DALLAS, Aug. 14, 2018 /PRNewswire/ -- Brinker International, Inc. (NYSE: EAT) today announced results for the fiscal fourth quarter and year ended June 27, 2018.

Highlights include the following:

• On a GAAP basis, earnings per diluted share in the fourth quarter of fiscal 2018 decreased 1.0% to $1.01 compared to $1.02 for the fourth quarter of fiscal 2017. On a GAAP basis, earnings per diluted share in fiscal 2018 decreased 7.5% to $2.72 compared to $2.94 for fiscal 2017 Brinker International, Inc.
• Earnings per diluted share, excluding special items, in the fourth quarter of fiscal 2018 increased 9.2% to $1.19 compared to $1.09 for the fourth quarter of fiscal 2017. Earnings per diluted share, excluding special items, in fiscal 2018 increased 9.4% to $3.50 compared to $3.20 for fiscal 2017 (see non-GAAP reconciliation below)
• Brinker International's total revenues in the fourth quarter of fiscal 2018 increased 0.8% to $817.1 million compared to the fourth quarter of fiscal 2017, and Company sales in the fourth quarter of fiscal 2018 increased 0.7% to $791.4 million compared to the fourth quarter of fiscal 2017
• Chili's company-owned comparable restaurant sales increased 0.6% in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017. Chili's U.S. franchise comparable restaurant sales decreased 0.5% in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017
• Maggiano's comparable restaurant sales increased 0.3% in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017
• Chili's international franchise comparable restaurant sales decreased 2.9% in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017
• Operating income, as a percent of total revenues, was 8.6% for the fourth quarter of fiscal 2018 compared to 9.9% for the fourth quarter of fiscal 2017 representing a decrease of approximately 130 basis points
• Restaurant operating margin, as a percent of company sales, was 15.9% for the fourth quarter of fiscal 2018 compared to 17.0% for the fourth quarter of fiscal 2017 (see non-GAAP reconciliation below)
• For fiscal 2018, cash flows provided by operating activities were $284.5 million and capital expenditures totaled $101.3 million. Free cash flow was $183.2 million (see non-GAAP reconciliation below)
• The Company's Board of Directors approved a quarterly dividend of $0.38 per share on the common stock of the Company. The dividend will be payable September 27, 2018 to shareholders of record as of September 7, 2018

"Brinker delivered positive sales and traffic for the fourth quarter," said Wyman Roberts, Chief Executive Officer and President. "We continue to gain momentum and improve overall business performance through effective execution of our traffic driving strategies to elevate food and service, increase convenience, and strengthen our value proposition."

SALE LEASEBACK TRANSACTIONS

In the first quarter of fiscal 2019, we entered into three purchase agreements to sell and leaseback 143 restaurant properties located throughout the United States. Subsequently under these purchase agreements, we have completed sale leaseback transactions of 137 of these restaurants for aggregate consideration of $443.1 million. The net proceeds from these sale leaseback transactions were used to repay borrowings on our revolving credit facility. The initial term of the leases are for 15 years. At June 27, 2018 the approximate net book value of the 137 restaurant properties included in the August 2018 completed sale leaseback transactions were land of $100.9 million and building and leasehold improvements and fixtures of $61.3 million.

QUARTERLY OPERATING PERFORMANCE

CHILI'S company sales in the fourth quarter of fiscal 2018 increased 0.8% to $688.2 million from $682.9 million in the fourth quarter of fiscal 2017 primarily due to an increase in comparable restaurant sales and an increase in capacity in the United States. As compared to the fourth quarter of fiscal 2017, Chili's restaurant operating margin¹ declined. Restaurant labor, as a percent of company sales, increased compared to the fourth quarter of fiscal 2017 due to higher wage rates, incentive bonus and employee health insurance expenses, partially offset by sales leverage. Cost of sales, as a percent of company sales, increased compared to the fourth quarter of fiscal 2017 due to unfavorable menu item mix and promotional activities, partially offset by favorable commodity pricing. Restaurant expenses, as a percent of company sales, decreased compared to the fourth quarter of fiscal 2017 primarily due to lower loyalty program related expenses and lower technology-related operating lease expenses and sales leverage, partially offset by increased repairs and maintenance expenses and To Go supplies expense.

MAGGIANO'S company sales in the fourth quarter of fiscal 2018 increased 0.3% to $103.2 million from $102.9 million in the fourth quarter of fiscal 2017 primarily due to an increase in comparable restaurant sales. As compared to the fourth quarter of fiscal 2017, Maggiano's restaurant operating margin¹ improved. Cost of sales, as a percent of company sales, decreased compared to the fourth quarter of fiscal 2017 due to favorable menu item mix and increased menu pricing, partially offset by unfavorable commodity pricing. Restaurant labor, as a percent of company sales, increased compared to the fourth quarter of fiscal 2017 due to higher wage rates and incentive bonus. Restaurant expenses, as a percent of company sales, increased compared to the fourth quarter of fiscal 2017 primarily due to increased rent expense and repairs and maintenance expenses, partially offset by lower workers' compensation insurance expenses.

FRANCHISE AND OTHER revenues in the fourth quarter of fiscal 2018 increased 3.6% to $25.7 million from $24.8 million in the fourth quarter of fiscal 2017 primarily due to higher gift card-related revenues, partially offset by a change in the timing of retail food royalties and a decrease in franchise fees and development fees. Brinker franchisees generated approximately $336.4 million in sales² for the fourth quarter of fiscal 2018.

OTHER

Depreciation and amortization expense for the fourth quarter of fiscal 2018 decreased $1.2 million compared to the fourth quarter of fiscal 2017 primarily due to an increase in fully-depreciated assets and retirements from restaurant closures and restaurant remodels, partially offset by depreciation on asset replacements, new restaurant openings and an increase in technology-related capital lease depreciation.

General and administrative expense for the fourth quarter of fiscal 2018 increased $3.1 million compared to the fourth quarter of fiscal 2017 primarily due to higher performance-based compensation expenses, payroll expenses, and professional service fees.

INCOME TAXES

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") enacted during the second quarter of fiscal 2018 lowered the federal statutory tax rate. Brinker's federal statutory tax rate for fiscal 2018 decreased to 28.1%, representing a blended tax rate for the current fiscal year based on the number of days in the fiscal year before and after the effective date of the Tax Act. For subsequent years, our federal statutory tax rate will be 21.0% under the Tax Act.

On a GAAP basis, the effective income tax rate decreased to 20.5% in the fourth quarter of fiscal 2018 from 25.2% in the fourth quarter of fiscal 2017. This decrease was driven primarily by the positive impact of the lower federal statutory tax rate. Excluding the impact of special items (see non-GAAP reconciliation below for details), the effective income tax rate decreased to 19.9% in the fourth quarter of fiscal 2018 compared to 27.8% in the fourth quarter of fiscal 2017 primarily due to the lower federal statutory tax rate.

FISCAL 2019 OUTLOOK

The Company estimates earnings per diluted share, excluding special items, in the range of $3.70 to $3.90. Estimated earnings per diluted share are based on the following expectations:

• Effective fiscal 2019, we have adopted the new US GAAP revenue standard (Topic 606) using the cumulative effect transition method and therefore no prior periods will be restated. We expect the new revenue standard to primarily result in an increase to Franchise and other revenues and a corresponding increase to Restaurant expenses related to the reclassification of marketing fees received from franchisees. The impact of the new revenue standard has been included within the fiscal 2019 guidance provided
• Revenues are expected to be up approximately 1.00% to 2.25%. This estimate includes the impact of adopting the new US GAAP revenue standard in fiscal 2019 (as mentioned above)
• Comparable restaurant sales are expected to be up 0.75% to 1.75%
• Restaurant operating margin is expected to be down approximately 160 to 180 basis points primarily due to the impact of adopting the new US GAAP revenue standard (as mentioned above) and rent expense associated with the sale leaseback transactions executed in August 2018
• Depreciation expense is expected to be $5 million to $6 million lower reflecting the impact of the sale leaseback transactions, offset by capital expenditures. Capital expenditures are expected to be $140 million to $150 million
• General and administrative expense is expected to be $8 million to $10 million higher primarily due to resetting incentive compensation to target
• Excluding the impact of special items, the effective income tax rate is expected to be approximately 14% to 15%
• Free cash flow is expected to be $165 million to $175 million
• Diluted weighted average shares outstanding is expected to be 38 million to 40 million

The Company believes providing estimated fiscal 2019 earnings per diluted share, excluding special items, guidance provides investors the appropriate insight into the Company's ongoing operating performance.

GUIDANCE POLICY

Brinker provides annual guidance as it relates to comparable restaurant sales, earnings per diluted share, excluding special items, certain non-GAAP measures and other key line items in the consolidated statements of comprehensive income and will only provide updates if there is a material change versus the original guidance. We are unable to reliably forecast special items such as restaurant impairments, restaurant closures, reorganization charges and legal settlements without unreasonable effort. As such, we do not present a reconciliation of forecasted non-GAAP measures to the corresponding GAAP measures. If special items are reported in the remainder of fiscal 2019, reconciliations to the appropriate GAAP measures will be provided.

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 financial results. Non-GAAP disclosures should not be viewed as a substitute for financial 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.

Reconciliation of Net Income Excluding Special Items

Q4 18 and Q4 17; $ millions and $ per diluted share

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.

Reconciliation of Net Income Excluding Special Items

FY 18 and FY 17; $ millions and $ per diluted share

Reconciliation of Restaurant Operating Margin

Q4 18 and Q4 17; $ millions

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 as an indicator of financial performance. Restaurant operating margin is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations. This non-GAAP measure is not indicative of overall company performance and profitability in that this measure does not directly accrue benefit to the shareholders due to the nature of costs excluded. We define restaurant operating margin as Company sales less Company restaurant expenses, including Cost of sales, Restaurant labor and Restaurant expenses. Restaurant expenses include advertising expense. We believe this metric provides a more useful comparison between periods and enables investors to focus on the performance of restaurant-level operations by excluding revenues not related to food and beverage sales at company-owned restaurants, corporate General and administrative expense, Depreciation and amortization, and Other gains and charges.

Restaurant operating margin excludes Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams such as banquet service charges, digital entertainment revenues and gift card breakage. Depreciation and amortization expense, substantially all of which is related to restaurant-level assets, is excluded because such expense represents historical costs which do not reflect current cash outlays for the restaurants. General and administrative expense includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices and is therefore excluded. We believe that excluding special items, included within Other gains and charges, from restaurant operating margin provides investors with a clearer perspective of the Company's ongoing operating performance and a more useful comparison to prior period results. Restaurant operating margin as presented may not be comparable to other similarly titled measures of other companies in our industry.

 

Reconciliation of Free Cash Flow

FY 18; $ millions

Brinker believes presenting free cash flow provides a useful measure to evaluate the cash flow available for reinvestment after considering the capital requirements of our business operations.

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 website today, Aug. 14, 2018 at 9 a.m. CDT:

http://investors.brinker.com/phoenix.zhtml?c=119205&p=irol-eventDetails&EventId=5271637

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 website until the end of the day Sept. 11, 2018.

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 website under the Financial Information section of the Investor tab.

FORWARD CALENDAR

• SEC Form 10-K for fiscal 2018 filing on or before Aug. 27, 2018; and
• First quarter earnings release, before market opens, Oct. 30, 2018.

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 June 27, 2018, Brinker owned, operated, or franchised 1,686 restaurants under the names Chili's^® Grill & Bar (1,634 restaurants) and Maggiano's Little Italy^® (52 restaurants).

FORWARD LOOKING STATEMENTS

The statements and tables contained in this release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 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 could cause actual results to differ materially from our historical results or from those projected in forward-looking statements. These risks and uncertainties 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, litigation, 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, loss of key management personnel, product availability, actions of activist shareholders, 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, material weaknesses in internal control over financial reporting, governmental regulations, tax reform, 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.

 

 

 

 

 

 

We relocated two company-owned restaurants in fiscal 2018. In fiscal 2019, we plan to relocate five company-owned restaurants. Relocations are not included in the above table.

 

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SOURCE Brinker International, Inc.

MIKA WARE, INVESTOR RELATIONS, investor.relations@brinker.com, AISHA FLETCHER, MEDIA RELATIONS, media.requests@brinker.com, (800) 775-7290, 6820; LBJ FREEWAY, DALLAS, TEXAS 75240