Brinker International, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the 13 and 39 weeks ended March 30, 2022 (fiscal Q3 and year-to-date fiscal 2022), not calendar 2021 Q3. Unless stated otherwise, amounts are in millions.
Business context and reporting period
Brinker owns, operates and franchises Chili’s, Maggiano’s and virtual brands. At March 30, 2022, it had 1,650 restaurants: 1,187 company-owned and 463 franchised. During the first three fiscal quarters, it acquired 66 previously franchised Chili’s restaurants.
Financial performance and liquidity
| Metric | Q3 FY2022 | Q3 FY2021 | 39 weeks FY2022 | 39 weeks FY2021 |
|---|---|---|---|---|
| Total revenue | $980.4 | $828.4 | $2,782.6 | $2,329.2 |
| Operating income | $49.4 | $52.2 | $114.8 | $98.7 |
| Net income | $36.6 | $33.9 | $77.4 | $56.6 |
| Diluted EPS | $0.81 | $0.73 | $1.68 | $1.22 |
| Operating cash flow | Not separately presented | Not separately presented | $211.6 | $268.6 |
Quarterly revenue rose about 18% year over year, while operating income declined about 5%; net income increased about 8%. Year-to-date revenue grew about 19%, operating income about 16%, and net income about 37%. Q3 operating margin was approximately 5.0% versus 6.3%; year-to-date it was approximately 4.1% versus 4.2%. Food and beverage costs and restaurant labor increased as a share of company sales, reflecting commodity inflation, wage rates, training and overtime. Sales leverage helped lower restaurant expenses as a share of sales.
Comparable sales increased 13.5% at company-owned restaurants in Q3 and 16.0% year to date. Maggiano’s comparable sales rose 50.5% and 63.7%, respectively; Chili’s rose 10.3% and 11.9%. Management attributed growth to improved traffic, pricing and favorable mix, with acquisitions also contributing to reported revenue. Chili’s off-premise sales were about 35% of company sales year to date, down from 45% in the comparable prior-year period.
Year-to-date capital expenditures were $109.0, including higher equipment spending and a faster Chili’s remodel pace; $106.0 was spent acquiring the 66 restaurants. Financing cash flows included $100.8 of treasury-stock purchases. Cash was $12.9 at period-end, down from $23.9 at June 30, 2021. Long-term debt and finance leases, net of issuance costs and current installments, were $987.9; the revolver balance was $264.3, with $535.7 of facility capacity available. The company reported covenant compliance and expected to remain compliant through fiscal year-end. The quarterly cash dividend remained suspended.
Material changes, outlook and risks
- Brinker completed the acquisitions of 23, 37 and six Chili’s restaurants from three former franchisees. The Great Lakes and Northwest purchase-price allocations remained preliminary.
- Operating cash flow fell $57.0 year to date, primarily due to repayment of $27.2 of deferred payroll taxes, higher performance compensation and bonus payments, partly offset by improved operating performance. A further $27.2 payroll-tax installment was due December 31, 2022.
- The company revised its revolving credit facility to $800.0 million, maturing August 18, 2026. It had 18 pre-commencement leases for new Chili’s locations, with $25.5 of undiscounted fixed payments; management expected them to commence within 12 months.
- Management said operating cash flow and available credit were adequate for operations and near-term obligations. Fiscal 2022 projected restaurant openings were 19–21, including 14–16 franchised locations. No specific earnings or revenue guidance was provided.
- Management cited labor shortages and turnover, supply-chain disruptions, and inflation in food, wages, utilities and other costs. COVID-19 effects remained uncertain. Other risks include competition, consumer demand, delivery and technology risks, interest rates and litigation.
- Lease guarantees had maximum potential rent exposure of $28.7; estimated contingent liabilities for identified lease defaults were $3.2. A payment-card data class action sought damages exceeding $5.0, among other relief; loss exposure was not determinable and no liability was recorded. Management said other pending legal matters were not expected to have a material adverse effect.
- Other unusual items included $17.0 of year-to-date other gains and charges, including lease contingencies, remodel and acquisition costs, and enterprise-system implementation costs. Disclosure controls were assessed as effective; no material changes to internal control were reported.
Important facts for investors to verify
- Whether revenue growth and restaurant traffic can offset continued food, labor and supply-chain cost pressure.
- The acquired restaurants’ ongoing contribution to sales, margins and cash generation, and completion of the preliminary purchase-price allocations.
- Cash needs for capital spending, share repurchases and the remaining deferred payroll-tax payment, alongside revolver availability and covenant headroom.
- Developments in the cyber-security class action and the company’s lease-guarantee exposure.
- How the fiscal Q3 2022 period in the filing relates to any requested 2021 Q3 comparison; this filing does not cover 2021 Q3.