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Brinker International Reports Second Quarter Results
Highlights include the following:
- On a GAAP basis, earnings per diluted share were
$0.54 for the second quarter of fiscal 2018 representing a 21.7 percent decrease from$0.69 in the second quarter of fiscal 2017 - Earnings per diluted share, excluding special items, were
$0.87 for the second quarter of fiscal 2018 representing a 22.5 percent increase from$0.71 in the second quarter of fiscal 2017 (see non-GAAP reconciliation below) - The Tax Cuts and Jobs Act of 2017 (the "Tax Act") negatively impacted GAAP net income by
$3.9 million or$0.08 per diluted share, consisting of$8.7 million or$0.18 per diluted share for the revaluation of the Company's net deferred tax assets, partially offset by the impact from the decrease in the statutory tax rate of$4.8 million or$0.10 per diluted share for the second quarter of 2017 Brinker International's total revenues were$766.4 million in the second quarter of fiscal 2018 decreasing 0.6 percent compared to the second quarter of fiscal 2017, and company sales were$742.7 million in the second quarter of fiscal 2018 decreasing 0.8 percent compared to the second quarter of fiscal 2017Chili's company-owned comparable restaurant sales decreased 1.5 percent in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017. Chili's U.S. franchise comparable restaurant sales decreased 1.7 percent in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017Chili's international franchise comparable restaurant sales increased 0.1 percent in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017- Maggiano's comparable restaurant sales increased 1.8 percent in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017
- Operating income, as a percent of total revenues, was 7.1 percent for the second quarter of fiscal 2018 compared to 8.0 percent for the second quarter of fiscal 2017 representing a decrease of approximately 90 basis points
- Restaurant operating margin, as a percent of company sales, was 14.9 percent for the second quarter of fiscal 2018 compared to 15.1 percent for the second quarter of fiscal 2017 representing a decrease of approximately 20 basis points (see non-GAAP reconciliation below)
- For the first six months of fiscal 2018, cash flows provided by operating activities were
$119.7 million and capital expenditures totaled$48.6 million . Free cash flow was$71.1 million (see non-GAAP reconciliation below) - The Company is updating its fiscal 2018 outlook and now estimates earnings per diluted share, excluding special items and the revaluation of the Company's deferred tax accounts, to be in the range of $3.42 to
$3 .52 for fiscal 2018
"
Table 1: Q2 comparable restaurant sales1 |
|||||
Company-owned, reported brands and franchise; percentage |
|||||
Q2 18 |
Q2 17 |
||||
Brinker International |
(1.0) |
(2.9) |
|||
Chili's Company-Owned |
|||||
Comparable Restaurant Sales |
(1.5) |
(3.3) |
|||
Pricing Impact |
2.3 |
1.8 |
|||
Mix-Shift2 |
0.6 |
1.4 |
|||
Traffic |
(4.4) |
(6.5) |
|||
Maggiano's |
|||||
Comparable Restaurant Sales |
1.8 |
(0.8) |
|||
Pricing Impact |
1.1 |
2.6 |
|||
Mix-Shift2 |
1.1 |
(0.9) |
|||
Traffic |
(0.4) |
(2.5) |
|||
Chili's Franchise3 |
(1.0) |
(3.5) |
|||
U.S. Comparable Restaurant Sales |
(1.7) |
(3.0) |
|||
International Comparable Restaurant Sales |
0.1 |
(4.2) |
|||
Chili's Domestic4 |
(1.6) |
(3.2) |
|||
System-wide5 |
(1.0) |
(3.1) |
1 |
Comparable restaurant sales includes all restaurants that have been in operation for more than 18 months. |
|
2 |
Mix-shift is calculated as the year-over-year percentage change in company sales resulting from the change in menu items ordered by guests. |
|
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 Chili's restaurants. |
Quarterly Operating Performance
MAGGIANO'S second quarter company sales increased 2.1 percent to
1Restaurant operating margin is defined as Company sales less Cost of sales, Restaurant labor and Restaurant expenses and excludes Depreciation and amortization expenses. (See non-GAAP reconciliation below)
FRANCHISE AND OTHER revenues increased 6.3 percent to
2Royalty revenues are recognized based on the sales generated and reported to the Company by franchisees.
Other
Depreciation and amortization expense decreased
General and administrative expense decreased
Income Taxes
The Tax Act was enacted on
On a GAAP basis, the effective income tax rate increased to 38.3 percent in the second quarter of fiscal 2018 from 28.2 percent in the second quarter of fiscal 2017. This increase was driven by the revaluation of the Company's deferred tax accounts pursuant to the Tax Act, partially offset by the positive impact of lowering the federal statutory tax rate and lower profits. Excluding the impact of special items and the revaluation of the Company's deferred tax accounts, the effective income tax rate decreased to 19.5 percent in the second quarter of fiscal 2018 compared to 28.1 percent in the second quarter of fiscal 2017 primarily due to the lower corporate tax rate and lower profits.
Fiscal 2018 Outlook Update
The Tax Act will have a material impact on the Company's effective tax rate for fiscal 2018. The Company estimates adjusted earnings per diluted share, excluding special items and the revaluation of the Company's deferred tax accounts, for fiscal 2018 will be in the range of
Guidance Policy
Non-GAAP Measures
Table 2: Reconciliation of net income excluding special items |
||||||||||||||||
Q2 18 and Q2 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. |
||||||||||||||||
Q2 18 |
EPS Q2 18 |
Q2 17 |
EPS Q2 17 |
|||||||||||||
Net Income |
$ |
25.4 |
$ |
0.54 |
$ |
34.6 |
$ |
0.69 |
||||||||
Special items1 |
9.3 |
0.20 |
1.3 |
0.03 |
||||||||||||
Income tax effect related to special items2 |
(2.4) |
(0.05) |
(0.3) |
(0.01) |
||||||||||||
Special items, net of taxes |
6.9 |
0.15 |
1.0 |
0.02 |
||||||||||||
Adjustment for tax items3 |
8.3 |
0.18 |
— |
— |
||||||||||||
Net Income excluding special items |
$ |
40.6 |
$ |
0.87 |
$ |
35.6 |
$ |
0.71 |
1 |
See footnote "b" to the consolidated statements of comprehensive income for additional details on the composition of these amounts. |
|
2 |
The income tax effect related to special items is based on the statutory tax rate in effect at the end of each quarter presented. The tax rate used for Q2 fiscal 2018 is based on the tax rate stipulated by the Tax Act enacted on December 22, 2017. |
|
3 |
Amounts represent the revaluation of our net deferred taxes using the new lower corporate tax rate pursuant to the Tax Act. Additionally, this amount includes $0.4 million of tax benefits from the settlement of stock-based compensation awards in the provision for income taxes. |
Table 3: Reconciliation of restaurant operating margin |
||||||||
Q2 18 and Q2 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. We define restaurant operating margin as Company sales less Company restaurant expenses, including Cost of sales, Restaurant labor and Restaurant expenses. Restaurant expenses includes 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 expenses represent 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. |
||||||||
Q2 18 |
Q2 17 |
|||||||
Operating income - GAAP |
$ |
54.4 |
$ |
61.5 |
||||
Operating income as a percent of total revenues |
7.1 |
% |
8.0 |
% |
||||
Operating income |
54.4 |
61.5 |
||||||
Less: Franchise and other revenues |
(23.7) |
(22.3) |
||||||
Plus: Depreciation and amortization |
37.7 |
39.3 |
||||||
General and administrative |
33.1 |
33.5 |
||||||
Other gains and charges |
9.3 |
1.3 |
||||||
Restaurant operating margin - non-GAAP |
$ |
110.8 |
$ |
113.3 |
||||
Restaurant operating margin as a percent of company sales |
14.9 |
% |
15.1 |
% |
Table 4: Reconciliation of free cash flow |
||||
Q2 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. |
||||
Twenty-six Week Period |
||||
Cash flows provided by operating activities - GAAP |
$ |
119.7 |
||
Capital expenditures |
(48.6) |
|||
Free cash flow - non-GAAP |
$ |
71.1 |
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
http://investors.brinker.com/phoenix.zhtml?c=119205&p=irol-EventDetails&EventId=5266817
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
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
Forward Calendar
- SEC Form 10-Q for the second quarter of fiscal 2018 filing on or before
- Third quarter earnings release, before market opens,
About
Forward-Looking Statements
The statements 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
BRINKER INTERNATIONAL, INC. |
|||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
|||||||||||||||
(In thousands, except per share amounts) |
|||||||||||||||
(Unaudited) |
|||||||||||||||
Thirteen Week Periods Ended |
Twenty-Six Week Periods Ended |
||||||||||||||
Dec. 27, 2017 |
Dec. 28, 2016 |
Dec. 27, 2017 |
Dec. 28, 2016 |
||||||||||||
Revenues: |
|||||||||||||||
Company sales |
$ |
742,688 |
$ |
748,709 |
$ |
1,459,630 |
$ |
1,486,119 |
|||||||
Franchise and other revenues (a) |
23,712 |
22,334 |
46,160 |
43,416 |
|||||||||||
Total revenues |
766,400 |
771,043 |
1,505,790 |
1,529,535 |
|||||||||||
Operating costs and expenses: |
|||||||||||||||
Company restaurants (excluding depreciation and amortization) |
|||||||||||||||
Cost of sales |
192,883 |
193,537 |
380,480 |
385,839 |
|||||||||||
Restaurant labor |
250,416 |
248,692 |
501,491 |
499,262 |
|||||||||||
Restaurant expenses |
188,649 |
193,131 |
376,778 |
389,774 |
|||||||||||
Company restaurant expenses |
631,948 |
635,360 |
1,258,749 |
1,274,875 |
|||||||||||
Depreciation and amortization |
37,655 |
39,305 |
76,175 |
78,191 |
|||||||||||
General and administrative |
33,088 |
33,546 |
65,446 |
66,083 |
|||||||||||
Other gains and charges (b) |
9,261 |
1,306 |
22,415 |
7,384 |
|||||||||||
Total operating costs and expenses |
711,952 |
709,517 |
1,422,785 |
1,426,533 |
|||||||||||
Operating income |
54,448 |
61,526 |
83,005 |
103,002 |
|||||||||||
Interest expense |
14,321 |
13,641 |
28,205 |
22,450 |
|||||||||||
Other, net |
(1,015) |
(383) |
(1,491) |
(682) |
|||||||||||
Income before provision for income taxes |
41,142 |
48,268 |
56,291 |
81,234 |
|||||||||||
Provision for income taxes |
15,776 |
13,631 |
21,048 |
23,364 |
|||||||||||
Net income |
$ |
25,366 |
$ |
34,637 |
$ |
35,243 |
$ |
57,870 |
|||||||
Basic net income per share |
$ |
0.55 |
$ |
0.70 |
$ |
0.74 |
$ |
1.11 |
|||||||
Diluted net income per share |
$ |
0.54 |
$ |
0.69 |
$ |
0.74 |
$ |
1.09 |
|||||||
Basic weighted average shares outstanding |
46,432 |
49,833 |
47,362 |
52,339 |
|||||||||||
Diluted weighted average shares outstanding |
46,880 |
50,480 |
47,806 |
53,028 |
|||||||||||
Other comprehensive income (loss): |
|||||||||||||||
Foreign currency translation adjustment (c) |
$ |
(198) |
$ |
(1,664) |
$ |
820 |
$ |
(2,145) |
|||||||
Other comprehensive income (loss) |
(198) |
(1,664) |
820 |
(2,145) |
|||||||||||
Comprehensive income |
$ |
25,168 |
$ |
32,973 |
$ |
36,063 |
$ |
55,725 |
(a) |
Franchise and other revenues primarily includes royalties, development fees, franchise fees, Maggiano's banquet service charge income, gift card breakage and discounts, digital entertainment revenue, Chili's retail food product royalties and delivery fee income. |
|
(b) |
Other gains and charges include: |
Thirteen Week Periods Ended |
Twenty-Six Week Periods Ended |
||||||||||||||
Dec. 27, 2017 |
Dec. 28, 2016 |
Dec. 27, 2017 |
Dec. 28, 2016 |
||||||||||||
Restaurant closure charges |
$ |
4,306 |
$ |
321 |
$ |
4,544 |
$ |
2,827 |
|||||||
Restaurant impairment charges |
1,974 |
1,851 |
9,133 |
1,851 |
|||||||||||
Lease guarantee charges |
1,433 |
— |
1,433 |
— |
|||||||||||
Foreign currency transaction loss |
882 |
— |
882 |
— |
|||||||||||
Hurricane-related costs |
572 |
— |
5,220 |
— |
|||||||||||
Accelerated depreciation |
483 |
— |
966 |
— |
|||||||||||
Gain on the sale of assets, net |
(348) |
(2,569) |
(303) |
(2,569) |
|||||||||||
Information technology restructuring |
— |
209 |
— |
2,700 |
|||||||||||
Severance |
— |
— |
— |
293 |
|||||||||||
Other |
(41) |
1,494 |
540 |
2,282 |
|||||||||||
$ |
9,261 |
$ |
1,306 |
$ |
22,415 |
$ |
7,384 |
(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 (prior to divestiture) 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. |
BRINKER INTERNATIONAL, INC. |
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||||||
(In thousands) |
||||||||
(Unaudited) |
||||||||
Dec. 27, 2017 |
June 28, 2017 |
|||||||
ASSETS |
||||||||
Current assets |
$ |
194,474 |
$ |
144,325 |
||||
Net property and equipment (a) |
958,084 |
1,000,614 |
||||||
Total other assets |
247,987 |
258,694 |
||||||
Total assets |
$ |
1,400,545 |
$ |
1,403,633 |
||||
LIABILITIES AND SHAREHOLDERS' DEFICIT |
||||||||
Current installments of long-term debt |
$ |
8,265 |
$ |
9,649 |
||||
Other current liabilities |
443,611 |
426,712 |
||||||
Long-term debt, less current installments |
1,365,255 |
1,319,829 |
||||||
Other liabilities |
136,274 |
141,124 |
||||||
Total shareholders' deficit |
(552,860) |
(493,681) |
||||||
Total liabilities and shareholders' deficit |
$ |
1,400,545 |
$ |
1,403,633 |
(a) |
At Dec. 27, 2017, the Company owned the land and buildings for 190 of the 997 company-owned restaurants. The net book values of the land totaled $143.2 million and the buildings totaled $91.7 million associated with these restaurants. |
BRINKER INTERNATIONAL, INC. |
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
(In thousands) |
||||||||
(Unaudited) |
||||||||
Twenty-Six Week Periods Ended |
||||||||
Dec. 27, 2017 |
Dec. 28, 2016 |
|||||||
Cash Flows From Operating Activities: |
||||||||
Net income |
$ |
35,243 |
$ |
57,870 |
||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
76,175 |
78,191 |
||||||
Stock-based compensation |
6,287 |
8,152 |
||||||
Restructure charges and other impairments |
14,457 |
8,000 |
||||||
Net loss (gain) on disposal of assets |
1,294 |
(811) |
||||||
Changes in assets and liabilities |
(13,747) |
(8,578) |
||||||
Net cash provided by operating activities |
119,709 |
142,824 |
||||||
Cash Flows from Investing Activities: |
||||||||
Payments for property and equipment |
(48,559) |
(60,055) |
||||||
Proceeds from sale of assets |
325 |
3,022 |
||||||
Insurance recoveries |
1,000 |
— |
||||||
Proceeds from note receivable |
480 |
— |
||||||
Net cash used in investing activities |
(46,754) |
(57,033) |
||||||
Cash Flows from Financing Activities: |
||||||||
Borrowings on revolving credit facility |
320,000 |
100,000 |
||||||
Payments on revolving credit facility |
(276,000) |
(138,000) |
||||||
Purchases of treasury stock |
(71,792) |
(349,994) |
||||||
Payments of dividends |
(35,445) |
(36,944) |
||||||
Payments on long-term debt |
(5,091) |
(1,862) |
||||||
Proceeds from issuances of treasury stock |
1,042 |
3,837 |
||||||
Proceeds from issuance of long-term debt |
— |
350,000 |
||||||
Payments for debt issuance costs |
— |
(10,216) |
||||||
Net cash used in financing activities |
(67,286) |
(83,179) |
||||||
Net change in cash and cash equivalents |
5,669 |
2,612 |
||||||
Cash and cash equivalents at beginning of period |
9,064 |
31,446 |
||||||
Cash and cash equivalents at end of period |
$ |
14,733 |
$ |
34,058 |
BRINKER INTERNATIONAL, INC. |
|||||||||
RESTAURANT SUMMARY |
|||||||||
Second Quarter |
Total Restaurants |
Projected |
|||||||
Company-owned restaurants: |
|||||||||
Chili's domestic |
3 |
940 |
5-6 |
||||||
Chili's international |
— |
5 |
— |
||||||
Maggiano's |
— |
52 |
1 |
||||||
Total company-owned |
3 |
997 |
6-7 |
||||||
Franchise restaurants: |
|||||||||
Chili's domestic |
1 |
316 |
5-7 |
||||||
Chili's international |
9 |
369 |
38-43 |
||||||
Total franchise |
10 |
685 |
43-50 |
||||||
Total restaurants: |
|||||||||
Chili's domestic |
4 |
1,256 |
10-13 |
||||||
Chili's international |
9 |
374 |
38-43 |
||||||
Maggiano's |
— |
52 |
1 |
||||||
Grand total |
13 |
1,682 |
49-57 |
View original content:http://www.prnewswire.com/news-releases/brinker-international-reports-second-quarter-results-300589882.html
SOURCE
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