Brinker International Reports Third Quarter Results
DALLAS, April 30, 2019 /PRNewswire/ -- Brinker International, Inc. (EAT) today announced results for the fiscal third quarter ended March 27, 2019.
Highlights include the following:
- Earnings per diluted share, on a GAAP basis, in the third quarter of fiscal 2019 increased 28.4% to $1.31 compared to $1.02 in the third quarter of fiscal 2018
- Earnings per diluted share, excluding special items, in the third quarter of fiscal 2019 increased 16.7% to $1.26 compared to $1.08 in the third quarter of fiscal 2018 (see non-GAAP reconciliation below)
- Brinker International's Company sales in the third quarter of fiscal 2019 increased 2.7% to $811.6 million compared to the third quarter of fiscal 2018. Total revenues in the third quarter of fiscal 2019 increased 3.3% to $839.3 million compared to the third quarter of fiscal 2018
- Chili's company-owned comparable restaurant sales increased 2.9% in the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018. Chili's U.S. franchise comparable restaurant sales increased 2.0% in the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018
- Maggiano's company-owned comparable restaurant sales increased 0.4% in the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018
- Chili's international franchise comparable restaurant sales decreased 3.9% in the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018
- Operating income, as a percent of Total revenues, was 8.4% in the third quarter of fiscal 2019 compared to 8.9% in the third quarter of fiscal 2018 representing a decrease of approximately 50 basis points
- Restaurant operating margin, as a percent of Company sales, was 14.3% in the third quarter of fiscal 2019 which included the impact of the sale leaseback transactions and adopting the new revenue accounting standard ("ASC 606"), compared to 16.1% in the third quarter of fiscal 2018 (see non-GAAP reconciliation below). Excluding the impact of the sale leaseback transactions and ASC 606, Restaurant operating margin would have been flat year-over-year
- Cash flows provided by operating activities in the thirty-nine week period ended March 27, 2019 was $150.6 million and capital expenditures totaled $128.0 million resulting in free cash flow of $22.6 million (see non-GAAP reconciliation below) which was reduced by $75.0 million in cash tax payments related to the gain on the sale leaseback transactions. Proceeds from sale leaseback transactions of $468.8 million are included in Cash flows provided by investing activities
- 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 27, 2019 to shareholders of record as of June 7, 2019
"Brinker posted strong comp sales growth and industry leading traffic again in the third quarter," said Wyman Roberts, CEO and President. "This marked our 5th consecutive quarter of significantly outperforming the category in traffic. Our focus continues to be on elevating our guest experiences and providing true every day value to increase the frequency and loyalty of our guests."
QUARTERLY OPERATING PERFORMANCE
Company Sales and Company Restaurant Expenses
Chili's Company sales in the third quarter of fiscal 2019 increased 3.0% to $709.8 million from $688.9 million in the third quarter of fiscal 2018 primarily due to an increase in comparable restaurant sales. As compared to the third quarter of fiscal 2018, Chili's restaurant operating margin(1) declined. Chili's Restaurant expenses, as a percent of Company sales, increased compared to the third quarter of fiscal 2018 primarily due to higher rent expense associated with the new operating leases entered into as part of the sale leaseback transactions and the impact of adopting ASC 606, partially offset by sales leverage. Cost of sales, as a percent of Company sales, increased compared to the third quarter of fiscal 2018 primarily due to unfavorable menu item mix and commodity pricing, partially offset by increased menu pricing. Restaurant labor, as a percent of Company sales, increased compared to the third quarter of fiscal 2018 due to higher wage rates and incentive compensation, partially offset by sales leverage and lower employee health insurance expenses.
Maggiano's Company sales in the third quarter of fiscal 2019 increased 0.2% to $101.8 million from $101.6 million in the third quarter of fiscal 2018 primarily due to an increase in comparable restaurant sales. As compared to the third quarter of fiscal 2018, Maggiano's restaurant operating margin(1) declined. This was primarily driven by Restaurant expenses, as a percent of Company sales, that increased compared to the third quarter of fiscal 2018, primarily due to higher rent and repairs and maintenance expenses. Cost of sales, as a percent of Company sales, also increased compared to the third quarter of fiscal 2018 primarily due to unfavorable menu item mix and commodity pricing, partially offset by increased menu pricing. This was partially offset by a decrease in Restaurant labor, as a percent of Company sales, primarily due to lower incentive compensation, partially offset by higher wages.
|
(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
Franchise and other revenues in the third quarter of fiscal 2019 increased 25.9% to $27.7 million from $22.0 million in the third quarter of fiscal 2018 primarily due to the adoption of ASC 606 during the first quarter of fiscal 2019. Please refer to "REVENUE RECOGNITION UPDATE" section below for more details on the new revenue standard. Brinker franchisees generated approximately $335.0 million in sales(2) in the third quarter of fiscal 2019.
|
(2) |
Royalty revenues are recognized based on the sales generated and reported to the Company by franchisees. |
Other
Depreciation and amortization expense in the third quarter of fiscal 2019 decreased $1.1 million compared to the third quarter of fiscal 2018 primarily due to an increase in fully depreciated assets, sale leaseback transactions and restaurant closures, partially offset by additions for existing restaurants primarily related to Chili's remodels and new restaurants.
General and administrative expense in the third quarter of fiscal 2019 increased $4.1 million compared to the third quarter of fiscal 2018 primarily due to higher incentive compensation and stock compensation expenses.
Income Taxes
On a GAAP basis, the effective income tax rate in the third quarter of fiscal 2019 decreased to 10.3% compared to 20.4% in the third quarter of fiscal 2018. The Tax Act lowered the federal statutory tax rate from 35.0% to 21.0% effective January 1, 2018. Additionally, our fiscal 2019 effective income tax rate is further lowered due to an increase in the FICA tax credit benefit, partially offset by the impact of sale leaseback transactions.
Guidance Policy
Brinker provides annual guidance as it relates to comparable restaurant sales, earnings per diluted share, excluding special items, 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.
COMPARABLE RESTAURANT SALES
The table below presents the percent change in company-owned and franchise comparable restaurant sales in the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018, and the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017:
|
Comparable Sales (1) |
Price Impact |
Mix-Shift (2) |
Traffic |
||||||||||||||||||||
|
Q3: 19 vs 18 |
Q3: 18 vs 17 |
Q3: 19 vs 18 |
Q3: 18 vs 17 |
Q3: 19 vs 18 |
Q3: 18 vs 17 |
Q3: 19 vs 18 |
Q3: 18 vs 17 |
||||||||||||||||
|
Company-owned |
2.6 |
% |
(0.3) |
% |
1.5 |
% |
1.2 |
% |
(1.7) |
% |
0.6 |
% |
2.8 |
% |
(2.1) |
% |
|||||||
|
Chili's |
2.9 |
% |
(0.4) |
% |
1.6 |
% |
1.1 |
% |
(1.7) |
% |
0.6 |
% |
3.0 |
% |
(2.1) |
% |
|||||||
|
Maggiano's |
0.4 |
% |
0.5 |
% |
0.8 |
% |
1.3 |
% |
(0.4) |
% |
0.6 |
% |
0.0 |
% |
(1.4) |
% |
|||||||
|
Chili's franchise (3) (4) |
(0.2) |
% |
(2.2) |
% |
|||||||||||||||||||
|
U.S. (4) |
2.0 |
% |
(3.3) |
% |
|||||||||||||||||||
|
International |
(3.9) |
% |
(0.2) |
% |
|||||||||||||||||||
|
Chili's domestic (5) |
2.7 |
% |
(1.1) |
% |
|||||||||||||||||||
|
System-wide (6) |
1.8 |
% |
(0.8) |
% |
|||||||||||||||||||
|
(1) |
Comparable restaurant sales include all restaurants that have been in operation for more than 18 months. Amounts are calculated based on comparable current period versus same period a year ago. |
|
(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) |
Chili's franchise sales generated by franchisees are not included in revenues in the Consolidated Statements of Comprehensive Income; however, we generate royalty revenues 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 franchise comparable sales in the U.S. for the Q3: 18 vs 17 period were restated due to a change in franchise reported sales. Chili's domestic and System-wide comparable sales were not affected by this restatement. |
|
(5) |
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. |
|
(6) |
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
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 and Earnings Per Share Excluding Special Items
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. The following reconciliation is presented in millions, except per share amounts.
|
Q3 19 |
EPS Q3 19 |
Q3 18 |
EPS Q3 18 |
||||||||||||
|
Net income |
$ |
49.8 |
$ |
1.31 |
$ |
46.9 |
$ |
1.02 |
|||||||
|
Special items (1) |
(2.5) |
(0.07) |
2.7 |
0.06 |
|||||||||||
|
Income tax effect related to special items (2) |
0.6 |
0.02 |
(0.8) |
(0.02) |
|||||||||||
|
Special items, net of taxes |
(1.9) |
(0.05) |
1.9 |
0.04 |
|||||||||||
|
Adjustment for special tax items (3) |
— |
— |
0.8 |
0.02 |
|||||||||||
|
Net income excluding special items |
$ |
47. | |||||||||||||