BRINKER INTERNATIONAL, INC. GENERAL
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help you understand our Company,
our operations, and our current operating environment. For an understanding of
the significant factors that influenced our performance during the thirteen and
twenty-six week periods ended December 23, 2020 and December 25, 2019 , the MD&A
should be read in conjunction with the Consolidated Financial Statements
(Unaudited) and related Notes to Consolidated Financial Statements (Unaudited)
included in this quarterly report. All amounts within the MD&A are presented in
millions unless otherwise specified.
OVERVIEW
We are principally engaged in the ownership, operation, development, and
franchising of the Chili's® Grill & Bar ("Chili's") and Maggiano's Little Italy®
("Maggiano's") restaurant brands. At December 23, 2020 , we owned, operated or
franchised 1,655 restaurants, consisting of 1,118 Company-owned restaurants and
537 franchised
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restaurants, located in the United States , 27 countries and two United States
territories. Our restaurant brands, Chili's and Maggiano's, are both operating
segments and reporting units. Our Chili's and Maggiano's locations support our
virtual brand offering, It's Just Wings® through our partnership with DoorDash.
Impact of COVID-19 Pandemic
The COVID-19 global pandemic caused a significant decrease in guest traffic and
sales over the past three quarters. In fiscal 2020, we temporarily closed all
Company-owned restaurant dining and banquet rooms and transitioned to an
off-premise business model by leveraging our carryout and delivery capabilities.
We began opening dining rooms again in May 2020 and have maintained open dining
rooms in accordance with state and local government mandates since then. At the
end of the second quarter of fiscal 2021, approximately 80% of our Company-owned
restaurant dining and banquet rooms or patios were open in a limited capacity.
In order to enhance the safety of our team members and guests, we have
implemented mandatory table distancing as an added safety measure and increased
our already strict sanitation requirements. We conduct daily health and
temperature checks for all employees before they begin their shift and require
face coverings to be worn by all restaurant employees at all times. Our priority
is to protect the health and safety of team members and guests while continuing
to serve our communities.
The COVID-19 pandemic has negatively impacted our revenues and traffic. The
ultimate impacts of the COVID-19 pandemic in both the short and long term is
difficult to estimate due to the uncertainty about the duration of the pandemic,
the availability and acceptance of preventative vaccines and changing government
restrictions. Additional impacts to the business may arise that we are not aware
of currently. We cannot predict whether, when or the manner in which COVID-19
may impact our business, including the capacity of our dining rooms, what
operational restrictions may be imposed, and our ability to fully staff reopened
dining rooms. As such, we have taken a number of proactive measures to adapt our
business to lower demand levels during the COVID-19 pandemic, including measures
to significantly reduce costs, capital expenditures, and maintain liquidity. We
will continue to closely monitor and adapt to the evolving situation.
Operations Strategy
We are committed to strategies and a Company culture that we believe are
centered on a guest experience. This includes improving guest traffic, growing
sales and profit, engaging team members and working to return our business to
pre-pandemic levels. Our strategies and culture are intended to differentiate
our brands from the competition, effectively and efficiently manage our
restaurants and establish a lasting presence for our brands in key markets
around the world.
Our primary strategy remains to make our guests feel special through great food
and quality service so that they return to our restaurants. Our guest survey
scores on food quality and service reached an all-time high last fiscal year and
continued to improve during the pandemic as we continued to provide great food
and service. We believe our enhanced safety training and systems have also
created a safer environment for our team members and guests.
Guest Engagement Through Technology - We continue to invest in our technology
and off-premise options as more guests are opting for to-go and delivery. Our
to-go menu is available through our Chili's mobile app, on our Chili's and
Maggiano's brand websites, through our exclusive delivery partner DoorDash, or
by calling the restaurant. Since fiscal 2018, our off-premise business has grown
by 226%. Chili's exclusive partnership with DoorDash is instrumental in
connecting with our guests and providing convenience, especially during the
pandemic. DoorDash orders are sent directly into our point of sale system, which
has facilitated a streamlined integration to our kitchens. We believe that
guests will continue to prefer convenience and off-premise options after the
pandemic concerns dissipate. We plan to continue investing in our technology
systems to support our carryout and delivery capabilities.
In dining rooms, we use tabletop devices to engage our guests at the table. In
fiscal 2020, we rolled out a new tabletop device at Chili's to enhance this
experience. These devices allow guests to pay at the table, reordering, digital
entertainment, guest feedback and interaction with our My Chili's Rewards
program. Our My Chili's Rewards loyalty database includes more than 8 million
members and allows us to customize offerings for these
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guests based on their purchase behavior. We plan to continue to shift more of
our overall marketing spend to these customized channels and promotions. We
believe this strategy gives us a sustained competitive advantage over
independent restaurants and the majority of our competitors.
Chili's - Chili's continues to outpace the casual dining industry and grow
market share. Part of our strategy is to differentiate Chili's from our
competitors with a flexible platform of value offerings at both lunch and dinner
as well as connecting with our guests through our My Chili's Rewards loyalty
program. We are committed to offering consistent, quality products at a price
point that is compelling to our guests. Our "3 for $10 " platform allows guests
to combine a starter, a non-alcoholic drink and an entrée for just $10.00 as
part of the every-day base menu. Additionally, we have continued our Margarita
of the Month promotion that features a premium-liquor margarita every month at
an every-day value price of $5.00 . Most of our value propositions are available
for guests to enjoy in our dining rooms or off-premise.
Chili's off-premise dining options including our virtual brand, It's Just Wings,
are a critical part of our strategy going forward. Chili's off-premise sales,
including both to-go and delivery, is approximately 46% of sales, with
approximately 60% coming from to-go and 40% from delivery during the first two
quarters of fiscal 2021. We regularly evaluate our processes and menu at Chili's
to identify opportunities where we can improve our service quality and food. We
continue to focus on our core equities and improving guest satisfaction with our
food and service by improving execution of our operations standards.
Maggiano's - At Maggiano's, we believe our focus on operating fundamentals and
technology will provide the foundation for future efficiencies and growth.
Maggiano's also has an exclusive partnership with DoorDash. Our exclusive
partnership creates a more affordable rate structure, making third party
delivery more sustainable and efficient for the brand to operate. Our guests
have the ability to order delivery directly through the Maggiano's website, in
addition to the DoorDash platforms. Maggiano's has also leveraged carryout and
delivery to sustain revenues during the pandemic; however, the banquet business
has been significantly impacted in the second quarter of fiscal 2021 as large
social gatherings are reduced or prohibited. Maggiano's historically hosts a
significant portion of its banquets in the holiday season.
Virtual Opportunities - It's Just Wings, a virtual brand offering, launched on
June 23, 2020 and is available only through DoorDash. This platform allows us to
leverage our existing infrastructure, while adding minimal complexity in the
restaurants. It's Just Wings is a no-frills offering that consists of chicken
wings available in 11 different sauces and rubs, curly fries, ranch dressing and
fried Oreos for a value price. We will continue to identify opportunities to
drive restaurant growth by utilizing our existing restaurant infrastructure and
DoorDash partnership.
Franchise Partnerships - Our franchisees continue to grow our brands around the
world, opening six restaurants and entering into one new development agreement
in the first two quarters of fiscal 2021. We plan to strategically pursue
expansion of Chili's internationally through development agreements with new and
existing franchise partners. We are supporting our franchise partners with
opportunities to expand sales through the It's Just Wings virtual brand.
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Company Development -The following table details the number of restaurant
openings during the thirteen and twenty-six week periods ended December 23, 2020
and December 25, 2019 , respectively, total full year projected openings in
fiscal 2021, and the total restaurants open at each period end:
Openings During the Openings During the Full Year
Thirteen Week Periods Ended Twenty-Six Week Periods Ended Projected Openings Total Open Restaurants at
December 25, December 25,
December 23, 2020 2019 December 23, 2020 2019 Fiscal 2021 December 23, 2020 December 25, 2019
Company-owned restaurants
Chili's domestic 1 4 4 5 8 1,061 1,060
Chili's international - - - - - 5 5
Maggiano's domestic - - - - - 52 52
Total Company -owned 1 4 4 5 8 1,118 1,117
Franchise restaurants
Chili's domestic - 1 1 2 2 171 180
Chili's international 1 5 4 16 6-9 364 377
Maggiano's domestic 1 - 1 - 1 2 1
Total franchise 2 6 6 18 9-12 537 558
Total restaurants
Chili's domestic 1 5 5 7 10 1,232 1,240
Chili's international 1 5 4 16 6-9 369 382
Maggiano's domestic 1 - 1 - 1 54 53
Total 3 10 10 23 17-20 1,655 1,675
Relocations are not included in the table above. In the twenty-six week period
ended December 23, 2020 , we relocated two Chili's domestic Company-owned
restaurant, with no additional relocations planned for the remainder of fiscal
2021.
At December 23, 2020 , we own property for 42 of the 1,118 Company-owned
restaurants. The net book values associated with these restaurants included land
of $33.1 million and buildings of $12.2 million .
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RESULTS OF OPERATIONS
The following table sets forth selected operating data as a percentage of Total
revenues (unless otherwise noted) for the periods indicated. All information is
derived from the accompanying Consolidated Statements of Comprehensive Income
(Unaudited):
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 23, December 25, December 23, December 25,
2020 2019 2020 2019
Revenues
Company sales(1) 98.1 % 97.5 % 98.2 % 97.3 %
Franchise and other revenues(1) 1.9 % 2.5 % 1.8 % 2.7 %
Total revenues(1) 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs and expenses
Food and beverage costs(2) 26.7 % 26.3 % 26.6 % 26.5 %
Restaurant labor(2) 34.3 % 34.4 % 34.2 % 34.8 %
Restaurant expenses(2) 28.3 % 26.6 % 28.0 % 26.8 %
Depreciation and amortization(1) 4.9 % 4.5 % 5.0 % 4.7 %
General and administrative(1) 3.9 % 4.0 % 4.0 % 4.4 %
Other (gains) and charges(1) 0.7 % 1.4 % 0.6 % 0.7 %
Total operating costs and expenses(1) 97.1 % 95.0 % 96.9 % 95.5 %
Operating income(1) 2.9 % 5.0 % 3.1 % 4.5 %
Interest expenses(1) 1.9 % 1.8 % 1.9 % 1.8 %
Other (income), net(1) (0.1) % (0.1) % (0.1) % (0.1) %
Income before income taxes(1) 1.1 % 3.3 % 1.2 % 2.8 %
Provision (benefit) for income taxes(1) (0.5) % 0.1 % (0.2) % 0.2 %
Net income(1) 1.6 % 3.2 % 1.5 % 2.6 %
(1)As a percentage of Total revenues
(2)As a percentage of Company sales
Revenues
Thirteen and Twenty-Six Week Periods Ended December 23, 2020 compared to
December 25, 2019
Revenues are presented in two separate captions in the Consolidated Statements
of Comprehensive Income (Unaudited) to provide more clarity around Company-owned
restaurant revenues and operating expenses trends:
•Company sales include revenues generated by the operation of Company-owned
restaurants including gift card redemptions and virtual brand revenues.
•Franchise and other revenues include Royalties and Franchise fees and other
revenues. Franchise fees and other revenues include delivery service income,
gift card breakage, franchise advertising fees, digital entertainment revenues,
Maggiano's banquet service charge income, franchise and development fees, gift
card discount costs from third-party gift card sales and merchandise income.
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The following is a summary of the change in Total revenues:
Total Revenues
Chili's Maggiano's Total Revenues
Thirteen Week Period Ended December 25, 2019 $ 743.1 $ 126.2 $ 869.3
Change from:
Comparable restaurant sales(1) (45.0) (55.9) (100.9)
Restaurant closures(2) (6.7) - (6.7)
Restaurant openings 5.4 - 5.4
Restaurant relocations 0.9 - 0.9
Company sales (45.4) (55.9) (101.3)
Royalties(4) (2.3) 0.1 (2.2)
Franchise fees and other revenues 1.0 (6.1) (5.1)
Franchise and other revenues (1.3) (6.0) (7.3)
Thirteen Week Period Ended
$ 760.7 Total Revenues Chili's Maggiano's Total Revenues
Twenty-Six Week Period Ended
216.6 $ 1,655.3
Change from:
Comparable restaurant sales(1) (91.9) (89.1) (181)
Restaurant closures(2) (16.5) - (16.5)
Restaurant acquisitions(3) 49.7 - 49.7
Restaurant openings 9.5 - 9.5
Restaurant relocations 1.3 - 1.3
Company sales (47.9) (89.1) (137.0)
Royalties(4) (7.5) - (7.5)
Franchise fees and other revenues (0.4) (9.6) (10.0)
Franchise and other revenues (7.9) (9.6) (17.5)
Twenty-Six Week Period Ended
117.9
(1)Comparable restaurant sales decreased due to lower dining room guest traffic resulting from temporary dining room closures, capacity limitations and personal safety preferences, partially offset by increased off-premise sales. (2)Restaurant closures include the impact of permanently closed locations and temporary COVID-19 closures, that have extended past 14 consecutive days. (3)We acquired 116 Chili's restaurants from a franchisee effectiveSeptember 5, 2019 . This amount represents the change in Company sales attributed to these restaurants over the twenty-six week period endedDecember 23, 2020 . Beginning in the second quarter of fiscal 2021, the change in Company sales attributed to these restaurants is included in Comparable restaurant sales. (4)Lower royalties in the thirteen and twenty-six week periods endedDecember 23, 2020 are primarily due to the adverse impact of the COVID-19 pandemic. Our franchisees generated sales of approximately$187.7 million and$353.2 million for the thirteen and twenty-six week periods endedDecember 23, 2020 , respectively, compared to$247.4 million and$545.8 million in sales for the thirteen and twenty-six week periods endedDecember 25, 2019 , respectively. 28 -------------------------------------------------------------------------------- Table of Contents The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen and twenty-six week periods endedDecember 23, 2020 compared toDecember 25, 2019 : Percentage Change in the
Thirteen Week Period Ended
Comparable Restaurant
Sales(1)(2) Price Impact Mix-Shift(3) Traffic Restaurant Capacity(4)
Company-owned (12.1) % 0.4 % (7.7) % (4.8) % 0.0 %
Chili's (6.3) % 0.5 % (5.0) % (1.8) % 0.0 %
Maggiano's (47.0) % 0.7 % (9.9) % (37.8) % 0.0 %
Chili's Franchise(5) (9.0) %
U.S. (4.7) %
International (16.2) %
Chili's Domestic(6) (6.1) %
System-wide(7) (11.7) %
Percentage Change in the
Twenty-Six Week Period Ended
Comparable Restaurant
Sales(1)(2) Price Impact Mix-Shift(3) Traffic Restaurant Capacity(4)
Company-owned (11.6) % 0.4 % (7.1) % (4.9) % 3.7 %
Chili's (6.7) % 0.3 % (4.5) % (2.5) % 3.9 %
Maggiano's (43.5) % 1.7 % (11.3) % (33.9) % 0.0 %
Chili's Franchise(5) (10.4) %
U.S. (5.1) %
International (19.3) %
Chili's Domestic(6) (6.5) %
System-wide(7) (11.4) %
(1)Comparable Restaurant Sales include all restaurants that have been in
operation for more than 18 months except acquired restaurants which are included
after 12 months of ownership. Restaurants temporarily closed 14 days or more are
excluded from comparable restaurant sales. Percentage amounts are calculated
based on the comparable periods year-over-year.
(2)Comparable Restaurant Sales for Chili's and Maggiano's include the results of
It's Just Wings, a virtual brand launched nationally in June 2020 .
(3)Mix-Shift is calculated as the year-over-year percentage change in Company
sales resulting from the change in menu items ordered by guests.
(4)Restaurant Capacity is measured by sales weeks and is calculated based on
comparable periods year-over-year. We believe the COVID-19 related restaurant
closures are temporary and therefore no adjustment has been made to capacity.
(5)Chili's franchise sales generated by franchisees are not included in revenues
in the Consolidated Statements of Comprehensive Income (Unaudited); however, we
generate royalty revenues and advertising fees based on franchisee revenues,
where applicable. We believe presenting Chili's franchise comparable restaurant
sales provides investors information regarding brand performance that is
relevant to current operations.
(6)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 .
(7)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.
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Costs and Expense
Thirteen Week Period Ended December 23, 2020 compared to December 25, 2019
The following is a summary of the change in Costs and Expenses:
Thirteen Week Periods Ended
December 23, 2020 December 25, 2019 (Favorable) Unfavorable Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 198.9 26.7 % $ 223.1 26.3 % $ (24.2) 0.4 %
Restaurant labor 255.8 34.3 % 291.8 34.4 % (36.0) (0.1) %
Restaurant expenses 211.3 28.3 % 224.7 26.6 % (13.4) 1.7 %
Depreciation and amortization 37.2 39.3 (2.1)
General and administrative 30.0 34.6 (4.6)
Other (gains) and charges 5.4 12.3 (6.9)
Interest expenses 14.4 15.0 (0.6)
Other income, net (0.5) (0.5) -
Food and beverage costs, as a percentage of Company sales, increased 0.4%,
consisting of 0.3% of unfavorable commodity pricing primarily related to produce
and dairy and 0.2% of unfavorable menu item mix, partially offset by 0.1% of
increased menu pricing.
Restaurant labor, as a percentage of Company sales, decreased 0.1% primarily
consisting of 1.1% of favorable hourly labor expenses and 0.5% of favorable
manager expenses both due to reduced staffing requirements, partially offset by
1.4% of sales deleverage and 0.1% of higher other labor expenses.
Restaurant expenses, as a percentage of Company sales, increased 1.7% primarily
consisting of 3.2% of higher expenses related to delivery fees and supplies
driven by the growth in off-premise sales and 2.2% of sales deleverage,
partially offset by 2.0% of lower advertising expenses, 0.8% of lower repairs
and maintenance expenses, 0.2% of lower credit card fees, 0.2% of lower
utilities and 0.5% of lower other restaurant expenses.
Depreciation and amortization decreased $2.1 million as follows:
Depreciation and
Amortization
Thirteen Week Period Ended December 25, 2019 $ 39.3 Change from: Retirements and fully depreciated restaurant assets (5.8) Additions for new and existing restaurant assets(1) 2.1 Finance leases 1.1 Corporate assets 0.4 Acquisition of franchise restaurants(2) 0.2 Other (0.1) Thirteen Week Period EndedDecember 23, 2020
$ 37.2
(1)Additions for new and existing restaurants increased due to capital purchases. (2)Acquisition of franchise restaurants represents the change in depreciation and amortization of the assets and finance leases of the 116 Chili's restaurants acquired onSeptember 5, 2019 . 30 -------------------------------------------------------------------------------- Table of Contents General and administrative expenses decreased$4.6 million as follows: General and
Administrative
Thirteen Week Period EndedDecember 25, 2019 $
34.6
Change from: Defined contribution plan employer expenses(1)
(2.4)
Payroll-related expenses
(1.0)
Travel and entertainment expenses
(0.6)
Professional fees
(0.2)
Performance-based compensation 0.4 Stock-based compensation 0.4 Other (1.2) Thirteen Week Period EndedDecember 23, 2020 $
30.0
(1)Defined contribution plan employer expenses decreased due to the temporary suspension of employer matching contributions fromMay 2020 throughDecember 2020 . Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):
Thirteen Week Periods Ended
2020 2019
Restaurant impairment charges $ 2.5 $ 4.6
COVID-19 related charges 1.0 -
Restaurant closure charges 0.4 2.9
Remodel-related costs 0.7 0.8
Acquisition of franchise restaurants costs, net - 2.0
Other 0.8 2.0
$ 5.4 $ 12.3
Interest expenses decreased $0.6 million primarily due to lower average
borrowing balances on our revolving credit facility, partially offset by higher
interest expenses due to the Chili's tabletop device finance lease which rolled
out to restaurants beginning in the second quarter of fiscal 2020 and completed
in the fourth quarter of fiscal 2020 and higher interest rates on our revolving
credit facility in the thirteen week period ended December 23, 2020 .
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Twenty-Six Week Period Ended December 23, 2020 compared to December 25, 2019
The following is a summary of the change in costs and expenses:
Twenty-Six Week Periods Ended
December 23, 2020 December 25, 2019 (Favorable) Unfavorable Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 392.4 26.6 % $ 426.9 26.5 % $ (34.5) 0.1 %
Restaurant labor 503.8 34.2 % 560.3 34.8 % (56.5) (0.6) %
Restaurant expenses 413.8 28.0 % 432.0 26.8 % (18.2) 1.2 %
Depreciation and amortization 74.6 77.4 (2.8)
General and administrative 60.5 72.6 (12.1)
Other (gains) and charges 9.2 11.4 (2.2)
Interest expenses 29.0 29.9 (0.9)
Other income, net (0.9) (1.0) 0.1
Food and beverage costs, as a percentage of Company sales, increased 0.1%
consisting of 0.2% of unfavorable commodity pricing related to dairy, partially
offset by 0.1% of increased menu pricing.
Restaurant labor, as a percentage of Company sales, decreased 0.6% consisting of
1.3% favorable hourly labor expenses and 0.7% of favorable manager expenses both
due to reduced staffing requirements, partially offset by 1.3% of sales
deleverage and 0.1% of higher other labor expenses.
Restaurant expenses, as a percentage of Company sales, increased 1.2% consisting
of 3.3% of higher expenses related to delivery fees and supplies in connection
with the growth in off-premise sales and 2.0% of sales deleverage, partially
offset by 2.0% of lower advertising expenses, 1.1% of lower repairs and
maintenance expenses, 0.3% of lower credit card fees, 0.2% of lower utilities
expenses and 0.5% of lower other restaurant expenses.
Depreciation and amortization decreased $2.8 million as follows:
Depreciation and
Amortization
Twenty-Six Week Period Ended December 25, 2019 $ 77.4 Change from: Retirements and fully depreciated restaurant assets (12.2) Additions for existing and new restaurant assets(1) 4.2 Acquisition of Chili's restaurants(2) 2.3 Finance leases 1.9 Corporate assets 0.8 Other 0.2 Twenty-Six Week Period EndedDecember 23, 2020
$ 74.6
(1)Additions for existing and new restaurant assets increased related to capital purchases. (2)Acquisition of Chili's restaurants represents the change in depreciation and amortization of the assets and finance leases of the 116 Chili's restaurants acquired onSeptember 5, 2019 . The increase resulting from the timing of the acquisition. 32 -------------------------------------------------------------------------------- Table of Contents General and administrative expenses decreased$12.1 million as follows: General and
Administrative
Twenty-Six Week Period EndedDecember 25, 2019 $
72.6
Change from: Defined contribution plan employer expenses(1) (5.0) Stock-based compensation(2) (2.8) Payroll-related expenses (2.1) Professional fees (1.5) Travel and entertainment expenses
(1.4)
Performance-based compensation
2.2
Other
(1.5)
Twenty-Six Week Period EndedDecember 23, 2020 $
60.5
(1)Defined contribution plan employer expenses decreased due to the temporary suspension of employer matching contributions fromMay 2020 throughDecember 2020 . (2)Stock-based compensation decreased primarily due to the acceleration of stock-based compensation expenses in the first quarter of fiscal 2020 for retirement eligible executives. Prior to fiscal 2021, retirement eligibility resulted in the compensation being recognized in full upon grant as there was no substantive vesting period. In fiscal 2021, the retirement eligible executives received 20% of their stock-based compensation as awards with no substantive vesting period. Their remaining 80% of stock-based compensation granted in fiscal 2021 will be amortized evenly over the three year vesting period. Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):
Twenty-Six Week Periods Ended
December 23, December 25,
2020 2019
Restaurant impairment charges $ 2.5 $ 4.6
COVID-19 related charges 2.2 -
Restaurant closure charges 1.9 3.1
Remodel-related costs 0.9 1.5
Lease modification gain, net (0.5) (3.1)
Acquisition of franchise restaurants costs, net - 1.5
Other 2.2 3.8
$ 9.2 $ 11.4
Interest expenses decreased $0.9 million consisting of lower average borrowing
balances on our revolving credit facility, partially offset by higher interest
expenses for the Chili's tabletop device finance lease which rolled out to
restaurants beginning in the second quarter of fiscal 2020 and completed in the
fourth quarter of fiscal 2020, higher interest rates on our revolving credit
facility in the twenty-six week period ended December 23, 2020 .
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Segment Results
The rise in COVID-19 cases during the second quarter resulted in some dining
room closures and capacity restrictions which have negatively impacted our
results. Capacity restrictions related to the ongoing COVID-19 pandemic vary by
location due to state and local mandates. These capacity restrictions and
personal safety preferences have resulted in lower overall guest traffic and
many guests have shifted to our off-premise dining options. This shift has
changed our staffing requirements, expenses associated with off-premise and
other operational expenses which are noted below.
Chili's Segment
Thirteen Week Period Ended December 23, 2020 compared to December 25, 2019
Thirteen Week Periods Ended Favorable
December 23, December 25, (Unfavorable) Variance as
2020 2019 Variance percentage
Company sales $ 683.0 $ 728.4 $ (45.4) (6.2) %
Royalties 7.6 9.9 (2.3) (23.2) %
Franchise fees and other revenues 5.8 4.8 1.0 20.8 %
Franchise and other revenues 13.4 14.7 (1.3) (8.8) %
Total revenues $ 696.4 $ 743.1 $ (46.7) (6.3) %
Chili's Total revenues decreased by 6.3% primarily due to lower dining room
guest traffic, partially offset by increased off-premise sales including It's
Just Wings. Refer to "Revenues" section above for further details about Chili's
revenues changes.
The following is a summary of the change in Chili's operating costs and
expenses:
Thirteen Week Periods Ended
December 23, 2020 December 25, 2019 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 183.7 26.9 % $ 195.1 26.8 % $ 11.4 0.1 %
Restaurant labor 233.4 34.2 % 251.0 34.4 % 17.6 (0.2) %
Restaurant expenses 188.7 27.6 % 194.2 26.7 % 5.5 0.9 %
Depreciation and amortization 30.8 32.1 1.3
General and administrative 5.4 8.5 3.1
Other (gains) and charges 4.4 10.6 6.2
Chili's Food and beverage costs, as a percentage of Company sales, increased
0.1%, consisting of 0.3% of unfavorable commodity pricing primarily related to
produce and dairy, partially offset by 0.1% of favorable menu item mix and 0.1%
of increased menu pricing.
Chili's Restaurant labor, as a percentage of Company sales, decreased 0.2%
consisting of 0.5% of favorable hourly labor expenses and 0.3% of favorable
manager expenses both due to reduced staffing requirements, partially offset by
0.6% of sales deleverage.
Chili's Restaurant expenses, as a percentage of Company sales, increased 0.9%
consisting of 3.5% of higher expenses related to delivery fees and supplies
driven by the growth in off-premise sales and 1.4% of sales deleverage,
partially offset by 2.3% of lower advertising expenses, 0.7% of lower repairs
and maintenance expenses, 0.3% of lower supervision expenses, 0.2% of lower
credit card fees and 0.5% of lower other restaurant expenses.
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Chili's Depreciation and amortization decreased $1.3 million as follows:
Depreciation and
Amortization
Thirteen Week Period Ended December 25, 2019 $ 32.1 Change from: Retirements and fully depreciated restaurant assets (4.6) Additions for new and existing restaurant assets(1) 2.0 Finance leases 1.0 Acquisition of franchise restaurants 0.2 Other 0.1 Thirteen Week Period EndedDecember 23, 2020
$ 30.8
(1)Additions for new and existing restaurants increased due to capital purchases. Chili's General and administrative decreased$3.1 million consisting primarily of a decrease in defined contribution plan employer expenses, stock-based compensation and payroll-related expenses. Chili's Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):
Thirteen Week Periods Ended
2020 2019
Restaurant impairment charges $ 2.1 $ 4.6
COVID-19 related charges 1.0 -
Restaurant closure charges 0.3 2.9
Remodel-related costs 0.7 0.8
Acquisition of franchise restaurants costs, net - 2.0
Other 0.3 0.3
$ 4.4 $ 10.6
Twenty-Six Week Period Ended December 23, 2020 compared to December 25, 2019
Twenty-Six Week Periods Ended Favorable
December 23, December 25, (Unfavorable) Variance as
2020 2019 Variance percentage
Company sales $ 1,358.0 $ 1,405.9 $ (47.9) (3.4) %
Royalties 14.2 21.7 (7.5) (34.6) %
Franchise fees and other revenues 10.7 11.1 (0.4) (3.6) %
Franchise and other revenues 24.9 32.8 (7.9) (24.1) %
Total revenues $ 1,382.9 $ 1,438.7 $ (55.8) (3.9) %
Chili's Total revenues decreased 3.9% primarily due lower dining room guest
traffic, partially offset by increased off-premise sales including It's Just
Wings and the acquisition of 116 Chili's restaurants on September 5, 2019 . Refer
to "Revenues" section above for further details about Chili's revenues changes.
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Table of Contents The following is a summary of the change in Chili's operating costs and expenses:
Twenty-Six Week Periods Ended
December 23, 2020 December 25, 2019 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 364.5 26.8 % $ 377.5 26.9 % $ 13.0 (0.1) %
Restaurant labor 461.6 34.0 % 484.1 34.4 % 22.5 (0.4) %
Restaurant expenses 370.1 27.3 % 375.0 26.7 % 4.9 0.6 %
Depreciation and amortization 61.4 62.8 1.4
General and administrative 10.8 17.6 6.8
Other (gains) and charges 8.0 9.0 1.0
Chili's Food and beverage costs, as a percentage of Company sales, decreased
0.1%, consisting of 0.2% of favorable menu item mix and 0.1% of increased menu
pricing, partially offset by 0.2% of unfavorable commodity pricing primarily
related to produce and dairy.
Chili's Restaurant labor, as a percentage of Company sales, decreased 0.4%
primarily consisting of 0.7% of favorable hourly labor expenses and 0.5% of
favorable manager expenses both due to reduced staffing requirements, and 0.1%
of lower other labor expenses, partially offset by 0.9% of sales deleverage.
Chili's Restaurant expenses, as a percentage of Company sales, increased 0.6%
primarily consisting of 3.5% of higher expenses related to delivery fees and
supplies driven by the growth in off-premise sales and 1.6% of sales deleverage,
partially offset by 2.4% of lower advertising expenses, 1.1% of lower repairs
and maintenance expenses, 0.3% of lower utilities, 0.1% of lower credit card
fees and 0.6% of lower other restaurant expenses.
Chili's Depreciation and amortization decreased $1.4 million as follows:
Depreciation and
Amortization
Twenty-Six Week Period Ended December 25, 2019 $ 62.8 Change from: Retirements and fully depreciated restaurant assets (9.8) Additions for existing and new restaurant assets(1) 3.9 Acquisition of Chili's restaurants(2) 2.3 Finance leases 1.9 Other 0.3 Twenty-Six Week Period EndedDecember 23, 2020
$ 61.4
(1)Additions for existing and new restaurant assets increased related to capital purchases. (2)Acquisition of Chili's restaurants represents the change in depreciation and amortization of the assets and finance leases of the 116 Chili's restaurants acquired onSeptember 5, 2019 . The increase resulting from the timing of the acquisition. Chili's General and administrative decreased$6.8 million primarily consisting of$4.0 million of lower defined contribution plan employer expenses,$1.0 million of lower payroll-related expenses,$0.8 million of lower stock-based compensation expenses and$0.7 million of lower travel and entertainment expenses. 36
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Table of Contents Chili's Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):
Twenty-Six Week Periods Ended
December 23, December 25,
2020 2019
Restaurant impairment charges $ 2.1 $ 4.6
COVID-19 related charges 2.1 -
Restaurant closure charges 1.8 3.1
Remodel-related costs 0.9 1.5
Lease modification gain, net (0.5) (3.1)
Acquisition of franchise restaurants costs, net - 1.5
Other 1.6 1.4
$ 8.0 $ 9.0
Maggiano's Segment
Thirteen Week Period Ended December 23, 2020 compared to December 25, 2019
Thirteen Week Periods Ended Favorable
December 23, December 25, (Unfavorable) Variance as a
2020 2019 Variance percentage
Company sales $ 63.2 $ 119.1 $ (55.9) (46.9) %
Royalties 0.1 0.0 0.1 100.0 %
Franchise fees and other revenues 1.0 7.1 (6.1) (85.9) %
Franchise and other revenues 1.1 7.1 (6.0) (84.5) %
Total revenues $ 64.3 $ 126.2 $ (61.9) (49.0) %
Maggiano's Total revenues decreased 49.0% primarily due to lower dining room
guest traffic including lower banquet volumes driven by the COVID-19 pandemic,
partially offset by increased off-premise sales. Refer to "Revenues" section
above for further details about Maggiano's revenues changes.
The following is a summary of the change in Maggiano's operating costs and
expenses:
Thirteen Week Periods Ended
December 23, 2020 December 25, 2019 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 15.2 24.1 % $ 28.0 23.5 % $ 12.8 0.6 %
Restaurant labor 22.4 35.4 % 40.8 34.3 % 18.4 1.1 %
Restaurant expenses 22.1 35.0 % 30.4 25.5 % 8.3 9.5 %
Depreciation and amortization 3.4 4.0 0.6
General and administrative 1.3 1.5 0.2
Other (gains) and charges 0.8 - (0.8)
Maggiano's Food and beverage costs, as a percentage of Company sales, increased
0.6%, consisting of 0.4% of unfavorable menu item mix and 0.3% of unfavorable
commodity pricing primarily related to produce and pasta, partially offset by
0.1% of increased menu pricing.
Maggiano's Restaurant labor, as a percentage of Company sales, increased 1.1%
consisting of 4.4% of favorable hourly labor expenses and 0.9% of favorable
manager expenses both due to reduced staffing requirements, partially offset by
6.0% of sales deleverage and 0.4% of higher employee health insurance expenses.
Maggiano's Restaurant expenses, as a percentage of Company sales, increased 9.5%
primarily consisting of 12.7% of sales deleverage and 1.3% of higher expenses
related to delivery fees and supplies driven by the growth in off-
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Table of Contents
premise sales, partially offset by 1.3% of lower repairs and maintenance
expenses, 0.9% of lower banquet expenses, 0.7% of lower advertising expenses,
0.6% of lower credit card fees, 0.5% of lower utilities and 0.5% of lower other
restaurant expenses.
Twenty-Six Week Period Ended December 23, 2020 compared to December 25, 2019
Twenty-Six Week Periods Ended Favorable
December 23, December 25, (Unfavorable) Variance as a
2020 2019 Variance percentage
Company sales $ 116.4 $ 205.5 $ (89.1) (43.4) %
Royalties 0.1 0.1 0.0 - %
Franchise fees and other revenues 1.4 11.0 (9.6) (87.3) %
Franchise and other revenues 1.5 11.1 (9.6) (86.5) %
Total revenues $ 117.9 $ 216.6 $ (98.7) (45.6) %
Maggiano's Total revenues decreased 45.6% due to lower comparable restaurant
sales driven by reduced dining and banquet room traffic due to the COVID-19
pandemic, partially offset by increased off-premise sales. Refer to "Revenues"
section above for further details about Maggiano's revenues changes.
The following is a summary of the change in Maggiano's operating costs and
expenses:
Twenty-Six Week Periods Ended
December 23, 2020 December 25, 2019 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales
Dollars Sales Dollars Sales Food and beverage costs $ 27.9 24.0 %$ 49.4 24.0 % $ 21.5 - % Restaurant labor 42.2 36.2 % 76.2 37.1 % 34.0 (0.9) % Restaurant expenses 42.9 36.9 % 56.7 27.6 % 13.8 9.3 % Depreciation and amortization 7.0 8.0 1.0 General and administrative 2.6 3.2 0.6 Other (gains) and charges 0.9 0.1 (0.8) Maggiano's Food and beverage costs, as a percentage of Company sales, were flat consisting of 0.2% of unfavorable commodity pricing primarily related to pasta and seafood, offset by 0.2% of favorable menu item mix.Maggiano's Restaurant labor, as a percentage of Company sales, decreased 0.9% primarily consisting of 5.6% of favorable hourly labor expenses and 1.4% of favorable manager expenses both due to reduced staffing requirements, partially offset by 5.8% of sales deleverage and 0.3% of higher employee health insurance expenses.Maggiano's Restaurant expenses, as a percentage of Company sales, increased 9.3% primarily consisting of 11.2% of sales deleverage and 1.8% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales, partially offset by 1.6% of lower repairs and maintenance expenses, 0.7% of lower credit card fees, 0.5% of lower advertising expenses, 0.3% of lower utilities, 0.3% lower banquet expenses and 0.3% of lower other restaurant expenses. Income Taxes Thirteen Week Periods Ended Twenty-Six Week Periods Ended December 23, December 25, December 23, December 25, 2020 2019 Change 2020 2019 Change Effective income tax rate (46.3) % 3.8 % (50.1) % (23.4) % 6.6 % (30.0) % The federal statutory tax rate was 21.0% for the thirteen and twenty-six week periods endedDecember 23, 2020 andDecember 25, 2019 . The effective income tax rate in the thirteen and twenty-six week periods endedDecember 23, 2020 decreased compared to the thirteen and twenty-six week periods endedDecember 25, 2019 primarily due to lower income 38
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Table of Contents before income taxes and leverage of the FICA tip tax credit. The twenty-six week period endedDecember 23, 2020 also included the favorable impact of excess tax windfalls associated with stock-based compensation. Liquidity and Capital Resources COVID-19 Impact on Liquidity Cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures, such as remodels, maintaining existing restaurants and constructing new restaurants, to pay dividends and to repurchase shares of our common stock when authorized. Our strategic decision to enhance our off-premise business has enabled us to conveniently serve a significantly higher volume of off-premise guests during this pandemic compared to other industry competitors. Due to the uncertainty in the economy and to preserve liquidity, we have taken proactive precautionary measures to raise additional capital, reduce costs and pause non-critical projects that do not significantly impact our current operations. These measures during fiscal 2021 included: •Amended our revolving credit facility during the first quarter of fiscal 2021 to extend the maturity and provide additional flexibility during this time; •Reduced capital expenditures, although we have begun to strategically resume the Chili's remodel program and construction of certain new restaurants; •Reduced marketing, general and administrative and restaurant expenses; •Continued the suspension of both the quarterly cash dividend and the share repurchase program; and •Amended the fiscal 2018 and fiscal 2019 U.S. Consolidated Income tax returns in order to claim the increased depreciation deductions for Brinker's qualified improvement property in accordance with the CARES Act which resulted in an anticipated refund of$4.6 million .
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