Brinker International, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 39 weeks ended March 24, 2021, compared with periods ended March 25, 2020. Although the request identifies 2020 Q3, the filing itself is for fiscal 2021 third quarter. Brinker operates Chili’s and Maggiano’s; at quarter-end it owned or operated 1,120 restaurants and franchised 537.
Key financial results
| Metric | Q3 FY2021 | Q3 FY2020 | 39 weeks FY2021 | 39 weeks FY2020 |
|---|---|---|---|---|
| Total revenue | $828.4 million | $860.0 million | $2,329.2 million | $2,515.3 million |
| Operating income | $52.2 million | $41.1 million | $98.7 million | $115.8 million |
| Net income | $33.9 million | $30.8 million | $56.6 million | $73.6 million |
| Diluted EPS | $0.73 | $0.81 | $1.22 | $1.94 |
| Operating margin | 6.3% | 4.8% | 4.2% | 4.6% |
Quarterly revenue declined about 4%, while operating income and net income improved year over year. Diluted EPS fell despite higher quarterly net income, reflecting substantially more weighted-average diluted shares (46.7 million versus 37.8 million). For the 39-week period, revenue fell about 7% and net income about 23%.
- Sales and comparable performance: Q3 company sales were $813.7 million, down from $840.4 million. Company-owned comparable sales declined 3.3%; Chili’s comparable sales were flat, while Maggiano’s fell 29.6%. System-wide comparable sales declined 2.8%. Chili’s off-premise sales were approximately 45% of company sales in the quarter.
- Margins and costs: Q3 food and beverage costs were 26.3% of company sales versus 27.0%, and restaurant labor was 33.3% versus 34.0%. Restaurant expenses rose to 26.5% from 26.2%, reflecting delivery fees and sales deleverage. Lower COVID-related charges helped reduce other gains and charges to $4.3 million from $19.3 million.
- Cash flow: Operating cash flow for the 39 weeks was $268.6 million, up from $237.8 million. Investing used $59.3 million, including $62.4 million of capital expenditure; financing used $189.6 million. The operating cash flow increase was partly attributable to deferred payroll taxes and timing of payables.
- Liquidity and debt: Cash was $63.6 million at March 24, 2021, versus $43.9 million at fiscal year-end. Total debt and finance lease obligations were $1,038.3 million before unamortized issuance costs and discounts, including $291.3 million drawn on the revolver. Revolver availability was $708.7 million; a further $20 million was paid down after quarter-end. The company reported covenant compliance and expected to remain compliant for the rest of fiscal 2021.
- Balance sheet: Current assets were $252.4 million and current liabilities $577.8 million. Shareholders’ deficit was $390.6 million. Operating lease liabilities totaled approximately $1,140.9 million, current and long-term combined.
Changes, outlook and risks
- Dining rooms and patios were open at substantially all company restaurants, but generally with capacity limits. Management said pandemic effects remained difficult to estimate, citing possible restrictions, guest behavior, staffing, vaccine uptake and variants.
- Management said operating cash flow and available credit were expected to fund operations and debt obligations over the next year. No specific revenue or earnings guidance was provided. Fiscal 2021 was expected to have 53 weeks and end June 30, 2021.
- Brinker continued its suspension of the regular cash dividend and share repurchase program. It had reduced capital spending and costs, while selectively resuming Chili’s remodels and new restaurant construction. The filing projected 19 restaurant openings for fiscal 2021, including 8 company-owned and 11 franchised.
- Unusual costs included $3.1 million of COVID-related charges and $2.0 million of natural-disaster losses for the 39 weeks, primarily related to Winter Storm Uri. Restaurant impairment charges were $2.5 million, principally involving 10 underperforming Chili’s and 3 Maggiano’s locations.
- Contingencies include $33.8 million of outstanding lease guarantees or secondary lease liability and $29.5 million of undrawn standby letters of credit. A customer payment-card data incident class action sought damages exceeding $5 million; after a court order on class certification, the company said the loss or range of loss was not determinable and recorded no litigation liability.
- Other material risks identified include COVID-19 impacts, labor availability and costs, delivery-platform dependence, supply availability, litigation, credit agreement restrictions and potential asset impairment. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the correct period: this is fiscal 2021 Q3, ended March 24, 2021, not 2020 Q3.
- Track comparable sales and the mix of dining-room versus off-premise sales, especially Maggiano’s recovery and delivery-related costs.
- Assess whether operating cash flow remains adequate as deferred payroll taxes become payable and restaurant activity normalizes.
- Review revolver availability, debt maturities, covenant headroom and the effect of the planned facility-capacity reduction.
- Monitor the payment-card litigation and lease guarantees for developments that could make exposure estimable or materially change the recorded position.