Brinker International Reports Increase In First Quarter Fiscal 2014 EPS

DALLAS, Oct. 23, 2013 /PRNewswire/ -- Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal first quarter ended Sept. 25, 2013.

Highlights include the following:

  • Earnings per diluted share, excluding special items, increased 16.2 percent to $0.43 compared to $0.37 for the first quarter of fiscal 2013 (see non-GAAP reconciliation below)
  • On a GAAP basis, earnings per diluted share increased 16.7 percent to $0.42 compared to $0.36 for the first quarter of fiscal 2013
  • Brinker's operating income, excluding special items,1 as a percentage of total revenues improved 40 basis points from 6.9 percent to 7.3 percent driven by reduced general and administrative expenses in addition to improved restaurant operating margin2
  • Chili's domestic comparable restaurant sales3 decreased 1.9 percent for the first quarter consisting of a 1.6 percent decrease for company-owned restaurants and a 2.6 percent decrease for franchised restaurants. Chili's international franchise comparable restaurant sales increased 2.7 percent
  • Maggiano's comparable restaurant sales increased 0.6 percent, representing the 15th consecutive quarterly increase
  • For the first three months of fiscal 2014, cash flows provided by operating activities were $55.4 million and capital expenditures totaled $29.8 million
  • The company repurchased approximately 1.6 million shares of its common stock for $66.3 million in the first quarter
  • The company paid a dividend of 20 cents per share in the first quarter, an increase of 25 percent over the prior year first quarter

"Our ability to continue to deliver double-digit earnings growth, even in a softer sales environment, is a testament to the strength of Brinker's long-term strategy," said Wyman Roberts, Chief Executive Officer and President.

1


Operating income, excluding special items, is defined as Operating income excluding Other gains and charges.

2


Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses.

3


Chili's domestic comparable restaurant sales is defined as comparable restaurant sales generated from company-owned and franchise operated Chili's restaurants in the United States.

 

Table 1: Monthly and Q1 comparable restaurant sales

Q1 14 and Q1 13, company-owned, reported brands and franchise; percentage




Jul


Aug


Sep


Q1 14


Q1 13

Brinker International


(1.6)


(0.8)


(1.5)


(1.3)


2.6

  Chili's Company-Owned1











     Comparable Restaurant Sales


(2.0)


(1.1)


(1.7)


(1.6)


2.8

     Pricing Impact


1.2


0.9


0.7


0.9


1.4

     Mix-Shift


0.1


1.2


1.9


0.9


1.0

     Traffic


(3.3)


(3.2)


(4.3)


(3.4)


0.4

  Maggiano's











     Comparable Restaurant Sales


0.8


1.1


(0.3)


0.6


0.9

     Pricing Impact


0.4


1.4


1.8


0.6


2.6

     Mix-Shift


1.0


1.5


2.4


2.1


0.8

     Traffic


(0.6)


(1.8)


(4.5)


(2.1)


(2.5)












Franchise2








(1.0)


2.9

  U.S. Comparable Restaurant Sales








(2.6)


3.7

  International Comparable Restaurant Sales








2.7


1.1












Domestic3








(1.9)


3.1

System-wide4








(1.2)


2.7












1


Chili's company-owned comparable restaurant sales does not include sales generated by the 11 restaurants acquired in Canada in June 2013. Acquired or newly opened restaurants are not included in this calculation until 18 months of operations are completed.




2


Revenues generated by franchisees are not included in revenues on the consolidated statements of income; however, we generate royalty revenue and advertising fees based on franchisee revenues, where applicable. We believe including franchisee comparable restaurant sales provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development.




3


Domestic comparable restaurant sales percentages are derived from sales generated by company-owned and franchise operated Chili's restaurants in the United States.




4


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 franchisee operated restaurants.

Quarterly Operating Performance

CHILI'S first quarter company sales increased slightly to $581.6 million from $581.3 million in the prior year primarily due to the acquisition of 11 restaurants in Canada, partially offset by a decrease in comparable restaurant sales due to traffic declines. As compared to the prior year, Chili's operating margin remained flat. Cost of sales was favorably impacted by mix changes related to the introduction of new menu items, improved waste control and menu pricing, partially offset by unfavorable commodity pricing primarily related to beef and poultry. Restaurant labor was positively impacted by improved labor productivity resulting from the installation of new kitchen equipment, partially offset by increased health insurance expenses related to the severity of claims. Restaurant expense was negatively impacted by higher advertising accruals, workers' compensation insurance expenses and costs related to new restaurant development.

MAGGIANO'S first quarter company sales of $82.9 million increased 0.6 percent primarily driven by favorable mix and menu pricing. As compared to the prior year, Maggiano's restaurant operating margin was negatively impacted by training costs associated with the installation of a new point of sale system, workers' compensation insurance expenses, expenses related to new restaurant development and higher direct marketing expenses. Cost of sales was positively impacted by favorable commodity pricing on seafood and meat as well as increased menu pricing, partially offset by unfavorable mix changes.

FRANCHISE AND OTHER revenues totaled $19.4 million for the quarter, a decrease of 2.0 percent compared to $19.8 million in the prior year driven primarily by lower domestic royalty income. International comparable restaurant sales increased 2.7 percent, while U.S. franchise comparable restaurant sales decreased 2.6 percent. Brinker franchisees generated approximately $389 million in sales1 for the first quarter of fiscal 2014.

1


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

Other

Depreciation and amortization expense increased $0.5 million for the quarter primarily due to investments in the Chili's reimage program, kitchen equipment, and software as well as the acquisition of 11 restaurants in Canada, partially offset by an increase in fully depreciated assets.

General and administrative expense decreased $2.9 million primarily due to lower stock-based and other compensation costs and a decrease in professional fees.

Excluding the impact of special items, the effective income tax rate increased to 31.6 percent in the current quarter compared to 31.2 percent in the prior year primarily due to increased earnings and lower tax credits.

Non-GAAP Reconciliation

Brinker believes excluding special items from its financial results provides investors with a clearer perspective of the company's ongoing operating performance and a more relevant comparison to prior period results. Special items in the first quarter of fiscal 2014 consist primarily of charges associated with closed restaurants. 

Table 2: Reconciliation of net income excluding special items

Q1 14 and Q1 13; $ millions and $ per diluted share after-tax




Q1 14


EPS Q1 14


Q1 13


EPS Q1 13

Net Income


29.2


0.42


27.9


0.36

Other (Gains) and Charges, net of taxes1


0.6


0.01


0.2


0.01

Net Income excluding Special Items


29.8


0.43


28.1


0.37




1


Pre-tax Other gains and charges was $1.0 million and $0.4 million in the first quarter of fiscal 2014 and 2013, respectively.

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 broadcast live on the Brinker website (www.brinker.com) at 9 a.m. CDT today (Oct. 23). 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 Nov. 20, 2013.

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 the Brinker website under the Financial Information section of the Investor tab.

Forward Calendar


-

SEC Form 10-Q for first quarter fiscal 2014 filing on or before Nov. 4, 2013; and





-

Second quarter earnings release, before market opens, Jan. 22, 2014.

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 Sept. 25, 2013, Brinker owned, operated, or franchised 1,596 restaurants under the names Chili's® Grill & Bar (1,552 restaurants) and Maggiano's Little Italy® (44 restaurants).

Forward-Looking Statements

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.

 

BRINKER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)




Thirteen Week Period Ended



Sept. 25, 2013


Sept. 26, 2012

Revenues:





Company sales


$

664,502



$

663,668


Franchise and other revenues (a)


19,422



19,839


Total revenues


683,924



683,507


Operating costs and expenses:





Company restaurants (excluding depreciation and amortization)





Cost of sales


180,658



184,695


Restaurant labor


218,716



218,866


Restaurant expenses


166,954



163,053


Company restaurant expenses


566,328



566,614


Depreciation and amortization


33,156



32,629


General and administrative


34,421



37,273


Other gains and charges


1,006



447


Total operating costs and expenses


634,911



636,963


Operating income


49,013



46,544


Interest expense


7,013



6,889


Other, net


(582)



(797)


Income before provision for income taxes


42,582



40,452


Provision for income taxes


13,370



12,588


Net income


$

29,212



$

27,864







Basic net income per share


$

0.44



$

0.38







Diluted net income per share


$

0.42



$

0.36







Basic weighted average shares outstanding


66,693



73,903







Diluted weighted average shares outstanding


68,802



76,558



(a) Franchise and other revenues includes royalties, development fees and franchise fees, banquet service charge income, and gift card activity (breakage and discounts).

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)




Sept. 25, 2013


June 26, 2013






ASSETS





Current assets


$

189,675



$

198,591


Net property and equipment (a)


1,028,079



1,035,815


Total other assets


215,428



218,197


Total assets


$

1,433,182



$

1,452,603


LIABILITIES AND SHAREHOLDERS' EQUITY





Current installments of long-term debt


$

27,566



$

27,596


Current liabilities


339,326



362,615


Long-term debt, less current installments


813,268



780,121


Other liabilities


133,032



132,914


Total shareholders' equity


119,990



149,357


Total liabilities and shareholders' equity


$

1,433,182



$

1,452,603



(a) At Sept. 25, 2013, the company owned the land and buildings for 189 of the 879 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $141.5 million and $119.1 million, respectively.

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)




Thirteen Week Period Ended



Sept. 25, 2013


Sept. 26, 2012

Cash Flows From Operating Activities:





Net income


$

29,212



$

27,864


Adjustments to reconcile net income to net cash provided by operating activities:





         Depreciation and amortization


33,156



32,629


         Stock-based compensation


5,000



6,521


         Restructure charges and other impairments


640



447


         Net loss on disposal of assets


1,199



945


         Changes in assets and liabilities


(13,791)



(35,466)


Net cash provided by operating activities


55,416



32,940


Cash Flows from Investing Activities:





Payments for property and equipment


(29,844)



(37,001)


Proceeds from sale of assets




649


Net cash used in investing activities


(29,844)



(36,352)


Cash Flows from Financing Activities:





Purchases of treasury stock


(66,301)



(86,331)


Borrowings on revolving credit facility


60,000



90,000


Payments on revolving credit facility


(20,000)




Payments of dividends


(15,281)



(12,803)


Excess tax benefits from stock-based compensation


13,924



6,493


Payments on long-term debt


(6,630)



(6,595)


Proceeds from issuances of treasury stock


4,953



17,855


Net cash (used in) provided by financing activities


(29,335)



8,619


Net change in cash and cash equivalents


(3,763)



5,207


Cash and cash equivalents at beginning of period


59,367



59,103


Cash and cash equivalents at end of period


$

55,604



$

64,310


 

BRINKER INTERNATIONAL, INC.

RESTAURANT SUMMARY




First Quarter

Net  Openings/(Closings)

Fiscal 2014


Total Restaurants

Sept. 25, 2013


Projected Openings Fiscal 2014

Company-Owned Restaurants:







Chili's Domestic


2


824


6-8

Chili's International



11


2-4

Maggiano's



44


1-2



2


879


9-14

Franchise Restaurants:







       Chili's Domestic



443


4-5

Chili's International


3


274


32-35



3


717


36-40

Total Restaurants:







       Chili's Domestic


2


1,267


10-13

Maggiano's



44


1-2

Chili's International 


3


285


34-39



5


1,596


45-54

 

SOURCE Brinker International



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