Brinker International Reports Fourth Quarter Fiscal 2010 EPS

DALLAS, Aug. 12 /PRNewswire-FirstCall/ -- Brinker International, Inc. (NYSE: EAT) announced fourth quarter fiscal 2010 earnings per diluted share from continuing operations of $0.44 compared to $0.45 in the fourth quarter of fiscal 2009, before special items.  For the full-year fiscal 2010, earnings per diluted share from continuing operations was $1.18 compared to $1.28 in the prior year, before special items and excluding Macaroni Grill.  In 2010, the fourth quarter and fiscal year included an additional operating week compared to fiscal 2009.  (Reconciliations to GAAP earnings per diluted share amounts are included in Tables 3 and 4.)    

On a GAAP basis, earnings per diluted share increased to $0.62 for the fourth quarter compared to $0.41 in the prior year.  For the full-year fiscal 2010, earnings per diluted share increased to $1.34 from $0.77 in the prior year.

On June 30, 2010, the company completed the sale of On The Border Mexican Grill & Cantina® to OTB Acquisition LLC, an affiliate of Golden Gate Capital, for gross proceeds of approximately $180 million and recognized a gain of approximately $16.5 million. Therefore, the results of On The Border are presented as discontinued operations.  All amounts presented below relate to continuing operations unless otherwise stated.

Quarterly Revenues

Brinker reported fourth quarter revenues of $743.1 million compared to $742.1 million in the prior year (14-weeks vs. 13-weeks).  The company experienced a 3.4 percent decrease in comparable restaurant sales (see Table 1) in the fourth quarter of fiscal 2010.  Revenues were positively affected by a net increase in capacity of 3.0 percent due to the impact of the 53rd week in fiscal 2010, partially offset by the sale of 21 restaurants to a franchisee and 11 restaurant closures since the fourth quarter of fiscal 2009.  Royalty and franchise revenues were $16.7 million for the quarter.  

Quarterly Operating Performance

Cost of sales, as a percent of revenues, increased to 27.7 percent in the fourth quarter of fiscal 2010 as compared to 27.4 percent in the prior year. During the quarter, cost of sales was negatively impacted by promotions and the menu changes at Chili's, partially offset by favorable commodity prices primarily related to beef and chicken, and favorable menu price changes.

Restaurant expenses, as a percent of revenues, remained relatively flat at 54.0 percent as compared to 54.1 percent in the prior year primarily due to leverage of fixed costs created from the additional operating week and lower advertising expenses.  In the prior year, restaurant expenses was favorably impacted by approximately 125 basis points due to lower insurance, property tax and utility expenses.

Depreciation and amortization decreased $3.4 million compared to the prior year due to fully depreciated assets and restaurant closures, partially offset by investments in existing restaurants.  

General and administrative expense was essentially flat for the quarter.

Other gains and charges primarily includes $4.6 million of long-lived asset impairment charges related to underperforming restaurants, partially offset by a gain on the sale of land of $1.3 million.

Interest expense increased $2.4 million for the quarter primarily due to the termination of the company's existing revolving credit facility which resulted in a $1.7 million impact due to expensing the remaining capitalized financing fees associated with the facility.  Additionally, interest expense was favorably impacted in the fourth quarter of the prior year due to a gain of $1.3 million related to the repurchase of a portion of the 5.75 percent notes.

Other, net decreased $5.8 million primarily due to insurance proceeds of $5.5 million received in the fourth quarter of the prior year.

The effective income tax rate for continuing operations increased to 23.7 percent in the current quarter as compared to 13.8 percent in the same quarter last year primarily due to the decrease in other gains and charges.  Excluding the impact of special items, the effective income tax rate from continuing operations remained essentially flat at 24.3 percent in the current quarter as compared to 24.0 percent in the same quarter last year.

Income from discontinued operations, net of taxes, increased to $20.5 million from $5.1 million in the same quarter in the prior year primarily due to a gain on the sale of On The Border.

Cash Flow and Capital Allocation

Cash flow from continuing operations for the fiscal year 2010 increased to $297.4 million compared to $234.0 million in the prior year primarily due to the tax impact of the Macaroni Grill sale and timing differences related to operational payments, partially offset by lower earnings.   Capital expenditures totaled $60.9 million, a reduction of $32.7 million compared to the prior year, resulting from a decrease in new company-owned restaurant development.  During the fourth quarter, the company entered into a $400 million unsecured, senior credit facility consisting of a $200 million revolver and a $200 million term loan.  The remaining balance on the previous term loan which was classified as a current liability as of the end of the third quarter was extinguished.  Long-term debt was reduced by $190 million for the fiscal year resulting in an ending debt balance of $541.4 million on June 30.   During the fourth quarter, the company repurchased 1.0 million shares of its common stock for approximately $20.0 million.

Fiscal 2011 Outlook

The company anticipates earnings per diluted share from continuing operations, before special items, to increase between 10 and 20 percent compared to fiscal 2010  (an increase of 20 to 30 percent excluding the 53rd week in fiscal 2010).  Earnings are based on the following expectations:

• Full-year comparable restaurant sales will be flat to a decrease of 2 percent with expectations of the first half being more challenging as we lap heavier promotional activities last year;
• Revenue is projected to decrease 2 percent to 4 percent (flat to a decrease of 2 percent excluding the 53rd week in fiscal 2010);
• Operating income will increase 70 to 100 basis points;
• The effective income tax rate will be 27 to 28 percent; and
• Diluted weighted average shares outstanding will be 90 to 94 million.

The company believes that providing fiscal 2011 earnings per diluted share guidance, excluding special charges and the 53rd week, 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, and other key line items in the income statement and will only provide updates if there is a material change versus the original guidance.  Consistent with prior practice, management will not discuss intra-period sales or other key operating results not yet reported as the limited data may not accurately reflect the final results of the period or quarter referenced.

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 be broadcast live on the Brinker website (www.brinker.com) at 9 a.m. CDT today (Aug. 12). 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 the Brinker website until the end of the day Sept. 9, 2010.  

Additional financial information, including statements of income which detail our results excluding On The Border and special items and debt covenant information, is also available on the Brinker website under the Financial Information section of the Investor tab.

Forward Calendar

• SEC Form 10-K for fiscal year 2010 filing on or before August 30, 2010; and
• First quarter earnings release, before market opens, October 26, 2010.

Brinker International, Inc. is one of the world's leading casual dining restaurant companies.  Founded in 1975 and based in Dallas, Texas, Brinker currently owns, operates, or franchises 1,550 restaurants under the names Chili's® Grill & Bar (1,505 restaurants) and Maggiano's Little Italy® (45 restaurants). Brinker also holds a minority investment in Romano's Macaroni Grill®.

The statements contained in this release that are not historical facts are forward-looking statements. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by 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, adverse weather conditions, future commodity prices, product availability, fuel and utility costs and availability, terrorists 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 and inflation.    

SOURCE Brinker International, Inc.

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