Brinker International, Inc. — Form 10-Q Summary
Reporting period: Thirteen weeks ended September 27, 2023, the first quarter of fiscal 2024 (not calendar 2023 Q1). Comparison period ended September 28, 2022. Brinker operated or franchised 1,651 Chili’s and Maggiano’s restaurants at quarter-end.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Total revenue | $1,012.5 million | $955.5 million |
| Operating income (loss) | $24.2 million | $(19.8) million |
| Operating margin | 2.4% | (2.1)% |
| Net income (loss) | $7.2 million | $(30.2) million |
| Diluted EPS | $0.16 | $(0.69) |
| Operating cash flow | $59.1 million | $24.6 million |
| Capital expenditures | $46.9 million | $46.7 million |
- Revenue increased 6.0%. Company sales rose to $1,002.0 million; franchise revenue was $10.5 million.
- Company-owned comparable sales increased 5.8%, including Chili’s +6.1% and Maggiano’s +2.6%. Sales gains were price- and mix-led; company-owned traffic declined 5.8% and restaurant capacity declined 0.3%.
- Food and beverage costs improved to 25.8% of company sales from 30.7%, reflecting pricing, favorable menu mix, and lower poultry costs. Labor was 34.8% of sales versus 34.9%; restaurant expenses increased to 29.0% from 28.4%.
- Cash and equivalents were $14.4 million at quarter-end. Long-term debt and finance leases were $940.4 million before unamortized costs and current installments; the balance-sheet long-term portion was $923.9 million. Net revolver borrowings were $14.0 million during the quarter.
Material changes and capital allocation
- Brinker returned to operating and net profitability from losses in the prior-year quarter. Higher sales and materially lower food-cost ratios were partly offset by higher labor and restaurant expenses, other charges, and interest expense.
- Interest expense increased $4.7 million to $17.0 million, mainly due to higher rates on the 8.250% notes and revolving credit facility.
- Financing cash flow was a $14.2 million use, versus $27.0 million provided in the prior-year quarter, largely reflecting increased share repurchases and lower net revolver borrowing activity.
- The company repurchased 0.8 million shares for $24.7 million, including $21.0 million under its authorization; approximately $183.0 million remained available.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance was provided. Management projected 30–36 restaurant openings for fiscal 2024, including 11 company-owned Chili’s and 19–25 franchised locations.
- Management said cash, operating cash generation, and available revolver capacity should cover capital expenditure and working-capital needs for at least 12 months, and expected covenant compliance for the rest of fiscal 2024. It intends to refinance the $350 million 5.000% notes maturing in October 2024 through the revolver.
- The $900 million revolver matures August 2026; $724.7 million was available at quarter-end. Its stated interest rate was 7.17%. A 10% increase in the current rate on outstanding variable-rate borrowings would add an estimated $1.3 million of fiscal 2024 interest expense.
- Inflation, commodity prices, labor costs and competitive labor markets remain risks. Management cited geopolitical and macroeconomic impacts; food costs benefited this quarter from lower poultry costs, but future commodity-price changes could pressure results.
- A customer payment-card data class action related to malware discovered at certain Chili’s locations in fiscal 2018 remains unresolved. Plaintiffs seek damages exceeding $5 million plus other relief. The company recorded no liability because the loss or range of loss was not determinable; district-court matters remained stayed.
- Other charges were $6.3 million, including $2.2 million for litigation and claims, $2.0 million for enterprise-system implementation, and $0.5 million for lease contingencies. Management reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether comparable-sales growth can persist as traffic was down 5.8% and pricing contributed 8.9 percentage points to company-owned sales comparisons.
- Whether improved food-cost percentages and operating profitability are sustainable amid wage, commodity, advertising, and interest-cost pressures.
- Refinancing terms and cost for the $350 million notes due October 2024, and ongoing revolver availability and covenant headroom.
- Developments in the payment-card litigation, including any change in the currently indeterminable potential loss.
- Cash needs and the pace of share repurchases, given quarter-end cash of $14.4 million, debt obligations, and planned restaurant investment.