Brinker International Reports Year-Over-Year Increase In Second Quarter EPS

OREANDA-NEWS. Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal second quarter ended Dec. 23, 2015.

Highlights include the following:

• Earnings per diluted share, excluding special items, increased 9.9 percent to $0.78 compared to $0.71 for the second quarter of fiscal 2015
• On a GAAP basis, earnings per diluted share increased 25.0 percent to $0.80 compared to $0.64 for the second quarter of fiscal 2015
• Brinker International total revenues increased 6.2 percent to $788.6 million and company sales increased 6.7 percent to $765.7 million 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 2.8 percent
• Maggiano's comparable restaurant sales decreased 1.8 percent
• Chili's franchise comparable restaurant sales increased 0.9 percent which includes a 2.6 percent increase for international franchise restaurants, partially offset by a 0.1 percent decrease for U.S. franchise restaurants
• Restaurant operating margin,¹ as a percent of company sales, declined approximately 30 basis points to 16.1 percent compared to 16.4 percent for the second quarter of fiscal 2015
• For the first six months of fiscal 2016, cash flows provided by operating activities were $155.6 million and capital expenditures totaled $52.2 million. Free cash flow² was approximately $103.4 million
• The company repurchased approximately 1.9 million shares of its common stock for $89.0 million in the second quarter and a total of approximately 2.8 million shares for $140.1 million year-to-date
• The company declared a dividend of 32 cents per share to be paid in the third quarter, representing a 14.3% increase over the prior year
• The company reaffirms earnings per diluted share, excluding special items, to increase 15 to 18 percent in fiscal 2016 in the range of $3.55 to $3.65

"Our second quarter earnings reflect solid performance despite top-line challenges," said Wyman Roberts, chief executive officer and president. "We believe our current initiatives will improve sales during the remainder of the fiscal year and help deliver our annual earnings guidance."

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.

Quarterly Operating Performance

CHILI'S second quarter company sales increased 8.1 percent to $651.0 million from $602.0 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 primarily due to the impact of the recently acquired restaurants. Cost of sales, as a percent of company sales, was positively impacted by favorable menu pricing and commodity pricing related to burger meat, cheese, seafood, and avocados, partially offset by unfavorable menu item mix and commodity pricing primarily related to steak and chicken. Restaurant expenses, as a percent of company sales, increased slightly due to higher repairs and maintenance and rent expenses, partially offset by decreased advertising, workers' compensation insurance expenses and operations supervision expenses. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates, partially offset by lower incentive bonus and productivity initiatives.

MAGGIANO'S second quarter company sales decreased 0.9 percent to $114.7 million from $115.8 million in the prior year primarily due to 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 menu item changes, increased menu pricing and favorable commodity pricing. Restaurant expenses, as a percent of company sales, increased compared to prior year due to higher preopening and repair and maintenance expenses, partially offset by lower advertising expenses. Restaurant labor, as a percent of company sales, increased compared to prior year due to higher wage rates.

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 8.8 percent to $22.9 million for the second quarter compared to $25.1 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 $338 million in sales² for the second 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 $3.0 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 $0.8 million primarily due to lower performance-based compensation, partially offset by the termination of accounting and information technology support fees resulting from the acquisition of 103 Chili's restaurants.

On a GAAP basis, the effective income tax rate increased to 30.1 percent in the current quarter from 29.7 percent in the prior year quarter.  The effective income tax rate increased due to higher profits, partially offset by an increase in the FICA Tip Credit and the positive impact of the resolution of certain tax positions. Excluding the impact of special items, the effective income tax rate increased to 31.3 percent in the current quarter compared to 30.7 percent in the prior year quarter.  The effective income tax rate increased due to higher profits, partially offset by an increase in the FICA Tip Credit.

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.

 

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 Dec. 23, 2015, Brinker owned, operated, or franchised 1,646 restaurants under the names Chili's^® Grill & Bar (1,595 restaurants) and Maggiano's Little Italy^® (51 restaurants).