Brinker International, Inc.

FQ2 2012 Earnings Call

January 24, 2012 09:00 am ET

Executives

Tony Laday – VP of IR, Treasury and Global Finance

Doug Brooks – Chairman and Chief Executive Officer

Guy Constant – Chief Financial Officer

Wyman Roberts – President, Chili's Grill & Bar

Analysts

John Glass – Morgan Stanley

Joe Buckley – Bank of America-Merrill Lynch

John Ivankoe – JPMorgan

Michael Kelter – Goldman Sachs

Bryan Elliott – Raymond James

Jeff Bernstein – Barclays Capital

David Palmer – UBS

Mitch Speiser – Buckingham Research

Brad Ludington – KeyBanc Capital Markets

Chris O'Cull – SunTrust

Destin Tompkins – Morgan Keegan

Presentation

Operator

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Good morning, ladies and gentlemen, and welcome to the Brinker International Second Quarter 2012 Earnings Conference Call. (Operator instructions.) It’s now my pleasure to turn the floor to your host, Mr. Tony Laday. Sir, the floor is yours.

Tony Laday

Thank you Everett. Good morning, everyone, and welcome to Brinker International’s Second Quarter Fiscal 2012 Earnings Call, which is also being broadcast live over the Internet.

Before turning the call over, let me quickly remind you of our safe harbor regarding forward-looking statements. Through our management comments and in our responses to your questions, certain items may be discussed which are not based entirely on historical facts. These such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risk and uncertainties which could cause actual results to differ from those anticipated. Such risk and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC.

On the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. Reconciliations are provided in the tables in the press release and on Brinker's website under the financial section of the Investor tab.

Consistent with prior practice, we'll be silent on intra-period sales or other key operating results yet to be reported as the data may not accurately reflect the final results of the quarter referenced.

On our call today, you will hear from Doug Brooks, Chairman and Chief Executive Officer; Guy Constant, Chief Financial Officer; and Wyman Roberts, President of Chili's Grill & Bar. Following their remarks, we will take your questions.

Now I will turn the call over to Doug.

Doug Brooks

Thank you, Tony. Good morning, everyone. I’m going to briefly share with you our company results for the second quarter, how our strategies continue to yield wins for our guests, team members and shareholders, then turn it over, as usual, to Wyman and Guy for a deeper dive into Chili’s and the results at Brinker before we answer your questions.

As you saw in our press release this morning, we reported an adjusted second quarter earnings per share of $0.47, a 24% increase year over year. Brinker comparable sales during the quarter increase 1.7% on a 1% gain in traffic. That is our fourth consecutive quarter of positive growth. These results demonstrate how we’re delivering on our promise to strengthen our overall business model with a balanced approach that drives top line sales, improves operational efficiencies, and increases shareholder value.

Our top line strategy of providing everyday value is attracting guests to our restaurants and allowing us to continue to outperform the industry in traffic growth. So, our primary value platforms, again—first, Chili’s $20 Dinner for Two; second, our lunch platform at Chili’s; three, Maggiano’s classic pasta; and fourth, our latest offering at Maggiano’s, Marco’s Meal for Two continues to be important and appealing to our guests. And, we continue to bring new news to these offerings to keep them relevant and fresh.

At the same time, as you know, we’re focused on improving our operating margins by 400 basis points. The initiatives we implemented last year gave us an impressive start towards achieving that goal and we continue excellent initiatives along with new initiatives in pursuit of our goal. These initiatives are delivering results because we’re taking a disciplined approach that ensures everything we do improves our margin and positively impacts our guests, our team members and our shareholders. So, we’re not just cutting costs. We’re changing the way we operate our restaurants to become more efficient, which is resulting in sustainable margin improvements, increased consistency and better guest service.

Let me give you some highlights around Chili’s results. We ended the quarter up 1.4% positive comp sales and 1.1% positive traffic. That is our third consecutive quarter of positive growth. And, we continue to see operating margin expansion year over year despite commodity headwinds. In a few minutes, Wyman will give you a closer look at how the team gained traction around the quarter and he’ll update you on the progress of our fiscal 2012 initiatives.

Now, Maggiano’s president Steve Provost and his team produced solid results this quarter by growing everyday dining along with their traditional special occasion business. As you know, the second quarter is an exceptionally strong period, and an important period for Maggiano’s with December being the peak month for special occasion and private dining. We continue to see that trend this year as banquet sales grew 9.1% in December, contributing to the following results for the quarter. 2.8% positive sales growth—that is our eight consecutive quarter of positive comp sales, and a 0.6% increase in guest counts, representing the ninth consecutive quarter of positive traffic.

Although Maggiano’s is lapping strong sales growth from last year, we’ve continued to drive sales momentum across every part of the business—the dining room, the banquets, our to-go and delivery, and it’s thanks to two key strategies. First, the value that we’ve built into the menu, which has transitioned Maggiano’s beyond just a special occasion restaurant, and second, our direct marketing program, which gives us the ability to use direct mail and e-mail to target loyal guests and new prospects in every trade area.

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