Brinker International Reports Increases In Third Quarter Fiscal 2012 EPS, Comparable Restaurant Sales And Traffic

DALLAS, April 23, 2012 /PRNewswire/ -- Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal third quarter ended March 28, 2012.

Highlights for the third quarter of fiscal 2012 include the following:

  • Earnings per diluted share, excluding special items, increased 27.7 percent to $0.60 compared to $0.47 for the third quarter of fiscal 2011 (see non-GAAP reconciliation below)
  • On a GAAP basis, earnings per diluted share increased 24.4 percent to $0.56 from $0.45 in the third quarter of the prior year
  • Chili's comparable restaurant sales increased 4.6 percent, representing the fourth consecutive quarterly increase, and customer traffic increased 1.8 percent, representing the fifth consecutive quarterly increase
  • Maggiano's comparable restaurant sales increased 3.9 percent, representing the ninth consecutive quarterly increase, and customer traffic increased by 1.5 percent, representing the tenth consecutive quarterly increase
  • The company recognized a $5.2 million reduction in revenues in the third quarter of fiscal 2012 resulting from a change in the estimate of gift card breakage due to an increase in gift card redemption experience. Comparable restaurant sales were not impacted
  • Excluding the $5.2 million gift card breakage adjustment, total revenues increased 4.2 percent and restaurant operating margin(1) improved 100 basis points to 19.3 percent compared to the third quarter of fiscal 2011. On a GAAP basis, total revenues increased 3.5 percent to $742.0 million and restaurant operating margin improved 40 basis points to 18.7 percent
  • The company repurchased approximately 3.1 million shares of its common stock for $82.7 million in the third quarter
  • The company paid a dividend of 16 cents per share in the third quarter, an increase of 14.3 percent over the prior year quarter
  • For the first nine months of fiscal 2012, cash flows provided by operating activities were $233.8 million and capital expenditures totaled $85.2 million

"Brinker just achieved its fifth consecutive quarter of positive sales and traffic growth, demonstrating the effectiveness of our top line strategies and our ability to take market share," said Doug Brooks, President and Chief Executive Officer. "We also continue to improve the middle of the P&L, further strengthening our business model. These factors combined with returning value to shareholders through share repurchases make us confident we'll deliver on our promise to double EPS by 2015 to $2.75 to $2.80."

Table 1: Monthly and Q3 comparable restaurant sales

Q3 12 and Q3 11, company-owned, reported brands and franchise; percentage

 


 

Jan

Feb

 

March

 

Q3 12

Q3 11

Brinker International

5.9

4.3

3.1

4.5

0.1

  Chili's Company-Owned






     Comparable Restaurant Sales

5.8

4.4

3.5

4.6

(0.3)

     Pricing Impact

1.7

2.2

2.0

1.9

1.2

     Mix-Shift

0.7

1.1

1.0

0.9

(1.7)

     Traffic

3.4

1.1

0.5

1.8

0.2

  Maggiano's






     Comparable Restaurant Sales

6.8

4.2

0.1

3.9

3.4

     Pricing Impact

1.2

2.8

2.9

2.2

0.7

     Mix-Shift

(0.2)

0.5

0.6

0.2

(0.6)

     Traffic

5.8

0.9

(3.4)

1.5

3.3







Franchise(1)




3.5

(0.9)

  Domestic Comparable Restaurant Sales




3.8

(2.0)

  International Comparable Restaurant Sales




2.6

2.6







System-wide(2)




4.2

(0.2)



(1)

Although franchise comparable sales are not derived from sales attributable to the company, including franchise comparable restaurant sales provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development. The company generates royalty revenue and advertising fees based on franchisee sales, where applicable.



(2)

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 third quarter revenues of $629.9 million represent a 3.5 percent increase from $608.4 million in the prior year period driven by increased menu prices and improved guest traffic. The gift card breakage adjustment reduced Chili's revenues by $4.5 million and adversely affected the brand's restaurant operating margin by 60 basis points.

Excluding the impact of the gift card breakage adjustment, Chili's restaurant operating margin improved 90 basis points. Restaurant expense benefited from sales leverage on fixed costs related to higher revenue, lower repair and maintenance expense, credit card fees and utilities expense. Restaurant labor was positively impacted by improved labor productivity related to the installation of new kitchen equipment. Cost of sales was negatively impacted by unfavorable pricing on beef, oils and dairy, partially offset by favorable pricing on produce and poultry.

MAGGIANO'S third quarter revenues of $94.7 million increased 3.4 percent primarily driven by increased menu prices and improved traffic, partially offset by a $0.7 million reduction related to the gift card breakage adjustment. Restaurant operating margin improved compared to prior year primarily due to improved cost of sales resulting from menu changes and pricing, partially offset by unfavorable commodity pricing. Restaurant operating margin was also positively impacted by sales leverage on fixed costs related to higher revenue. Excluding the impact of the gift card breakage adjustment, Maggiano's restaurant operating margin improved 100 basis points.

ROYALTY AND FRANCHISE revenues totaled $17.4 million for the quarter, an increase of 1.8 percent over the prior year driven primarily by seven net openings since the third quarter of fiscal 2011. Domestic franchise comparable restaurant sales increased 3.8 percent while international comparable restaurant sales increased 2.6 percent. Brinker franchisees generated $415 million in sales(2) for the third quarter of fiscal 2012, an increase of 3.5 percent over the prior year.

"We achieved a 100 basis point improvement in margins during the third quarter, driven by our strategy to make our existing brands more compelling and relevant while operating more efficiently," said Guy Constant, Executive Vice President and Chief Financial Officer. "Based on our current trajectory and plans to complete the rollout of our strategic initiatives, we anticipate achieving more than half of our 400 basis point goal by June 2012."

Other

General and administrative expense increased $4.4 million for the quarter primarily due to an increase in performance based compensation and a decrease in income resulting from the expiration of the transition services agreements with Macaroni Grill and On The Border.

Interest expense decreased $0.6 million for the quarter primarily due to lower interest rates.

Excluding the impact of special items, the effective income tax rate increased to 28.9 percent in the current quarter from 27.1 percent in the same quarter last year driven by increased earnings. On a GAAP basis, the effective income tax rate increased to 28.2 percent in the current quarter as compared to 27.5 percent in the same quarter last year primarily due to increased earnings.

Non-GAAP Reconciliation

The company 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. 

 

Table 2: Reconciliation of net income excluding special items

Q3 12 and Q3 11; $ millions and $ per diluted share after-tax

 


 

Q3 12

EPS
Q3 12

 

 

Q3 11

    EPS
   Q3 11

Net Income

44.9

0.56

40.2

0.45

  Other (Gains) and Charges(1)

(0.1)

0.00

1.5

0.02

  Adjustment for Gift Card Breakage(2)

3.3

0.04

-

-

  Adjustment for Tax Items

-

-

0.5

0.00

Net Income excluding Special Items

48.1

0.60

42.2

0.47






(1)

Pre-tax Other gains and charges was a $0.1 million gain and a $2.4 million charge in the third quarter of fiscal 2012 and 2011, respectively.



(2)

The company recognized a pre-tax $5.2 million reduction to revenue in the third quarter of fiscal 2012 resulting from a change in the estimate of gift card breakage.

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 (April 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 May 21, 2012. 

Additional financial information, including statements of income which detail operations excluding special items, franchise development and royalty fees, 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 third quarter fiscal 2012 filing on or before May 7, 2012; and
  • Fourth quarter earnings release, before market opens, Aug. 9, 2012.

About Brinker

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 1,574 restaurants under the names Chili's® Grill & Bar (1,529 restaurants) and Maggiano's Little Italy® (45 restaurants). Brinker also holds a minority investment in Romano's Macaroni Grill®.

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 Periods Ended

 

Thirty-Nine Week Periods Ended


March 28,

March 30,

March 28,

March 30,


2012

2011

2012

2011






Revenues

$  742,045

$  717,119

$2,092,351

$   2,043,898

Operating Costs and Expenses:





Cost of sales

205,155

195,182

571,962

548,960

Restaurant labor (a)

233,806

227,821

664,068

658,432

Restaurant expenses

164,230

163,007

489,872

490,206

Depreciation and amortization

30,929

31,858

93,265

96,883

General and administrative

40,006

35,593

104,040

97,024

Other gains and charges (b)

(104)

2,424

5,614

8,318











Total operating costs and expenses

674,022

655,885

1,928,821

1,899,823






Operating income

68,023

61,234

163,530

144,075






Interest expense

6,530

7,179

20,087

21,409

Other, net

(1,072)

(1,444)

(3,018)

(5,178)






Income before provision for income taxes

62,565

55,499

146,461

127,844






Provision for income taxes

17,632

15,253

42,233

28,703






Net Income                                                                          

$   44,933

$    40,246

$   104,228

$     99,141











      Basic net income per share

$  0.58

$  0.46

$  1.31

$  1.06











      Diluted net income per share

$  0.56

$  0.45

$  1.28

$  1.05











Basic weighted average shares outstanding

77,582

87,679

79,722

93,112






Diluted weighted average shares outstanding

79,735

89,647

81,658

94,456






(a)  

Restaurant labor includes all compensation related expenses, including benefits and incentive compensation, for restaurant employees at the general manager level and below. Labor related expenses attributable to multi-restaurant (or above-restaurant) supervision is included in Restaurant expenses.


(b)  

In the first nine months of fiscal 2012, Other gains and charges includes $1.1 million of charges related to the impairment of certain underperforming restaurants, lease termination charges of $3.2 million, litigation charges of $1.3 million and long-lived asset impairment charges of $0.4 million resulting from closures. These charges were partially offset by a $1.3 million gain related to the sale of land. In the third quarter of fiscal 2011, Other gains and charges primarily includes $1.5 million related to litigation and $0.9 million of severance costs. In the first six months of fiscal 2011, Other gains and charges primarily includes $3.7 million of severance costs, $1.1 million of charges related to the impairment of underperforming restaurants and long-lived asset impairment charges of $0.6 million resulting from closures.




BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)







March 28,

June 29,



2012

2011



    (Unaudited)


ASSETS




  Current assets


$     202,357

$     221,360

  Net property and equipment (a)


1,037,443

1,056,279

  Total other assets


198,366

206,929

     Total assets


$  1,438,166

$  1,484,568





LIABILITIES AND SHAREHOLDERS' EQUITY




  Current installments of long-term debt


$       27,272

$       22,091

  Current liabilities


383,732

383,510

  Long-term debt, less current installments


554,687

502,572

  Other liabilities


138,761

137,485

  Total shareholders' equity


333,714

438,910

  Total liabilities and shareholders' equity


$  1,438,166

$  1,484,568





(a)

At March 28, 2012, the company owned the land and buildings for 188 of the 864 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $141.8 million and $125.6 million, respectively.

 

 

BRINKER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)










     March 28,

March 30,


2012

2011

Cash Flows From Operating Activities:



Net income

$104,228

$  99,141

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



Depreciation and amortization

93,265

96,883

Restructure charges and other impairments

5,042

6,285

Stock-based compensation

10,393

9,604

Net loss (gain) on disposal of assets

1,541

(1,198)

Changes in assets and liabilities

19,341

(22,542)

Net cash provided by operating activities

233,810

188,173




Cash Flows from Investing Activities:



Payments for property and equipment

(85,177)

(48,892)

Proceeds from sale of assets

4,344

8,696

Investment in equity method investees

(1,083)

(1,921)

Net cash used in investing activities

(81,916)

(42,117)




Cash Flows from Financing Activities:



Purchases of treasury stock      

(208,347)

(358,983)

Proceeds from issuance of long-term debt

70,000

-

Payments of dividends

(37,850)

(40,996)

Proceeds from issuances of treasury stock

27,946

26,851

Payments on long-term debt

(12,187)

(10,846)

Payments for deferred financing costs

(1,620)

-

Excess tax benefits from stock-based compensation

924

243

Net cash used in financing activities

(161,134)

(383,731)




Net change in cash and cash equivalents              

(9,240)

(237,675)

Cash and cash equivalents at beginning of period                               

81,988

344,624

Cash and cash equivalents at end of period          

$  72,748

$  106,949

 

 


BRINKER INTERNATIONAL, INC.

RESTAURANT SUMMARY






 

Third Quarter

Net Openings/(Closings)

Total Restaurants

Projected Openings


Fiscal 2012

March 28, 2012

Fiscal 2012





Company-Owned

 Restaurants:




        Chili's

(1)

820

-

        Maggiano's

-

44

-


(1)

864

-





Franchise

 Restaurants:




  Chili's

(5)

462

4

  International (a)

6

248

33-35


1

710

37-39





Total Restaurants:




  Chili's

(6)

1,282

4

  Maggiano's

-

44

-

  International (a)

6

248

33-35


-

1,574

37-39





(a)

At March 28, 2012, international franchise restaurants by brand were 247 Chili's and one Maggiano's.

 

(1) Restaurant operating margin is defined as Revenues less Cost of sales, Restaurant labor and Restaurant expenses.
(2) Royalty revenues are recognized based on the sales generated and reported to the company by its franchisees.

SOURCE Brinker International, Inc.



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