Sales Decline at Chili's During 'Choppy' First Quarter
Brinker International, Inc. announced results for the fiscal first quarter ended September 28.
Highlights include the following:
Brinker's total revenues decreased 0.5 percent to $758.5 million compared to the first quarter of fiscal 2016 and company sales decreased 0.4 percent to $737.4 million compared to the first quarter of fiscal 2016.
Chili's company-owned comparable restaurant sales decreased 1.4 percent.
Maggiano's comparable restaurant sales decreased 0.6 percent.
Chili's franchise comparable restaurant sales decreased 0.6 percent, which includes a 1.6 percent decrease for U.S. franchise restaurants, partially offset by an increase of 0.9 percent for international franchise restaurants.
Operating income, as a percent of total revenues, declined approximately 190 basis points to 5.5 percent compared to 7.4 percent for the first quarter of fiscal 2016.
For the first three months of fiscal 2017, cash flows provided by operating activities were $66.2 million and capital expenditures totaled $27.1 million. Free cash flow was approximately $39.1 million.
"We remain optimistic about our growth plans despite a choppy first quarter and are seeing traction with stronger comparable restaurant sales for Chili's in October," says Wyman Roberts, chief executive officer and president. "In the first quarter, the casual dining category was more challenging than we anticipated, but we are gaining share and are rolling out multiple growth platforms—craft beer taps, happy hour, To Go, Plenti points for My Chili's Rewards loyalty program—that we expect will build through the second half and beyond."
Quarterly Operating Performance
Chili’s first quarter company sales decreased 0.7 percent to $648.6 million from $653.1 million in the prior year primarily due to a decline in comparable restaurant sales, partially offset by an increase in restaurant capacity. As compared to the prior year, Chili's restaurant operating margin declined. Restaurant expenses, as a percent of company sales, increased due to higher advertising and repairs and maintenance expenses, partially offset by lower workers' compensation insurance expenses. Restaurant labor, as a percent of company sales, increased compared to the prior year due to higher wage rates. Cost of sales, as a percent of company sales, decreased due to increased menu pricing and favorable commodity pricing related to poultry and burger meat, partially offset by unfavorable menu item mix and commodity pricing primarily related to avocados.
Maggiano’s first quarter company sales increased 1.6 percent to $88.8 million from $87.4 million in the prior year primarily due to an increase in restaurant capacity, partially offset by a decline in comparable restaurant sales. As compared to the prior year, Maggiano's restaurant operating margin improved. Cost of sales, as a percent of company sales, was positively impacted by increased menu pricing and favorable commodity pricing, partially offset by unfavorable menu item mix. Restaurant labor, as a percent of company sales, decreased compared to the prior year due to a lower incentive bonuses, partially offset by higher wage rates. Restaurant expenses, as a percent of company sales, were flat compared to the prior year.
Franchise and other revenues decreased 4.5 percent to $21.1 million for the first quarter compared to $22.1 million in the prior year. Brinker franchisees generated approximately $331 million in sales for the first quarter of fiscal 2017.
Royalty revenues are recognized based on the sales generated and reported to the company by franchisees.
Depreciation and amortization expense decreased $0.3 million for the quarter primarily due to an increase in fully depreciated assets and restaurant closures, partially offset by depreciation on asset replacements and new restaurant openings.
General and administrative expense decreased approximately $0.6 million primarily due to lower payroll and legal expenses, partially offset by higher performance-based compensation.
Brinker International, Inc., founded in 1975 and based in Dallas, as of September 28, Brinker owned, operated, or franchised 1,652 restaurants under the names Chili's Grill & Bar (1,601 restaurants) and Maggiano's Little Italy (51 restaurants).