Brinker International, Inc. (EAT, Financial) is one of the world’s leading casual dining restaurant companies. With more than 1,600 restaurants and over 100,000 team members in 33 countries and two territories, Brinker and its brands welcome more than one million guests into the restaurants every day.
The recent quarter results marked an improvement in operating margin. The Chili’s brand continues to be strong all around the world. The company is putting in plans to grow Chili’s and Maggiano’s. The company is taking initiatives that strengthen the brand relevance and further differentiate it from the competitors.
Strong Fourth Quarter
Earnings per diluted share, excluding special items, increased by 10.6% and were $0.94 (which was $0.85 during the prior year quarter).
On a GAAP basis, earnings per diluted share increased by 114.0% and were $0.92 (which was $0.43 during the prior year quarter).
Brinker International company sales increased by 0.5% and were $738.4 million.
Chili's company-owned comparable restaurant sales decreased by 0.8%.
Maggiano's comparable restaurant sales decreased by 0.1%.
Chili's franchise comparable restaurant sales increased by 1.9%.
Restaurant operating margin, improved approximately 80 basis points to 18.5 percent (which was 17.7% during theprior year quarter).
For fiscal 2015, cash flows provided by operating activities were $368.6 million and capex totalled at $140.3 million.
Free cash flow was approximately $228.3 million.
Depreciation and amortization expense increased $1.9 million for the quarter primarily due to investments in the Chili's reimage program.
General and administrative expense decreased $0.3 million primarily due to cost management and lower performance-based compensation.
On a GAAP basis, the effective income tax rate increased to 29.7% in the current quarter from 18.1% in the prior year quarter.
Dividends
The company declared a quarterly dividend of $0.32 per share on the common stock, representing a 14% increase in Brinker's quarterly dividend. The dividend will be payable Sept. 24, 2015 to shareholders of record as of Sept. 4, 2015.
Share Repurchases
Brinker's Board of Directors authorized an additional $250 million in share repurchases. With the additional amount, Brinker will have approximately $567 million in available authorization as of today's date.
Expectations for 2016
The company expects the following for 2016:
Revenues are expected to increase approximately 12 to 14% including the 53rd week.
Comparable restaurant sales are expected to increase one and a half to two %.
Restaurant operating margin is expected to be flat to down 25 basis points year-over-year. Excluding the impact of the recently acquired Chili's restaurants, restaurant operating margin is expected to increase 25 to 50 basis points year-over-year
Depreciation expense is expected to increase $12 to $15 million.
General and administrative expense is expected to be in the range of $10-$12 million higher on a dollar basis.
Interest expense is expected to increase $4 million to $6 million due to a higher debt balance in fiscal 2016.
Effective income tax rate is projected to be approximately 31-32 %.
Free cash flow is expected to be $250 to $260 million.
Diluted weighted average shares outstanding are expected to be 60 to 62 million.
(Source: Company's Website)
Management
It announced Thomas J. Edwards Jr. as Executive Vice President and Chief Financial Officer of the company. Edwards is a hospitality and consumer goods industries veteran with a wide range of financial leadership experience. He joins Brinker from Wyndham Worldwide where he most recently served as Chief Financial Officer of the Wyndham Hotel Group, a leading franchised and managed hospitality company with a global presence.
It recently announced the election of Jose Luis Prado to its Board of Directors. Prado is an accomplished executive with more than 30 years of international experience at PepsiCo, Inc. (PEP, Financial). He most recently served as President for Quaker Oats North America, a multi-billion dollar division of the company headquartered in Chicago.
Being in News
Recently it has Pepper Dining Holding Corp., a franchisee of 103 Chilli's Grill & Bar restaurants primarily located in the Northeast and Southeast. The purchase price of $106.5 million was funded with availability under Brinker's existing credit facility and the acquisition is expected to be EPS accretive in fiscal year 2016.
Chilli's Grill & Bar restaurants introduced a state-of-the-art loyalty program, My Chili's Rewards, which leverages technology, personalization and gamification to make earning and redeeming points easier and more engaging than ever before. Available at the brand's more than 800 company-owned restaurants nationwide, Chili's is the first restaurant company of its size to completely integrate a loyalty program with tabletop technology and mobile as well as give guests full control of their points without ever having to rely on a manager or server. The company signed up 2.6 million members in just over two months since the national launch.
A peek into the restaurant industry
Eating out has become a fashion now, and perceptions have changed. There is a constant rise in the disposable income of people around the world, and eating out is comforting, too. There is an improvement in the economy.
According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this was the strongest three-month period). Consumer behaviour has changed, and so the restaurants have come up with different marketing strategies – loyalty programs, ordering, etc. According to a market research firm NPD Group, restaurant traffic will increase 1% in 2015, an improvement over a flat 2014 guest count.
As per a report submitted by National Research Association, restaurant industry will reach some landmark numbers in 2015 – more than $709 billion in sales, 1 million locations and 14 million employees.
On a Concluding Note
The company delivered solid sales and earnings performance for fiscal 2015, and improved margins for both the fourth quarter and fiscal year. It is focused on long-term strategy to deliver top line growth and increased shareholder value. On an annual basis, it delivered fifth consecutive year of double-digit earnings per share growth and are on target to achieve a $4.00 dollar EPS goal by Fiscal 2017.
The acquisition of 103 Chili's Grill & Bar restaurants represents a compelling opportunity to create value for the shareholders and generate additional earnings and cash flow growth. It is a good player indeed and has a flourishing restaurant business. It is concentrating on advertising campaigns and innovation. It is constantly working to cater a diversified menu to its customers.
It is expected to grow further in 2015. It has a rich valuation. It is continuing to create memorable customer experiences, which in turn is ensuring customer loyalty and brand reputation. It is finding new ways to cater to its customers. I would recommend this company a buy as of now.
