Brinker International, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2013, the 13 weeks ended September 26, 2012; comparisons are with the 13 weeks ended September 28, 2011 unless noted. Brinker owned, operated, or franchised 1,585 restaurants across Chili’s and Maggiano’s in the U.S. and 32 countries and two territories.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Total revenue | $683.5 million | $668.4 million |
| Operating income | $46.5 million | $39.6 million |
| Net income | $27.9 million | $23.6 million |
| Diluted EPS | $0.36 | $0.28 |
| Operating margin | 6.8% | 5.9% |
| Net margin | 4.1% | 3.5% |
| Cash from operations | $32.9 million | $30.9 million |
| Capital expenditures | $37.0 million | $27.7 million |
- Revenue grew 2.3%; company sales rose 2.5% to $663.7 million, while franchise and other revenue fell 3.9% to $19.8 million, primarily due to lower gift-card breakage income.
- System-wide comparable sales increased 2.7%. Chili’s comparable sales rose 2.8% and Maggiano’s 0.9%. Menu pricing and favorable mix drove growth; comparable traffic was up 0.4% at Chili’s but down 2.5% at Maggiano’s.
- Restaurant-level costs improved as a share of company sales: cost of sales was 27.8% versus 28.0%, labor 33.0% versus 33.3%, and restaurant expenses 24.6% versus 25.6%. Company restaurant expenses overall were 85.4% of company sales versus 86.9%.
- General and administrative expense increased 13.6% to $37.3 million, mainly from higher stock-based and other compensation. The effective tax rate rose to 31.1% from 29.8%.
Cash, debt, and capital allocation
- Cash and equivalents were $64.3 million at quarter-end. Current assets were $190.6 million and current liabilities $356.6 million; management reported a working-capital deficit of $166.0 million.
- Total debt was $698.4 million, including $130.0 million drawn on the revolving facility, compared with total debt of $615.2 million at June 27, 2012. The quarter included a $90 million revolver draw, primarily to fund repurchases. $120 million of revolver capacity remained available at quarter-end; the company reported compliance with debt covenants.
- Operating cash flow was more than offset by capital spending, with net investing cash outflow of $36.4 million. The company repurchased approximately 2.5 million shares for $86.3 million and paid $12.8 million in dividends.
- The board increased the quarterly dividend 25%, from $0.16 to $0.20 per share, and authorized an additional $500 million for repurchases. Approximately $579 million remained under repurchase authorizations at quarter-end. Subsequent to quarter-end, the company borrowed another $20 million and repurchased approximately 750,000 shares for $23.1 million.
Outlook, risks, and unusual items
- Management estimated fiscal 2013 capital expenditures of $130–$140 million, expected to be funded entirely from operating cash flow. It projected 32–38 restaurant openings for the year, predominantly international franchised locations. No specific revenue or earnings guidance was provided.
- Management cited a cautious consumer environment and slowing industry sales late in the quarter, while expressing confidence in its sales and profitability initiatives. Priorities include Chili’s kitchen equipment upgrades, point-of-sale and back-office software, restaurant remodels, menu improvements, and international franchising.
- Current-quarter other charges included $0.4 million of lease termination charges. No impairment charges were recorded in either comparative first quarter.
- Lease guarantees and secondary liabilities totaled $140.7 million, with no material liability recorded. A California labor-law class action was remanded for further proceedings after a state Supreme Court ruling; the company said a possible loss could not be reasonably estimated. Management said other pending matters were not expected to materially adversely affect the company.
- Key risks include competition, economic and consumer-spending conditions, commodity and energy costs, labor and regulatory issues, franchisee performance, litigation, and information-technology or data-security disruptions.
Important facts for investors to verify
- Whether comparable-sales growth continues and whether Chili’s traffic offsets Maggiano’s traffic weakness.
- Whether equipment, software, and remodel investments deliver the expected sales, guest-experience, and labor-productivity benefits.
- How share repurchases funded partly with additional borrowing affect debt, liquidity, and the company’s stated goal of preserving or improving credit ratings.
- Whether operating cash flow supports the planned capital expenditures, dividend, and repurchase activity.
- Developments in the California labor litigation and exposure under restaurant lease guarantees.
Amounts are in U.S. dollars. Prior-year revenue categories were reclassified to the fiscal 2013 presentation, with no effect on previously reported total revenue or net income.