Brinker International Reports Increase In Year Over Year EPS
Chili’s comparable restaurant sales decreased 1.1 percent for the quarter consisting of a 0.4 percent and 4.3 percent decrease in January and February, respectively, offset by a 1.3 percent increase in March – Maggiano’s comparable restaurant sales increased 0.4 percent, representing the 13th consecutive quarterly increase
Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal third quarter ended March 27, 2013.
Highlights include the following:
- Earnings per diluted share, excluding special items, increased 20.0 percent to $0.72 compared to $0.60 for the third quarter of fiscal 2012 (see non-GAAP reconciliation below)
- On a GAAP basis, earnings per diluted share increased 26.8 percent to $0.71 compared to $0.56 for the third quarter of fiscal 2012
- Restaurant operating margin1 improved approximately 70 basis points to 17.9 percent from 17.2 percent
- Brinker’s operating income, excluding special items, improved 110 basis points from 9.8 percent to 10.9 percent primarily due to general and administrative savings in addition to the restaurant operating margin improvement mentioned above
- Chili’s comparable restaurant sales decreased 1.1 percent for the quarter consisting of a 0.4 percent and 4.3 percent decrease in January and February, respectively, offset by a 1.3 percent increase in March
- Maggiano’s comparable restaurant sales increased 0.4 percent, representing the 13th consecutive quarterly increase
- Franchise comparable restaurant sales increased 1.3 percent driven by a 5.1 percent increase in international franchise comparable restaurant sales
- The company repurchased approximately 1.8 million shares of its common stock for $60.4 million in the third quarter
- The company paid a dividend of 20 cents per share in the third quarter, an increase of 25 percent over the prior year third quarter
- For the first nine months of fiscal 2013, cash flows provided by operating activities were $222.6 million and capital expenditures totaled $98.7 million
“Brinker delivered a 20 percent increase in EPS for the quarter, despite a tough industry sales environment,” said Wyman Roberts, President and Chief Executive Officer. “We’ve remained steadfast in executing our initiatives and are realizing the benefits of our strengthened business model. As such, we are confident we will meet our 2010 promise of doubling EPS as early as next fiscal year.”
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1 |
Effective for the fiscal first quarter ended Sept. 26, 2012, revenues are reported in two separate captions—Company sales and Franchise and other revenues. Restaurant operating margin is now defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses. |
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Table 1: Monthly and Q3 comparable restaurant sales |
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Q3 13 and Q3 12, company-owned, reported brands and franchise; percentage |
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Jan |
Feb |
March |
Q3 13 |
Q3 12 |
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|
Brinker International |
(0.1) |
(4.2) |
1.5 |
(0.9) |
4.5 |
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Chili’s Company-Owned |
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|
Comparable Restaurant Sales |
(0.4) |
(4.3) |
1.3 |
(1.1) |
4.6 |
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|
Pricing Impact |
1.9 |
1.3 |
1.3 |
1.5 |
1.9 |
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|
Mix-Shift |
0.5 |
0.2 |
1.3 |
0.6 |
0.9 |
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|
Traffic |
(2.8) |
(5.8) |
(1.3) |
(3.2) |
1.8 |
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|
Maggiano’s |
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|
Comparable Restaurant Sales |
1.7 |
(3.4) |
2.5 |
0.4 |
3.9 |
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|
Pricing Impact |
2.5 |
1.1 |
0.7 |
1.6 |
2.2 |
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|
Mix-Shift |
0.0 |
(1.1) |
0.5 |
(0.2) |
0.2 |
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|
Traffic |
(0.8) |
(3.4) |
1.3 |
(1.0) |
1.5 |
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Franchise1 |
1.3 |
3.5 |
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Domestic Comparable Restaurant Sales |
(0.3) |
3.8 |
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International Comparable Restaurant Sales |
5.1 |
2.6 |
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System-wide2 |
(0.2) |
4.2 |
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1 |
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 restaurants revenues provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development. |
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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 company sales of $632.6 million represent a 0.7 percent decrease from $637.0 million in the prior year period driven by traffic declines. As compared to the prior year, Chili’s operating margin improved due to lower cost of sales. Cost of sales as a percentage of company sales was favorably impacted by mix changes related to shrimp, ribs and fajita meat coupled with increased menu pricing, partially offset by unfavorable commodity pricing primarily related to beef, pork and chicken wings. Restaurant labor was positively impacted by improved labor productivity from the installation of new kitchen equipment and lower manager bonuses, partially offset by increased health insurance claims and sales deleverage.
MAGGIANO’S third quarter company sales of $92.1 million increased 0.2 percent primarily driven by menu pricing. As compared to the prior year, Maggiano’s operating margin improved primarily due to lower cost of sales. Cost of sales was favorably impacted by decreased commodity usage from efforts to reduce waste, menu item changes, favorable commodity pricing on seafood as well as increased menu pricing. Restaurant operating margin was negatively impacted by higher workers’ compensation insurance expenses and increased health insurance claims, partially offset by lower repair and maintenance expense and utilities expense.
FRANCHISE AND OTHER revenues totaled $18.1 million for the quarter, an increase of 38.2 percent compared to $13.1 millionin the prior year. The increase was driven primarily by a $5.2 million reduction in revenues in the prior year resulting from a change in the estimate of gift card breakage. International franchise comparable restaurant sales increased 5.1 percent while domestic franchise comparable restaurant sales decreased 0.3 percent. Brinker franchisees generated approximately $424 million in sales1 for the third quarter of fiscal 2013.
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1 |
Royalty revenues are recognized based on the sales generated and reported to the company by franchisees. |
Other
Depreciation and amortization expense increased $2.3 million for the quarter primarily due to investments in existing restaurants and asset replacements, partially offset by an increase in fully depreciated assets.
General and administrative expense decreased $6.0 million primarily due to lower performance-based compensation.
Interest expense increased $0.6 million for the quarter as a result of higher borrowing balances.
Excluding the impact of special items, the effective income tax rate remained flat at 28.9 percent in the current quarter compared to the same quarter last year as the tax impact of increased earnings in the current quarter was offset by a credit related to the prior year. On a GAAP basis, the effective income tax rate increased to 28.7 percent in the current quarter as compared to 28.2percent in the same quarter last year due to increased earnings in the current quarter and the tax benefit resulting from higher net charges related to special items in the prior year, partially offset by a credit related to the prior year.
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.
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Table 2: Reconciliation of net income excluding special items |
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Q3 13 and Q3 12; $ millions and $ per diluted share after-tax |
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Q3 13 |
EPS Q3 13 |
Q3 12 |
EPS Q3 12 |
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Net Income |
52.0 |
0.71 |
44.9 |
0.56 |
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Other (Gains) and Charges1 |
0.9 |
0.01 |
(0.1) |
0.00 |
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Adjustment for Gift Card Breakage2 |
— |
— |
3.3 |
0.04 |
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Net Income excluding Special Items |
52.9 |
0.72 |
48.1 |
0.60 |
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1 |
Pre-tax Other gains and charges was a $1.6 million charge and a $0.1 million gain in the third quarter of fiscal 2013 and 2012, respectively. |
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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.
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 1,588 restaurants under the names Chili’s® Grill & Bar (1,544 restaurants) and Maggiano’s Little Italy® (44 restaurants).