Brinker International Reports Fourth Quarter Fiscal 2010 EPS



DALLAS  (RestaurantNewsRelease.com)  Brinker International, Inc. (NYSE: EAT) announced fourth quarter fiscal 2010 earnings per diluted share from continuing operations of $0.44 compared to $0.45 in the fourth quarter of fiscal 2009, before special items.  For the full-year fiscal 2010, earnings per diluted share from continuing operations was $1.18 compared to $1.28 in the prior year, before special items and excluding Macaroni Grill.  In 2010, the fourth quarter and fiscal year included an additional operating week compared to fiscal 2009.  (Reconciliations to GAAP earnings per diluted share amounts are included in Tables 3 and 4.)    

On a GAAP basis, earnings per diluted share increased to $0.62 for the fourth quarter compared to $0.41 in the prior year.  For the full-year fiscal 2010, earnings per diluted share increased to $1.34 from $0.77 in the prior year.

On June 30, 2010, the company completed the sale of On The Border Mexican Grill & Cantina® to OTB Acquisition LLC, an affiliate of Golden Gate Capital, for gross proceeds of approximately $180 million and recognized a gain of approximately $16.5 million. Therefore, the results of On The Border are presented as discontinued operations.  All amounts presented below relate to continuing operations unless otherwise stated.

Quarterly Revenues

Brinker reported fourth quarter revenues of $743.1 million compared to $742.1 million in the prior year (14-weeks vs. 13-weeks).  The company experienced a 3.4 percent decrease in comparable restaurant sales (see Table 1) in the fourth quarter of fiscal 2010.  Revenues were positively affected by a net increase in capacity of 3.0 percent due to the impact of the 53rd week in fiscal 2010, partially offset by the sale of 21 restaurants to a franchisee and 11 restaurant closures since the fourth quarter of fiscal 2009.  Royalty and franchise revenues were $16.7 million for the quarter.  

Table 1: Q4 comparable restaurant sales(1, 2)
Q4 10 and Q4 09, company and two reported brands; percentage
 
Q4 10
Comparable
Sales
Q4 09
Comparable
Sales
Q4 10
Pricing
Impact
Q4 10
Mix-Shift
 
Brinker International (3) (3.4) (9.4) 1.2 0.9  
 Chili’s (4.1) (9.4) 1.4 1.0  
 Maggiano’s 1.3 (9.2) 0.2 0.2  
(1)   Amounts are calculated based on comparable 13 weeks in each fiscal quarter.
(2)   Brinker International comparable restaurant sales by period are provided on the company’s website.
(3)   Brinker International comparable restaurant sales exclude the impact of On The Border.
 
         
Table 2: FY comparable restaurant sales(1, 2)
FY 10 and FY 09, company and two reported brands; percentage
 
FY 10
Comparable
Sales
FY 09
Comparable
Sales
FY 10
Pricing
Impact
FY 10
Mix-Shift
 
Brinker International (3) (4.2) (5.8) 1.3 (1.2)  
 Chili’s (4.6) (5.6) 1.5 (1.2)  
 Maggiano’s (1.2) (7.3) 0.5 (1.2)  
(1)   Amounts are calculated based on comparable 52 weeks in each fiscal year.
(2)   Brinker International comparable restaurant sales by period are provided on the company’s website.
(3)   Brinker International comparable restaurant sales exclude the impact of On The Border and Macaroni Grill.
 
         

Quarterly Operating Performance

Cost of sales, as a percent of revenues, increased to 27.7 percent in the fourth quarter of fiscal 2010 as compared to 27.4 percent in the prior year. During the quarter, cost of sales was negatively impacted by promotions and the menu changes at Chili’s, partially offset by favorable commodity prices primarily related to beef and chicken, and favorable menu price changes.

Restaurant expenses, as a percent of revenues, remained relatively flat at 54.0 percent as compared to 54.1 percent in the prior year primarily due to leverage of fixed costs created from the additional operating week and lower advertising expenses.  In the prior year, restaurant expenses was favorably impacted by approximately 125 basis points due to lower insurance, property tax and utility expenses.

Depreciation and amortization decreased $3.4 million compared to the prior year due to fully depreciated assets and restaurant closures, partially offset by investments in existing restaurants.  

General and administrative expense was essentially flat for the quarter.

Other gains and charges primarily includes $4.6 million of long-lived asset impairment charges related to underperforming restaurants, partially offset by a gain on the sale of land of $1.3 million.

Interest expense increased $2.4 million for the quarter primarily due to the termination of the company’s existing revolving credit facility which resulted in a $1.7 million impact due to expensing the remaining capitalized financing fees associated with the facility.  Additionally, interest expense was favorably impacted in the fourth quarter of the prior year due to a gain of $1.3 million related to the repurchase of a portion of the 5.75 percent notes.

Other, net decreased $5.8 million primarily due to insurance proceeds of $5.5 million received in the fourth quarter of the prior year.

The effective income tax rate for continuing operations increased to 23.7 percent in the current quarter as compared to 13.8 percent in the same quarter last year primarily due to the decrease in other gains and charges.  Excluding the impact of special items, the effective income tax rate from continuing operations remained essentially flat at 24.3 percent in the current quarter as compared to 24.0 percent in the same quarter last year.

Income from discontinued operations, net of taxes, increased to $20.5 million from $5.1 million in the same quarter in the prior year primarily due to a gain on the sale of On The Border.

Special Items  

Table 3: Reconciliation of income from continuing operations, before special items (1)
Q4 10 and Q4 09; $ millions and $ per diluted share after-tax

 
Item Q4 10 EPS
Q4 10
Q4 09 EPS
Q4 09
 
Income from Continuing Operations 43.1 0.42 37.1 0.36  
 Other (Gains) and Charges 2.1 0.02 14.4 0.14  
 Other, Net – Insurance Proceeds (5.5) (0.05)  
Income from Continuing Operations before    

 Special Items      

45.2 0.44 46.0 0.45  
(1) The company 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.    
 
         
Table 4: Reconciliation of income from continuing operations, before special items (1)
FY 10 and FY 09; $ millions and $ per diluted share after-tax
 
Item FY 10 EPS
FY 10
FY 09 EPS
FY 09
 
Income from Continuing Operations 103.7 1.01 72.1 0.70  
 Other (Gains) and Charges 18.0 0.17 74.5 0.73  
 Other, Net – Insurance Proceeds (5.5) (0.05)  
 Macaroni Grill before Special Items (10.1) (0.10)  
Income from Continuing Operations before

 Special Items and Macaroni Grill

121.7 1.18 131.0 1.28  
(1) The company believes excluding special items and Macaroni Grill 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.    
   
         

Cash Flow and Capital Allocation

Cash flow from continuing operations for the fiscal year 2010 increased to $297.4 million compared to $234.0 million in the prior year primarily due to the tax impact of the Macaroni Grill sale and timing differences related to operational payments, partially offset by lower earnings.   Capital expenditures totaled $60.9 million, a reduction of $32.7 million compared to the prior year, resulting from a decrease in new company-owned restaurant development.  During the fourth quarter, the company entered into a $400 million unsecured, senior credit facility consisting of a $200 million revolver and a $200 million term loan.  The remaining balance on the previous term loan which was classified as a current liability as of the end of the third quarter was extinguished.  Long-term debt was reduced by $190 million for the fiscal year resulting in an ending debt balance of $541.4 million on June 30.   During the fourth quarter, the company repurchased 1.0 million shares of its common stock for approximately $20.0 million.

Fiscal 2011 Outlook

The company anticipates earnings per diluted share from continuing operations, before special items, to increase between 10 and 20 percent compared to fiscal 2010  (an increase of 20 to 30 percent excluding the 53rd week in fiscal 2010).  Earnings are based on the following expectations:

  • Full-year comparable restaurant sales will be flat to a decrease of 2 percent with expectations of the first half being more challenging as we lap heavier promotional activities last year;
  • Revenue is projected to decrease 2 percent to 4 percent (flat to a decrease of 2 percent excluding the 53rd week in fiscal 2010);
  • Operating income will increase 70 to 100 basis points;
  • The effective income tax rate will be 27 to 28 percent; and
  • Diluted weighted average shares outstanding will be 90 to 94 million.

 

Table 5: Reconciliation of diluted earnings per share excluding the 53rd week (1)
FY 10 and FY 11; $ per diluted share after-tax
 
FY 10 FY 11  
Earnings per Diluted Share 1.18 1.30 to 1.42 (+10% to 20%)  
 53rd Week (0.09)  
Earnings per Diluted Share excluding the

 53rd Week

1.09 1.30 to 1.42 (+20% to 30%)  
(1) All diluted earnings per share amounts are from continuing operations, excluding special items.  
     

The company believes that providing fiscal 2011 earnings per diluted share guidance, excluding special charges and the 53rd week, 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, and other key line items in the income statement and will only provide updates if there is a material change versus the original guidance.  Consistent with prior practice, management will not discuss intra-period sales or other key operating results not yet reported as the limited data may not accurately reflect the final results of the period or quarter referenced.

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 be broadcast live on the Brinker website (www.brinker.com) at 9 a.m. CDT today (Aug. 12). 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 the Brinker website until the end of the day Sept. 9, 2010.  

Additional financial information, including statements of income which detail our results excluding On The Border and special items and debt covenant information, is also available on the Brinker website under the Financial Information section of the Investor tab.

Forward Calendar

  • SEC Form 10-K for fiscal year 2010 filing on or before August 30, 2010; and
  • First quarter earnings release, before market opens, October 26, 2010.

 

Brinker International, Inc. is one of the world’s leading casual dining restaurant companies.  Founded in 1975 and based in Dallas, Texas, Brinker currently owns, operates, or franchises 1,550 restaurants under the names Chili’s® Grill & Bar (1,505 restaurants) and Maggiano’s Little Italy® (45 restaurants). Brinker also holds a minority investment in Romano’s Macaroni Grill®.

The statements contained in this release that are not historical facts are forward-looking statements. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business and economic conditions, financial and credit market conditions, credit availability, 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, adverse weather conditions, future commodity prices, product availability, fuel and utility costs and availability, terrorists 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, acts of God, governmental regulations and inflation.    

Contacts: Stacey Sullivan, Media Relations Marie Perry, Investor Relations  
(800) 775-7290 (972) 770-1276  
   
 
BRINKER INTERNATIONAL, INC.  
Consolidated Statements of Income  
(In thousands, except per share amounts)  
(Unaudited)  
 
Fourteen Week
Period Ended
Thirteen Week
 Period Ended
Fifty-Three Week
Period Ended
Fifty-Two Week
Period Ended
 
June 30, June 24, June 30, June 24,  
2010 2009 2010 2009  
 
 
Revenues $ 743,060 $ 742,108 $  2,858,498 $ 3,276,362  
Operating Costs and Expenses:  
   Cost of sales 205,563 203,549 816,015 923,668  
   Restaurant expenses 401,434 401,294 1,587,396 1,838,735  
   Depreciation and amortization 32,860 36,243 135,832 145,220  
   General and administrative 36,735 36,306 136,270 147,372  
        Other gains and charges (a) 3,185 23,054 28,485 118,612  
     Total operating costs and expenses 679,777 700,446 2,703,998 3,173,607  
 
Operating income 63,283 41,662 154,500 102,755  
 
Interest expense 8,257 5,886 28,515 33,330  
Other, net (1,478) (7,229) (6,001) (9,430)  
 
Income before tax expense 56,504 43,005 131,986 78,855  
 
Income tax expense 13,405 5,953 28,264 6,734  
 
Income from continuing operations 43,099 37,052 103,722 72,121  
 
Income from discontinued  operations,
 net of taxes (b)
20,516 5,094 33,982 7,045  
 
 Net income $  63,615 $  42,146 $  137,704 $ 79,166  
 
 
 Basic net income per share:  
Income from continuing operations $  0.42 $  0.36 $  1.02 $  0.71  
Income from discontinued operations $  0.20 $  0.05 $  0.33 $  0.07  
Net income per share $  0.62 $  0.41 $  1.35 $  0.78  
 
 
 Diluted net income per share:  
Income from continuing operations $  0.42 $  0.36 $  1.01 $  0.70  
Income from discontinued operations $  0.20 $  0.05 $  0.33 $  0.07  
Net income per share $  0.62 $  0.41 $  1.34 $  0.77  
 
 
 
Basic weighted average  
     shares outstanding 101,934 102,051 102,287 101,852  
 
Diluted weighted average  
  shares outstanding 102,791 103,054 103,044 102,713  
 
         
a)  Current year other gains and charges primarily includes $4.6 million of long-lived asset impairment charges related to underperforming restaurants, partially offset by gain on the sale of land of $1.3 million.  During the first nine months of fiscal 2010, other gains and charges primarily included long-lived asset impairments of $20.6 million related to the closure and impairment of certain underperforming restaurants, $6.4 million of lease termination charges and severance costs of $1.9 million, partially offset by a $2.8 million gain on the sale of 21 restaurants to a franchisee.  

Prior year other gains and charges primarily includes $15.4 million of long-lived asset and goodwill impairment charges related to the decision to close eight restaurants and $10.5 million of long-lived asset impairment charges related to 16 underperforming restaurants.  In the first nine months of fiscal 2009, other gains and charges consisted primarily of a loss on the sale of Macaroni Grill of $43.3 million, long-lived asset impairments of $35.2 million related to the decision to close certain underperforming restaurants, lease termination charges of $10.6 million and severance costs of $4.9 million.
b)  Income from discontinued operations, net of taxes, includes current year other (gains) and charges of ($10.1) million of a recognized gain on the sale of On The Border. During the first nine months of fiscal 2010, other gains and charges from discontinued operations was primarily due to charges related to the closure and impairment of certain underperforming restaurants of $0.9 million.

For the prior year, income from discontinued operations, net of taxes, includes other gains and charges of $2.4 million of impairment of certain underperforming restaurants. For the first nine months of fiscal 2009, other gains and charges from discontinued operations was primarily due to charges related to the closure of $5.7 million and impairment of certain underperforming restaurants of $1.7 million.

 
 
 
BRINKER INTERNATIONAL, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands)  
 
June 30, June 24,  
2010 2009  
(Unaudited)  
ASSETS  
 Current assets of continuing operations $   501,067 $   359,181  
 Assets held for sale 170,133  
 Net property and equipment (a) 1,129,077 1,247,780  
 Total other assets 221,960 171,853  
 Total assets $ 1,852,104 $ 1,948,947  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
 Current installments of long-term debt $    16,866 $     1,815  
 Current liabilities of continuing operations 433,011 406,889  
 Liabilities associated with assets held for sale 9,798  
 Long-term debt, less current installments 524,511 727,447  
 Other liabilities 148,968 156,074  
 Total shareholders’ equity 728,748 646,924  
 Total liabilities and shareholders’ equity $ 1,852,104 $ 1,948,947  
(a) At June 30, 2010, the company owned the land and buildings for 189 of the 871 company-owned  
restaurants, excluding On The Border. The net book values of the land and buildings associated with  
these restaurants totaled $145.0 million and $141.3 million, respectively.  
     
 
BRINKER INTERNATIONAL, INC.  
RESTAURANT SUMMARY  
 
Total
Restaurants
Fourth Quarter
Openings/Acquisitions
Fourth Quarter
Closings/Sales
Total
Restaurants
Projected
Openings
 
March 24, 2010 Fiscal 2010 Fiscal 2010 June 30, 2010 Fiscal 2011  
 
Company-Owned

Restaurants:

 
   Chili’s 827 827  
   Maggiano’s 44 44  
871 871  
 
Franchise

Restaurants:

 
 Chili’s 466 466 10-13  
 International(a) 207 6 213 45-50  
673 6 679 55-63  
 
Total Restaurants:  
 Chili’s 1,293 1,293 10-13  
 Maggiano’s 44 44  
 International 207 6 213 45-50  
1,544 6 1.550 55-63  
 
(a) At June 30, 2010, international franchise restaurants by brand were 212 Chili’s and one Maggiano’s location.