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| 8-K - 8-K - BRINKER INTERNATIONAL, INC | eat201603238k.htm |
Exhibit 99.1
BRINKER INTERNATIONAL REPORTS THIRD QUARTER RESULTS
DALLAS (April 19, 2016) – Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal third quarter ended March 23, 2016.
Highlights include the following:
• | Earnings per diluted share, excluding special items, increased 6.4 percent to $1.00 compared to $0.94 for the third quarter of fiscal 2015 |
• | On a GAAP basis, earnings per diluted share decreased 2.0 percent to $1.00 compared to $1.02 for the third quarter of fiscal 2015 |
• | Brinker International total revenues increased 5.2 percent to $824.6 million and company sales increased 5.7 percent to $805.1 million, primarily attributable to the 103 restaurants acquired with the Pepper Dining transaction in the first quarter of fiscal 2016 |
• | Chili’s company-owned comparable restaurant sales decreased 4.1 percent |
• | Maggiano’s comparable restaurant sales increased 0.2 percent |
• | Chili's franchise comparable restaurant sales decreased 1.7 percent which includes a 2.2 percent and 0.7 percent decrease for U.S. and international franchise restaurants, respectively |
• | Restaurant operating margin,1 as a percent of company sales, declined approximately 150 basis points to 17.4 percent compared to 18.9 percent for the third quarter of fiscal 2015 |
• | For the first nine months of fiscal 2016, cash flows provided by operating activities were $299.6 million and capital expenditures totaled $76.1 million. Free cash flow2 was approximately $223.5 million |
• | The company repurchased approximately 2.6 million shares of its common stock for $126.1 million in the third quarter and a total of approximately 5.4 million shares for $266.2 million year-to-date |
• | The company declared a dividend of 32 cents per share to be paid in the fourth quarter, representing a 14.3% increase over the prior year |
“While we continue to deliver strong cash flow and positive earnings growth through the year, we are disappointed in our recent sales performance,” said Wyman Roberts, chief executive officer and president. “Our focus going forward is to more aggressively invest in our brands to grow comp sales and capture market share."
1 Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant Labor and Restaurant expenses. Restaurant operating margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance. Restaurant operating margin is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to operating income or other similarly titled measures of other companies.
2 Free cash flow is defined as cash flows provided by operating activities less capital expenditures.
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Table 1: Q3 comparable restaurant sales
Company-owned, reported brands and franchise; percentage
Q3 16 | Q3 15 | |||||
Brinker International | (3.6 | ) | 1.7 | |||
Chili’s Company-Owned1 | ||||||
Comparable Restaurant Sales | (4.1 | ) | 1.9 | |||
Pricing Impact2 | 1.1 | 0.8 | ||||
Mix-Shift2 | (0.3 | ) | 1.5 | |||
Traffic2 | (4.9 | ) | (0.4 | ) | ||
Maggiano’s | ||||||
Comparable Restaurant Sales | 0.2 | 0.1 | ||||
Pricing Impact2 | 1.5 | 2.4 | ||||
Mix-Shift2 | (2.4 | ) | (1.2 | ) | ||
Traffic2 | 1.1 | (1.1 | ) | |||
Chili's Franchise3 | (1.7 | ) | 2.5 | |||
U.S. Comparable Restaurant Sales | (2.2 | ) | 3.1 | |||
International Comparable Restaurant Sales | (0.7 | ) | 1.2 | |||
Chili's Domestic4 | (3.6 | ) | 2.2 | |||
System-wide5 | (3.1 | ) | 2.0 | |||
1 | Chili's company-owned comparable restaurant sales includes 103 Chili's restaurants acquired from a franchisee in the first quarter of fiscal 2016. | |
2 | Reclassifications have been made between pricing impact, mix-shift and traffic in the prior year to conform with current year classification. | |
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 restaurants. | |
Quarterly Operating Performance
CHILI’S third quarter company sales increased 6.1 percent to $703.5 million from $662.9 million in the prior year primarily due to an increase in restaurant capacity resulting from the acquisition of 103 Chili's restaurants on June 25, 2015, partially offset by 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, health insurance expenses and sales deleverage, partially offset by lower incentive bonus. Restaurant expenses, as a percent of company sales, increased due to sales deleverage and higher repairs and maintenance and rent expenses. Cost of sales, as a percent of company sales, increased slightly due to unfavorable menu item mix and commodity pricing primarily related to steak, produce and chicken, partially offset by increased menu pricing and favorable commodity pricing related to burger meat, cheese and seafood.
MAGGIANO’S third quarter company sales increased 2.8 percent to $101.6 million from $98.8 million in the prior year primarily due to an increase in restaurant capacity. As compared to the prior year, Maggiano's restaurant operating margin1 improved. Restaurant expenses, as a percent of company sales, decreased compared to prior year due to lower advertising and utilities expenses, partially offset by higher preopening expenses. Cost of sales, as a percent of company sales, was positively impacted by increased menu pricing, favorable commodity pricing and menu item changes. Restaurant labor, as a percent of company sales, increased compared to prior year due to higher wage rates and health insurance expense.
1 Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses. Restaurant operating margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance. Restaurant operating margin is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to operating income or other similarly titled measures of other companies.
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FRANCHISE AND OTHER revenues decreased 13.3 percent to $19.5 million for the third quarter compared to $22.5 million in the prior year driven primarily by a decrease in royalty revenues resulting from the acquisition of 103 Chili's restaurants from a former franchisee. Brinker franchisees generated approximately $346 million in sales2 for the third quarter of fiscal 2016.
2Royalty revenues are recognized based on the sales generated and reported to the company by franchisees.
Other
Depreciation and amortization expense increased $2.5 million for the quarter primarily due to depreciation on acquired restaurants, asset replacements and new restaurant openings, partially offset by an increase in fully depreciated assets.
General and administrative expense decreased approximately $5.0 million primarily due to lower performance-based compensation.
On a GAAP basis, the effective income tax rate decreased to 26.4 percent in the current quarter from 32.1 percent in the prior year quarter. The effective income tax rate decreased primarily due to lower profits and the benefits associated with the release of the valuation allowance for state tax net operating losses and the resolution of certain tax positions. Excluding the impact of special items, the effective income tax rate decreased to 30.1 percent in the current quarter compared to 31.5 percent in the prior year quarter primarily due to lower profits.
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.
Table 2: Reconciliation of net income excluding special items
Q3 16 and Q3 15; $ millions and $ per diluted share after-tax
Q3 16 | EPS Q3 16 | Q3 15 | EPS Q3 15 | |||||||||
Net Income | 57.5 | 1.00 | 65.4 | 1.02 | ||||||||
Other (Gains) and Charges, net of taxes1 | 2.4 | 0.04 | (5.2 | ) | (0.08 | ) | ||||||
Adjustment for tax items2 | (2.6 | ) | (0.04 | ) | — | — | ||||||
Net Income excluding Special Items | 57.3 | 1.00 | 60.2 | 0.94 | ||||||||
1 | Pre-tax Other gains and charges includes a charge of $3.9 million and a gain of $8.5 million in the third quarter of fiscal 2016 and 2015, respectively. See footnote "b" to the consolidated statements of comprehensive income for additional details. | |
2 | Discrete tax items result from the benefit associated with the release of the valuation allowance for state net operating losses as well as the resolution of certain tax positions which directly impacts tax expense. | |
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. 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 (April 19). 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 17, 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 the Brinker website under the Financial Information section of the Investor tab.
Forward Calendar
- SEC Form 10-Q for the third quarter of fiscal 2016 filing on or before May 2, 2016; and
- Fourth quarter earnings release, before market opens, Aug. 11, 2016.
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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 March 23, 2016, Brinker owned, operated, or franchised 1,647 restaurants under the names Chili’s® Grill & Bar (1,596 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. 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, 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.
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BRINKER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
Thirteen Week Periods Ended | Thirty-Nine Week Periods Ended | |||||||||||||||
March 23, 2016 | March 25, 2015 | March 23, 2016 | March 25, 2015 | |||||||||||||
Revenues: | ||||||||||||||||
Company sales | $ | 805,145 | $ | 761,736 | $ | 2,311,298 | $ | 2,166,368 | ||||||||
Franchise and other revenues (a) | 19,494 | 22,479 | 64,510 | 71,763 | ||||||||||||
Total revenues | 824,639 | 784,215 | 2,375,808 | 2,238,131 | ||||||||||||
Operating costs and expenses: | ||||||||||||||||
Company restaurants (excluding depreciation and amortization) | ||||||||||||||||
Cost of sales | 215,362 | 203,960 | 615,764 | 582,507 | ||||||||||||
Restaurant labor | 262,701 | 240,105 | 756,874 | 695,114 | ||||||||||||
Restaurant expenses | 187,216 | 173,611 | 567,049 | 528,047 | ||||||||||||
Company restaurant expenses | 665,279 | 617,676 | 1,939,687 | 1,805,668 | ||||||||||||
Depreciation and amortization | 39,050 | 36,599 | 117,335 | 108,213 | ||||||||||||
General and administrative | 30,170 | 35,194 | 95,190 | 100,488 | ||||||||||||
Other gains and charges (b) | 3,864 | (8,477 | ) | 5,454 | 747 | |||||||||||
Total operating costs and expenses | 738,363 | 680,992 | 2,157,666 | 2,015,116 | ||||||||||||
Operating income | 86,276 | 103,223 | 218,142 | 223,015 | ||||||||||||
Interest expense | 8,403 | 7,361 | 24,077 | 21,709 | ||||||||||||
Other, net | (277 | ) | (454 | ) | (1,110 | ) | (1,568 | ) | ||||||||
Income before provision for income taxes | 78,150 | 96,316 | 195,175 | 202,874 | ||||||||||||
Provision for income taxes | 20,648 | 30,889 | 56,772 | 63,403 | ||||||||||||
Net income | $ | 57,502 | $ | 65,427 | $ | 138,403 | $ | 139,471 | ||||||||
Basic net income per share | $ | 1.01 | $ | 1.04 | $ | 2.36 | $ | 2.19 | ||||||||
Diluted net income per share | $ | 1.00 | $ | 1.02 | $ | 2.33 | $ | 2.14 | ||||||||
Basic weighted average shares outstanding | 56,673 | 62,891 | 58,699 | 63,719 | ||||||||||||
Diluted weighted average shares outstanding | 57,407 | 64,091 | 59,505 | 65,108 | ||||||||||||
Other comprehensive loss: | ||||||||||||||||
Foreign currency translation adjustment (c) | $ | (29 | ) | $ | (2,847 | ) | $ | (3,294 | ) | $ | (7,183 | ) | ||||
Other comprehensive loss | (29 | ) | (2,847 | ) | (3,294 | ) | (7,183 | ) | ||||||||
Comprehensive income | $ | 57,473 | $ | 62,580 | $ | 135,109 | $ | 132,288 | ||||||||
(a) | Franchise and other revenues primarily includes royalties, development fees, franchise fees, banquet service charge income, gift card activity (breakage and discounts), tabletop device revenue, Chili's retail food product royalties and delivery fee income. |
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(b) | Other gains and charges include: |
Thirteen Week Periods Ended | Thirty-Nine Week Periods Ended | ||||||||||||||
March 23, 2016 | March 25, 2015 | March 23, 2016 | March 25, 2015 | ||||||||||||
Restaurant impairment charges | $ | 3,413 | $ | — | $ | 3,937 | $ | 747 | |||||||
(Gain) Loss on the sale of assets, net | (1,096 | ) | — | (2,858 | ) | 1,093 | |||||||||
Impairment of investment | 1,000 | — | 1,000 | — | |||||||||||
Acquisition costs | 120 | — | 700 | — | |||||||||||
Restaurant closure charges | 89 | 76 | 89 | 1,457 | |||||||||||
Litigation | — | (8,553 | ) | (2,032 | ) | (2,753 | ) | ||||||||
Severance | — | — | 2,368 | — | |||||||||||
Impairment of liquor licenses | — | — | — | 175 | |||||||||||
Other | 338 | — | 2,250 | 28 | |||||||||||
$ | 3,864 | $ | (8,477 | ) | $ | 5,454 | $ | 747 | |||||||
(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. |
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 23, 2016 | June 24, 2015 | |||||||
ASSETS | ||||||||
Current assets | $ | 196,724 | $ | 187,224 | ||||
Net property and equipment (a) | 1,053,024 | 1,032,044 | ||||||
Total other assets | 239,440 | 216,605 | ||||||
Total assets | $ | 1,489,188 | $ | 1,435,873 | ||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
Current installments of long-term debt | $ | 3,605 | $ | 3,439 | ||||
Other current liabilities | 418,686 | 415,036 | ||||||
Long-term debt, less current installments | 1,174,660 | 970,825 | ||||||
Other liabilities | 135,899 | 125,033 | ||||||
Total shareholders’ deficit | (243,662 | ) | (78,460 | ) | ||||
Total liabilities and shareholders’ deficit | $ | 1,489,188 | $ | 1,435,873 | ||||
(a) | At March 23, 2016, the company owned the land and buildings for 191 of the 997 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $141.7 million and $108.2 million, respectively. |
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Thirty-Nine Week Periods Ended | ||||||||
March 23, 2016 | March 25, 2015 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net income | $ | 138,403 | $ | 139,471 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 117,335 | 108,213 | ||||||
Stock-based compensation | 12,095 | 11,587 | ||||||
Restructure charges and other impairments | 5,937 | 8,402 | ||||||
Net (gain) loss on disposal of assets | (633 | ) | 3,819 | |||||
Changes in assets and liabilities | 26,444 | 3,415 | ||||||
Net cash provided by operating activities | 299,581 | 274,907 | ||||||
Cash Flows from Investing Activities: | ||||||||
Payments for property and equipment | (76,090 | ) | (107,108 | ) | ||||
Payment for purchase of restaurants | (105,577 | ) | — | |||||
Proceeds from sale of assets | 4,256 | 1,950 | ||||||
Net cash used in investing activities | (177,411 | ) | (105,158 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Purchases of treasury stock | (266,157 | ) | (217,019 | ) | ||||
Borrowings on revolving credit facility | 256,500 | 442,750 | ||||||
Payments of dividends | (56,192 | ) | (53,248 | ) | ||||
Payments on revolving credit facility | (50,000 | ) | (177,000 | ) | ||||
Excess tax benefits from stock-based compensation | 5,365 | 16,920 | ||||||
Payments on long-term debt | (2,547 | ) | (188,758 | ) | ||||
Proceeds from issuances of treasury stock | 4,725 | 14,965 | ||||||
Payments for deferred financing costs | — | (2,501 | ) | |||||
Net cash used in financing activities | (108,306 | ) | (163,891 | ) | ||||
Net change in cash and cash equivalents | 13,864 | 5,858 | ||||||
Cash and cash equivalents at beginning of period | 55,121 | 57,685 | ||||||
Cash and cash equivalents at end of period | $ | 68,985 | $ | 63,543 | ||||
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BRINKER INTERNATIONAL, INC.
RESTAURANT SUMMARY
Third Quarter Openings Fiscal 2016 | Total Restaurants March 23, 2016 | Projected Openings Fiscal 2016 | |||||||
Company-Owned Restaurants: | |||||||||
Chili’s Domestic | — | 933 | 11-13 | ||||||
Chili’s International | — | 13 | — | ||||||
Maggiano’s | — | 51 | 2 | ||||||
— | 997 | 13-15 | |||||||
Franchise Restaurants: | |||||||||
Chili’s Domestic | 4 | 325 | 8-10 | ||||||
Chili's International | 7 | 325 | 25-30 | ||||||
11 | 650 | 33-40 | |||||||
Total Restaurants: | |||||||||
Chili’s Domestic | 4 | 1,258 | 19-23 | ||||||
Chili's International | 7 | 338 | 25-30 | ||||||
Maggiano’s | — | 51 | 2 | ||||||
11 | 1,647 | 46-55 | |||||||
FOR ADDITIONAL INFORMATION, CONTACT:
JOE TAYLOR
INVESTOR RELATIONS
(972) 770-9040
AISHA FLETCHER
MEDIA RELATIONS
media.requests@brinker.com
(800) 775-7290
6820 LBJ FREEWAY
DALLAS, TEXAS 75240
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