BRINKER INTERNATIONAL, INC. General
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help you understand our Company,
our operations and our current operating environment. For an understanding of
the significant factors that influenced our performance during the thirteen and
twenty-six week periods ended December 28, 2022 and December 29, 2021 , the MD&A
should be read in conjunction with the Consolidated Financial Statements
(Unaudited) and related Notes to Consolidated Financial Statements (Unaudited)
included in this quarterly report. All amounts within the MD&A are presented in
millions unless otherwise specified.
Overview
We are principally engaged in the ownership, operation, development and
franchising of the Chili's® Grill & Bar ("Chili's") and Maggiano's Little Italy®
("Maggiano's") restaurant brands, as well as virtual brands including It's Just
Wings® and Maggiano's Italian Classics®. As of December 28, 2022 , we owned,
operated or franchised 1,648 restaurants, consisting of 1,182 Company-owned
restaurants and 466 franchised restaurants, located in the United States , 28
countries and two United States territories. Our restaurant brands, Chili's and
Maggiano's, are both operating segments and reporting units.
19
--------------------------------------------------------------------------------
Table of Contents
COVID-19 Pandemic and Other Impacts to Our Operating Environment
During fiscal 2022, increasing COVID-19 cases in the United States , including
the Omicron variant, significantly impacted our guest traffic and sales. Many of
our restaurants had face mask requirements and some of our restaurants had proof
of vaccination requirements, for our customers, team members or both. During
fiscal 2022 and fiscal 2023, our operating results were impacted by geopolitical
and other macroeconomic events, leading to higher than usual inflation on wages
and food and beverage costs. The ongoing effects of COVID-19 and its variants,
along with other geopolitical and macroeconomic events could lead to further
capacity restrictions, mask and vaccine mandates, wage inflation, staffing
challenges, product cost inflation and disruptions in the supply chain that
impact our restaurants' ability to obtain the products needed to support their
operation. Such events could also negatively affect consumer spending
potentially reducing guest traffic and/or reducing the average amount guests
spend in our restaurants.
Operations Strategy
We are committed to strategies and a Company culture that we believe will grow
sales, increase profits, bring back guests and engage team members. Our
strategies and culture are intended to strengthen our position in casual dining
and grow our core business over time. Our primary brand strategy is to make our
guests feel special through great food and quality service so that they return
to our restaurants.
Guest Engagement Through Technology - We have invested in our technology and
off-premise options as more guests are opting for To-Go and delivery. We
expanded partnerships with third-party delivery companies, and Chili's,
Maggiano's, and It's Just Wings brands are currently available on DoorDash, Uber
Eats , and Grubhub. Orders to these third-party delivery companies are sent
directly into our point of sale system, creating efficiencies and a system that
allows us to better serve our guests. We believe that guests will continue to
prefer convenience and off-premise options. We plan to continue investments in
our technology systems to support our To-Go and delivery capabilities.
In dining rooms, we use tabletop devices to engage our guests at the table.
These devices provide functionality for guests to pay at the table, order or
re-order, engage in digital entertainment, to provide guest feedback and
interact with our My Chili's Rewards program. Our My Chili's Rewards loyalty
program offers free chips and salsa or a non-alcoholic beverage to members based
on their visit frequency. We customize offerings for these guests based on their
purchase behavior.
Chili's - Chili's strategy is to differentiate from our competitors with a
flexible platform of value offerings at both lunch and dinner and we are
committed to offering consistent, quality products at a price point that is
compelling to our guests. We discontinued the 3 for $10.99 platform during the
fourth quarter of fiscal 2022 and replaced it with 3 for Me, a flexible value
bundle providing guests an unbeatable everyday value, while allowing us to be
more flexible in terms of pricing, in light of the inflationary challenges.
Guests can order customized meals inclusive of a non-alcoholic drink, appetizer
and entrée starting at just $10.99 . The bundle can be augmented with a premium
appetizer, dessert, or alcoholic beverage, each for just $2.49 extra.
Additionally, we have continued our Margarita of the Month promotion that
features a premium-liquor margarita every month at an every-day value price.
Most of our value propositions are available for guests to enjoy in our dining
rooms or off-premise.
Maggiano's - At Maggiano's, we believe our focus on operating fundamentals and
technology provide the foundation for future efficiencies and growth. For
example, Maggiano's partnerships with delivery service providers make third
party delivery more sustainable and efficient for the brand to operate. In
addition, our guests have the ability to order delivery directly through the
Maggiano's website. Maggiano's historically hosts a significant portion of its
banquets in the holiday season during the second and third quarters of the
fiscal year.
Virtual Brands - We have invested in virtual brands, restaurant-like menu
offerings that are only available for purchase digitally, to drive restaurant
traffic and sales growth at both Chili's and Maggiano's. Our virtual brands have
enabled us to capitalize on the growth in off-premise dining and to leverage
excess kitchen capacity in our existing restaurant infrastructure, while adding
minimal complexity in our restaurants' kitchens.
20
--------------------------------------------------------------------------------
Table of Contents
It's Just Wings, is an offering consisting of chicken wings available in a
variety of different sauces and rubs, curly fries, ranch dressing and hand pies
for a value price. Maggiano's Italian Classics offers a select group of items
inspired by the menu of Maggiano's Little Italy including several appetizers,
salads, pastas, entrées, mac & cheese and hand pies.
These brands are available for purchase through our third party service
providers and the brand-specific websites itsjustwings.com and
maggianosclassics.com. The operating results for the virtual brands are included
in the results of our Chili's and Maggiano's brands, based on the restaurants
that prepared and processed the food orders.
Franchise Partnerships - Our franchisees continue to grow our brands around the
world, opening nine restaurants for the twenty-six week period ended December
28, 2022 . We plan to strategically pursue expansion of Chili's internationally
through development agreements with new and existing franchise partners. We are
also supporting our franchise partners with opportunities to expand sales
through our virtual brand offerings.
Openings During the Openings During the Full Year
Thirteen Week Periods Ended Twenty-Six Week Periods Ended Projected Openings Total Open Restaurants at
December 29, December 29,
December 28, 2022 2021 December 28, 2022 2021 Fiscal 2023 December 28, 2022 December 29, 2021
Company-owned restaurants
Chili's domestic 4 1 4 2 14 1,126 1,125
Chili's international - - - - - 5 5
Maggiano's domestic - - - - - 51 52
Total Company -owned 4 1 4 2 14 1,182 1,182
Franchise restaurants
Chili's domestic - 1 1 1 1 101 109
Chili's international 6 5 8 8 16-20 363 360
Maggiano's domestic - - - - - 2 2
Total franchise 6 6 9 9 17-21 466 471
Total restaurants
Chili's domestic 4 2 5 3 15 1,227 1,234
Chili's international 6 5 8 8 16-20 368 365
Maggiano's domestic - - - - - 53 54
Total 10 7 13 11 31-35 1,648 1,653
Relocations are not included in the table above. We relocated one Chili's domestic Company-owned restaurant during the second quarter of fiscal 2023.
At
Revenues
Thirteen and Twenty-Six Week Periods Ended
Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive (Loss) Income (Unaudited) to provide more clarity around Company-owned restaurant revenues and operating expenses trends:
21
--------------------------------------------------------------------------------
Table of Contents
•Company sales include revenues generated by the operation of Company-owned
restaurants including food and beverage sales, net of discounts, Maggiano's
banquet service charge income, gift card breakage, delivery income, digital
entertainment revenues, merchandise income and gift card discount costs from
third-party gift card sales.
•Franchise revenues include royalties, franchise advertising fees, franchise and development fees and gift card equalization.
The following is a summary of the change in Total revenues:
Total Revenues
Chili's Maggiano's Total Revenues
Thirteen Week Period Ended December 29, 2021 $ 808.2 $ 117.6 $ 925.8
Change from:
Comparable restaurant sales 60.4 23.2 83.6
Restaurant acquisitions(1) 11.9 - 11.9
Restaurant openings 4.4 - 4.4
Maggiano's banquet income - 1.7 1.7
Gift card discount costs 0.4 0.1 0.5
Gift card breakage (2.4) (0.3) (2.7)
Digital entertainment revenues 0.7 - 0.7
Merchandise income 0.1 - 0.1
Delivery service fee income (1.0) 0.3 (0.7)
Restaurant closures (3.6) (2.3) (5.9)
Company sales 70.9 22.7 93.6
Franchise revenues(2) (0.4) - (0.4)
Thirteen Week Period Ended
$ 1,019.0 Total Revenues Chili's Maggiano's Total Revenues
Twenty-Six Week Period Ended
206.4 $ 1,802.2
Change from:
Comparable restaurant sales 88.9 38.5 127.4
Restaurant acquisitions(1) 45.6 - 45.6
Restaurant openings 7.0 - 7.0
Maggiano's banquet income - 2.8 2.8
Gift card discount costs 0.7 0.2 0.9
Gift card breakage (2.0) (0.3) (2.3)
Merchandise income 0.1 - 0.1
Digital entertainment revenues 1.1 - 1.1
Delivery service fee income (1.9) 0.4 (1.5)
Restaurant closures (4.9) (2.1) (7.0)
Company sales 134.6 39.5 174.1
Franchise revenues(2) (1.8) - (1.8)
Twenty-Six Week Period Ended
245.9
(1)We acquired 23 Chili's restaurants onSeptember 2, 2021 , 37 Chili's restaurants onOctober 31, 2021 , six Chili's restaurants onFebruary 1, 2022 and two Chili's restaurants onMay 5, 2022 from three franchisees. The revenues generated by these restaurants since the date of the acquisitions are included in Company 22
-------------------------------------------------------------------------------- Table of Contents sales for the thirteen and twenty-six week periods endedDecember 28, 2022 . (2)Our Chili's and Maggiano's franchisees generated sales of approximately$213.4 million and$2.6 million and$419.0 million and$5.0 million respectively for the thirteen and twenty-six week periods endedDecember 28, 2022 compared to$201.8 million and$2.2 million and$415.1 million and$4.2 million respectively in sales for the thirteen and twenty-six week periods endedDecember 29, 2021 . Franchise revenues decreased primarily because of lower royalties due to variance in royalty rates, and lower franchise advertising fees.
The table below presents the percentage change in comparable restaurant sales
and restaurant capacity for the thirteen and twenty-six week periods ended
Percentage Change in the
Thirteen Week Period Ended
Comparable Restaurant
Sales(1) Price Impact Mix-Shift Impact(2) Traffic Impact Restaurant Capacity(3)
Company-owned 9.7 % 9.7 % 5.5 % (5.5) % 0.9 %
Chili's 8.0 % 10.0 % 5.6 % (7.6) % 1.1 %
Maggiano's 21.2 % 7.7 % 5.1 % 8.4 % (1.9) %
Franchise(4) 6.2 %
U.S. 4.1 %
International 7.3 %
Chili's domestic(5) 7.5 %
System-wide(6) 9.1 %
Percentage Change in the
Twenty-Six Week Period Ended
Comparable Restaurant
Sales(1) Price Impact Mix-Shift Impact(2) Traffic Impact Restaurant Capacity(3)
Company-owned 7.6 % 8.5 % 4.3 % (5.2) % 3.0 %
Chili's 5.9 % 8.7 % 4.3 % (7.1) % 3.2 %
Maggiano's 19.9 % 6.9 % 4.2 % 8.8 % (1.0) %
Franchise(4) 6.4 %
U.S. 1.8 %
International 8.9 %
Chili's domestic(5) 5.4 %
System-wide(6) 7.3 %
(1)Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months. Restaurants temporarily closed 14 days or more are excluded from Comparable Restaurant Sales. Percentage amounts are calculated based on the comparable periods year-over-year.
(2)Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests.
(3)Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the acquisitions completed during fiscal 2022.
(4)Chili's and Maggiano's franchise sales generated by franchisees are not included in Total revenues in the Consolidated Statements of Comprehensive (Loss) Income (Unaudited); however, we generate royalty revenues and advertising fees based on franchisee revenues, where applicable. We believe presenting Franchise Comparable Restaurant Sales provides investors relevant information regarding total brand performance. (5)Chili's domestic Comparable Restaurant Sales percentages are derived from sales generated by Company-owned and franchise-operated Chili's restaurants inthe United States . 23
-------------------------------------------------------------------------------- Table of Contents (6)System-wide Comparable Restaurant Sales are derived from sales generated by Chili's and Maggiano's Company-owned and franchise-operated restaurants.
Costs and Expenses
Thirteen Week Period Ended
The following is a summary of the changes in Costs and Expenses:
Thirteen Week Periods Ended
December 28, 2022 December 29, 2021 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 289.4 28.7 % $ 252.8 27.6 % $ (36.6) (1.1) %
Restaurant labor 334.6 33.1 % 315.4 34.4 % (19.2) 1.3 %
Restaurant expenses 268.4 26.6 % 236.7 25.9 % (31.7) (0.7) %
Depreciation and amortization 41.8 41.6 (0.2)
General and administrative 35.6 33.1 (2.5)
Other (gains) and charges 8.5 6.4 (2.1)
Interest expenses 13.9 11.2 (2.7)
Other income, net (0.3) (0.5) (0.2)
As a percentage of Company sales:
•Food and beverage costs increased 1.1%, including 4.6% of higher meat, poultry and other commodity costs due to inflationary pressures, partially offset by 2.7% of increased menu pricing 0.8% of favorable menu item mix. •Restaurant labor decreased 1.3%, including 2.7% of sales leverage and 0.4% of lower other labor expenses, partially offset by 0.8% of higher hourly labor expenses primarily due to increased wage rates and staffing levels, 0.6% of higher manager expenses due to increased manager salaries and headcount, and 0.4% of higher manager bonus. •Restaurant expenses increased 0.7%, including 0.8% of higher repairs and maintenance expenses, 0.4% of higher delivery fees due to increased volume and promotions, 0.2% of higher utilities expenses, 0.2% of higher workers' compensation and general liability expenses, 0.2% of higher rent and 0.5% of higher other restaurant expenses, partially offset by 1.6% of sales leverage.
Depreciation and amortization increased
Depreciation and
Amortization
Thirteen Week Period Ended December 29, 2021 $ 41.6 Change from: Additions for new and existing restaurant assets 5.0 Acquisition of Chili's restaurants(1) 0.8 Corporate assets 0.5 Retirements and fully depreciated restaurant assets (4.7) Finance leases (1.3) Other (0.1) Thirteen Week Period EndedDecember 28, 2022
$ 41.8
(1)Represents the incremental depreciation and amortization of the assets and
finance leases of the 45 Chili's restaurants acquired subsequent to the first
quarter of fiscal 2022.
24-------------------------------------------------------------------------------- Table of Contents General and administrative expenses increased$2.5 million as follows: General and Administrative Thirteen Week Period Ended December 29, 2021 $ 33.1 Change from: Performance-based compensation 6.2 Defined contribution plan employer expenses 0.6 Payroll expenses 0.3 Stock-based compensation(1) (4.3) Professional fees (0.3) Travel and entertainment expenses
(0.1)
Other 0.1 Thirteen Week Period Ended December 28, 2022 $ 35.6
(1)Stock-based compensation decreased due to the reversal of performance-based award expense as certain performance targets are no longer expected to be achieved.
Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges):
Thirteen Week Periods Ended
December 28, December 29,
2022 2021
Restaurant closure charges $ 3.3 $ 0.3
Severance and other benefit charges 2.4 -
Loss from natural disasters, net of (insurance recoveries) 1.1 0.2
Enterprise system implementation costs 1.0 0.3
Remodel-related costs 0.2 1.6
Lease contingencies - 2.9
Other 0.5 1.1
$ 8.5 $ 6.4
Interest expenses increased
25--------------------------------------------------------------------------------
Table of Contents
Twenty-Six Week Period Ended
The following is a summary of the changes in Costs and Expenses:
Twenty-Six Week Periods Ended
December 28, 2022 December 29, 2021 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 578.9 29.6 % $ 487.1 27.3 % $ (91.8) (2.3) %
Restaurant labor 665.2 34.0 % 620.3 34.8 % (44.9) 0.8 %
Restaurant expenses 537.2 27.5 % 468.0 26.3 % (69.2) (1.2) %
Depreciation and amortization 83.7 80.9 (2.8)
General and administrative 75.1 69.6 (5.5)
Other (gains) and charges 13.5 10.9 (2.6)
Interest expenses 26.2 23.7 (2.5)
Other income, net (0.7) (0.8) (0.1)
As a percentage of Company sales:
•Food and beverage costs increased 2.3%, including 5.5% of higher poultry, meat, produce, and other commodity costs due to inflationary pressures, partially offset by 2.3% of increased menu pricing and 0.9% of favorable menu item mix.
•Restaurant labor decreased 0.8%, including 2.2% of sales leverage, partially offset by 0.9% of higher hourly labor expenses primarily due to increased wage rates and staffing levels, 0.6% of increased manager salaries and headcount, 0.3% of increased manager bonus, and 0.4% of higher other labor expenses.
•Restaurant expenses increased 1.2%, driven by 0.7% of higher repairs and maintenance expenses, 0.7% of higher delivery fee expenses, 0.4% of higher utilities expenses, 0.2% of higher rent expenses, 0.2% of higher workers' compensation and general liability expenses, and 0.4% of higher other restaurant expenses, These increases were partially offset by 1.4% of sales leverage.
Depreciation and amortization increased
Depreciation and
Amortization
Twenty-Six Week Period Ended December 29, 2021 $ 80.9 Change from: Additions for existing and new restaurant assets 10.3 Acquisition of Chili's restaurants(1) 3.1 Corporate assets 1.0 Retirements and fully depreciated restaurant assets (9.7) Finance leases (1.8) Other (0.1) Twenty-Six Week Period EndedDecember 28, 2022
$ 83.7
(1)Represents the incremental depreciation and amortization of the assets and finance leases of the 68 Chili's restaurants acquired in fiscal 2022.
26
--------------------------------------------------------------------------------
Table of Contents
General and administrative expenses increased $5.5 million as follows:
General and Administrative
Twenty-Six Week Period EndedDecember 29, 2021 $
69.6
Change from: Performance-based compensation 7.2 Payroll expenses 1.2 Recruiting 0.4 Stock-based compensation(1) (4.1) Professional fees (1.4) Other 2.2 Twenty-Six Week Period EndedDecember 28, 2022 $
75.1
(1)Stock-based compensation decreased due to the reversal of performance-based award expense as certain performance targets are no longer expected to be achieved.
Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges):
Twenty-Six Week Periods Ended
December 28, December 29,
2022 2021
Restaurant closure charges $ 4.8 $ 0.5
Severance and other benefit charges 2.9 -
Enterprise system implementation costs 2.0 0.9
Loss from natural disasters, net of (insurance recoveries) 0.9 0.8
Remodel-related costs 1.0 3.1
Lease contingencies - 2.9
Other 1.9 2.7
$ 13.5 $ 10.9
Income Taxes
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 28, December 29, December 28, December 29,
2022 2021 2022 2021
Effective income tax rate (3.0) % 5.2 % 50.0 % 4.0 %
The federal statutory tax rate was 21.0% for the thirteen and twenty-six week
periods ended
The change in the effective income tax rate in the thirteen week period endedDecember 28, 2022 to the thirteen week period endedDecember 29, 2021 , is primarily due to the favorable impact from the FICA tip tax credit, partially offset by the excess tax shortfalls associated with stock-based compensation. The change in the effective income tax rate in the twenty-six week period endedDecember 28, 2022 to the twenty-six week period endedDecember 29, 2021 , is primarily due to lower Income before income taxes and leverage of the FICA tip credit, partially offset by the excess tax shortfalls associated with stock-based compensation. 27 --------------------------------------------------------------------------------
Table of Contents Segment Results Chili's Segment
Thirteen Week Period Ended
Thirteen Week Periods Ended Favorable
December 28, December 29, (Unfavorable) Variance as
2022 2021 Variance percentage
Company sales $ 869.3 $ 798.4 $ 70.9 8.9 %
Franchise revenues 9.4 9.8 (0.4) (4.1) %
Total revenues $ 878.7 $ 808.2 $ 70.5 8.7 %
Chili's Total revenues increased by 8.7% primarily due to menu price increases,
favorable menu item mix, the acquisition of 45 Chili's restaurants subsequent to
the first quarter of fiscal 2022, and seven restaurant openings, partially
offset by lower traffic. Refer to "Revenues" section above for further details
about Chili's revenues changes.
The following is a summary of the changes in Chili's operating costs and
expenses:
Thirteen Week Periods Ended
December 28, 2022 December 29, 2021 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 253.7 29.2 % $ 224.8 28.2 % $ (28.9) (1.0) %
Restaurant labor 292.3 33.6 % 277.6 34.8 % (14.7) 1.2 %
Restaurant expenses 234.1 26.9 % 205.0 25.6 % (29.1) (1.3) %
Depreciation and amortization 36.0 35.4 (0.6)
General and administrative 8.5 7.2 (1.3)
Other (gains) and charges 5.7 2.2 (3.5)
As a percentage of Company sales
•Chili's Food and beverage costs increased 1.0%, including 4.9% of higher
poultry, meat, produce and other commodity costs due to inflationary pressures,
partially offset by 2.8% of increased menu pricing and 1.1% of favorable menu
item mix.
•Chili's Restaurant labor decreased 1.2%, including 2.4% of sales leverage, 0.3%
of lower health insurance expenses and 0.1% of other labor expenses, partially
offset by 0.8% of increased manager salary rates, headcount and bonus and 0.8%
of higher hourly labor driven by increased hourly wage rates and staffing
levels.
•Chili's Restaurant expenses increased 1.3%, including 1.1% of higher repairs
and maintenance expenses, 0.5% of higher rent expenses, 0.4% of higher delivery
fee expenses, 0.4% of higher utilities expenses, 0.2% of higher workers'
compensation and general liability expenses, 0.7% of higher other restaurant
expenses, partially offset by 2.0% of sales leverage.
28
--------------------------------------------------------------------------------
Table of Contents
Chili's Depreciation and amortization increased $0.6 million as follows:
Depreciation and
Amortization
Thirteen Week Period Ended December 29, 2021 $ 35.4 Change from: Additions for new and existing restaurant assets 4.7 Acquisition of Chili's restaurants(1) 0.8 Finance leases (1.2) Retirements and fully depreciated restaurant assets (3.6) Other (0.1) Thirteen Week Period EndedDecember 28, 2022
$ 36.0
(1)Represents the incremental depreciation and amortization of the assets and finance leases of the 45 Chili's restaurants acquired subsequent to the first quarter of fiscal 2022.
Chili's General and administrative increased
General and Administrative
Thirteen Week Period Ended December 29, 2021 $ 7.2
Change from:
Performance-based compensation 1.6
Payroll expenses 0.3
Defined contribution plan employer expenses 0.1
Stock-based compensation (0.6)
Other (0.1)
Thirteen Week Period Ended December 28, 2022 $ 8.5
Chili's Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges):
Thirteen Week Periods Ended
December 28, December 29,
2022 2021
Restaurant closure charges $ 3.1 $ 0.3
Loss from natural disasters, net of (insurance recoveries) 1.1 0.2
Severance and other benefit charges 1.0 -
Remodel-related costs 0.2 1.6
Other 0.3 0.1
$ 5.7 $ 2.2
29--------------------------------------------------------------------------------
Table of Contents Twenty-Six Week Period EndedDecember 28, 2022 compared toDecember 29, 2021 Twenty-Six Week Periods Ended Favorable December 28, December 29, (Unfavorable) Variance as 2022 2021 Variance percentage Company sales$ 1,709.9 $ 1,575.3 $ 134.6 8.5 % Franchise revenues 18.7 20.5 (1.8) (8.8) % Total revenues$ 1,728.6 $ 1,595.8 $ 132.8 8.3 % Chili's Total revenues increased 8.3% primarily due to price increases, favorable menu item mix, the acquisition of 68 Chili's restaurants in fiscal 2022 and seven restaurant openings, partially offset by lower traffic. Refer to "Revenues" section above for further details about Chili's revenues changes. The following is a summary of the changes in Chili's operating costs and expenses: Twenty-Six Week Periods Ended December 28, 2022 December 29, 2021 Favorable (Unfavorable) Variance % of Company % of Company % of Company Dollars Sales Dollars Sales Dollars Sales Food and beverage costs$ 514.6 30.1 %$ 438.2 27.8 %$ (76.4) (2.3) % Restaurant labor 586.7 34.3 % 551.1 35.0 % (35.6) 0.7 % Restaurant expenses 471.0 27.6 % 409.6 26.0 % (61.4) (1.6) % Depreciation and amortization 72.0 68.4 (3.6) General and administrative 18.0 15.2 (2.8) Other (gains) and charges 8.7 5.0 (3.7)
As a percentage of Company sales:
•Chili's Food and beverage costs increased 2.3%, including 5.8% of higher poultry, meat, poultry and other commodity costs resulting from inflationary pressures, partially offset by 2.4% of increased menu pricing and 1.1% of favorable menu item mix.
•Chili's Restaurant labor decreased 0.7%, including 1.7% of sales leverage and 0.3% of lower other restaurant labor costs, partially offset by 0.8% of increased manager salaries, headcount and bonus and 0.5% of higher hourly labor expenses primarily due to increased wage rates and staffing levels. •Chili's Restaurant expenses increased 1.6%, including 0.7% of higher repairs and maintenance expenses, 0.7% of higher delivery fee expenses, 0.4% of higher utilities expenses, 0.2% of higher rent expenses, and 0.4% of higher other restaurant expenses, partially offset by 0.8% of sales leverage.
Chili's Depreciation and amortization increased
Depreciation and
Amortization
Twenty-Six Week Period Ended December 29, 2021 $ 68.4 Change from: Additions for existing and new restaurant assets 9.6 Acquisition of Chili's restaurants(1) 3.1 Retirements and fully depreciated restaurant assets (7.3) Finance leases (1.7) Other (0.1) Twenty-Six Week Period EndedDecember 28, 2022
$ 72.0
(1)Represents the incremental depreciation and amortization of the assets and finance leases of the 68 Chili's restaurants acquired in fiscal 2022.
30
--------------------------------------------------------------------------------
Table of Contents
Chili's General and administrative increased $2.8 million as follows:
General and Administrative
Twenty-Six Week Period EndedDecember 29, 2021 $
15.2
Change from:
Performance-based compensation 2.0 Payroll expenses 0.8 Recruiting 0.5 Stock-based compensation (0.8) Other 0.3 Twenty-Six Week Period EndedDecember 28, 2022 $
18.0
Chili's Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges):
Twenty-Six Week Periods Ended
December 28, December 29,
2022 2021
Restaurant closure charges $ 4.2 $ 0.5
Loss from natural disasters, net of (insurance recoveries) 0.9 0.8
Severance and other benefit charges 1.4 -
Remodel-related costs 1.0 3.0
Other 1.2 0.7
$ 8.7 $ 5.0
31-------------------------------------------------------------------------------- Table of Contents Maggiano's Segment
Thirteen Week Period Ended
Thirteen Week Periods Ended Favorable
December 28, December 29, (Unfavorable) Variance as a
2022 2021 Variance percentage
Company sales $ 140.1 $ 117.4 $ 22.7 19.3 %
Franchise revenues 0.2 0.2 - - %
Total revenues $ 140.3 $ 117.6 $ 22.7 19.3 %
Maggiano's Total revenues increased 19.3% primarily due to higher dining room and banquet traffic and increased menu pricing. Refer to "Revenues" section above for further details about Maggiano's revenues changes.
The following is a summary of the changes in Maggiano's operating costs and
expenses:
Thirteen Week Periods Ended
December 28, 2022 December 29, 2021 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales Dollars Sales Dollars Sales
Food and beverage costs $ 35.7 25.5 % $ 28.0 23.9 % $ (7.7) (1.6) %
Restaurant labor 42.3 30.2 % 37.8 32.2 % (4.5) 2.0 %
Restaurant expenses 34.2 24.4 % 31.5 26.8 % (2.7) 2.4 %
Depreciation and amortization 3.3 3.4 0.1
General and administrative 1.5 1.9 0.4
Other (gains) and charges 0.3 - (0.3)
As a percentage of Company sales:
•Maggiano's Food and beverage costs increased 1.6%, including 2.6% of higher dairy, poultry and other commodity costs resulting from inflationary pressures and 0.9% of unfavorable menu item mix, partially offset by 1.7% of increased menu pricing.
•Maggiano's Restaurant labor decreased 2.0%, including 5.0% of sales leverage, 0.3% of lower manager training, and 0.2% of lower manager bonus, partially offset by 2.8% of higher hourly labor costs due primarily to an increase in hourly wage rates, and 0.7% of higher manager salaries.
•Maggiano's Restaurant expenses decreased 2.4%, including 2.7% of sales leverage, 0.3% of lower rent expenses, and 0.3% of lower other restaurant expenses, partially offset by 0.5% of higher delivery fees and 0.4% of higher repairs and maintenance expenses.
Twenty-Six Week Period EndedDecember 28, 2022 compared toDecember 29, 2021 Twenty-Six Week Periods Ended Favorable December 28, December 29, (Unfavorable) Variance as a 2022 2021 Variance percentage Company sales $ 245.6$ 206.1 $ 39.5 19.2 % Franchise revenues 0.3 0.3 - - % Total revenues $ 245.9$ 206.4 $ 39.5 19.1 %
Maggiano's Total revenues increased 19.1% primarily due to higher dining room and banquet traffic and increased menu pricing. Refer to "Revenues" section above for further details about Maggiano's revenues changes.
32--------------------------------------------------------------------------------
Table of Contents
The following is a summary of the changes in Maggiano's operating costs and
expenses:
Twenty-Six Week Periods Ended
December 28, 2022 December 29, 2021 Favorable (Unfavorable) Variance
% of Company % of Company % of Company
Dollars Sales
Dollars Sales Dollars Sales Food and beverage costs $ 64.3 26.2 %$ 48.9 23.7 %$ (15.4) (2.5) % Restaurant labor 78.5 32.0 % 69.2 33.6 % (9.3) 1.6 % Restaurant expenses 65.9 26.8 % 58.1 28.2 % (7.8) 1.4 % Depreciation and amortization 6.5 6.8 0.3 General and administrative 4.0 3.9 (0.1) Other (gains) and charges 0.8 0.2 (0.6)
As a percentage of Company sales:
•Maggiano's Food and beverage costs increased 2.5%, including 3.4% of higher poultry, dairy and other commodity costs resulting from inflationary pressures, 0.6% of unfavorable menu item mix, partially offset by 1.3% of increased menu pricing. •Maggiano's Restaurant labor decreased 1.6%, including 5.3% of sales leverage, 0.3% of lower manager bonus, and 0.3% of lower manager training, partially offset by 3.2% of higher hourly labor costs due primarily to an increase in hourly wage rates, 0.9% of higher manager salaries, and 0.2% of higher other labor expenses.
•Maggiano's Restaurant expenses decreased 1.4%, including 3.0% of sales leverage, partially offset by 0.7% of higher delivery fees, 0.4% of higher repairs and maintenance expenses, 0.3% of higher utilities expenses, and 0.2% of higher other restaurant expenses.
Liquidity and Capital Resources
Cash Flows
Cash Flows from Operating Activities
Twenty-Six Week Periods Ended Favorable
December 28, December 29, (Unfavorable)
2022 2021 Variance
Net cash provided by operating activities $ 68.0 $ 107.4 $ (39.4)
Net cash provided by operating activities decreased due to a decrease in net
income and an increase in income tax payments, net of refunds received,
partially offset by a decrease in payments of performance-based compensation and
manager bonuses in the current year and the timing of operational receipts and
payments.
Cash Flows from Investing Activities
Twenty-Six Week Periods Ended Favorable
December 28, December 29, (Unfavorable)
2022 2021 Variance
Net cash used in investing activities $ (93.2) $ (158.1) $ 64.9
Net cash used in investing activities decreased primarily due to $104.5 million
of cash consideration paid for the purchase of 60 Chili's restaurants in the
first and second quarters of fiscal 2022, partially offset by proceeds of $20.5
million received from the sale leaseback transactions on six of the acquired
restaurants. Additionally, capital expenditures increased in fiscal 2023
primarily for the construction of new restaurants.
33
--------------------------------------------------------------------------------
Table of Contents
Cash Flows from Financing Activities
Twenty-Six Week Periods Ended Favorable
December 28, December 29, (Unfavorable)
2022 2021 Variance
Net cash provided by financing activities $ 26.4 $ 42.4 $ (16.0)
Net cash provided by financing activities decreased primarily due to
Revolving Credit Facility
Net borrowings of$40.0 million were drawn during the twenty-six week period endedDecember 28, 2022 on the revolving credit facility. As ofDecember 28, 2022 ,$488.7 million of credit was available under the revolving credit facility. The$800.0 million revolving credit facility matures onAugust 18, 2026 and bears interest of LIBOR plus an applicable margin of 1.500% to 2.250% and an undrawn commitment fee of 0.250% to 0.350%, both based on a function of our debt-to-cash-flow ratio. As ofDecember 28, 2022 , our interest rate was 6.438% consisting of LIBOR of 4.438% plus the applicable margin of 2.000%.
As of
Our$300.0 million 3.875% notes mature inMay 2023 and are expected to be paid using availability under the revolving credit facility. As a result of our intent and ability to refinance these notes through our existing revolving credit facility, the notes are classified as long-term debt in the Consolidated Balance Sheets (Unaudited) onDecember 28, 2022 . Refer to Note 9 - Debt for further information about our notes and revolving credit facility.
Share Repurchase Program
Our Board of Directors approved a$300.0 million share repurchase program during fiscal 2022. Our share repurchase program is used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. We evaluate potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings and planned investment and financing needs. In the twenty-six week period endedDecember 28, 2022 , we repurchased 0.1 million shares of our common stock for$2.1 million , all of which were purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan. As ofDecember 28, 2022 , approximately$204.0 million of share repurchase authorization remains under the current share repurchase program.
Cash Flow Outlook
We believe that our various sources of capital, including future cash flow from
operating activities and availability under our existing credit facility are
adequate to finance operations as well as the repayment of current debt
obligations within the next year. We continue to serve guests at all of our
locations through our dining rooms and off-premise offerings, and have resumed
normal business operations in accordance with state and local mandates.
We are not aware of any other event or trend that would potentially materially
affect our liquidity. In the event such a trend develops, we believe that there
are sufficient funds available under our credit facility and from our internal
cash generating capabilities to adequately manage our ongoing business.
34
--------------------------------------------------------------------------------
Table of Contents
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our financial
condition, changes in financial condition, sales, costs or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from these estimates. Our critical accounting estimates have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year endedJune 29, 2022 .
Recent Accounting Pronouncements
The impact of recent accounting pronouncements can be found at Note 1 - Basis of Presentation in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.
© Edgar Online, source
