Brinker International Reports First Quarter Results

DALLAS, Oct. 25, 2016 /PRNewswire/ -- Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal first quarter ended Sept. 28, 2016.

Highlights include the following:

• On a GAAP basis, earnings per diluted share decreased 22.2 percent to $0.42 compared to $0.54 for the first quarter of fiscal 2016
• Earnings per diluted share, excluding special items, decreased 12.5 percent to $0.49 compared to $0.56 for the first quarter of fiscal 2016 (see non-GAAP reconciliation below)
• Brinker's total revenues decreased 0.5 percent to $758.5 million compared to the first quarter of fiscal 2016 and company sales decreased 0.4 percent to $737.4 million compared to the first quarter of fiscal 2016
• Chili's company-owned comparable restaurant sales decreased 1.4 percent
• Maggiano's comparable restaurant sales decreased 0.6 percent
• Chili's franchise comparable restaurant sales decreased 0.6 percent, which includes a 1.6 percent decrease for U.S. franchise restaurants, partially offset by an increase of 0.9 percent for international franchise restaurants
• Operating income,  as a percent of total revenues, declined approximately 190 basis points to 5.5 percent compared to 7.4 percent for the first quarter of fiscal 2016
• Restaurant operating margin,  as a percent of company sales, declined approximately 130 basis points to 13.3 percent compared to 14.6 percent for the first quarter of fiscal 2016 (see non-GAAP reconciliation below)
• For the first three months of fiscal 2017, cash flows provided by operating activities were $66.2 million and capital expenditures totaled $27.1 million. Free cash flow was approximately $39.1 million (see non-GAAP reconciliation below)
• The company closed the private offering of $350 million of its 5.0% senior notes due 2024, entered into a $300 million accelerated share repurchase agreement ("ASR") and amended the revolving credit agreement to increase the borrowing amount available from $750 million to $1 billion
• The company spent $350 million to repurchase shares including the $300 million for the ASR. The company received an initial delivery of approximately 4.6 million shares of common stock pursuant to the ASR agreement and repurchased approximately 1.0 million additional shares of common stock in the open market for a total of 5.6 million shares

"We remain optimistic about our growth plans despite a choppy first quarter and are seeing traction with stronger comparable restaurant sales for Chili's in October," said Wyman Roberts, chief executive officer and president. "In the first quarter, the casual dining category was more challenging than we anticipated, but we are gaining share and are rolling out multiple growth platforms - craft beer taps, happy hour, To Go, Plenti points for My Chili's Rewards loyalty program - that we expect will build through the second half and beyond."

Quarterly Operating Performance
CHILI'S first quarter company sales decreased 0.7 percent to $648.6 million from $653.1 million in the prior year primarily due to a decline in comparable restaurant sales, partially offset by an increase in restaurant capacity. As compared to the prior year, Chili's restaurant operating margin¹ declined. Restaurant expenses, as a percent of company sales, increased due to higher advertising and repairs and maintenance expenses, partially offset by lower workers' compensation insurance expenses. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates.  Cost of sales, as a percent of company sales, decreased due to increased menu pricing and favorable commodity pricing related to poultry and burger meat, partially offset by unfavorable menu item mix and commodity pricing primarily related to avocados.

MAGGIANO'S first quarter company sales increased 1.6 percent to $88.8 million from $87.4 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 increased menu pricing and favorable commodity pricing, partially offset by unfavorable menu item mix. Restaurant labor, as a percent of company sales, decreased compared to the prior year due to a lower incentive bonuses, partially offset by higher wage rates. Restaurant expenses, as a percent of company sales, were flat compared to the prior year.

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 4.5 percent to $21.1 million for the first quarter compared to $22.1 million in the prior year. Brinker franchisees generated approximately $331 million in sales² for the first 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 decreased $0.3 million for the quarter primarily due to an increase in fully depreciated assets and restaurant closures, partially offset by depreciation on asset replacements and new restaurant openings.

General and administrative expense decreased approximately $0.6 million primarily due to lower payroll and legal expenses, partially offset by higher performance-based compensation.

On a GAAP basis, the effective income tax rate decreased to 29.5 percent in the current quarter from 31.9 percent in the prior year quarter. Excluding the impact of special items, the effective income tax rate decreased to 30.9 percent in the current quarter compared to 32.1 percent.  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.

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 statement 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 (www.brinker.com) at 9 a.m. CDT today (Oct. 25). 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 Nov. 22, 2016.

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 first quarter of fiscal 2017 filing on or before Nov. 7, 2016; and
-  Second quarter earnings release, before market opens, Jan. 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 Sept. 28, 2016, Brinker owned, operated, or franchised 1,652 restaurants under the names Chili's^® Grill & Bar (1,601 restaurants) and Maggiano's Little Italy^® (51 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.

SOURCE Brinker International