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Brinker International Reports Third Quarter Results
Highlights include the following:
- On a GAAP basis, earnings per diluted share were
$1.02 for the third quarter of fiscal 2018 representing an 18.6 percent increase from$0.86 in the third quarter of fiscal 2017 - Earnings per diluted share, excluding special items, were
$1.08 for the third quarter of fiscal 2018 representing a 14.9 percent increase from$0.94 in the third quarter of fiscal 2017 (see non-GAAP reconciliation below) Brinker International's total revenues were$812.5 million in the third quarter of fiscal 2018 increasing 0.2 percent compared to the third quarter of fiscal 2017, and company sales were$790.5 million in the third quarter of fiscal 2018 which were flat compared to the third quarter of fiscal 2017Chili's company-owned comparable restaurant sales decreased 0.4 percent in the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017. Chili's U.S. franchise comparable restaurant sales decreased 3.2 percent in the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017Chili's international franchise comparable restaurant sales decreased 0.2 percent in the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017- Maggiano's comparable restaurant sales increased 0.5 percent in the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017
- Operating income, as a percent of total revenues, was 8.9 percent for the third quarter of fiscal 2018 compared to 9.0 percent for the third quarter of fiscal 2017 representing a decrease of approximately 10 basis points
- Restaurant operating margin, as a percent of company sales, was 16.1 percent for the third quarter of fiscal 2018 compared to 17.0 percent for the third quarter of fiscal 2017 (see non-GAAP reconciliation below)
- For the first thirty-nine weeks of fiscal 2018, cash flows provided by operating activities were
$237.7 million and capital expenditures totaled$69.5 million . Free cash flow was$168.2 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 June 28, 2018 to shareholders of record as of June 8, 2018 Brinker has entered into the firstChili's franchise partnership inChina , which will cover theShanghai region.
"
Quarterly Operating Performance
MAGGIANO'S company sales in the third quarter of fiscal 2018 increased 0.6 percent to
1 |
Restaurant 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 in the third quarter of fiscal 2018 increased 10.1 percent to
2 |
Royalty revenues are recognized based on the sales generated and reported to the Company by franchisees. |
Other
Depreciation and amortization expense for the third quarter of fiscal 2018 decreased
General and administrative expense for the third quarter of fiscal 2018 increased
Income Taxes
The Tax Cuts and Jobs Act of 2017 (the "Tax Act") enacted during the second quarter of fiscal 2018 lowered federal statutory tax rates.
On a GAAP basis, the effective income tax rate decreased to 20.4 percent in the third quarter of fiscal 2018 from 28.9 percent in the third 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 19.6 percent in the third quarter of fiscal 2018 compared to 29.9 percent in the third quarter of fiscal 2017 primarily due to the lower federal statutory tax rate.
Fiscal 2018 Outlook Update
Revenues for fiscal 2018 are now estimated to be flat to down 0.5 percent compared to fiscal 2017. Comparable restaurant sales for fiscal 2018 are estimated to be down 0.5 percent to down 1.0 percent. In addition, restaurant operating margin is now estimated to be down approximately 65-75 basis points on a year-over-year basis.
Guidance Policy
Table 1: Q3 Comparable Restaurant Sales1
Company-owned, reported brands and franchise; percentage
Q3 18 |
Q3 17 |
||||||
Brinker International |
(0.3) |
(2.2) |
|||||
Chili's Company-Owned |
|||||||
Comparable Restaurant Sales |
(0.4) |
(2.3) |
|||||
Pricing Impact |
1.1 |
2.9 |
|||||
Mix-Shift2 |
0.6 |
1.0 |
|||||
Traffic |
(2.1) |
(6.2) |
|||||
Maggiano's |
|||||||
Comparable Restaurant Sales |
0.5 |
(1.6) |
|||||
Pricing Impact |
1.3 |
2.4 |
|||||
Mix-Shift2 |
0.6 |
1.4 |
|||||
Traffic |
(1.4) |
(5.4) |
|||||
Chili's Franchise3 |
(2.1) |
(2.5) |
|||||
U.S. Comparable Restaurant Sales |
(3.2) |
0.3 |
|||||
International Comparable Restaurant Sales |
(0.2) |
(7.1) |
|||||
Chili's Domestic4 |
(1.1) |
(1.7) |
|||||
System-wide5 |
(0.8) |
(2.3) |
|||||
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 |
Non-GAAP Measures
Table 2: Reconciliation of Net Income Excluding Special Items
Q3 18 and Q3 17; $ millions and $ per diluted share
Q3 18 |
EPS Q3 18 |
Q3 17 |
EPS Q3 17 |
||||||||
Net income |
$ |
46.9 |
$ |
1.02 |
$ |
42.4 |
$ |
0.86 |
|||
Special items1 |
2.8 |
0.06 |
6.6 |
0.13 |
|||||||
Income tax effect related to special items2 |
(0.9) |
(0.02) |
(2.6) |
(0.05) |
|||||||
Special items, net of taxes |
1.9 |
0.04 |
4.0 |
0.08 |
|||||||
Adjustment for special tax items3 |
0.8 |
0.02 |
— |
— |
|||||||
Net income excluding special items |
$ |
49.6 |
$ |
1.08 |
$ |
46.4 |
$ |
0.94 |
|||
1 |
See footnote "2" 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 the third quarter of fiscal 2018 is based on the tax rate stipulated by the Tax Act. |
3 |
Amount primarily relates to deferred taxes pursuant to prior year tax return adjustments. |
Table 3: Reconciliation of Restaurant Operating Margin
Q3 18 and Q3 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 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 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.
Q3 18 |
Q3 17 |
|||||
Operating income - GAAP |
$ |
72.7 |
$ |
72.9 |
||
Operating income as a percent of total revenue |
8.9% |
9.0% |
||||
Operating income |
72.7 |
72.9 |
||||
Less: Franchise and other revenue |
(22.0) |
(20.0) |
||||
Plus: Depreciation and amortization |
37.6 |
39.3 |
||||
General and administrative |
36.6 |
35.9 |
||||
Other gains and charges |
2.8 |
6.6 |
||||
Restaurant operating margin - non-GAAP |
$ |
127.7 |
$ |
134.7 |
||
Restaurant operating margin as a percent of company sales |
16.1% |
17.0% |
||||
Table 4: Reconciliation of Free Cash Flow
Q3 18; $ millions
Thirty-Nine Week |
||
Cash flows provided by operating activities - GAAP |
$ |
237.7 |
Capital expenditures |
(69.5) |
|
Free cash flow - non-GAAP |
$ |
168.2 |
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=5269454
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 third quarter of fiscal 2018 filing on or before
May 7, 2018 ; and - Fourth quarter earnings release, before market opens,
Aug. 14, 2018 .
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 Period Ended |
Thirty-Nine Week Period Ended |
||||||||||||||
March 28, 2018 |
March 29, 2017 |
March 28, 2018 |
March 29, 2017 |
||||||||||||
Revenues: |
|||||||||||||||
Company sales |
$ |
790,495 |
$ |
790,624 |
$ |
2,250,125 |
$ |
2,276,743 |
|||||||
Franchise and other revenues1 |
22,039 |
20,017 |
68,199 |
63,433 |
|||||||||||
Total revenues |
812,534 |
810,641 |
2,318,324 |
2,340,176 |
|||||||||||
Operating costs and expenses: |
|||||||||||||||
Company restaurants (excluding depreciation and amortization) |
|||||||||||||||
Cost of sales |
207,328 |
201,903 |
587,808 |
587,742 |
|||||||||||
Restaurant labor |
265,367 |
261,632 |
766,858 |
760,894 |
|||||||||||
Restaurant expenses |
190,205 |
192,372 |
566,983 |
582,146 |
|||||||||||
Company restaurant expenses |
662,900 |
655,907 |
1,921,649 |
1,930,782 |
|||||||||||
Depreciation and amortization |
37,553 |
39,335 |
113,728 |
117,526 |
|||||||||||
General and administrative |
36,619 |
35,931 |
102,065 |
102,014 |
|||||||||||
Other gains and charges2 |
2,752 |
6,600 |
25,167 |
13,984 |
|||||||||||
Total operating costs and expenses |
739,824 |
737,773 |
2,162,609 |
2,164,306 |
|||||||||||
Operating income |
72,710 |
72,868 |
155,715 |
175,870 |
|||||||||||
Interest expense |
14,549 |
13,658 |
42,754 |
36,108 |
|||||||||||
Other, net |
(755) |
(402) |
(2,246) |
(1,084) |
|||||||||||
Income before provision for income taxes |
58,916 |
59,612 |
115,207 |
140,846 |
|||||||||||
Provision for income taxes |
12,000 |
17,243 |
33,048 |
40,607 |
|||||||||||
Net income |
$ |
46,916 |
$ |
42,369 |
$ |
82,159 |
$ |
100,239 |
|||||||
Basic net income per share |
$ |
1.03 |
$ |
0.87 |
$ |
1.76 |
$ |
1.96 |
|||||||
Diluted net income per share |
$ |
1.02 |
$ |
0.86 |
$ |
1.74 |
$ |
1.93 |
|||||||
Basic weighted average shares outstanding |
45,433 |
48,954 |
46,719 |
51,211 |
|||||||||||
Diluted weighted average shares outstanding |
45,973 |
49,506 |
47,195 |
51,854 |
|||||||||||
Other comprehensive income (loss): |
|||||||||||||||
Foreign currency translation adjustments3 |
$ |
(243) |
$ |
734 |
$ |
577 |
$ |
(1,411) |
|||||||
Other comprehensive income (loss) |
(243) |
734 |
577 |
(1,411) |
|||||||||||
Comprehensive income |
$ |
46,673 |
$ |
43,103 |
$ |
82,736 |
$ |
98,828 |
1 |
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. |
2 |
Other gains and charges include: |
Thirteen Week Period Ended |
Thirty-Nine Week Period Ended |
||||||||||||||
March 28, 2018 |
March 29, 2017 |
March 28, 2018 |
March 29, 2017 |
||||||||||||
Restaurant closure charges |
$ |
2,777 |
$ |
794 |
$ |
7,321 |
$ |
3,621 |
|||||||
Lease guarantee charges |
510 |
— |
1,943 |
— |
|||||||||||
Accelerated depreciation |
483 |
— |
1,449 |
— |
|||||||||||
Hurricane-related costs |
240 |
— |
5,460 |
— |
|||||||||||
Foreign currency transaction gain |
(948) |
— |
(66) |
— |
|||||||||||
Restaurant impairment charges |
— |
— |
9,133 |
1,851 |
|||||||||||
Gain on the sale of assets, net |
— |
(55) |
(303) |
(2,624) |
|||||||||||
Severance |
— |
5,929 |
— |
6,222 |
|||||||||||
Information technology restructuring |
— |
— |
— |
2,700 |
|||||||||||
Other |
(310) |
(68) |
230 |
2,214 |
|||||||||||
$ |
2,752 |
$ |
6,600 |
$ |
25,167 |
$ |
13,984 |
3 |
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) |
|||||||
March 28, 2018 |
June 28, 2017 |
||||||
ASSETS |
|||||||
Current assets |
$ |
144,019 |
$ |
144,325 |
|||
Net property and equipment1 |
943,865 |
1,000,614 |
|||||
Total other assets |
248,995 |
258,694 |
|||||
Total assets |
$ |
1,336,879 |
$ |
1,403,633 |
|||
LIABILITIES AND SHAREHOLDERS' DEFICIT |
|||||||
Current installments of long-term debt |
$ |
7,301 |
$ |
9,649 |
|||
Other current liabilities |
441,696 |
426,712 |
|||||
Long-term debt, less current installments |
1,361,705 |
1,319,829 |
|||||
Other liabilities |
134,719 |
141,124 |
|||||
Total shareholders' deficit |
(608,542) |
(493,681) |
|||||
Total liabilities and shareholders' deficit |
$ |
1,336,879 |
$ |
1,403,633 |
1 |
At March 28, 2018, 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 $90.4 million associated with these restaurants. |
BRINKER INTERNATIONAL, INC. |
|||||||
Condensed Consolidated Statements of Cash Flows |
|||||||
(In thousands) |
|||||||
(Unaudited) |
|||||||
Thirty-Nine Week Period Ended |
|||||||
March 28, 2018 |
March 29, 2017 |
||||||
Cash Flows from Operating Activities: |
|||||||
Net income |
$ |
82,159 |
$ |
100,239 |
|||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
113,728 |
117,526 |
|||||
Stock-based compensation |
11,037 |
13,237 |
|||||
Restructure charges and other impairments |
16,047 |
8,837 |
|||||
Net loss (gain) on disposal of assets |
1,360 |
(628) |
|||||
Changes in assets and liabilities |
13,371 |
6,452 |
|||||
Net cash provided by operating activities |
237,702 |
245,663 |
|||||
Cash Flows from Investing Activities: |
|||||||
Payments for property and equipment |
(69,503) |
(79,730) |
|||||
Proceeds from sale of assets |
14,825 |
3,077 |
|||||
Insurance recoveries |
1,747 |
— |
|||||
Proceeds from note receivable |
1,185 |
— |
|||||
Net cash used in investing activities |
(51,746) |
(76,653) |
|||||
Cash Flows from Financing Activities: |
|||||||
Borrowings on revolving credit facility |
524,000 |
200,000 |
|||||
Payments on revolving credit facility |
(484,000) |
(328,000) |
|||||
Purchases of treasury stock |
(162,004) |
(350,768) |
|||||
Payments of dividends |
(53,098) |
(54,087) |
|||||
Payments on long-term debt |
(7,834) |
(2,847) |
|||||
Proceeds from issuances of treasury stock |
1,316 |
4,505 |
|||||
Proceeds from issuance of long-term debt |
— |
350,000 |
|||||
Payments for debt issuance costs |
— |
(10,216) |
|||||
Net cash used in financing activities |
(181,620) |
(191,413) |
|||||
Net change in cash and cash equivalents |
4,336 |
(22,403) |
|||||
Cash and cash equivalents at beginning of period |
9,064 |
31,446 |
|||||
Cash and cash equivalents at end of period |
$ |
13,400 |
$ |
9,043 |
BRINKER INTERNATIONAL, INC. |
||||||||
Restaurant Summary |
||||||||
Third Quarter |
Total |
Projected |
||||||
Company-owned restaurants: |
||||||||
Chili's domestic |
1 |
940 |
5-6 |
|||||
Chili's international |
— |
5 |
— |
|||||
Maggiano's |
— |
52 |
1 |
|||||
Total company-owned |
1 |
997 |
6-7 |
|||||
Franchise restaurants: |
||||||||
Chili's domestic |
1 |
314 |
5 |
|||||
Chili's international |
8 |
375 |
36-39 |
|||||
Total franchise |
9 |
689 |
41-44 |
|||||
Total restaurants: |
||||||||
Chili's domestic |
2 |
1,254 |
10-11 |
|||||
Chili's international |
8 |
380 |
36-39 |
|||||
Maggiano's |
— |
52 |
1 |
|||||
Grand total |
10 |
1,686 |
47-51 |
View original content:http://www.prnewswire.com/news-releases/brinker-international-reports-third-quarter-results-300639771.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