OREANDA-NEWS. 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.

 

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.

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.

 

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.

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).