Brinker International Inc. (EAT), the world’s leading casual dining restaurant company, reported first quarter 2011 adjusted earnings per share of 21 cents, surpassing the Zacks Consensus Estimate of 15 cents and 12 cents in the prior- year quarter. The upside in earnings was driven by reduced expenses and a lower tax rate.
On a GAAP basis, the owner of the Chili’s Grill & Bar and Maggiano’s Little Italy, reported first quarter earnings of 21 cents per share, which soared 40% from 15 cents posted in the year-ago quarter.
Quarter Performance
Total revenue dropped 6.0% year over yearto $654.9 million and missed the Zacks Consensus Estimate of $657 million. The year-over-year decline in revenues was due to sluggish comparable same-store sales.
The Chili’s Grill & Bar restaurant reported revenues of $557.8 million, down 7.7% year over year, as the restaurant continues to face challenges in improving comparable-restaurant sales. Moreover, 21 restaurants were sold to a franchisee and 9 were closed during the quarter. Maggiano’s sales spiked up 1.4% to $81.7 million, driven by a rise in traffic. The royalty and franchise revenues grew 3.4% to $15.4 million.
Comparable-restaurant sales at company-owned restaurants declined 4.2% year over year during the quarter. By restaurant concepts, comparable-restaurant sales fell 5.0% at Chili’s Grill & Bar, but rose 1.4% at Maggiano’s. The Chili’s Grill & Bar restaurant experienced a 8.1% drop in traffic, whereas at Maggiano’s, restaurant traffic rose by 3.2%.
The comparable-same store sales at franchised domestic restaurants plunged 5.8%, while it inched up 0.4% at international franchised restaurants.
Restaurant operating margin improved 190 basis points (bps) year over year to 15.0%, driven by contraction in restaurant labor and expenses.
Operating income leaped 77.9% year over year to $32.4 million, attributable to lower general and administrative expense and expansion in restaurant operating margin.
The Dallas-based restaurant pointed out that its tax rate was 20.4% during the quarter as compared with 23.4% in the first quarter of 2010.
During the quarter, 3 international franchise restaurants and 2 franchised restaurants at Chili’s brand were opened.
Financial Position
As of September 29, 2010, the company reported current assets of $357.3 million, and shareholder equity of $645.9 million. During the first quarter, the company repurchased 9.6 million shares for approximately $175.8 million and reduced its long-term debt by $5.5 million sequentially to $519.0 million. At the end of the first quarter, cash flow used in operating activities was $6.6 million and capital expenditures totaled $15.6 million.
The company paid a dividend of 14 cents per share in the first quarter, up 27.3% year over year.
Outlook
Brinker reaffirmed its adjusted earnings guidance range of $1.30 to $1.42 for fiscal 2011. The Zacks Consensus Estimate for fiscal 2011 is $1.34. The company continues to expect full-year revenues to decrease between 2% and 4% from the last year’s revenues of $2.86 billion. The company projects comparable-restaurant sales to be in a range of flat to negative 2%.
The company plans to open 45 to 53 franchise restaurants, including 10 to 13 franchise restaurants under Chili’s brand and 35 to 40 internationally.
Our Take
Brinker’s earnings increased, but revenues declined. The company continues to expect comparable resturants sales to be disappointing in 2011. As a result, share price closed at $18.33 on Wednesday, down 9% from the previous day price. Thus, estimates are most likely to decline in the coming days.
We have a Zacks #3 Rank (short-term Hold recommendation) on the shares. We also reiterate our long-term Neutral rating.
One of Brinker’s primary competitors, Buffalo Wild Wings Inc.’s (BWLD) has reported third quarter 2010 earnings of 47 cents a share, which surpassed the Zacks Consensus Estimate of 43 cents. The better-than-expected results were driven by double-digit growth in the top line and lower chicken wing prices.
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