Brinker International Management Discusses Q4 2012 Results - Earnings Call Transcript

Brinker International (EAT)

Q4 2012 Earnings Call

August 09, 2012 10:00 am ET

Executives

Tony Laday - Vice President of Investor Relations and Treasurer

Douglas H. Brooks - Executive Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Wyman T. Roberts - President of Chili's Grill & Bar

Guy J. Constant - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

John S. Glass - Morgan Stanley, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Eric Gonzalez - UBS Investment Bank, Research Division

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

Jeffrey F. Omohundro - Davenport & Company, LLC, Research Division

Peter Saleh - Telsey Advisory Group LLC

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

Howard W. Penney - Hedgeye Risk Management LLC

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Brinker International Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mr. Tony Laday. Sir, the floor is yours.

Tony Laday

Thank you, Kate. Good morning, everyone, and welcome to Brinker International's Fourth 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 response to your questions, certain items may be discussed, which are not based entirely on historical facts. Any such item 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 in 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 Financials section of the Investor tab.

Consistent with prior practice, we'll be silent on interperiod 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.

Douglas H. Brooks

Thank you, Tony. Good morning, everyone. I'm going to briefly share with you our company results for the fourth quarter and for the full year, then turn it over to Wyman and Guy for a deeper dive into Chili's and the results before we answer any questions you have.

As you saw in our press release this morning, we reported an adjusted fourth quarter earnings per share of $0.61, a 27% year-over-year increase, and an adjusted full year earnings per share of $1.96, a 29% year-over-year increase. Comp sales during the quarter increased 2.1% on a 0.9% gain in traffic. This was our sixth consecutive quarter of positive growth and we successfully lapped positive sales from last year.

These results are evidence that we continue to deliver on our promises. Over 2 years ago at our Investor Conference in Dallas, we told you we needed to rejuvenate our brands by improving service and food quality, while at the same time improving our profit and loss to drive margin improvements. We laid aggressive goals, and I want to update you on how we're performing against those goals.

Our fiscal '12 EPS of $1.96 puts us well on the way to reaching our EPS goal of $2.75 to $2.80. We've also achieved over half of our 400 basis point operating margin improvement. And I am confident that as we complete the rollout of our initiatives, we will achieve the remaining savings. And we've dramatically turned around our sales and traffic trends. We've achieved 6 consecutive quarters of positive growth, even in the midst of a challenging economic environment, and we continue to distance ourselves from our competitors and gain incremental market share. We achieved these results by changing the way we operate our restaurants, which has resulted in sustainable margin improvements. And we've taken those savings and reinvested them into the business to drive sales and traffic in a more predictable and sustainable way.

So at Chili's, highlights around their results. We ended the quarter up 2.2% in comp sales and positive 1.2% in traffic, 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 during the quarter, and I'll share with you the highlights of what's ahead for fiscal 2013.

At Maggiano's, Steve and his team continue to produce positive results, a 1.9% sales growth, making our 10th consecutive quarter of positive comp sales. They did have an 0.8% decrease in discounts, but a 170 basis point margin improvement, driven by improved kitchen training, more rigorous waste control and more disciplined daily prepping of food and some favorable impact from pricing. Maggiano's, already a strong brand, continues to strengthen its business model. And as I mentioned before, we are actively looking for real estate sites to grow the business.

In our global business, we grew comp sales by 1.3% and opened 10 net restaurants this quarter, bringing our total net restaurants opened in fiscal '12 to 22. We currently operate 257 Chili's and 1 Maggiano's restaurant in 31 countries and 2 territories. The drivers of our global business continued to be Mexico and the Middle East, which are important components of our long-term strategy.

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