP earnings per diluted share as we are unable to reliably forecast special items such as restaurant impairments, restaurant closures, reorganization charges and legal settlements without unreasonable effort.

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 Web site at 9 a.m. CDT today (April 25) -

http://investors.brinker.com/phoenix.zhtml?c=119205&p=irol-EventDetails&EventId=5250905

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 Web site until the end of the day May 23, 2017.

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 Web site under the Financial Information section of the Investor tab.

Forward Calendar

  • SEC Form 10-Q for the third quarter of fiscal 2017 filing on or before May 8, 2017; and
  • Fourth quarter earnings release, before market opens, Aug. 10, 2017.

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 29, 2017, Brinker owned, operated, or franchised 1,660 restaurants under the names Chili's® Grill & Bar (1,608 restaurants) and Maggiano's Little Italy® (52 restaurants).Forward-Looking StatementsThe statements contained in this release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act 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 are, in many instances, beyond our control. Such risks and uncertainties include, among other things, 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, 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.       

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 29, 2017

 

March 23, 2016

 

March 29, 2017

 

March 23, 2016

Revenues:

             

Company sales

$

790,624

 

$

805,145

 

$

2,276,743

 

$

2,311,298

Franchise and other revenues (a)

20,017

 

19,494

 

63,433

 

64,510

Total revenues

810,641

 

824,639

 

2,340,176

 

2,375,808

Operating costs and expenses:

         

Company restaurants (excluding depreciation and amortization)

         

Cost of sales

201,903

 

215,362

 

587,742

 

615,764

Restaurant labor

261,632

 

262,701

 

760,894

 

756,874

Restaurant expenses

192,372

 

187,216

 

582,146

 

567,049

Company restaurant expenses

655,907

 

665,279

 

1,930,782

 

1,939,687

Depreciation and amortization

39,335

 

39,050

 

117,526

 

117,335

General and administrative

35,931

 

30,170

 

102,014

 

95,190

Other gains and charges (b)

6,600

 

3,864

 

13,984

 

5,454

Total operating costs and expenses

737,773

 

738,363

 

2,164,306

 

2,157,666

Operating income

72,868

 

86,276

 

175,870

 

218,142

Interest expense

13,658

 

8,403

 

36,108

 

24,077

Other, net

(402)

 

(277)

 

(1,084)

 

(1,110)

Income before provision for income taxes

59,612

 

78,150

 

140,846

 

195,175

Provision for income taxes

17,243

 

20,648

 

40,607

 

56,772

Net income

$

42,369

 

$

57,502

 

$

100,239

 

$

138,403

           

Basic net income per share

$

0.87

 

$

1.01

 

$

1.96

 

$

2.36

           

Diluted net income per share

$

0.86

 

$

1.00

 

$

1.93

 

$

2.33

           

Basic weighted average shares outstanding

48,954

 

56,673

 

51,211

 

58,699

           

Diluted weighted average shares outstanding

49,506

 

57,407

 

51,854

 

59,505

           

Other comprehensive gain (loss):

         

Foreign currency translation adjustment (c)

$

734

 

$

(29)

 

$

(1,411)

 

$

(3,294)

Other comprehensive gain (loss)

734

 

(29)

 

(1,411)

 

(3,294)

Comprehensive income

$

43,103

 

$

57,473

 

$

98,828

 

$

135,109

           

(a) 

Franchise and other revenues primarily includes royalties, development fees, franchise fees, Maggiano's banquet service charge income, gift card breakage and discounts, digital entertainment 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 29, 2017

 

March 23, 2016

 

March 29, 2017

 

March 23, 2016

Severance

$

5,929

 

$

 

$

6,222

 

$

2,368

Restaurant closure charges

794

 

89

 

3,621

 

89

Gain on the sale of assets, net

(55)

 

(1,096)

 

(2,624)

 

(2,858)

Information technology restructuring

 

 

2,700

 

Restaurant impairment charges

 

3,413

 

1,851

 

3,937

Impairment of investment

 

1,000

 

 

1,000

Litigation

 

 

 

(2,032)

Acquisition costs

 

120

 

 

700

Other

(68)

 

338

 

2,214

 

2,250

 

$

6,600

 

$

3,864

 

$

13,984

 

$

5,454

   

(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 29, 2017

 

June 29, 2016

         

ASSETS

       

Current assets

 

$

148,196

 

$

176,774

Net property and equipment (a)

 

997,053

   

1,043,152

Total other assets

 

257,829

 

249,534

Total assets

 

$

1,403,078

 

$

1,469,460

LIABILITIES AND SHAREHOLDERS' DEFICIT

       

Current installments of long-term debt

 

$

3,860

 

$

3,563

Other current liabilities

 

433,407

 

428,880

Long-term debt, less current installments

 

1,325,604

 

1,110,693

Other liabilities

 

138,907

 

139,423

Total shareholders' deficit

 

(498,700)

 

(213,099)

Total liabilities and shareholders' deficit

 

$

1,403,078

 

$

1,469,460

   

(a) 

At March 29, 2017, the company owned the land and buildings for 190 of the 1,000 company-owned restaurants. The net book values of the land totaled $143.2 million and the buildings totaled $99.9 million associated with these restaurants.

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
   

Thirty-Nine Week Periods Ended

   

March 29, 2017

 

March 23, 2016

Cash Flows From Operating Activities:

       

Net income

 

$

100,239

   

$

138,403

 

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

       

Depreciation and amortization

 

117,526

   

117,335

 

Stock-based compensation

 

13,237

   

12,095

 

Restructure charges and other impairments

 

8,837

   

5,937

 

Net gain on disposal of assets

 

(628)

   

(633)

 

Changes in assets and liabilities

 

4,411

   

26,444

 

Net cash provided by operating activities

 

243,622

   

299,581

 

Cash Flows from Investing Activities:

       

Payments for property and equipment

 

(79,730)

   

(76,090)

 

Proceeds from sale of assets

 

3,077

   

4,256

 

Payment for business acquisition, net of cash acquired

 

   

(105,577)

 

Net cash used in investing activities

 

(76,653)

   

(177,411)

 

Cash Flows from Financing Activities:

       

Proceeds from issuances of long-term debt

 

350,000

   

 

Purchases of treasury stock

 

(350,768)

   

(266,157)

 

Payments on revolving credit facility

 

(328,000)

   

(50,000)

 

Borrowings on revolving credit facility

 

200,000

   

256,500

 

Payments of dividends

 

(54,087)

   

(56,192)

 

Payments for debt issuance costs

 

(10,216)

   

 

Proceeds from issuances of treasury stock

 

4,505

   

4,725

 

Payments on long-term debt

 

(2,847)

   

(2,547)

 

Excess tax benefits from stock-based compensation

 

2,041

   

5,365

 

Net cash used in financing activities

 

(189,372)

   

(108,306)

 

Net change in cash and cash equivalents

 

(22,403)

   

13,864

 

Cash and cash equivalents at beginning of period

 

31,446

   

55,121

 

Cash and cash equivalents at end of period

 

$

9,043

   

$

68,985

 

 

BRINKER INTERNATIONAL, INC.

RESTAURANT SUMMARY

 
   

Third Quarter

Openings

Fiscal 2017

 

Total Restaurants

March 29, 2017

 

Projected Openings
Fiscal 2017

Company-owned restaurants:

           

Chili's domestic

 

1

   

934

   

6-7

 

Chili's international

 

   

14

   

1

 

Maggiano's

 

   

52

   

2

 

Total company-owned

 

1

   

1,000

   

9-10

 

Franchise restaurants:

           

Chili's domestic

 

3

   

316

   

5-8

 

Chili's international

 

4

   

344

   

31-33

 

Total franchise

 

7

   

660

   

36-41

 

Total restaurants:

           

Chili's domestic

 

4

   

1,250

   

11-15

 

Chili's international

 

4

   

358

   

32-34

 

Maggiano's

 

   

52

   

2

 

Grand total

 

8

   

1,660

   

45-51

 

Contacts:

Joe Taylor
Investor Relations
Investor.relations@brinker.com

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

SOURCE Brinker International, Inc

###

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