Brinker Disappointed in Recent Sales Performance
Brinker International, Inc. announced results for the fiscal third quarter ended March 23.
Highlights include the following:
- Brinker International total revenues increased 5.2 percent to $824.6 million and company sales increased 5.7 percent to $805.1 million, primarily attributable to the 103 restaurants acquired with the Pepper Dining transaction in the first quarter of fiscal 2016.
- Chili's company-owned comparable restaurant sales decreased 4.1 percent.
- Maggiano's comparable restaurant sales increased 0.2 percent.
- Chili's franchise comparable restaurant sales decreased 1.7 percent, which includes a 2.2 percent and 0.7 percent decrease for U.S. and international franchise restaurants, respectively.
- Restaurant operating margin, as a percent of company sales, declined approximately 150 basis points to 17.4 percent compared to 18.9 percent for the third quarter of fiscal 2015.
- For the first nine months of fiscal 2016, cash flows provided by operating activities were $299.6 million and capital expenditures totaled $76.1 million. Free cash flow was approximately $223.5 million.
- The company repurchased approximately 2.6 million shares of its common stock for $126.1 million in the third quarter and a total of approximately 5.4 million shares for $266.2 million year-to-date.
- The company declared a dividend of 32 cents per share to be paid in the fourth quarter, representing a 14.3 percent increase over the prior year.
"While we continue to deliver strong cash flow and positive earnings growth through the year, we are disappointed in our recent sales performance," says Wyman Roberts, chief executive officer and president. "Our focus going forward is to more aggressively invest in our brands to grow comp sales and capture market share."
Chili's company-owned comparable restaurant sales include 103 Chili's restaurants acquired from a franchisee in the first quarter of fiscal 2016.
Reclassifications have been made between pricing impact, mix-shift and traffic in the prior year to conform with current year classification.
Revenues generated by franchisees are not included in revenues on the consolidated statements of comprehensive income; however, the company generates royalty revenue and advertising fees based on franchisee revenues, where applicable.
Chili's Domestic comparable restaurant sales percentages are derived from sales generated by company-owned and franchise operated Chili's restaurants in the U.S.
System-wide comparable restaurant sales are derived from sales generated by company-owned Chili's and Maggiano's restaurants in addition to the sales generated at franchise operated restaurants.
Quarterly Operating Performance
Chili’s third quarter company sales increased 6.1 percent to $703.5 million from $662.9 million in the prior year primarily due to an increase in restaurant capacity resulting from the acquisition of 103 Chili's restaurants on June 25, partially offset by a decline in comparable restaurant sales. As compared to the prior year, Chili's restaurant operating margin declined. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates, health insurance expenses and sales deleverage, partially offset by lower incentive bonus. Restaurant expenses, as a percent of company sales, increased due to sales deleverage and higher repairs and maintenance and rent expenses. Cost of sales, as a percent of company sales, increased slightly due to unfavorable menu item mix and commodity pricing primarily related to steak, produce and chicken, partially offset by increased menu pricing and favorable commodity pricing related to burger meat, cheese and seafood.
Maggiano’s third quarter company sales increased 2.8 percent to $101.6 million from $98.8 million in the prior year primarily due to an increase in restaurant capacity. As compared to the prior year, Maggiano's restaurant operating margin improved. Restaurant expenses, as a percent of company sales, decreased compared to prior year due to lower advertising and utilities expenses, partially offset by higher preopening expenses. Cost of sales, as a percent of company sales, was positively impacted by increased menu pricing, favorable commodity pricing and menu item changes. Restaurant labor, as a percent of company sales, increased compared to prior year due to higher wage rates and health insurance expense.
Franchise and other revenues decreased 13.3 percent to $19.5 million for the third quarter compared to $22.5 million in the prior year driven primarily by a decrease in royalty revenues resulting from the acquisition of 103 Chili's restaurants from a former franchisee. Brinker franchisees generated approximately $346 million in sales for the third quarter of fiscal 2016.
Depreciation and amortization expense increased $2.5 million for the quarter primarily due to depreciation on acquired restaurants, asset replacements and new restaurant openings, partially offset by an increase in fully depreciated assets.
General and administrative expense decreased approximately $5.0 million primarily due to lower performance-based compensation.