Brinker International, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months of fiscal 2022, ended December 29, 2021; comparisons are with periods ended December 23, 2020. Brinker operates Chili’s, Maggiano’s and virtual brands. It reported 1,653 restaurants, including 1,182 company-owned and 471 franchised locations.
Key financial results
| Metric | 13 weeks ended Dec. 29, 2021 | Prior-year quarter | 26 weeks ended Dec. 29, 2021 | Prior-year six months |
|---|---|---|---|---|
| Total revenue | $925.8 million | $760.7 million | $1,802.2 million | $1,500.8 million |
| Operating income | $39.8 million | $22.1 million | $65.4 million | $46.5 million |
| Net income | $27.6 million | $12.0 million | $40.8 million | $22.7 million |
| Diluted EPS | $0.60 | $0.26 | $0.88 | $0.49 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $107.4 million | $130.0 million |
Quarterly revenue rose about 22% and net income more than doubled year over year. Operating margin was approximately 4.3% versus 2.9%; net margin was approximately 3.0% versus 1.6%. First-half company-owned comparable sales increased 17.4%; system-wide comparable sales increased 17.7%. Maggiano’s comparable sales rose 71.0%, while Chili’s company-owned comparable sales rose 12.7%.
- For the quarter, food and beverage costs were 27.9% of company sales, up 1.2 percentage points year over year; restaurant labor was 34.9%, up 0.6 points. Restaurant expenses improved to 26.2% from 28.3%, mainly due to sales leverage.
- For the first half, cash from operations declined $22.6 million, principally reflecting repayment of $27.2 million in deferred payroll taxes and higher incentive compensation payments, partly offset by improved operating performance.
- Cash and cash equivalents were $15.6 million at period-end, down from $23.9 million at June 30, 2021. Net cash used in investing was $158.1 million, including $104.5 million for restaurant acquisitions and $74.1 million of capital expenditures.
- Debt and finance leases, net of issuance costs and discounts, totaled $1,071.2 million, compared with $939.4 million at June 30. The company had $303.8 million drawn on its revolver and $496.2 million of remaining availability. Total operating lease liabilities were approximately $1.20 billion.
Material changes and notable items
- Brinker acquired 60 previously franchised Chili’s restaurants in the first half for approximately $104 million in cash consideration. The acquired restaurants contributed to revenue growth; purchase-price allocations remained preliminary.
- The company revised its revolving credit facility from $1.0 billion to $800 million, extending maturity to August 18, 2026. It reported covenant compliance and expected to remain compliant for the rest of fiscal 2022.
- The board reinstated share repurchases in August 2021. Brinker repurchased 1.6 million shares for $74.7 million in the first half, with approximately $230 million remaining under authorization at December 29. The quarterly cash dividend remained suspended; reported dividend payments related to previously accrued restricted-share dividends.
- Other gains and charges totaled $6.4 million for the quarter and $10.9 million for the first half. First-half items included $2.9 million of lease-contingency charges, $3.1 million of remodel costs and $0.9 million of acquisition-related costs, partly offset by COVID-related credits.
Outlook, risks and contingencies
Brinker provided no specific revenue or earnings guidance in the supplied filing text. It projected 17–20 fiscal 2022 restaurant openings: four company-owned and 13–16 franchised. Management said operating cash flow and available revolver capacity were expected to be adequate for operations and obligations due within the next year.
Management cited elevated employee turnover, labor availability, wage increases, commodity inflation and supply-chain constraints. It warned that COVID-19 developments, variants, changing restrictions, staffing and supply disruptions could adversely affect sales and operations. The company reported $31.9 million of maximum potential exposure under lease guarantees and recorded $4.0 million for estimated exposure to lease defaults. A cybersecurity-related putative class action sought damages exceeding $5 million; Brinker said the loss or range of loss was not determinable and had not accrued a liability.
Important facts for investors to verify
- How much sales and profit growth came from reopening and comparable-sales recovery versus the 60 acquired restaurants and other changes in restaurant capacity.
- Whether food, labor and other operating-cost inflation continues to pressure restaurant-level margins, and whether pricing can offset it.
- The cash-flow impact of acquisitions, remodel spending, share repurchases and the remaining deferred payroll-tax payment due December 31, 2022.
- Debt, lease obligations, revolver availability and covenant headroom as borrowing needs and operating conditions evolve.
- Developments in the lease-guarantee defaults and cybersecurity litigation, for which the ultimate exposure may differ from current estimates.