Brinker International Inc. (EAT) recently reported third-quarter fiscal 2013 adjusted earnings of 72 cents per share, beating the Zacks Consensus Estimate by 4.3%. The earnings were also up 20% from the year-ago quarter, driven by the company’s higher margins and “Plan to Win” initiative.
Quarterly revenues remained nearly flat year over year to $742.8 million. However, revenues missed the Zacks Consensus Estimate by approximately 1%. Brinker has witnessed a sluggish sales environment with negative company-owned comparable restaurant sales (comps) of 0.9% during the quarter. Comps in the quarter were affected by a 2.9% decline in traffic offsetting 1.5% rise in pricing and 0.5% improvement in mix-shift.
Brinker has also witnessed a 0.2% decline in system-wide comps as compared with a 4.2% rise in the same in the year-ago period.
Behind the Headline Numbers
Brinker International primarily engages in the ownership, operation, development and franchising of various restaurant brands under the names of Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s).
Chili's reported revenues of $632.6 million, down 0.7% year over year due to a 3.2% drop in traffic. Comps at Chili's Grill & Bar restaurant declined 1.1%.
Maggiano's sales nudged up 0.2% to $92.1 million in the quarter, buoyed by a 1.6% increase in pricing. Comps at Maggiano's inched up only 0.4% as compared with 3.9% in the year-ago period. Comps in the quarter were hurt by 0.2% fall in mix-shift and 1% decrease in menu price.
Franchise and Other revenues surged 38.2% to $18.1 million. Comps at franchised restaurants were up 1.3%, aided by a 5.1% growth in international franchise comps, partially offset by a 0.3% decline in domestic franchise comps.
Margins
Brinker’s restaurant operating margin expanded 70 basis points (bps) to 17.9% benefiting from increased margins in its two segments. Restaurant margins at Chili’s and Maggiano's also improved year over year, mainly due to reduced cost of sales.
Share Repurchase & Dividend
During the quarter, Brinker bought-back 1.8 million shares worth $60.4 million. In addition, Brinker also paid its regular quarterly dividend of 20 cents per share during the third quarter.
Unit Update
During the quarter, Brinker opened two international franchise restaurants while it has closed five franchised and two company-owned Chili’s units. At the end of the quarter, Brinker operated 1,588 restaurants, of which 865 were company-owned and the rest were franchised.
Outlook
Brinker has maintained its guidance for fiscal 2013. The company expects adjusted earnings per share in the range of $2.30–$2.45, up 17% to 25% year over year. The targeted growth is expected to come from 2%–3% comps growth, operating margin improvement of 100 bps and share count reduction of approximately 6%. Diluted weighted average shares outstanding are projected between 74 to 76 million in fiscal 2013.