Business context and reporting period
Period clarification: The supplied filing is Brinker International’s Form 10-K for the fiscal year ended June 30, 2021—not a 2020 Q4 filing. Fiscal 2021 had 53 weeks versus 52 weeks in fiscal 2020. Brinker owns and operates Chili’s and Maggiano’s, franchises both brands, and operates virtual brands including It’s Just Wings.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $3,337.8 | $3,078.5 |
| Operating income | $199.3 | $62.6 |
| Operating margin | 6.0% | 2.0% |
| Net income | $131.6 | $24.4 |
| Net margin | 3.9% | 0.8% |
| Diluted EPS | $2.83 | $0.63 |
| Operating cash flow | $369.7 | $245.0 |
| Capital expenditures | $94.0 | $104.5 |
- Revenue rose 8.4%; the extra fiscal week contributed $69.4 million. Company sales were $3,279.0 million and franchise and other revenues were $58.8 million.
- Chili’s comparable sales increased 8.3%, while Maggiano’s declined 19.8%. Company-owned comparable sales increased 5.1%; franchise Chili’s comparable sales increased 12.5%.
- Off-premise sales represented 42.2% of company sales, compared with 26.4% in FY2020. Chili’s off-premise business had grown 273% since FY2019.
- Food and beverage costs were 26.4% of company sales, restaurant labor 33.8%, and restaurant expenses 26.2%. Reported cost ratios improved year over year, though delivery fees and supplies increased with off-premise sales.
- Cash and cash equivalents were $23.9 million at year-end. Debt excluding finance leases totaled $821.3 million: $171.3 million drawn on the revolver and $650.0 million of notes. The company reported $828.7 million available under its then-existing revolver. Finance lease obligations were $121.3 million; operating lease liabilities were $1,104.4 million.
Changes, outlook, risks and unusual items
- Results improved from the pandemic-affected prior year, when dining rooms were closed or capacity-restricted. At June 30, 2021, all company-owned dining rooms or patios were open at least at limited capacity. The additional week and the prior-period acquisition of 116 Chili’s restaurants affect comparability.
- Operating cash flow benefited partly from deferring $54.5 million of employer payroll taxes under the CARES Act; repayment is due in equal installments on December 31, 2021 and December 31, 2022.
- Management said available capital and expected operating cash flows were adequate to fund operations and near-term debt obligations. The filing provides no specific financial guidance. Fiscal 2022 projected openings were 7 company-owned Chili’s and 8–14 franchise restaurants, subject to change.
- After year-end, Brinker replaced its revolver with an $800 million facility maturing August 18, 2026; $211.3 million was drawn on August 18, 2021. The board also reinstated share repurchases with $300 million of authority. The quarterly dividend remained suspended; reinstatement is at the board’s discretion.
- Other gains and charges were $19.0 million, including $3.0 million of restaurant impairment charges, $3.3 million of COVID-related costs, $2.9 million of natural-disaster losses, and $2.2 million of lease-contingency losses. No goodwill impairment was identified.
- Key risks include continuing COVID-19 disruption, labor availability and wage inflation, food and commodity costs, competition, reliance on third-party delivery platforms, cybersecurity, and potential liquidity or refinancing effects of debt and interest-rate changes.
- A class was certified in litigation relating to a 2018 payment-card data incident. Brinker said the loss range was not determinable and recorded no liability for that litigation. Separately, it disclosed $29.2 million of lease guarantees or secondary liabilities and recorded a $1.5 million contingent-loss accrual related to certain leases and lawsuits.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Gift-card breakage revenue of $13.0 million was identified as a critical audit matter.
Important facts for investors to verify
- Confirm the correct period: this is FY2021, not 2020 Q4; assess performance on a comparable-week and comparable-restaurant basis.
- Track post-year-end sales, dining capacity, labor and commodity costs, and whether off-premise sales remain profitable after delivery costs.
- Review revolver utilization, debt maturities, covenant headroom, payroll-tax repayments, and lease commitments.
- Monitor dividend policy, the reinstated buyback authorization, and the impact of share issuance and option exercises on per-share results.
- Follow developments in the payment-card litigation and lease-guarantee exposures; the filing does not quantify a likely loss for the cyber litigation.