Brinker 'Not Satisfied' with 2Q Results as Sales Dip | Food Newsfeed
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Brinker 'Not Satisfied' with 2Q Results as Sales Dip

January 25, 2017 Industry News
Industry News

Brinker International, Inc. announced results for the fiscal second quarter ended December 28 and updated its fiscal 2017 outlook.

Highlights include the following:

Brinker's total revenues in the second quarter of fiscal 2017 decreased 2.2 percent to $771 million compared to the second quarter of fiscal 2016 and company sales in the second quarter of fiscal 2017 decreased 2.2 percent to $748.7 million compared to the second quarter of fiscal 2016.

Chili's company-owned comparable restaurant sales in the second quarter of fiscal 2017 decreased 3.3 percent.

Maggiano's comparable restaurant sales in the second quarter of fiscal 2017 decreased 0.8 percent.

Chili's franchise comparable restaurant sales in the second quarter of fiscal 2017 decreased 3.5 percent, which includes a 3 percent and 4.2 percent decrease for U.S. and international franchise restaurants, respectively

Operating income, as a percent of total revenues, declined approximately 160 basis points to 8 percent in the second quarter of fiscal 2017 compared to 9.6 percent for the second quarter of fiscal 2016

Restaurant operating margin, as a percent of company sales, declined approximately 100 basis points to 15.1 percent in the second quarter of fiscal 2017 compared to 16.1 percent for the second quarter of fiscal 2016.

For the first six months of fiscal 2017, cash flows provided by operating activities were $141.1 million and capital expenditures totaled $60.1 million. Free cash flow was $81 million.

"We are not satisfied with our second quarter results. While we believe our initiatives can deliver share gains, our overall performance was hurt by a much weaker-than-expected casual dining category," says Wyman Roberts, chief executive officer and president. "We are taking actions to sharpen our focus on more impactful innovation and execution designed to create long-term value for our shareholders."

Quarterly Operating Performance

Chili’s second quarter company sales decreased 2.9 percent to $632.1 million from $651 million in the prior year primarily due to 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 and employee health insurance expenses. Restaurant expenses, as a percent of company sales, increased due to deleverage, higher advertising and repairs and maintenance expenses. Cost of sales, as a percent of company sales, decreased due to increased menu pricing and favorable commodity pricing primarily related to poultry, burgers and prime rib, partially offset by unfavorable menu item mix and commodity pricing primarily related to avocados.

Maggiano’s second quarter company sales increased 1.7 percent to $116.6 million from $114.7 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 margin1 improved. Cost of sales, as a percent of company sales, was positively impacted by favorable commodity pricing and increased menu pricing, partially offset by unfavorable menu item mix. Restaurant expenses, as a percent of company sales, decreased due to lower preopening expenses, partially offset by higher supervision expenses. Restaurant labor, as a percent of company sales, increased due to higher manager bonuses and increased employee health insurance expenses.

Franchise and other revenues decreased 2.6 percent to $22.3 million for the second quarter compared to $22.9 million in the prior year. Brinker franchisees generated approximately $320 million in sales for the second quarter of fiscal 2017.

Depreciation and amortization expense increased $0.2 million for the quarter compared to the second quarter of fiscal 2016 primarily due to depreciation on asset replacements and new restaurant openings, partially offset by an increase in fully depreciated assets and restaurant closures.

General and administrative expense increased $1.6 million for the quarter compared to the second quarter of fiscal 2016 primarily due to higher stock compensation and payroll expenses, partially offset by lower performance-based compensation.

"While we believe our initiatives are gaining traction and plan to enhance our focus to improve performance, we are reducing our full-year adjusted EPS guidance primarily to reflect lower category sales than originally planned,” says Tom Edwards, executive vice president and chief financial officer.

News and information presented in this release has not been corroborated by FSR, Food News Media, or Journalistic, Inc.