Brinker International Reports 24 Percent Increase in Fourth Quarter and 19 Percent Increase in Fiscal 2007 EPS From Continuing Operations
DALLAS, Aug 08, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Brinker International, Inc. (NYSE: EAT) announced fiscal 2007 fourth quarter earnings per diluted share from continuing operations increased to $0.71 from $0.57 in the prior year. Before special items, earnings per diluted share from continuing operations increased to $0.57 from $0.46 in the prior year (reconciliation included in Table 5). For the full-year fiscal 2007, earnings per diluted share from continuing operations increased to $1.85 from $1.63 in the prior year. Before special items, earnings per diluted share from continuing operations increased to $1.76 from $1.48 in the prior year (reconciliation included in Table 6).
Doug Brooks, Brinker Chairman and CEO, said, "During fiscal 2007, we not only generated 19 percent EPS growth, exceeding our stated 15 percent goal, but also made significant progress with long term strategies focused on building guest loyalty, redeploying capital and increasing overall shareholder returns. We will continue to drive the business forward in fiscal 2008 with further implementation of these growth strategies as we work towards our vision of being a globally dominant restaurant portfolio company."
Highlights for fiscal year 2007:
-- Increased income from continuing operations, before special items,
13.2 percent over the prior year;
-- Increased quarterly dividend in November by 35 percent and paid out
$40.9 million in dividends during the year;
-- Repurchased 18.6 million common shares for approximately $569.3
million;
-- Opened 149 company-owned and 46 franchised restaurants, including 30
international restaurants;
-- Sold 95 company-owned Chili's restaurants to Pepper Dining, Inc.
("PDI"), a new franchisee, with commitments to develop an additional
14-38 new franchised Chili's locations;
-- Sold 15 Chili's and two On the Border restaurants to franchisees, with
commitments to develop an additional 31 new franchised Chili's and 10
On The Border locations;
-- Signed agreement with an existing franchisee, ERJ Dining IV, LLC
("ERJ"), to sell 76 company-owned Chili's restaurants with commitments
to develop an additional 49 new franchised Chili's locations;
-- In total, the company entered into 18 development agreements with new
or existing franchisees with commitments to build 130-154 restaurants
over time;
-- Increased investment in team members, particularly at the hourly and
restaurant management levels, to improve the overall guest experience,
increase restaurant employee tenure and reduce future restaurant
training and hiring costs;
-- Sold a record $254.7 million in gift cards system wide, redeemable
across Brinker's portfolio of restaurant brands; and
-- Piloted a new customer engagement survey with a system wide rollout
beginning in fiscal 2008.
Quarterly Revenue Growth
Brinker reported revenues for the 13-week period of $1,143.0 million, an increase of 6.5 percent compared with $1,073.5 million reported for the same period of fiscal 2006. These revenue gains were primarily driven by restaurant capacity growth (as measured by average-weighted sales weeks) of 8.7 percent, partially offset by a 2.0 percent decrease in comparable restaurant sales (see Table 1). Revenue growth was negatively impacted by selling restaurants to franchisees and other restaurant closures. The company and its franchisees opened 51 restaurants in the fourth quarter.
Table 1: Q4 comparable restaurant sales
Q4 07 and Q4 06, company and four reported brands; percentage
Q4 07 Q4 06 Q4 07
Comparable Comparable Pricing Q4 07
Sales Sales Impact Mix-Shift
Brinker International (2.0) (2.0) 0.8 0.4
Chili's (1.6) (1.6) 0.7 0.3
Macaroni Grill (2.1) (4.5) 1.8 2.1
On The Border (4.7) (2.5) 0.2 (0.1)
Maggiano's (1.3) 1.1 0.9 (1.4)
Table 2: FY comparable restaurant sales
FY 07 and FY 06, company and four reported brands; percentage
FY 07 FY 06 FY 07
Comparable Comparable Pricing FY 07
Sales Sales Impact Mix-Shift
Brinker International (2.7) 1.5 1.6 0.1
Chili's (2.4) 2.5 1.7 (0.3)
Macaroni Grill (3.2) (1.5) 1.6 0.6
On The Border (4.1) (0.4) 1.1 2.0
Maggiano's (1.7) 2.8 1.5 (0.7)
June and July 2007 Comparable Restaurant Sales
For the four-week period ending June 27, 2007, comparable restaurant sales decreased 1.9 percent (see Table 3). For the five-week period ending August 1, 2007, comparable restaurant sales decreased 0.1 percent (see Table 4).
Table 3: Month of June comparable restaurant sales
June 07 and June 06; percentage
June 07 June 06 June 07
Comparable Comparable Pricing June 07
Sales Sales Impact Mix-Shift
Brinker International (1.9) (1.4) 1.0 1.4
Chili's (1.4) (1.4) 0.8 1.7
Macaroni Grill (2.0) (3.5) 1.9 3.2
On The Border (6.4) (0.2) 0.1 (0.8)
Maggiano's (1.4) 1.1 1.5 (2.3)
Table 4: Month of July comparable restaurant sales
July 08 and July 07; percentage
July 08 July 07 July 08
Comparable Comparable Pricing July 08
Sales Sales Impact Mix-Shift
Brinker International (0.1) (2.7) 1.8 1.2
Chili's 2.0 (2.8) 1.9 1.9
Macaroni Grill (4.6) (2.7) 2.0 1.0
On The Border (6.5) (2.8) 0.8 (1.0)
Maggiano's 0.9 (0.9) 1.9 (1.2)
Quarterly Operating Performance
Cost of sales, as a percent of revenues, increased to 27.9 percent from 27.1 percent or 80 basis points for the quarter compared to the prior year. The increase was due primarily to unfavorable commodity prices for salmon and produce and unfavorable product mix shifts related to new menu items, partially offset by favorable menu price changes.
Restaurant expenses, as a percent of revenues, increased to 54.9 percent from 54.7 percent in the prior year, primarily driven by higher labor expense as a result of increased state minimum wage rates, partially offset by lower performance based compensation expense in fiscal 2007.
Depreciation and amortization for the fourth quarter fiscal 2007, compared to the same quarter in fiscal year 2006, decreased $1.5 million. The change was primarily driven by the classification of assets as held for sale related to the PDI and ERJ transactions, as well as an increase in fully depreciated assets. These decreases were partially offset by an increase in depreciation for new restaurants, asset replacements and remodels.
Compared to the prior year, general and administrative expense decreased $1.8 million for the quarter, primarily due to lower performance based compensation expense.
Other gains and charges is primarily comprised of gains totaling $17.4 million on the sale of 95 company-owned Chili's to PDI and one On The Border to a franchisee. Prior year other gains and charges is comprised of gains of $8.5 million related to the sale of 12 company-owned restaurants to franchisees.
Interest expense for the fourth quarter fiscal 2007, compared to the same quarter in fiscal 2006, increased approximately $6.0 million primarily due to a new $400 million one-year unsecured committed credit facility used to fund the accelerated share repurchase of $297 million and for general corporate purposes.
Compared to the prior year, other, net decreased $1.9 million primarily due to the realized gains on the liquidation of certain investments and increased interest income.
The effective income tax rate for continuing operations decreased to 21.7 percent for the current quarter as compared to 24.4 percent for the same quarter last year. The decrease in the tax rate was due to equity based compensation related to the impact of incentive stock options that are deductible when exercised, the favorable settlement of certain tax audits and benefits from state income tax planning.
Capital Allocation
Cash flow from operations for fiscal year 2007 was approximately $485.0 million compared to $470.5 million in the prior year. Capital expenditures for the year totaled $430.5 million compared to $354.6 million in the prior year. The company repurchased 10.9 million shares for approximately $347.2 million during the fourth quarter. Year-to-date, the company has repurchased 18.6 million shares for approximately $569.3 million. At the end of the quarter, approximately $300 million remained available under the company's share authorizations. Diluted weighted average shares outstanding for the fiscal year were reduced five percent from 130.9 million to 124.1 million. Basic shares outstanding at the end of fiscal 2007 were 110.1 million.
Consolidated cash flow return on gross investment for fiscal year 2007 improved over the prior fiscal year 1.5 percent to 18.3 percent, excluding the impact of the PDI transaction that occurred the last day of fiscal 2007.
Special Items
Table 5: Reconciliation of income from continuing operations and
description of special items Q4 07 and Q4 06; $ millions and $ per diluted
share after-tax
EPS EPS
Income Per Per
Statement $ Share $ Share
Item Line Q4 07 Q4 07 Q4 06 Q4 06
Income from Continuing
Operations 83.6 0.71 73.0 0.57
Other Gains and
Other Gains and Charges Charges (11.0) (0.09) (5.3) (0.04)
Tax Benefit Income Taxes (5.4) (0.05) (8.1) (0.07)
Total Special Items (16.4) (0.14) (13.4) (0.11)
Income from Continuing
Operations, before Special
Items 67.2 0.57 59.6 0.46
Table 6: Reconciliation of income from continuing operations and description of special items Year-to-date fiscal 2007 and 2006; $ millions and $ per diluted share after-tax
EPS EPS
Income Per Per
Statement $ Share $ Share
Item Line FY 07 FY 07 FY 06 FY 06
Income from Continuing
Operations 230.0 1.85 214.0 1.63
Other Gains &
Other Gains and Charges Charges (5.6) (0.05) (12.5) (0.09)
Tax Benefit Income Taxes (5.4) (0.04) (8.1) (0.06)
Total Special Items (11.0) (0.09) (20.6) (0.15)
Income from Continuing
Operations, before Special
Items 219.0 1.76 193.4 1.48
Fiscal 2008 Outlook
The company remains committed to its strategies that are designed to build the business for the long-term and grow shareholder value through (i) increasing the base business through industry-leading brand building, innovation and operational performance, (ii) developing, operating and franchising profitable restaurants worldwide, and (iii) leveraging customers, business relationships, infrastructure and expertise across the company's portfolio of brands.
The company is currently transitioning its business model to improve cash flow returns through its active program to increase franchise ownership of the system by selling company restaurants to franchisees and reduced restaurant development goals, resulting in lower revenue growth. Consequently, the company anticipates earnings per diluted share growth of at least 10 percent in fiscal 2008 and to increase in the low to mid double-digits on a longer- term basis, slightly lower than its previous longer-term target of 15 percent.
Key assumptions for fiscal 2008 outlook include:
-- Revenue growth of over 1.0 percent based primarily on:
-- Comparable restaurant sales growth of 2.0 to 2.5 percent;
-- Franchise revenue growth of about 44 percent, bringing the total to
about $68 million;
-- Company restaurants sold to franchisees in fiscal 2007 negatively
impact revenue growth in fiscal 2008 by approximately 5.0 to 6.0
percent;
-- Restaurant capacity decline (as measured by average-weighted sales
weeks) of about 2.0 percent; and
-- 148-175 new system restaurant openings (see Table 7 for brand and
ownership detail).
-- General and administrative expenses are expected to be about $200
million;
-- Operating income improvement, including general and administrative
expenses, of about 50 to 60 basis points based on sales leverage,
increased percent of franchise restaurants and higher average
company-operated restaurant margins that will more than offset
expected increased commodity and labor costs of about 90 to 100 basis
points;
-- Interest expense of about $60 million;
-- Effective tax rate of about 30 percent;
-- Diluted weighted average shares of 108 to 110 million; and
-- Capital expenditures of $380-$405 million, including new restaurant
development of $250-275 million and up to $80 million to re-image
Chili's restaurants.
The company's outlook assumes the completion of the sale of approximately 76 Chili's restaurants to ERJ by the end of the second quarter. No other company restaurant sales are assumed in the above detailed guidance; however, the company expects that any incremental transactions will be at least neutral to EPS growth.
The company remains committed to returning capital to shareholders through the payment of quarterly dividends and ongoing share repurchases. During the first quarter of fiscal 2008, the company has repurchased approximately 5.0 million shares for approximately $140 million. As of Aug. 6, 2007, the company had approximately $160 million remaining capacity on its share authorizations. The company continues to anticipate consolidated cash flow return on gross investment improvement in fiscal 2008 from fiscal 2007.
The company will provide additional guidance throughout the year for these preceding items only when there is a material change.
The company will no longer report monthly comparable restaurant sales by brand. Instead, quarterly comparable restaurant sales by brand will be reported at the end of each respective quarter. Therefore, August and September sales will be incorporated into first quarter comparable restaurant sales results reported in the company's first quarter earnings release. The company remains committed to providing the investment community thorough information regarding forward-looking corporate strategy and key drivers of longer-term financial performance.
Table 7: FY 08 New development summary
Ownership type; restaurants; percentage
FY 07 Company
Total Owned Franchise Total Restaurant
Restaurants Restaurants Restaurants Restaurants Growth %
Brinker
International 1,801 80-93 68-82 148-175 8-10%
Chili's 1,220 70-75 20-25 90-100 7-8%
Macaroni Grill 230 3-4 7-9 10-13 4-6%
On The Border 158 6-8 6-8 12-16 8-10%
Maggiano's 41 1-3 - 1-3 2-7%
International 152 0-3 35-40 35-43 23-28%
Other Item
The company has begun exploring the potential sale of the Romano's Macaroni Grill restaurant chain, including 217 domestic, company restaurants. There is no assurance that this process will result in any transaction being consummated at a value deemed acceptable to the company. The company remains committed to achieving its strategic vision of becoming the globally dominant casual dining restaurant portfolio company.
Web-cast Information
Investors and interested parties are invited to listen to today's conference call, as management will provide further details of the quarter. The call will be broadcast live on the Brinker Web site at 9 a.m. CDT today (Aug. 9). For those who are unable to listen to the live broadcast, a replay of the call will be available shortly thereafter and will remain on the Brinker Web site until the end of the day on Aug. 31, 2007.
Forward Calendar
-- SEC Form 10-K for fiscal year 2007 filing on or before Aug. 27, 2007;
and
-- First quarter earnings release, before market opens, on Oct. 23,
2007.
At the end of fiscal year 2007, Brinker International either owned, operated, or franchised 1,801 restaurants under the names Chili's Grill & Bar (1,361 units), Romano's Macaroni Grill (241 units), On The Border Mexican Grill & Cantina (158 units), and Maggiano's Little Italy (41 units).
The company will be hosting its Investor & Analyst Day in New Jersey on Sept. 11, 2007 starting at 10:00 a.m. Eastern. Registration is required through the company's Investor Relations department as there will be limited occupancy. A simulcast of the audio and slides will be available on the Brinker Web site. An online replay of the presentation will be available for one month following the conference. To access the live simulcast of the presentation, please go to the Brinker Web site at least 15 minutes prior to the presentation to download and install any necessary audio software. Subjects discussed by management may include historical information and an outlook for future periods.
The statements contained in this release that are not historical facts are forward-looking statements. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business and economic conditions, the impact of competition, the impact of mergers, acquisitions, divestitures and other strategic transactions, the seasonality of the company's business, adverse weather conditions, future commodity prices, fuel and utility costs and availability, terrorists acts, consumer perception of food safety, changes in consumer taste, health epidemics or pandemics, changes in demographic trends, availability of employees, unfavorable publicity, the company's ability to meet its growth plan, acts of God, governmental regulations, and inflation.
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Income
(In thousands, except per share amounts)
Thirteen Week Periods Ended Fifty-Two Week Periods Ended
June 27, June 28, June 27, June 28,
2007 2006 2007 2006
(Unaudited) (Unaudited) (Unaudited)
Revenues $1,142,954 $1,073,522 $4,376,904 $4,151,291
Operating Costs
and Expenses:
Cost of sales 318,616 291,263 1,222,198 1,160,931
Restaurant
expenses (a) 627,200 586,964 2,435,866 2,283,737
Depreciation and
amortization 46,072 47,536 189,162 190,206
General and
administrative 52,691 54,540 194,349 207,080
Other gains and
charges (a) (17,646) (8,532) (8,999) (17,262)
Total operating
costs and
expenses 1,026,933 971,771 4,032,576 3,824,692
Operating income 116,021 101,751 344,328 326,599
Interest expense 11,632 5,662 30,929 22,857
Other, net (2,444) (533) (5,071) (1,656)
Income before
provision for
income taxes 106,833 96,622 318,470 305,398
Provision for
income taxes (b) 23,186 23,615 88,421 91,448
Income from
continuing
operations 83,647 73,007 230,049 213,950
Loss from
discontinued
operations, net
of taxes - - - (1,555)
Net income $83,647 $73,007 $230,049 $212,395
Basic net income
per share:
Income from
continuing
operations $0.73 $0.58 $1.90 $1.66
Loss from
discontinued
operations $0.00 $0.00 $0.00 $(0.01)
Net income
per share $0.73 $0.58 $1.90 $1.65
Diluted net
income per share:
Income from
continuing
operations $0.71 $0.57 $1.85 $1.63
Loss from
discontinued
operations $0.00 $0.00 $0.00 $(0.01)
Net income
per share $0.71 $0.57 $1.85 $1.62
Basic weighted
average shares
outstanding 114,606 126,521 121,062 128,766
Diluted weighted
average shares
outstanding 118,032 128,352 124,116 130,934
(a) Current and prior year gains on the sale of restaurants to
franchisees and gains on the sale of other assets have been
reclassified out of restaurant expenses and into other gains and
charges. Current year other gains and charges includes:
a. Franchising gains of $17.4 million in the fourth quarter and
$19.1 million year-to-date.
b. Gain on the termination of swaps of $3.2 million year-to-date
c. Gain on the sale of real estate of $0.5 million in the fourth
quarter and year-to-date
d. Restructuring and impairment charges totaling $0.3 million for
the fourth quarter and $13.8 million year-to-date.
Prior year other gains and charges includes:
e. Franchising gains of $8.5 million for the fourth quarter and
$15.9 million year-to-date
f. Gain on the sale of real estate of $3.3 million year-to-date
g. Net restructuring and impairment charges of $1.9 million
year-to-date
(b) The provision for income taxes includes income tax benefits
associated with the favorable settlement of certain tax audits of
$6.8 million and $8.1 million in the current and prior year,
respectively.
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 27, June 28,
2007 2006
(Unaudited)
ASSETS
Current assets $270,839 $232,733
Assets held for sale 93,342 216,342
Net property and equipment(a) 1,770,575 1,592,351
Total other assets 183,265 180,353
Total assets $2,318,021 $2,221,779
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities $522,068 $490,038
Liabilities associated with
assets held for sale 3,014 7,860
Long-term debt, less current installments 826,918 500,515
Other liabilities 160,932 147,534
Total shareholders' equity 805,089 1,075,832
Total liabilities and shareholders' equity $2,318,021 $2,221,779
(a) At June 27, 2007, the company owned the land and buildings for 312 of
the 1,312 company-owned restaurants. The net book values of the land
and buildings associated with these restaurants totaled $264.8 million
and $260.4 million, respectively.
BRINKER INTERNATIONAL, INC.
RESTAURANT SUMMARY
Fourth Fourth
Quarter Quarter
Total Openings/ Closings/ Total Projected
Restaurants Acquisitions(a) Sales Restaurants Openings
March 28, Fiscal Fiscal June 27, Fiscal
2007 2007 2007 2007 2008
Company-Owned
Restaurants:
Chili's 977 37 (97) 917 70-75
Macaroni Grill 216 1 - 217 3-4
On The Border 131 3 (2) 132 6-8
Maggiano's 40 1 - 41 1-3
International(b) 5 - - 5 0-3
1,369 42 (99) 1,312 80-93
Franchise
Restaurants:
Chili's 206 97 - 303 20-25
Macaroni Grill 13 - - 13 7-9
On The Border 25 1 - 26 6-8
International(b) 141 7 (1) 147 35-40
385 105 (1) 489 68-82
Total Restaurants:
Chili's 1,183 134 (97) 1,220 90-100
Macaroni Grill 229 1 - 230 10-13
On The Border 156 4 (2) 158 12-16
Maggiano's 40 1 - 41 1-3
International 146 7 (1) 152 35-43
1,754 147 (100) 1,801 148-175
(a) During the fourth quarter of fiscal 2007, the company sold 95 Chili's
and one On The Border restaurant to a franchisee. The company and
its franchisees opened a total of 51 new restaurants during the
quarter ended June 27, 2007.
(b) At the end of the fourth quarter of fiscal year 2007, international
company-owned restaurants by brand were four Chili's and one Macaroni
Grill. International franchise restaurants by brand were 137 Chili's
and 10 Macaroni Grill's.
SOURCE Brinker International, Inc.
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