Brinker International, Inc. — FY2023 Form 10-K
Period clarification: The filing is for the 52-week fiscal year ended June 28, 2023, compared with the 52-week year ended June 29, 2022. It is not a fiscal 2022 Q4 filing; the supplied filing does not provide standalone Q4 results.
Business context
Brinker owns, operates and franchises Chili’s Grill & Bar and Maggiano’s Little Italy, and operates the digital-only It’s Just Wings brand. At year-end, its system included 1,657 restaurants, of which 1,185 were company-owned. Company sales generated 99% of FY2023 revenue. Maggiano’s Italian Classics was phased out during the year.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $4,133.2 million | $3,804.1 million | +8.7% |
| Operating income | $144.4 million | $159.5 million | -9.5% |
| Operating margin | 3.5% | 4.2% | -0.7 percentage points |
| Net income | $102.6 million | $117.6 million | -12.8% |
| Diluted EPS | $2.28 | $2.58 | -11.6% |
| Cash from operations | $256.3 million | $252.2 million | +$4.1 million |
| Capital expenditures | $184.9 million | $150.3 million | +$34.6 million |
Company-owned comparable sales rose 8.1%, driven by 9.0% pricing and 4.4% favorable mix, partly offset by a 5.3% traffic decline. Chili’s comparable sales increased 7.0% with traffic down 6.9%; Maggiano’s rose 17.3% with traffic up 6.6%. Total operating costs increased to 96.5% of revenue from 95.8%. Food and beverage costs were 28.0% of company sales versus 27.9%; labor improved to 34.0% from 34.2%, while restaurant expenses rose to 26.8% from 25.7%.
The FY2023 income tax benefit was $11.8 million, producing a negative 13.0% effective tax rate, primarily due to FICA tip tax credits relative to pretax income. This contributed to reported net income and should be considered when assessing earnings comparability.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $15.1 million at year-end; current assets were $183.3 million and current liabilities $535.9 million.
- Operating cash flow was $256.3 million; investing cash outflow was $174.2 million and financing cash outflow was $80.5 million.
- Debt principal included $350 million of 5.000% notes due 2024, $350 million of 8.250% notes due 2030, and $161.3 million drawn on the revolver. Revolver borrowing capacity was $738.7 million; its year-end rate was 6.952%.
- The company issued $350 million of 8.250% senior notes in June 2023 and used $340 million of proceeds to reduce revolver borrowings. It repaid $300 million of 3.875% notes at maturity using revolver borrowings.
- Balance-sheet long-term debt and finance leases, less current installments, were $912.2 million. Operating lease liabilities totaled $1,238.2 million; contractual operating lease payments were $1,743.3 million.
- Management said cash, operating cash flow and available revolver capacity should meet capital expenditure and working capital needs, including current debt obligations, for at least the next 12 months. The company was in covenant compliance at year-end.
Material changes, outlook and risks
- Revenue growth reflected pricing, favorable mix, higher Maggiano’s traffic and the prior-year acquisition of 68 Chili’s restaurants; lower Chili’s traffic partly offset growth.
- Inflation in food, wages, utilities and other operating costs weighed on margins. Interest expense rose $8.8 million, primarily due to higher interest rates and average revolver borrowings.
- Other gains and charges totaled $32.7 million, including $12.1 million of restaurant impairment charges, $8.3 million of closure costs, $4.7 million of enterprise-system implementation costs and $3.7 million of severance and benefit charges. The company recorded impairments primarily related to 38 underperforming Chili’s restaurants.
- Management projected 12 company-owned Chili’s openings and 19–25 franchise openings for FY2024; projections were subject to change. The filing provides no earnings or revenue guidance.
- Management is emphasizing Chili’s core menu offerings, hospitality, value platform and digital experience, while focusing on cash generation and a flexible financial position. New ERP and human capital management systems were planned for implementation over the next year.
- Key risks include consumer spending and traffic weakness, ongoing labor and commodity inflation, recruitment and retention, supply-chain disruptions, competition, reliance on third-party delivery and technology providers, cybersecurity, food safety, lease obligations and franchisee performance.
- A putative class action related to the 2018 payment-card incident remained unresolved. The company said the loss or range of loss was not determinable and recorded no liability. Management believes other pending legal matters are not expected to have a material adverse effect.
- The quarterly dividend has been suspended since FY2020. The board retains discretion over any reinstatement. No repurchases were made under the authorization in FY2023; employee tax-withholding share purchases were $5.0 million.
Important facts for investors to verify
- Confirm the intended reporting period: this summary covers FY2023, not FY2022 Q4.
- Track whether pricing can support margins if traffic remains weak, especially at Chili’s, and whether cost inflation moderates.
- Review the 2024 note maturity, revolver utilization and interest-rate exposure; the filing estimates a 100-basis-point rate change would affect annual results by about $1.6 million on the year-end revolver balance.
- Assess the sustainability of earnings given the tax benefit, impairment and closure charges, and the gap between operating cash flow and capital expenditures.
- Monitor the cyber litigation, lease guarantees of $16.9 million, restaurant impairments and planned FY2024 openings.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; verify subsequent filings for material developments.