BRINKER INTERNATIONAL, INC. DALLAS, Jan. 25, 2017 /PRNewswire/ -- Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal second quarter ended Dec. 28, 2016 and updated its fiscal 2017 outlook.
Highlights include the following:
-- On a GAAP basis, earnings per diluted share in the second quarter of
fiscal 2017 decreased 13.8 percent to $0.69 compared to $0.80 for the
second quarter of fiscal 2016
-- Earnings per diluted share, excluding special items, in the second
quarter of fiscal 2017 decreased 9.0 percent to $0.71 compared to $0.78
for the second quarter of fiscal 2016 (see non-GAAP reconciliation
below)
-- Brinker's total revenues in the second quarter of fiscal 2017 decreased
2.2 percent to $771.0 million compared to the second quarter of fiscal
2016 and company sales in the second quarter of fiscal 2017 decreased
2.2 percent to $748.7 million compared to the second quarter of fiscal
2016
-- Chili's company-owned comparable restaurant sales in the second quarter
of fiscal 2017 decreased 3.3 percent
-- Maggiano's comparable restaurant sales in the second quarter of fiscal
2017 decreased 0.8 percent
-- Chili's franchise comparable restaurant sales in the second quarter of
fiscal 2017 decreased 3.5 percent, which includes a 3.0 percent and 4.2
percent decrease for U.S. and international franchise restaurants,
respectively
-- Operating income, as a percent of total revenues, declined approximately
160 basis points to 8.0 percent in the second quarter of fiscal 2017
compared to 9.6 percent for the second quarter of fiscal 2016
-- Restaurant operating margin, as a percent of company sales, declined
approximately 100 basis points to 15.1 percent in the second quarter of
fiscal 2017 compared to 16.1 percent for the second quarter of fiscal
2016 (see non-GAAP reconciliation below)
-- For the first six months of fiscal 2017, cash flows provided by
operating activities were $141.1 million and capital expenditures
totaled $60.1 million. Free cash flow was $81.0 million (see non-GAAP
reconciliation below)
-- The company is updating its fiscal 2017 outlook and now estimates
earnings per diluted share, excluding special items, to be in the range
of $3.05 to $3.15 for fiscal 2017
"We are not satisfied with our second quarter results. While we believe our initiatives can deliver share gains, our overall performance was hurt by a much weaker-than-expected casual dining category," said Wyman Roberts, chief executive officer and president. "We are taking actions to sharpen our focus on more impactful innovation and execution designed to create long-term value for our shareholders."
Table 1: Q2 comparable restaurant sales(1)
Company-owned, reported brands and franchise; percentage
Q2 17 Q2 16
----- -----
Brinker International (2.9) (2.6)
Chili's Company-Owned
Comparable Restaurant Sales (3.3) (2.8)
Pricing Impact 1.8 0.8
Mix-Shift(2) 1.4 0.4
Traffic (6.5) (4.0)
Maggiano's
Comparable Restaurant Sales (0.8) (1.8)
Pricing Impact 2.6 2.3
Mix-Shift(2) (0.9) (1.2)
Traffic (2.5) (2.9)
Chili's Franchise(3) (3.5) 0.9
U.S. Comparable Restaurant Sales (3.0) (0.1)
International Comparable Restaurant
Sales (4.2) 2.6
Chili's Domestic4 (3.2) (2.1)
System-wide5 (3.1) (1.6)
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 second quarter company sales decreased 2.9 percent to $632.1 million from $651.0 million in the prior year primarily due to a decline in comparable restaurant sales. As compared to the prior year, Chili's restaurant operating margin(1) declined. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates and employee health insurance expenses. Restaurant expenses, as a percent of company sales, increased due to deleverage, higher advertising and repairs and maintenance expenses. Cost of sales, as a percent of company sales, decreased due to increased menu pricing and favorable commodity pricing primarily related to poultry, burgers and prime rib, partially offset by unfavorable menu item mix and commodity pricing primarily related to avocados.
MAGGIANO'S second quarter company sales increased 1.7 percent to $116.6 million from $114.7 million in the prior year primarily due to an increase in restaurant capacity, partially offset by a decline in comparable restaurant sales. As compared to the prior year, Maggiano's restaurant operating margin(1) improved. 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. Restaurant expenses, as a percent of company sales, decreased due to lower preopening expenses, partially offset by higher supervision expenses. Restaurant labor, as a percent of company sales, increased due to higher manager bonuses and increased employee health insurance expenses.
(1)Restaurant 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 decreased 2.6 percent to $22.3 million for the second quarter compared to $22.9 million in the prior year. Brinker franchisees generated approximately $320 million in sales(2) for the second quarter of fiscal 2017.
(2)Royalty revenues are recognized based on the sales generated and reported to the company by franchisees.
Other
Depreciation and amortization expense increased $0.2 million for the quarter compared to the second 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 $1.6 million for the quarter compared to the second quarter of fiscal 2016 primarily due to higher stock compensation and payroll expenses, partially offset by lower performance-based compensation.
On a GAAP basis, the effective income tax rate decreased to 28.2 percent in the current quarter from 30.1 percent in the second quarter of fiscal 2016. Excluding the impact of special items, the effective income tax rate decreased to 28.1 percent in the current quarter compared to 31.3 percent in the second quarter of fiscal 2016. The effective income tax rates decreased in the current quarter primarily due to lower profits and the impact of tax credits.
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
Q2 17 and Q2 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.
Q2 17 EPS Q2 17 Q2 16 EPS Q2 16
----- --------- ----- ---------
Net Income 34.6 0.69 47.7 0.80
Special items(1) 1.3 0.03 (0.1) 0.00
Income tax effect related to
special items (0.3) (0.01) 0.1 0.00
Adjustment for tax items(2) - - (0.8) (0.02)
--- --- ---- -----
Special items, net of taxes 1.0 0.02 (0.8) (0.02)
--- ---- ---- -----
Net Income excluding special
items 35.6 0.71 46.9 0.78
==== ==== ==== ====
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: Calculation of restaurant
operating margin and reconciliation
to operating income
Q2 17 and Q2 16; $ millions
Brinker believes presenting
restaurant operating margin provides
a useful metric by which to evaluate
restaurant-level operating
efficiency and performance.
Q2F17 Q2F16
----- -----
Company sales 748.7 765.7
Cost of sales 193.5 203.8
Restaurant labor 248.7 247.6
Restaurant expenses 193.1 190.7
-----
Restaurant operating margin 113.4 123.6
Divided by company sales 748.7 765.7
Restaurant operating margin as a
percent of company sales 15.1% 16.1%
Restaurant operating margin 113.4 123.6
Franchise and other revenues 22.3 22.9
Depreciation and amortization (39.3) (39.1)
General and administrative (33.5) (31.9)
Other gains and charges (1.3) 0.1
Operating income 61.6 75.6
Divided by total revenues 771.0 788.6
Operating income as a percent of
total revenues 8.0% 9.6%
Table 4: Reconciliation of free cash
flow
Q2 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.
Twenty-six Week
Period Ended
Dec. 28, 2016
-------------
Cash flows provided by operating
activities 141.1
Capital expenditures (60.1)
Free cash flow 81.0
====
Fiscal 2017 Outlook Update
"While we believe our initiatives are gaining traction and plan to enhance our focus to improve performance, we are reducing our full-year adjusted EPS guidance primarily to reflect lower category sales than originally planned," said Tom Edwards, executive vice president and chief financial officer.
The company is updating guidance for fiscal 2017 due to changes in our performance expectations and recent reorganization activities. We continually examine our business model to identify efficiencies and react to changes in the business environment. We have reorganized Chili's restaurant operations team and certain positions at the Restaurant Support Center to streamline our staffing to align with our current management strategy. We estimate that this action will result in severance and other separation related charges of approximately $6.0 million. These amounts will be recorded in the third quarter of fiscal 2017 in the Other gains and charges caption of our consolidated statements of comprehensive income. We anticipate that this reorganization will result in pre-tax savings of over $5 million in fiscal 2017 and approximately $12 million on an annualized basis.
We are unable to reliably forecast special items such as restaurant impairments, restaurant closures, reorganization charges and legal settlements without unreasonable effort. As such we do not present a reconciliation of forecasted adjusted earnings per diluted share, excluding special items, to US GAAP earnings per diluted share.
The company estimates that earnings per diluted share, excluding special items, will be in the range of $3.05 to $3.15. Our updated earnings expectations are based on the following assumptions:
-- Total revenues are now estimated to decrease approximately 2.0 to 2.5
percent on a GAAP basis and decrease approximately 1.0 to 1.5 percent
excluding the impact of the 53rd week in fiscal 2016
-- Comparable restaurant sales are now estimated to be down 1.5 to 2.0
percent
-- Restaurant operating margin is now estimated to be down approximately 90
basis points year-over-year on a 52 week basis
-- General and administrative expense is now estimated to be an increase of
approximately $6.0 to $8.0 million
-- Depreciation is now estimated to be flat to an increase of approximately
$1.0 million
-- Free cash flow is estimated to be $205 to $215 million
The company believes providing fiscal 2017 earnings per diluted share, excluding special items, guidance provides investors the appropriate insight into the company's ongoing operating performance.
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.
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. CST today (Jan. 25) -
http://investors.brinker.com/phoenix.zhtml?c=119205&p=irol-EventDetails&EventId=5246124
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 Feb. 22, 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 second quarter of fiscal 2017 filing on or before Feb. 6, 2017; and
- Third quarter earnings release, before market opens, April 25, 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 Dec. 28, 2016, Brinker owned, operated, or franchised 1,658 restaurants under the names Chili's(®) Grill & Bar (1,606 restaurants) and Maggiano's Little Italy(®) (52 restaurants).
Forward-Looking Statements
The 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 Twenty-Six Week Periods Ended
Dec. 28, 2016 Dec. 23, 2015 Dec. 28, 2016 Dec. 23, 2015
------------- ------------- ------------- -------------
Revenues:
Company sales $748,709 $765,672 $1,486,119 $1,506,153
Franchise and other revenues (a) 22,334 22,938 43,416 45,016
Total revenues 771,043 788,610 1,529,535 1,551,169
------- ------- --------- ---------
Operating costs and expenses:
Company restaurants (excluding depreciation and
amortization)
Cost of sales 193,537 203,799 385,839 400,402
Restaurant labor 248,692 247,596 499,262 494,173
Restaurant expenses 193,131 190,660 389,774 379,833
------- ------- -------
Company restaurant expenses 635,360 642,055 1,274,875 1,274,408
Depreciation and amortization 39,305 39,114 78,191 78,285
General and administrative 33,546 31,909 66,083 65,020
Other gains and charges (b) 1,306 (87) 7,384 1,590
----- --- ----- -----
Total operating costs and expenses 709,517 712,991 1,426,533 1,419,303
------- ------- --------- ---------
Operating income 61,526 75,619 103,002 131,866
Interest expense 13,641 7,907 22,450 15,674
Other, net (383) (560) (682) (833)
---- ---- ---- ----
Income before provision for income taxes 48,268 68,272 81,234 117,025
Provision for income taxes 13,631 20,578 23,364 36,124
------ ------ ------ ------
Net income $34,637 $47,694 $57,870 $80,901
======= ======= ======= =======
Basic net income per share $0.70 $0.81 $1.11 $1.35
===== ===== ===== =====
Diluted net income per share $0.69 $0.80 $1.09 $1.34
===== ===== ===== =====
Basic weighted average shares outstanding 49,833 59,198 52,339 59,712
====== ====== ====== ======
Diluted weighted average shares outstanding 50,480 59,899 53,028 60,553
====== ====== ====== ======
Other comprehensive loss:
Foreign currency translation adjustment (c) $(1,664) $(460) $(2,145) $(3,265)
Other comprehensive loss (1,664) (460) (2,145) (3,265)
------ ---- ------ ------
Comprehensive income $32,973 $47,234 $55,725 $77,636
======= ======= ======= =======
(a) Franchise and other revenues
primarily includes royalties,
development fees, franchise
fees, Maggiano's banquet
service charge income, gift
card breakage and discounts,
tabletop gaming 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. 28, 2016 Dec. 23, 2015 Dec. 28, 2016 Dec. 23, 2015
------------- ------------- ------------- -------------
Gain on the sale
of assets, net $(2,569) $ - $(2,569) $(1,762)
Restaurant
impairment
charges 1,851 468 1,851 525
Restaurant
closure charges 321 - 2,827 -
Information
technology
restructuring 209 - 2,700 -
Severance - 209 293 2,368
Litigation - (2,032) - (2,032)
Acquisition costs - - - 580
Other 1,494 1,268 2,282 1,911
-----
$1,306 $(87) $7,384 $1,590
====== ==== ====== ======
(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. 28, 2016 June 29, 2016
------------- -------------
ASSETS
Current assets $224,268 $176,774
Net property and equipment (a) 1,018,221 1,043,152
Total other assets 255,616 249,534
------- -------
Total assets $1,498,105 $1,469,460
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current installments of long-term debt $3,815 $3,563
Other current liabilities 465,989 428,880
Long-term debt, less current installments 1,416,212 1,110,693
Other liabilities 142,675 139,423
Total shareholders' deficit (530,586) (213,099)
-------- --------
Total liabilities and shareholders' deficit $1,498,105 $1,469,460
========== ==========
(a) At Dec. 28, 2016, the company
owned the land and buildings
for 190 of the 1,001 company-
owned restaurants. The net
book values of the land
totaled $143.2 million and the
buildings totaled $101.0
million associated with these
restaurants.
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twenty-Six Week Periods Ended
Dec. 28, 2016 Dec. 23, 2015
------------- -------------
Cash Flows From Operating Activities:
Net income $57,870 $80,901
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 78,191 78,285
Stock-based compensation 8,152 7,522
Restructure charges and other impairments 8,000 1,229
Net gain on disposal of assets (811) (274)
Changes in assets and liabilities (10,266) (11,424)
------- -------
Net cash provided by operating activities 141,136 156,239
------- -------
Cash Flows from Investing Activities:
Payments for property and equipment (60,055) (52,199)
Proceeds from sale of assets 3,022 2,756
Payment for business acquisition, net of
cash acquired - (105,577)
Net cash used in investing activities (57,033) (155,020)
------- --------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt 350,000 -
Purchases of treasury stock (349,994) (140,089)
Payments on revolving credit facility (138,000) (20,000)
Borrowings on revolving credit facility 100,000 207,500
Payments of dividends (36,944) (37,363)
Payments for debt issuance costs (10,216) -
Proceeds from issuances of treasury stock 3,837 1,691
Payments on long-term debt (1,862) (1,698)
Excess tax benefits from stock-based
compensation 1,688 4,907
----- -----
Net cash (used in) provided by financing
activities (81,491) 14,948
------- ------
Net change in cash and cash equivalents 2,612 16,167
Cash and cash equivalents at beginning of
period 31,446 55,121
------ ------
Cash and cash equivalents at end of period $34,058 $71,288
======= =======
BRINKER INTERNATIONAL, INC.
RESTAURANT SUMMARY
Second Quarter Total Restaurants Projected Openings
Fiscal 2017
Openings Dec. 28, 2016
Fiscal 2017
-----------
Company-
owned
restaurants:
Chili's
domestic 1 935 5-6
Chili's
international 1 14 1
Maggiano's 1 52 2
--- --- ---
Total
company-
owned 3 1,001 8-9
--- ----- ---
Franchise
restaurants:
Chili's
domestic 1 316 5-8
Chili's
international 8 341 35-40
--- --- -----
Total
franchise 9 657 40-48
--- --- -----
Total
restaurants:
Chili's
domestic 2 1,251 10-14
Chili's
international 9 355 36-41
Maggiano's 1 52 2
--- --- ---
Grand total 12 1,658 48-57
=== ===== =====
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SOURCE Brinker International, Inc.
