Brinker International, Inc. — Form 10-Q Summary
Reporting period: Second quarter of fiscal 2024, the 13 weeks ended December 27, 2023; year-to-date figures cover 26 weeks. Comparisons are with periods ended December 28, 2022. Dollar amounts are in millions unless stated otherwise.
Business context
Brinker operates and franchises Chili’s and Maggiano’s. At quarter-end, it had 1,658 restaurants: 1,184 company-owned and 474 franchised. The company describes inflation in wages and food costs, along with broader macroeconomic conditions, as factors affecting operations.
Financial performance
| Metric | 13 weeks ended Dec. 27, 2023 | 13 weeks ended Dec. 28, 2022 | 26 weeks ended Dec. 27, 2023 | 26 weeks ended Dec. 28, 2022 |
|---|---|---|---|---|
| Total revenue | $1,074.1 | $1,019.0 | $2,086.6 | $1,974.5 |
| Operating income | $62.4 | $40.7 | $86.6 | $20.9 |
| Net income (loss) | $42.1 | $27.9 | $49.3 | $(2.3) |
| Diluted EPS | $0.94 | $0.62 | $1.09 | $(0.05) |
| Operating margin | 5.8% | 4.0% | 4.1% | 1.1% |
Quarterly revenue increased 5.4%; year-to-date revenue increased 5.7%. Company-owned comparable restaurant sales rose 5.2% for the quarter and 5.5% year to date. System-wide comparable sales increased 4.4% and 4.9%, respectively. Management attributed sales growth principally to menu pricing; traffic was down 1.1% for company-owned restaurants in the quarter and 3.5% year to date.
For the 26-week period, food and beverage costs improved to 25.8% of company sales from 29.6%, reflecting pricing, mix and lower commodity costs. Labor was 34.1% of sales versus 34.0%, while restaurant expenses increased to 28.3% from 27.5%, including higher advertising and repair costs. General and administrative expense rose to $85.6 from $75.1. Other gains and charges declined to $9.6 from $13.5.
Cash flow, debt and liquidity
Year-to-date cash from operations was $150.3, compared with $68.0; capital expenditures were $89.5 versus $95.3. Investing activities used $86.8, and financing activities used $55.9. Cash increased to $22.7 at December 27, 2023, from $15.1 at June 28, 2023.
Long-term debt and finance leases, net of issuance costs and current installments, totaled $882.4; the balance sheet separately reported $10.6 of current finance lease installments. Debt included $136.3 outstanding on the revolving facility, $350.0 of 5.000% notes, $350.0 of 8.250% notes and finance lease obligations. Revolver availability was $763.7, and its interest rate was 7.21%. The company was in compliance with debt covenants.
The 5.000% notes mature in October 2024. Management intends to refinance them through the existing revolver. Management believes cash, operating cash flow and available revolver capacity will cover capital expenditure and working-capital needs for at least the next 12 months.
Outlook, commentary and risks
- No specific earnings or revenue guidance is provided. Fiscal 2024 projected openings are 29–35 restaurants: 10 company-owned and 19–25 franchised.
- Management cited pricing and favorable food costs as supports to food-cost margins, while wage rates, staffing, advertising and repairs pressured expenses. The company said it will adjust capital allocation, including repurchases, as macroeconomic conditions evolve.
- The company repurchased 0.8 million shares for $25.1 year to date, including $21.0 under its authorized program; approximately $183.0 remained authorized at quarter-end.
- Interest-rate exposure is material: the filing estimates a 10% increase in the current rate on revolver borrowings would add $1.0 of interest expense during fiscal 2024. Commodity volatility, labor inflation, supply disruptions and weaker consumer demand are identified risks.
- A putative class action concerning a 2018 payment-card malware incident seeks damages exceeding $5.0 million, among other relief. The company petitioned the U.S. Supreme Court for review and has not recorded a liability because the loss or range of loss is not determinable.
- Lease guarantees and secondary liabilities for divested restaurants had an estimated maximum known exposure of $13.5. The filing also reports $5.8 of undrawn standby letters of credit.
- The six-month effective tax rate was 7.0%, compared with 50.0% in the prior-year period; management attributed the change primarily to the FICA tip tax credit’s effect relative to higher pretax income.
Investor verification priorities
- Whether sales gains can be sustained if traffic remains negative and pricing contributes less to comparable-sales growth.
- Progress and financing terms for the planned October 2024 refinancing, and sensitivity to elevated interest rates.
- Whether labor, advertising and other restaurant-cost pressures offset continued food-cost and sales leverage benefits.
- Developments in the payment-card litigation and potential exposure under lease guarantees.
- Actual restaurant openings, capital spending and share repurchases relative to management’s stated plans and liquidity needs.