Brinker International's CEO Discusses F3Q2012 Results - Earnings Call Transcript

Brinker International, Inc. (EAT)

F3Q12 Earnings Call

April 23, 2012 10:00 a.m. ET

Executives

Tony Laday – VP of IR, Treasury and Global Finance

Doug Brooks – Chairman, President and CEO

Guy Constant – EVP and CFO

Wyman Roberts – EVP and President, Chili's Grill & Bar

Analysts

Bryan Elliott – Raymond James

Jeff Bernstein – Barclays Capital

Michael Kelter – Goldman Sachs

John Glass – Morgan Stanley

John Ivankoe – JPMorgan

Joe Buckley – Bank of America-Merrill Lynch

Mitch Speiser – Buckingham Research

Peter Saleh - Telsey Advisory Group

Sara Senatore - Sanford Bernstein

David Palmer – UBS Securities LLC

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Brinker International Third 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 third 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. During our management comments and in our responses to your questions, certain items may be discussed which are not based entirely on historical facts. Any 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 risks and uncertainties which could cause actual results to differ from those anticipated. Such risks 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 the 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 Investors 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 third quarter, provide you with an update on the strategies that we are implementing to continue to strengthen our business model and then turn it over to Wyman and Guy for a deeper dives into Chili’s and the number and then open it up to Q&A.

As you saw in our press release this morning, our results demonstrate how we are strengthening our business model with a balanced approach that drives both top-line sales and is improving operational efficiencies. We reported an adjusted EPS of $0.60, a 28% increase year over year.

Comp sales during the quarter increased 4.5% on a 1.7% gain in traffic. This is our fifth consecutive quarter of positive growth and we have successfully lapped positive sales from last year. Our top line growth is a result of the changes we’ve made to our business to attract guests providing everyday value, enhancing our menu and upgrading our atmosphere.

Guests are responding positively to the value platforms that we’ve built into our menus with the $20 dinner for two and lunch combos at Chilli’s and classic pasta and Marco’s Meal for Two at Maggiano’s, as well as the investments we’ve made in the Chilli’s core menu. This quarter alone we’ve upgraded our steaks, our fajita meat and salad mix and we’ve refreshed our lunch combo platform. Our guests obviously like what we are doing and we continue to outperform the industry in traffic and sales allowing us to take share from our competitors.

As you know, we’ve also focused on strengthening our business model by improving our operating margins. We are changing the way we operate our restaurants to become more efficient which is resulting in sustainable margin improvements, increased consistency and a better guest experience.

Two years ago at our investor conference, we committed to improving our margins by 400 basis points. By the end of June, we will have reached more than half of that goal. And by the end of December, the new kitchen equipment and the point of sale systems will be fully rolled out to all of our restaurants. So these two important additions will be in place to help us pursue the rest of that goal.

Let me give you some highlights first about Chilli’s results. First, we ended the quarter up 4.6% in comp sales and 1.8% in traffic. And we continue to see operating margin expansion year over year despite commodity headwinds. In a few moments, Wyman will give you a closer look at how the team gained traction during the quarter and he’ll update you on the progress of our fiscal 2012 initiatives.

At Maggiano’s, Steve and his team continued to produce positive results: 3.9% sales growth marking our ninth consecutive quarter of positive comp sales and a 1.5% increase in guest counts representing the tenth consecutive quarter of positive traffic. Sales growth continues across every part of the Maggiano’s business: the dining room, banquet, to-go and delivery thanks to two main and key strategies. First, the value that we built into the menu and second, our direct marketing program which gives us the ability to target loyal guests and look for new prospects.

As I mentioned, we anticipate new restaurant growth at Maggiano’s, so we’re still actively looking for new sites and we’re excited about the growth potential of the Maggiano’s business.

In our global business, we grew comp sales by 2.6% and opened six net restaurants. Now since the end of the third quarter, we’ve opened three more restaurants bringing our total to 250 Chilli’s and one Maggiano’s. The drivers of our global business continue to be Mexico and the Middle East which are crucial components of our long term strategy.

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