Business context and reporting period
Brinker International, Inc. operates and franchises Chili’s and Maggiano’s. This Form 10-Q covers the 13 weeks ended March 29, 2023 (fiscal 2023 third quarter) and the 39 weeks ended that date, compared with the corresponding prior-year periods. At quarter-end, Brinker had 1,184 company-owned and 470 franchised restaurants.
Financial performance and liquidity
| Metric | 13 weeks ended Mar. 29, 2023 | Prior-year period | 39 weeks ended Mar. 29, 2023 | Prior-year period |
|---|---|---|---|---|
| Total revenue | $1,083.2 million | $980.4 million | $3,057.7 million | $2,782.6 million |
| Operating income | $64.2 million | $49.4 million | $85.1 million | $114.8 million |
| Net income | $50.7 million | $36.6 million | $48.4 million | $77.4 million |
| Diluted EPS | $1.12 | $0.81 | $1.08 | $1.68 |
- Quarterly revenue grew about 10.5% and operating income about 30%; calculated operating margin was approximately 5.9%, versus 5.0% a year earlier. Year-to-date revenue rose about 9.9%, but operating income fell about 25.9%; calculated operating margin was approximately 2.8%, versus 4.1%.
- Quarterly comparable sales rose 10.8% at company-owned restaurants: Chili’s increased 9.6% and Maggiano’s 21.6%. Company-owned traffic declined 4.1% overall, including a 5.8% decline at Chili’s; Maggiano’s traffic increased 9.5%. Pricing and favorable mix contributed to sales growth.
- Year-to-date net cash provided by operations was $200.8 million, compared with $211.6 million. Capital expenditures were $136.6 million, up from $109.0 million; operating cash flow less capital expenditures was approximately $64.2 million, versus $102.6 million.
- Cash was $13.8 million at March 29, 2023. Debt and finance lease obligations totaled $944.9 million before unamortized issuance costs and current installments, including $221.3 million outstanding on the revolver. Revolver availability was $578.7 million under the then-$800 million facility. Current assets were $213.4 million and current liabilities $585.7 million.
- Food and beverage costs were 28.6% of company sales year to date, up from 27.5%; restaurant labor improved to 33.9% from 34.5%, while restaurant expenses worsened to 27.0% from 25.9%.
Material changes, outlook, risks and unusual items
- Quarterly earnings improved, while year-to-date operating income and net income declined despite higher revenue. The filing attributes cost pressure to food commodity inflation, wages, repairs and maintenance, utilities, advertising and other restaurant expenses. Increased menu pricing and sales leverage partly offset those pressures. Year-to-date net income also reflects a $2.4 million income tax benefit, compared with a $3.8 million tax provision in the prior-year period.
- Year-to-date revenue included $50.9 million from Chili’s restaurants acquired in fiscal 2022. Brinker reported restaurant closure, severance, enterprise-system, lease-contingency and other charges; total “other (gains) and charges” were $19.8 million for the 39 weeks, versus $17.0 million.
- Management said operating cash flow and available credit should be adequate for operations and repayment of current debt obligations within the next year. The $300 million 3.875% notes matured May 15, 2023; management expected to refinance them using the revolver. On May 2, after quarter-end, Brinker amended the facility to increase capacity to $900 million and transition the benchmark from LIBOR to SOFR. The company reported covenant compliance at quarter-end.
- Fiscal 2023 projected openings were 14 company-owned and 17–21 franchised restaurants. Brinker planned to discontinue the Maggiano’s Italian Classics virtual brand by fiscal year-end. No specific earnings or revenue guidance is stated in the supplied filing text.
- Key risks include inflation in food and labor, supply disruption, staffing challenges, weaker consumer spending or traffic, interest-rate exposure and reliance on third-party delivery and technology. A one-percentage-point increase in variable borrowing rates was estimated to add $2.2 million to annual interest expense.
- Lease guarantees or secondary liability totaled an estimated $19.7 million maximum potential rent exposure; $2.5 million was accrued for estimated exposure to defaults. A payment-card data class action remained pending, with the possible loss not determinable and no liability recorded. Undrawn standby letters of credit were $5.8 million.
Important facts for investors to verify
- How comparable-sales growth, particularly Chili’s traffic trends, and menu pricing evolve as inflation and consumer demand change.
- Whether food, labor and restaurant expense rates improve, and whether operating cash flow can sustain planned capital expenditures.
- Completion and cost of refinancing the 3.875% notes, use of the expanded credit facility, and ongoing covenant compliance.
- Actual restaurant openings and the planned discontinuation of Maggiano’s Italian Classics.
- Developments in lease-guarantee defaults and the payment-card litigation, whose potential loss was not quantifiable in this filing.