Brinker International: Reports Q3/2010 EPS

Dallas / TX. (bi) Brinker International Inc. announced third quarter fiscal 2010 earnings per diluted share from continuing operations of 0,37 USD compared to 0,40 USD for the third quarter of fiscal 2009, before special items. On a GAAP basis, earnings per diluted share increased to 0,39 USD from 0,34 USD for the third quarter in the prior year.

Including On The Border Mexican Grill + Cantina, earnings per diluted share before special items was 0,42 USD for the third quarter fiscal 2010. The costs associated with implementing the new Chili´s menu lowered earnings by approximately 5,0 million USD before tax, weather negatively impacted comparable restaurant sales by approximately 90 basis points and the resolution of certain tax positions resulted in a positive impact of approximately 3,0 million USD to tax expense for the quarter.

In March, the company entered into a purchase agreement with OTB Acquisition LLC, an affiliate of Golden Gate Capital, to sell On The Border Mexican Grill + Cantina for approximately 180 million USD. Therefore, On The Border has been presented as discontinued operations in the company´s financial statements beginning in the third quarter of fiscal 2010. The company expects the transaction to close by the end of fiscal 2010 and anticipates recording a gain upon completion of the transaction. Earnings per diluted share from discontinued operations before special items of 0.05 USD was flat compared to the third quarter of the prior year. All amounts are related to continuing operations unless otherwise stated.

Quarterly Revenues

Brinker reported revenues for the 13-week period of 713,4 million USD, a decrease of 7,8 percent compared with 774,1 million USD reported for the same period of fiscal 2009. The company experienced a 4,2 percent decrease in comparable restaurant sales in the third quarter of fiscal 2010. Revenues were also negatively impacted by a net decline in capacity of 5,3 percent due to the sale of 21 restaurants to a franchisee and 19 restaurant closures since the third quarter of fiscal 2009. Royalty and franchise revenues were 16,5 million USD for the quarter.

Quarterly Operating Performance

Cost of sales, as a percent of revenues, increased to 28,5 percent in the third quarter of fiscal 2010 as compared to 28,2 percent in the prior year. During the quarter, cost of sales was negatively impacted by promotions and the impact of the new menu rollout at Chili´s, partially offset by favorable commodity prices primarily related to beef and chicken and favorable menu price changes.

Restaurant expenses, as a percent of revenues, increased to 54,7 percent from 54,1 percent in the prior year primarily due to the impact of the new menu rollout at Chili´s. Restaurant expenses were favorably impacted for the quarter by lower utilities, property taxes and changes to the blend of advertising.

Depreciation and amortization decreased 2,6 million USD compared to the prior year due to fully depreciated assets and restaurant closures, partially offset by investments in existing restaurants.

General and administrative expense decreased 3,2 million USD for the quarter primarily due to lower legal expenses and salary expense from lower headcount. Other gains and charges primarily include 4,0 million USD of lease termination charges related to the company´s decision in the second quarter of fiscal 2010 to close underperforming restaurants. Interest expense decreased 1,0 million USD due to lower interest rates and lower average borrowings.

The effective income tax rate decreased to 19,7 percent in the current quarter as compared to 29,4 percent in the same quarter last year primarily due to the resolution of certain tax positions which resulted in a positive impact to tax expense in the current quarter. Income from discontinued operations, before special items, decreased to 5,3 million USD from 5,6 million USD in the same quarter in the prior year.

Cash Flow and Capital Allocation

For the first nine months of fiscal 2010, cash flow from continuing operations increased to 222,6 million USD compared to 159,8 million USD in the prior year. Capital expenditures totaled 31,6 million USD, a reduction of 38,9 million USD compared to the prior year resulting from a decrease in new company-owned restaurant development. The company expects to pay 50,0 million USD on the outstanding term loan later this month which will reduce the balance to 200,0 million USD.