Brinker International Reports Increases In Second Quarter Fiscal 2013 EPS

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DALLAS, Jan. 22, 2013 (www.hospitalitybusinessnews.com) — Brinker International, Inc. today announced results for the fiscal second quarter ended Dec. 26, 2012.

Highlights include the following:

  • Earnings per diluted share, excluding special items, increased 6.4 percent to $0.50 compared to $0.47 for the second quarter of fiscal 2012 (see non-GAAP reconciliation below)
  • On a GAAP basis, earnings per diluted share increased 13.6 percent to $0.50 compared to $0.44 for the second quarter of fiscal 2012
  • Chili’s comparable restaurant sales increased 1.0 percent, representing the seventh consecutive quarterly increase.  Chili’s comparable restaurant sales increased 1.6 percent after adjusting for holiday timing
  • Maggiano’s comparable restaurant sales increased 0.6 percent, representing the 12th consecutive quarterly increase.  Maggiano’s comparable restaurant sales increased 1.5 percent after adjusting for holiday timing
  • Company sales increased 1.1 percent to $669.1 million and restaurant operating margin1 improved approximately 30 basis points to 15.7 percent from 15.4 percent
  • The company repurchased approximately 1.5 million shares of its common stock for $45.1 million in the second quarter
  • The company paid a dividend of 20 cents per share in the second quarter, an increase of 25 percent over the prior year second quarter
  • For the first six months of fiscal 2013, cash flows provided by operating activities were $131.3 million and capital expenditures totaled $69.8 million

“Brinker continued to take market share again this quarter, as we delivered our eighth consecutive quarter of positive sales growth, despite fewer holiday days in the quarter versus last year,” said Wyman Roberts, President and Chief Executive Officer. “This demonstrates that our strategies designed to strengthen our margins, reinvest in our restaurants, and focus on differentiated food and service initiatives are working, as we continue to track to our goal of doubling EPS.”

1 Effective for the fiscal first quarter ended Sept. 26, 2012, revenues are reported in two separate captions – Company sales and Franchise and other revenues. Restaurant operating margin is now defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses.

Table 1: Monthly and Q2 comparable restaurant sales

Q2 13 and Q2 12, company-owned, reported brands and franchise; percentage

 

Oct Nov Dec Q2 13 Q2 12
Brinker International 0.9 1.6 0.4 0.9 1 1.7
  Chili’s Company-Owned
      Comparable Restaurant Sales 0.8 2.0 0.2 1.0 1 1.4
      Pricing Impact 1.4 1.5 2.0 1.6 1.1
      Mix-Shift 0.8 0.9 2.0 1.3 (0.8)
      Traffic (1.4) (0.4) (3.8) (1.9) 1.1
  Maggiano’s
      Comparable Restaurant Sales 1.2 (0.7) 1.1 0.6 1 2.8
      Pricing Impact 2.3 1.5 2.6 2.3 1.8
      Mix-Shift 0.5 0.2 1.5 0.7 0.4
      Traffic (1.6) (2.4) (3.0) (2.4) 0.6
Franchise2 2.4 2.6
  Domestic Comparable Restaurant Sales 2.2 1.7
  International Comparable Restaurant Sales 2.7 4.8
System-wide3 1.5 2.0

 

1 Comparable restaurant sales can be affected by the timing of holidays as well as calendar or trading day shifts.  Christmas occurred on Tuesday this year and as a result, there were fewer school and business vacation days in the current quarter compared to the prior year.  Adjusting for the change in holiday timing, Brinker comparable restaurant sales were 1.5%, Chili’s comparable restaurant sales were 1.6% and Maggiano’s comparable restaurant sales were 1.5% for the current quarter.
2 Revenues generated by franchisees are not included in revenues on the consolidated statements of income; however, we generate royalty revenue and advertising fees based on franchisee revenues, where applicable. We believe including franchisee comparable restaurants revenues provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development.
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 franchisee operated restaurants.

Quarterly Operating Performance
CHILI’S second quarter company sales of $563.3 million represent a 1.2 percent increase from $556.5 million in the prior year period driven by increased menu prices and favorable mix shift. Chili’s operating margin improved compared to the prior year primarily due to improved cost of sales. Cost of sales as a percentage of company sales was favorably impacted by increased menu pricing and favorable commodity pricing on produce and poultry, partially offset by unfavorable commodity pricing and product mix primarily related to beef and pork. Restaurant labor was negatively impacted by increased employee health insurance claims and increased overtime incurred to support the installation of new kitchen equipment, partially offset by sales leverage related to higher revenue and improved labor productivity from the installation of the equipment.

MAGGIANO’S second quarter company sales of $105.8 million increased 0.6 percent, primarily driven by menu pricing and mix. Restaurant operating margin improved compared to prior year primarily due to improved cost of sales. Cost of sales was favorably impacted by decreased commodity usage from efforts to reduce waste, increased menu pricing and menu item changes. Restaurant operating margin was negatively impacted by higher workers’ compensation insurance expenses, partially offset by lower repair and maintenance expense, utilities expense and sales leverage on fixed costs related to higher revenue.

FRANCHISE AND OTHER revenues totaled $20.6 million for the quarter, an increase of 2.0 percent over the prior year driven primarily by an increase in royalty revenues. International franchise comparable restaurant sales increased 2.7 percent while domestic franchise comparable restaurant sales increased 2.2 percent. Brinker franchisees generated approximately $401 million in sales1 for the second quarter of fiscal 2013.

Other
Depreciation and amortization expense increased $1.8 million for the quarter primarily due to investments in existing restaurants and asset replacements, partially offset by an increase in fully depreciated assets.

Interest expense increased $0.6 million for the quarter as a result of higher borrowing balances.

Excluding the impact of special items, the effective income tax rate increased to 32.7 percent in the current quarter from 29.7 percent in the same quarter last year.  On a GAAP basis, the effective income tax rate increased to 32.7 percent in the current quarter as compared to 29.0 percent in the same quarter last year. The increase in the income tax rates was driven primarily by increased earnings and the temporary expiration of employment tax credits.

Non-GAAP Reconciliation
The company 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

Q2 13 and Q2 12; $ millions and $ per diluted share after-tax

 

Q2 13 EPS

Q2 13

Q2 12 EPS

Q2 12

Net Income 37.2 0.50 35.7 0.44
  Other (Gains) and Charges1 0.1 0.00 2.5 0.03
Net Income excluding Special Items 37.3 0.50 38.2 0.47
1 Pre-tax Other gains and charges was $0.2 million and $4.0 million in the second quarter of fiscal 2013 and 2012, respectively.

 

 BRINKER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
Dec. 26, Dec. 28, Dec. 26, Dec. 28,
2012 2011 2012 2011
Revenues:
           Company sales $  669,129 $  661,710 $  1,332,797 $  1,309,465
           Franchise and other revenues (a) 20,635 20,194 40,474 40,841
               Total revenues 689,764 681,904 1,373,271 1,350,306
Operating Costs and Expenses:
           Company restaurants
               Cost of sales 184,591 185,189 369,286 366,807
               Restaurant labor 217,177 214,317 436,043 430,262
               Restaurant expenses 162,191 160,077 325,244 325,642
           Company restaurant expenses 563,959 559,583 1,130,573 1,122,711
           Depreciation and amortization 32,979 31,153 65,608 62,336
           General and administrative 31,030 31,215 68,303 64,034
           Other gains and charges (b) 230 4,033 677 5,718
               Total operating costs and expenses 628,198 625,984 1,265,161 1,254,799
Operating income 61,566 55,920 108,110 95,507
Interest expense 7,066 6,509 13,955 13,557
Other, net (726) (854) (1,523) (1,946)
Income before provision for income taxes 55,226 50,265 95,678 83,896
       Provision for income taxes 18,049 14,591 30,637 24,601
                 Net income $  37,177 $  35,674 $     65,041 $    59,295
       Basic net income per share $      0.51 $      0.45 $         0.89 $        0.73
  Diluted net income per share $      0.50 $      0.44 $         0.86 $        0.72
  Basic weighted average shares outstanding 72,560 79,840 73,232 80,792
  Diluted weighted average shares outstanding 74,720 81,655 75,639 82,619
(a) Franchise and other revenues includes royalties, development fees and franchise fees, banquet service charge income, and gift card activity (breakage and discounts).
(b) Other gains and charges includes:
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
Dec. 26, Dec. 28, Dec. 26, Dec. 28,
2012 2011 2012 2011
Restaurant impairment charges $          661 $     1,098 $           661 $       1,098
Restaurant closure charges 2,148 2,395 2,582 3,122
Gain on sale of assets, net (2,349) 4 (2,350) (1,340)
Other (230) 536 (216) 2,838
$          230 $     4,033 $           677 $       5,718
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Dec. 26, June 27,
2012 2012
    (Unaudited)
ASSETS
  Current assets $     262,604 $     194,846
  Net property and equipment (a) 1,037,976 1,043,564
  Total other assets 200,626 197,662
     Total assets $  1,501,206 $  1,436,072
LIABILITIES AND SHAREHOLDERS’ EQUITY
  Current installments of long-term debt $       27,462 $       27,334
  Current liabilities 403,922 374,415
  Long-term debt, less current installments 684,171 587,890
  Other liabilities 132,668 136,560
  Total shareholders’ equity 252,983 309,873
  Total liabilities and shareholders’ equity $  1,501,206 $  1,436,072
(a) At Dec. 26, 2012, the company owned the land and buildings for 189 of the 867 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $141.1 million and $120.0 million, respectively.
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
     Dec. 26, Dec. 28,
2012 2011
Cash Flows From Operating Activities:
Net income $   65,041 $  59,295
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 65,608 62,336
Restructure charges and other impairments 3,027 4,898
Stock-based compensation 9,314 6,449
Net (gain) loss on disposal of assets (96) 573
Changes in assets and liabilities (11,617) (19,306)
Net cash provided by operating activities 131,277 114,245
Cash Flows from Investing Activities:
Payments for property and equipment (69,752) (53,475)
Proceeds from sale of assets 5,335 4,279
Investment in equity method investees (912)
Net cash used in investing activities (64,417) (50,108)
Cash Flows from Financing Activities:
Purchases of treasury stock (131,445) (125,638)
Borrowings on revolving credit facility 110,000
Payments of dividends (27,677) (25,073)
Proceeds from issuances of treasury stock 22,515 16,649
Payments on long-term debt (13,190) (5,625)
Excess tax benefits from stock-based compensation 6,939 792
Proceeds from issuance of long-term debt 70,000
Payments for deferred financing costs (1,620)
Net cash used in financing activities (32,858) (70,515)
Net change in cash and cash equivalents 34,002 (6,378)
Cash and cash equivalents at beginning of period 59,103 81,988
Cash and cash equivalents at end of period $   93,105 $  75,610
BRINKER INTERNATIONAL, INC.
RESTAURANT SUMMARY
Second Quarter

Net Openings/(Closings)

Total Restaurants Projected Openings
Fiscal 2013 Dec. 26, 2012 Fiscal 2013
Company-Owned

Restaurants:

        Chili’s 2 823
        Maggiano’s 44
2 867
Franchise

Restaurants:

  Chili’s (1) 452 2
  International (a) 7 274 30-35
6 726 32-37
Total Restaurants:
  Chili’s 1 1,275 2
  Maggiano’s 44
  International (a) 7 274 30-35
8 1,593 32-37

 

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