News Releases

Brinker International Reports Second Quarter Results

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 sales1

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-Shift2


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-Shift2


(0.9)


(1.2)

     Traffic


(2.5)


(2.9)






Chili's Franchise3


(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 margin1 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 margin1 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.

1Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses and excludes Depreciation and amortization expenses. (See non-GAAP reconciliation below)

FRANCHISE AND OTHER revenues 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 sales2 for the second quarter of fiscal 2017.

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

Other
Depreciation and amortization expense increased $0.2 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 items1


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 items2




(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

Openings

Fiscal 2017


Total Restaurants

Dec. 28, 2016


Projected Openings
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

 

SOURCE Brinker International, Inc.

For further information: JOE TAYLOR, INVESTOR RELATIONS, (972) 770-9040 or AISHA FLETCHER, MEDIA RELATIONS, media.requests@brinker.com, (800) 775-7290
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