Brinker International Reports Year-Over-Year Increase In Second Quarter EPS

DALLAS, Jan. 20, 2016 (hospitalitybusinessnews.com) — Brinker International, Inc.  today announced results for the fiscal second quarter ended Dec. 23, 2015.

Highlights include the following:

  • Earnings per diluted share, excluding special items, increased 9.9 percent to $0.78 compared to $0.71 for the second quarter of fiscal 2015
  • On a GAAP basis, earnings per diluted share increased 25.0 percent to $0.80 compared to $0.64 for the second quarter of fiscal 2015
  • Brinker International total revenues increased 6.2 percent to $788.6 million and company sales increased 6.7 percent to $765.7 million 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 2.8 percent
  • Maggiano’s comparable restaurant sales decreased 1.8 percent
  • Chili’s franchise comparable restaurant sales increased 0.9 percent which includes a 2.6 percent increase for international franchise restaurants, partially offset by a 0.1 percent decrease for U.S. franchise restaurants
  • Restaurant operating margin,1 as a percent of company sales, declined approximately 30 basis points to 16.1 percent compared to 16.4 percent for the second quarter of fiscal 2015
  • For the first six months of fiscal 2016, cash flows provided by operating activities were $155.6 million and capital expenditures totaled $52.2 million. Free cash flow2 was approximately $103.4 million
  • The company repurchased approximately 1.9 million shares of its common stock for $89.0 million in the second quarter and a total of approximately 2.8 million shares for $140.1 million year-to-date
  • The company declared a dividend of 32 cents per share to be paid in the third quarter, representing a 14.3% increase over the prior year
  • The company reaffirms earnings per diluted share, excluding special items, to increase 15 to 18 percent in fiscal 2016 in the range of $3.55 to $3.65

“Our second quarter earnings reflect solid performance despite top-line challenges,” said Wyman Roberts, chief executive officer and president. “We believe our current initiatives will improve sales during the remainder of the fiscal year and help deliver our annual earnings guidance.”

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.

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

 

Table 1: Q2 comparable restaurant sales
Company-owned, reported brands and franchise; percentage
Q2 16 Q2 15
Brinker International (2.6) 3.7
  Chili’s Company-Owned1
     Comparable Restaurant Sales (2.8) 4.0
     Pricing Impact2 0.8 1.7
     Mix-Shift2 0.4 0.6
     Traffic2 (4.0) 1.7
  Maggiano’s
     Comparable Restaurant Sales (1.8) 2.3
     Pricing Impact2 2.3 2.4
     Mix-Shift2 (1.2) (1.6)
     Traffic2 (2.9) 1.5
Chili’s Franchise3 0.9 3.2
  U.S. Comparable Restaurant Sales (0.1) 4.9
  International Comparable Restaurant Sales 2.6 (0.5)
Chili’s Domestic4 (2.1) 4.2
System-wide5 (1.6) 3.5
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 second quarter company sales increased 8.1 percent to $651.0 million from $602.0 million in the prior year primarily due to an increase in restaurant capacity resulting from the acquisition of 103 Chili’s restaurants on June 25, 2015, partially offset by a decline in comparable restaurant sales. As compared to the prior year, Chili’s restaurant operating margin1 declined primarily due to the impact of the recently acquired restaurants. Cost of sales, as a percent of company sales, was positively impacted by favorable menu pricing and commodity pricing related to burger meat, cheese, seafood, and avocados, partially offset by unfavorable menu item mix and commodity pricing primarily related to steak and chicken. Restaurant expenses, as a percent of company sales, increased slightly due to higher repairs and maintenance and rent expenses, partially offset by decreased advertising, workers’ compensation insurance expenses and operations supervision expenses. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates, partially offset by lower incentive bonus and productivity initiatives.

MAGGIANO’S second quarter company sales decreased 0.9 percent to $114.7 million from $115.8 million in the prior year primarily due to a decline in comparable restaurant sales. As compared to the prior year, Maggiano’s restaurant operating margin1 improved. Cost of sales, as a percent of company sales, was positively impacted by menu item changes, increased menu pricing and favorable commodity pricing. Restaurant expenses, as a percent of company sales, increased compared to prior year due to higher preopening and repair and maintenance expenses, partially offset by lower advertising expenses. Restaurant labor, as a percent of company sales, increased compared to prior year due to higher wage rates.

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.

FRANCHISE AND OTHER revenues decreased 8.8 percent to $22.9 million for the second quarter compared to $25.1 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 $338 million in sales2 for the second 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 $3.0 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 $0.8 million primarily due to lower performance-based compensation, partially offset by the termination of accounting and information technology support fees resulting from the acquisition of 103 Chili’s restaurants.

On a GAAP basis, the effective income tax rate increased to 30.1 percent in the current quarter from 29.7 percent in the prior year quarter.  The effective income tax rate increased due to higher profits, partially offset by an increase in the FICA Tip Credit and the positive impact of the resolution of certain tax positions. Excluding the impact of special items, the effective income tax rate increased to 31.3 percent in the current quarter compared to 30.7 percent in the prior year quarter.  The effective income tax rate increased due to higher profits, partially offset by an increase in the FICA Tip Credit.

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
Q2 16 and Q2 15; $ millions and $ per diluted share after-tax
Q2 16 EPS Q2 16 Q2 15 EPS Q2 15
Net Income 47.7 0.80 41.3 0.64
     Other (Gains) and Charges, net of taxes1 0.0 0.0 5.1 0.07
     Adjustment for tax items2 (0.8) (0.02)
Net Income excluding Special Items 46.9 0.78 46.4 0.71
1 Pre-tax Other gains and charges included a gain of $0.1 million and a charge of $8.3 million in the second 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 resolution of certain tax positions which directly impacts tax expense.

 

 

BRINKER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
Dec. 23, 2015 Dec. 24, 2014 Dec. 23, 2015 Dec. 24, 2014
Revenues:
Company sales $ 765,672 $ 717,768 $ 1,506,153 $ 1,404,632
Franchise and other revenues (a) 22,938 25,130 45,016 49,284
Total revenues 788,610 742,898 1,551,169 1,453,916
Operating costs and expenses:
Company restaurants (excluding depreciation and amortization)
Cost of sales 203,799 193,762 400,402 378,547
Restaurant labor 247,596 227,733 494,173 455,009
Restaurant expenses 190,660 178,898 379,833 354,436
Company restaurant expenses 642,055 600,393 1,274,408 1,187,992
Depreciation and amortization 39,114 36,072 78,285 71,614
General and administrative 31,909 32,660 65,020 65,294
Other gains and charges (b) (87) 8,291 1,590 9,224
Total operating costs and expenses 712,991 677,416 1,419,303 1,334,124
Operating income 75,619 65,482 131,866 119,792
Interest expense 7,907 7,349 15,674 14,348
Other, net (560) (611) (833) (1,114)
Income before provision for income taxes 68,272 58,744 117,025 106,558
Provision for income taxes 20,578 17,438 36,124 32,514
Net income $ 47,694 $ 41,306 $ 80,901 $ 74,044
Basic net income per share $ 0.81 $ 0.65 $ 1.35 $ 1.15
Diluted net income per share $ 0.80 $ 0.64 $ 1.34 $ 1.13
Basic weighted average shares outstanding 59,198 63,590 59,712 64,129
Diluted weighted average shares outstanding 59,899 64,963 60,553 65,613
Other comprehensive loss:
Foreign currency translation adjustment (c) $ (460) $ (3,529) $ (3,265) $ (4,336)
Other comprehensive loss (460) (3,529) (3,265) (4,336)
Comprehensive income $ 47,234 $ 37,777 $ 77,636 $ 69,708
(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 Twenty-Six Week Periods Ended
Dec. 23, 2015 Dec. 24, 2014 Dec. 23, 2015 Dec. 24, 2014
Litigation $ (2,032) $ 5,800 $ (2,032) $ 5,800
Restaurant impairment charges 468 747 525 747
Severance 209 2,368
Acquisition costs 580
Loss (Gain) on the sale of assets, net 1,069 (1,762) 1,093
Restaurant closure charges 509 1,381
Impairment of liquor licenses 175 175
Other 1,268 (9) 1,911 28
$ (87) $ 8,291 $ 1,590 $ 9,224
(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)
Dec. 23, 2015 June 24, 2015
ASSETS
Current assets $ 253,938 $ 189,717
Net property and equipment (a) 1,071,232 1,032,044
Total other assets 254,714 214,112
Total assets $ 1,579,884 $ 1,435,873
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current installments of long-term debt $ 3,605 $ 3,439
Other current liabilities 445,405 415,036
Long-term debt, less current installments 1,156,493 970,825
Other liabilities 139,313 125,033
Total shareholders’ deficit (164,932) (78,460)
Total liabilities and shareholders’ deficit $ 1,579,884 $ 1,435,873
(a) At Dec. 23, 2015, the company owned the land and buildings for 191 of the 999 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $141.7 million and $110.7 million, respectively.

 

BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twenty-Six Week Periods Ended
Dec. 23, 2015 Dec. 24, 2014
Cash Flows From Operating Activities:
Net income $ 80,901 $ 74,044
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 78,285 71,614
Stock-based compensation 7,522 6,992
Restructure charges and other impairments 1,229 8,326
Net (gain) loss on disposal of assets (274) 2,974
Changes in assets and liabilities (12,098) (1,485)
Net cash provided by operating activities 155,565 162,465
Cash Flows from Investing Activities:
Payments for property and equipment (52,199) (79,481)
Payment for purchase of restaurants (105,577)
Proceeds from sale of assets 2,756 1,950
Net cash used in investing activities (155,020) (77,531)
Cash Flows from Financing Activities:
Borrowings on revolving credit facility 207,500 83,000
Purchases of treasury stock (140,089) (112,789)
Payments of dividends (37,363) (35,409)
Payments on revolving credit facility (20,000)
Excess tax benefits from stock-based compensation 4,907 10,351
Payments on long-term debt (1,024) (13,338)
Proceeds from issuances of treasury stock 1,691 3,975
Net cash provided by (used in) financing activities 15,622 (64,210)
Net change in cash and cash equivalents 16,167 20,724
Cash and cash equivalents at beginning of period 55,121 57,685
Cash and cash equivalents at end of period $ 71,288 $ 78,409

 

BRINKER INTERNATIONAL, INC.
RESTAURANT SUMMARY
Second Quarter

Openings

Fiscal 2016

Total Restaurants

Dec. 23, 2015

Projected Openings
Fiscal 2016
Company-Owned Restaurants:
Chili’s Domestic 4 935 11-13
Chili’s International 13
Maggiano’s 2 51 2
6 999 13-15
Franchise Restaurants:
Chili’s Domestic 2 326 8-10
Chili’s International 11 321 25-30
13 647 33-40
Total Restaurants:
Chili’s Domestic 6 1,261 19-23
Chili’s International 11 334 25-30
Maggiano’s 2 51 2
19 1,646 46-55

 

 

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