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 25, 2019 and December 26, 2018 , the MD&A
should be read in conjunction with the Consolidated Financial Statements
(Unaudited) and related Notes to the Consolidated Financial Statements
(Unaudited) included in this quarterly report. All amounts 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. At December 25, 2019 , we owned, operated or
franchised 1,675 restaurants, consisting of 1,117 Company-owned restaurants and
558 franchised restaurants, located in the United States , 29 countries and two
United States territories. Our two restaurant brands, Chili's and Maggiano's,
are both operating segments and reporting units. Aligning to our strategy, in
the first quarter of fiscal 2020, we acquired 116 Midwest Chili's restaurants
from a franchise partner.
We are committed to strategies and a Company culture that we believe are
centered on a guest experience which includes bringing back guests, growing
long-term sales and profit and engaging team members. Our strategies and culture
are intended to differentiate our brands from the competition, reduce the costs
associated with managing our restaurants and establish a strong presence for our
brands in key markets around the world.
We remain competitive with a flexible platform of our value offerings at both
lunch and dinner and are committed to offering consistent, quality products at a
price point that is compelling to our guests. Our "3 for $10 " platform allows
guests to combine a starter, a non-alcoholic drink and an entrée for just $10.00
and is part of the every-day base menu. Additionally, we have continued our
margarita of the month promotion that started in fiscal 2018 that features a
premium-liquor margarita every month at an every-day value price of $5.00 . We
believe these and other value offers are increasing guest frequency and that few
of our competitors can match these offers on a consistent basis. We continue to
seek opportunities to reinforce value and create interest for the Chili's brand
with new and varied offerings to further enhance sales and drive incremental
traffic.
We regularly evaluate our processes and menu at Chili's to identify
opportunities where we can improve our service quality and food. During fiscal
2019, we focused on our core equities of burgers, ribs, fajitas and margaritas,
and improved guest satisfaction with our food and service by improving execution
of our operations standards. In the first half of fiscal 2020 we have upgraded
the quality of certain menu items, including the new made-to-order Chicky Chicky
Bleu Sandwich, featuring the new upgraded quality chicken breast we have
integrated into several of our menu items.
The Chili's brand continues to leverage technology to improve convenience for
our guests, and fiscal 2020 contains two full periods of results from our
DoorDash partnership. In partnership with DoorDash , we leveraged technology so
that DoorDash orders are sent directly into our point of sale system, creating a
seamless guest experience and providing Chili's a delivery service with an
economic advantage over independent restaurants and other franchised casual
dining chains. We believe that guests will continue to prefer more convenience
and options that allow them to eat off-premise, and we plan to continue
investments in our digital guest experience, carryout and delivery capabilities.
We have created a digital guest experience that we believe will help us engage
our guests more effectively. Our loyalty database included more than 7.2 million
active members as of December 25, 2019 . We further improved our marketing
returns with those guests by offering targeted promotions tied to individual
purchase behavior. We will continue to expand our database and digital marketing
impact by making the guest loyalty programs a significant part of our marketing
strategy.
We believe that improvements at our domestic Chili's will have a significant
impact on the business; however, our results will also benefit through
additional contributions from Maggiano's and our global Chili's franchise
business.
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In fiscal 2019, Maggiano's opened its first franchise location in theDallas Fort Worth International Airport , and we anticipate the opening of our second during fiscal 2020 atDallas Love Field Airport . We intend to explore other opportunities to franchise Maggiano's. Maggiano's continues to leverage technology. In the first half of fiscal 2020, Maggiano's has begun testing electronic check presenters that facilitate a pay at the table option to provide convenience and efficiency to guests and to increase digital guest engagement. Maggiano's entered into an exclusive partnership withDoorDash . Our exclusive partnership creates a more affordable rate structure, making third party delivery more sustainable and efficient for the brand to operate. In the second quarter of fiscal 2020, our guests were given the ability to order directly through our Maggiano's website, in addition from theDoorDash platforms. Our global franchisees continue to grow the brand around the world, opening five restaurants in the second quarter of fiscal 2020, including our first Chili's restaurant inVietnam . We plan to strategically pursue expansion of Chili's internationally through development agreements with new and existing franchise partners. The following table details the number of restaurant openings during the thirteen and twenty-six week periods endedDecember 25, 2019 andDecember 26, 2018 , respectively, total full year projected openings in fiscal 2020, and the total restaurants open at each period end: Openings During the Openings During the Full Year Projected Thirteen Week Periods Ended Twenty-Six Week Periods Ended OpeningsTotal Open Restaurants at December 25, December 25, 2019 December 26, 2018 December 25, 2019 December 26, 2018 Fiscal 2020 2019 December 26, 2018 Company-owned restaurants Chili's domestic 4 - 5 - 9-11 1,060 938 Chili's international - - - - - 5 5 Maggiano's - - - - - 52 52Total Company -owned 4 - 5 - 9-11 1,117 995 Franchise restaurants Chili's domestic 1 2 2 3 2-3 180 310 Chili's international 5 6 16 10 27-32 377 379 Maggiano's - 1 - 1 1 1 1 Total franchise 6 9 18 14 30-36 558 690 Total restaurants Chili's domestic 5 2 7 3 11-14 1,240 1,248 Chili's international 5 6 16 10 27-32 382 384 Maggiano's - 1 - 1 1 53 53 Grand total 10 9 23 14 39-47 1,675 1,685 During the twenty-six week period endedDecember 25, 2019 , we acquired 116 Chili's restaurants located in the Midwest United States previously owned by a franchisee. The acquisition of these restaurants is not reflected in Openings During the thirteen and twenty-six week periods endedDecember 25, 2019 or Full Year Projected Openings total as they are existing restaurant locations transitioning ownership. These acquired restaurants are included inTotal Open Restaurants atDecember 25, 2019 within the total for Company-owned restaurants Chili's domestic. Relocations are not included in the table above. During the twenty-six week period endedDecember 25, 2019 we have not relocated any Company-owned restaurants, however we plan to relocate 0-2 during the remainder of fiscal 2020. AtDecember 25, 2019 , we own property for 43 of the 1,117 Company-owned restaurants. The related book values associated with these restaurants included land of$34.1 million and buildings of$15.8 million . 32
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RESULTS OF OPERATIONS
The following table sets forth selected operating data as a percentage of Total
revenues (unless otherwise noted) for the periods indicated. All information is
derived from the accompanying Consolidated Statements of Comprehensive Income
(Unaudited):
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 25, December 26, December 25, December 26,
2019 2018 2019 2018
Revenues
Company sales 97.5 % 96.3 % 97.3 % 96.5 %
Franchise and other revenues 2.5 % 3.7 % 2.7 % 3.5 %
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs and expenses
Company restaurants (excluding
depreciation and amortization)
Cost of sales(1) 26.3 % 26.4 % 26.5 % 26.4 %
Restaurant labor(1) 34.4 % 34.2 % 34.8 % 34.7 %
Restaurant expenses(1) 26.6 % 27.0 % 26.8 % 27.1 %
Company restaurant expenses(1) 87.3 % 87.6 % 88.1 % 88.2 %
Depreciation and amortization 4.5 % 4.6 % 4.7 % 4.7 %
General and administrative 4.0 % 4.5 % 4.4 % 4.5 %
Other (gains) and charges 1.4 % 0.3 % 0.7 % (0.6 )%
Total operating costs and expenses 95.0 % 93.7 % 95.5 % 93.8 %
Operating income 5.0 % 6.3 % 4.5 % 6.2 %
Interest expenses 1.8 % 2.0 % 1.8 % 2.0 %
Other (income), net (0.1 )% (0.1 )% (0.1 )% (0.1 )%
Income before provision for income
taxes 3.3 % 4.4 % 2.8 % 4.3 %
Provision for income taxes 0.1 % 0.4 % 0.2 % 0.5 %
Net income 3.2 % 4.0 % 2.6 % 3.8 %
(1)As a percentage of Company sales.
Revenues
Thirteen and Twenty-Six Week Periods Ended December 25, 2019 compared to
December 26, 2018
Revenues are presented in two separate captions in the Consolidated Statements
of Comprehensive Income to provide more clarity around Company-owned restaurant
revenues and operating expenses trends:
• Company sales include revenues generated by the operation of Company-owned
restaurants including gift card redemptions.
• Franchise and other revenues include Royalties and Franchise fees and
other revenues. Franchise fees and other revenues include Maggiano's
banquet service charge income, advertising fees, gift card breakage, gift
card equalization, gift card discount costs from third-party gift cardsales, digital entertainment revenues, delivery fee income, franchise and
development fees, retail royalty revenues, and merchandise income.
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The following is a summary of the change in Total revenues:
Total Revenues
Chili's Maggiano's Total Revenues
Thirteen Week Period Ended December 26, 2018 $ 662.3 $ 128.4 $ 790.7
Change from:
Restaurant closings (2.5 ) - (2.5 )
Restaurant openings 4.7 - 4.7
Restaurant relocations 0.1 - 0.1
Restaurant acquisition(1) 70.9 - 70.9
Comparable restaurant sales 14.6 (1.8 ) 12.8
Company sales 87.8 (1.8 ) 86.0
Royalties(1)(2) (3.3 ) 0.0 (3.3 )
Franchise fees and other revenues (3.7 ) (0.4 ) (4.1 )
Franchise and other revenues (7.0 ) (0.4 ) (7.4 )
Thirteen Week Period Ended December 25, 2019 $ 743.1 $ 126.2 $ 869.3
Total Revenues
Chili's Maggiano's Total Revenues
Twenty-Six Week Period Ended December 26, 2018 $ 1,324.1 $ 220.4 $ 1,544.5
Change from:
Restaurant closings (3.9 ) - (3.9 )
Restaurant openings 9.3 - 9.3
Restaurant relocations 0.7 - 0.7
Restaurant acquisition(1) 86.2 - 86.2
Comparable restaurant sales 32.7 (3.4 ) 29.3
Company sales 125.0 (3.4 ) 121.6
Royalties(1)(2) (4.4 ) 0.1 (4.3 )
Franchise fees and other revenues (6.0 ) (0.5 ) (6.5 )
Franchise and other revenues (10.4 ) (0.4 ) (10.8 )
Twenty-Six Week Period Ended
$ 1,655.3 (1) EffectiveSeptember 5, 2019 , we are no longer receiving royalties on the
116 Midwest Chili's locations we acquired that were previously franchised.
These restaurants are now contributing Company sales for the thirteen week
period ended
the twenty-six week period ended December 25, 2019 .
(2) Royalties are based on franchise sales. Our franchisees generated
approximately
and twenty-six week periods ended
compared to
and twenty-six week periods ended December 26, 2018 , respectively.
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The table below presents the percentage change in Comparable restaurant sales and Restaurant capacity:
Percentage Change in the Thirteen Week Period
Ended
Comparable
Restaurant Restaurant
Sales(1) Price Impact Mix-Shift(2) Traffic Capacity(3)
Company-owned(4) 1.5 % 1.4 % 0.3 % (0.2 )% 12.5 %
Chili's(4) 2.0 % 1.4 % 0.5 % 0.1 % 13.2 %
Maggiano's (1.4 )% 1.4 % 0.0 % (2.8 )% 0.0 %Chili's Franchise(4)(5) (0.4 )%U.S. (4) 0.2 % International (0.9 )% Chili's Domestic(4)(6) 1.7 % System-wide(4)(7) 1.0 % Percentage Change in the Twenty-Six Week
Period Ended
Comparable
Restaurant Restaurant
Sales(1) Price Impact Mix-Shift(2) Traffic Capacity(3)
Company-owned(4) 1.9 % 1.7 % 0.4 % (0.2 )% 7.8 %
Chili's(4) 2.4 % 1.8 % 0.5 % 0.1 % 8.3 %
Maggiano's (1.6 )% 1.3 % 0.0 % (2.9 )% 0.0 %
Chili's Franchise(4)(5) (0.3 )%
U.S.(4) 0.3 %
International (1.0 )%
Chili's Domestic(4)(6) 2.0 %
System-wide(4)(7) 1.3 %
(1) Comparable Restaurant Sales include all restaurants that have been in
operation for more than 18 months, except restaurants acquired by the
Company from franchisees are not included until they have been
Company-owned for more than 12 months. Amounts are calculated based on
comparable current period versus same period a year ago.
(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. Amounts are calculated
based on comparable current period versus same period a year ago. Chili's
Company-owned Restaurant Capacity increased in fiscal 2020 primarily
related to the addition of the 116 Chili's restaurants acquired in the
first quarter of fiscal 2020.
(4) Chili's Company-owned Comparable Restaurant Sales excludes the impact from
the 116 Chili's restaurants acquired in the thirteen week period ended
includes sales from these 116 acquired restaurants until the
2019 acquisition date.
(5) Chili's Franchise sales generated by franchisees are not included inrevenues in the Consolidated Statements of Comprehensive Income; however,
we generate royalty revenues and advertising fees based on franchisee
revenues, where applicable. We believe including franchise comparable
restaurant sales provides investors information regarding brand
performance that is relevant to current operations.
(6) Chili's Domestic Comparable Restaurant Sales percentages are derived from
sales generated by Company-owned and franchise-operated Chili's
restaurants in the United States .
(7) System-wide Comparable Restaurant Sales are derived from sales generated
by Company-owned Chili's and Maggiano's restaurants in addition to the
sales generated at franchise-operated Chili's restaurants.
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Costs and Expenses
Thirteen Week Period
Thirteen Week Periods Ended
December 25, 2019 December 26, 2018 (Favorable) Unfavorable Variance
% of Company % of Company
Dollars sales Dollars sales Dollars % of Company salesCost of sales$ 223.1 26.3 %$ 200.9 26.4 % $ 22.2 (0.1 )% Restaurant labor 291.8 34.4 % 260.8 34.2 % 31.0 0.2 % Restaurant expenses 224.7 26.6 % 205.7 27.0 % 19.0 (0.4 )% Depreciation and amortization 39.3 36.1 3.2 General and administrative 34.6 35.4 (0.8 ) Other (gains) and charges 12.3 2.2 10.1 Interest expenses 15.0 15.4 (0.4 ) Other (income), net (0.5 ) (0.8 ) 0.3 Cost of sales, as a percentage of Company sales, decreased 0.1% consisting of 0.5% of increased menu pricing, partially offset by 0.2% of unfavorable commodity pricing primarily related to beef and dairy and 0.2% of unfavorable menu item mix. Restaurant labor, as a percentage of Company sales, increased 0.2%, that primarily consisted of 0.7% of higher hourly labor wages and taxes, partially offset by 0.3% of sales leverage and other, and 0.2% of lower employee health insurance expenses. Restaurant expenses, as a percentage of Company sales, decreased 0.4% that primarily consisted of 0.9% of sales leverage and favorable other net various restaurant expenses, partially offset by 0.5% of expenses related to growth in off-premise. Depreciation and amortization increased$3.2 million primarily due to$4.5 million in existing and new restaurant additions mostly related to the Chili's remodel initiative,$2.5 million of additional depreciation and amortization expenses related to the acquisition of 116 Chili's restaurants,$1.4 million additional depreciation for the new corporate headquarters and$1.2 million in other net depreciation and amortization expenses increases. These increases were partially offset by$6.4 million related to fully depreciated assets and retirements. General and administrative expenses decreased$0.8 million as follows: General and Administrative Thirteen Week Period Ended December 26, 2018 $ 35.4 Change from: Stock-based compensation(1) (1.1 ) Professional and legal fees (1.0 ) Rent expenses(2) 0.9 Performance-based compensation 0.2 Other 0.2 Thirteen Week Period Ended December 25, 2019 $ 34.6
(1) Stock-based compensation decreased primarily related to the acceleration
of stock-based compensation expenses for retirement eligible executives.
Retirement eligibility results in the compensation being recognized in
full upon grant as there is no vesting period. Our grants typically occur
in the first quarter of the fiscal year.
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In fiscal 2019, these expenses were recorded over multiple periods as retirement eligibility requirements were not met until the fourth quarter. (2) Rent expenses increased primarily related to costs associated with the new
corporate headquarters.
Other (gains) and charges primarily included the transactions below, for further details, refer to Note 5 - Other Gains and Charges:
Thirteen Week Periods Ended
December 25, December 26,
2019 2018
Restaurant impairment charges $ 4.6 $ 1.0
Restaurant closure charges 2.9 2.1
Acquisition of franchise restaurants costs, net of (gains) 2.0 -
Remodel-related costs 0.8 2.6
Sale leaseback (gain), net of transaction charges - (4.4 )
Other 2.0 0.9
$ 12.3 $ 2.2
Interest expenses decreased $0.4 million consisting of lower average borrowing
balances and lower interest rates on our revolving credit facility in the
thirteen week period ended December 25, 2019 , partially offset by higher
interest expenses related to the new real estate leases acquired from the 116
Chili's restaurant acquisition.
Twenty-Six Week Period Ended December 25, 2019 compared to December 26, 2018
The following is a summary of the change in Costs and Expenses:
Twenty-Six Week Periods Ended
December 25, 2019 December 26, 2018 (Favorable) Unfavorable Variance
% of Company % of Company
Dollars sales Dollars sales Dollars % of Company salesCost of sales$ 426.9 26.5 %$ 392.8 26.4 % $ 34.1 0.1 % Restaurant labor 560.3 34.8 % 517.1 34.7 % 43.2 0.1 % Restaurant expenses 432.0 26.8 % 404.7 27.1 % 27.3 (0.3 )% Depreciation and amortization 77.4 73.1 4.3 General and administrative 72.6 69.2 3.4 Other (gains) and charges 11.4 (8.9 ) 20.3 Interest expenses 29.9 31.0 (1.1 ) Other (income), net (1.0 ) (1.6 ) 0.6 Cost of sales, as a percentage of Company sales, increased 0.1%, consisting of 0.4% of unfavorable commodity pricing primarily related to produce and 0.2% of unfavorable menu item mix, partially offset by 0.5% of increased menu pricing. Restaurant labor, as a percentage of Company sales, increased 0.1%, that primarily consisted of 0.5% of higher hourly labor wage rates and taxes, partially offset by 0.2% of sales leverage and other, and 0.2% of lower employee health insurance expenses. Restaurant expenses, as a percentage of Company sales, decreased 0.3% that primarily consisted of 0.9% of sales leverage and favorable other net various restaurant expenses, partially offset by 0.6% of expenses related to growth in off-premise. Depreciation and amortization increased$4.3 million primarily due to$10.5 million in existing and new restaurant additions mostly related to the Chili's remodel initiative,$3.2 million of additional depreciation and amortization 37
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expenses related to the acquisition of 116 Chili's restaurants,$2.8 million related to additional depreciation for the new corporate headquarters and$0.4 million in other net depreciation and amortization expenses increases. These increases were partially offset by$12.6 million related to fully depreciated assets and retirements. General and administrative expenses increased$3.4 million as follows: General and Administrative Twenty-Six Week Period EndedDecember 26, 2018 $ 69.2 Change from: Stock-based compensation(1) 2.3 Rent expenses(2) 1.8 Professional and legal fees (0.8 ) Performance-based compensation (0.1 ) Other 0.2 Twenty-Six Week Period EndedDecember 25, 2019 $ 72.6
(1) Stock-based compensation increased primarily related to the acceleration
of stock-based compensation expenses for retirement eligible executives.
Retirement eligibility results in the compensation being recognized in
full upon grant as there is no vesting period. Our grants typically occurin the first quarter of the fiscal year. In fiscal 2019, these expenses
were recorded over multiple periods as retirement eligibility requirements
were not met until the fourth quarter.
(2) Rent expenses increased primarily related to costs associated with the new
corporate headquarters.
Other (gains) and charges primarily included the transactions below, for further details, refer to Note 5 - Other Gains and Charges:
Twenty-Six Week Periods Ended
December 25, December 26,
2019 2018
Restaurant impairment charges $ 4.6 $ 1.0
Restaurant closure charges 3.1 3.8
Remodel-related costs 1.5 3.1
Acquisition of franchise restaurants costs, net of (gains) 1.5 -
Lease modification net charge (gain) (3.1 ) -
Sale leaseback (gain), net of transaction charges - (17.7 )
Other 3.8 0.9
$ 11.4 $ (8.9 )
Interest expenses decreased $1.1 million consisting of lower average borrowing
balances and lower interest rates on our revolving credit facility in the
twenty-six week period ended December 25, 2019 , partially offset by higher
interest expenses related to the new real estate leases from the acquisition of
the 116 Chili's restaurants on September 5, 2019 .
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Segment Results
Chili's Segment
Thirteen Week Periods Ended Favorable Twenty-Six Week Periods Ended Favorable
December 25, December 26, (Unfavorable) December 25, December 26, (Unfavorable)
2019 2018 Variance 2019 2018 Variance
Company sales
9.9 13.2 (3.3 ) 21.7 26.1 (4.4 )
Franchise fees and
other revenues 4.8 8.5 (3.7 ) 11.1 17.1 (6.0 )
Franchise and other
revenues 14.7 21.7 (7.0 ) 32.8 43.2 (10.4 )
Total revenues 743.1 662.3 80.8 1,438.7 1,324.1 114.6
Company restaurant
expenses(1) 640.3 567.1 (73.2 ) 1,236.6 1,130.2 (106.4 )
Depreciation and
amortization 32.1 29.5 (2.6 ) 62.8 60.0 (2.8 )
General and
administrative 8.5 9.1 0.6 17.6 17.9 0.3
Other gains and
charges 10.6 1.4 (9.2 ) 9.0 (10.9 ) (19.9 )
Total operating costs
and expenses 691.5 607.1 (84.4 ) 1,326.0 1,197.2 (128.8 )
Operating income $ 51.6 $ 55.2 $ (3.6 ) $ 112.7 $ 126.9 $ (14.2 )
Operating income as a
percentage of Total
revenues 6.9 % 8.3 % (1.4 )% 7.8 % 9.6 % (1.8 )%
(1) Company restaurant expenses include Cost of sales, Restaurant labor, and
Restaurant expenses, including advertising expenses.
Thirteen Week Period Ended December 25, 2019 compared to December 26, 2018
Chili's Total revenues increased by 12.2% primarily due to increased capacity
from the 116 Chili's restaurants acquired in the first quarter of fiscal 2020
and increased comparable restaurant sales. Refer to "Revenues" section above for
further details about Chili's revenues changes.
Company restaurant expenses for Chili's, as a percentage of Company sales,
decreased by 0.6% that primarily consisted of 1.4% of sales leverage and other,
0.5% of increased menu pricing, and 0.3% of lower employee health insurance
expenses. These were partially offset by 0.7% of higher hourly labor wage rates
and taxes, 0.6% of restaurant expenses related to growth in off-premise, 0.2% of
unfavorable commodity pricing, and 0.1% of unfavorable menu item mix.
Other gains and charges for Chili's in the thirteen week period ended December
25, 2019 consisted primarily of $4.6 million of impairment charges, $2.9 million
of restaurant closure charges, and $2.0 million of costs related to the 116
Chili's restaurants acquired in the first quarter of fiscal 2020. Other gains
and charges in the thirteen week period ended December 26, 2018 consisted
primarily of $4.4 million of Sale leaseback (gain), net of transaction charges,
partially offset by $2.6 million of Chili's remodel write-offs, $2.0 million
charge related to lease termination charges, and $1.0 million of impairments
related to two underperforming restaurants.
Depreciation and amortization for Chili's increased $2.6 million primarily due
to $4.1 million in existing and new restaurant additions mostly related to the
Chili's remodel initiative, $2.6 million of additional depreciation and
amortization expenses related to the acquisition of 116 Chili's restaurants, and
$1.0 million in other net depreciation and amortization expenses increases.
These increases were partially offset by $5.1 million related to fully
depreciated assets and retirements.
General and administrative for Chili's decreased $0.6 million primarily due to a
decrease in payroll-related expenses.
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Twenty-Six Week Period EndedDecember 25, 2019 compared toDecember 26, 2018 Chili's Total revenues increased 8.7% primarily due to increased capacity from the 116 Chili's restaurants acquired in the first quarter of fiscal 2020 and increased comparable restaurant sales. Refer to "Revenues" section above for further details about Chili's revenues changes. Company restaurant expenses for Chili's, as a percentage of Company sales, decreased 0.2% that primarily consisted of 1.2% of sales leverage and other, 0.5% of increased menu pricing, and 0.3% of lower employee health insurance expenses. These were offset by 0.6% of restaurant expenses related to growth in off-premise, 0.6% of higher hourly labor wage rates and taxes, 0.5% unfavorable commodity pricing, and 0.1% of unfavorable menu item mix. Other gains and charges for Chili's during the twenty-six week period endedDecember 25, 2019 consisted primarily of$4.6 million related to restaurant impairments,$3.1 million related to restaurant closure expenses,$1.5 million related to the acquisition of 116 franchised restaurants and$1.5 million of Chili's remodel charges. These were partially offset by a$3.1 million net gain on release of a terminated lease liability. Other gains and charges for Chili's during the twenty-six week period endedDecember 26, 2018 consisted primarily of$17.7 million net gain from the sale leaseback transactions, partially offset by$3.5 million charge related to restaurant closure expenses,$3.1 million restaurant remodel charges, and$1.0 million related to restaurant impairments. Depreciation and amortization increased$2.8 million that primarily consisted of$9.6 million in existing and new restaurant additions mostly related to the Chili's remodel initiative,$3.2 million of additional depreciation and amortization expenses related to the acquisition of 116 Chili's restaurants, and$0.1 million in other net depreciation and amortization expenses increases. These increases were partially offset by a decrease of$10.1 million related to fully depreciated assets and retirements. General and administrative decreased$0.3 million that primarily consisted of a decrease of$1.2 million of acceleration of certain stock-based compensation expenses for newly retirement eligible executives and$0.3 million of reduced professional and legal fees, partially offset by an increase of$1.1 million of payroll related expenses. Maggiano's Segment Thirteen Week Periods Ended Favorable Twenty-Six Week Periods Ended Favorable December 25, December 26, (Unfavorable) December 25, December 26, (Unfavorable) 2019 2018 Variance 2019 2018 Variance Company sales$ 119.1 $ 120.9 $ (1.8 )$ 205.5 $ 208.9 $ (3.4 ) Royalties 0.0 0.0 0.0 0.1 0.0 0.1 Franchise fees and other revenues 7.1 7.5 (0.4 ) 11.0 11.5 (0.5 ) Franchise and other revenues 7.1 7.5 (0.4 ) 11.1 11.5 (0.4 ) Total revenues 126.2 128.4 (2.2 ) 216.6 220.4 (3.8 ) Company restaurant expenses(1) 99.2 100.1 0.9 182.3 184.0 1.7 Depreciation and amortization 4.0 3.9 (0.1 ) 8.0 7.9 (0.1 ) General and administrative 1.5 1.5 0.0 3.2 3.2 0.0 Other gains and charges - - - 0.1 - (0.1 ) Total operating costs and expenses 104.7 105.5 0.8 193.6 195.1 1.5 Operating income$ 21.5 $ 22.9 $ (1.4 )$ 23.0 $ 25.3 $ (2.3 ) Operating income as a percentage of Total revenues 17.0 % 17.8 % (0.8 )% 10.6 % 11.5 % (0.9 )%
(1) Company restaurant expenses includes Cost of sales, Restaurant labor, and
Restaurant expenses, including advertising expenses.
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Thirteen Week Period EndedDecember 25, 2019 compared toDecember 26, 2018 Maggiano's Total revenues decreased 1.7% due to a decrease in comparable restaurant sales. Refer to "Revenues" section above for further details about Maggiano's revenues changes. Company restaurant expenses, as a percentage of Company sales, increased 0.5% for Maggiano's primarily driven by 1.0% of higher hourly labor wage rates and taxes, 0.6% of higher rent expenses due to the sale leaseback of one restaurant in the fourth quarter of fiscal 2019, 0.2% of unfavorable menu item mix, and 0.4% of sales deleverage and unfavorable other net Company restaurant expenses. These increases were partially offset by 0.6% of lower management salaries and taxes and 0.3% of increased menu pricing. Twenty-Six Week Period EndedDecember 25, 2019 compared toDecember 26, 2018 Maggiano's Total revenues decreased 1.7% due to a decrease in comparable restaurant sales. Refer to "Revenues" section above for further details about Maggiano's revenues changes. Company restaurant expenses as a percentage of Company sales increased 0.6%, for Maggiano's primarily driven by 0.7% of higher hourly labor wage rates and taxes, 0.6% increase in rent and property tax expenses due to the sale leaseback of one restaurant in the fourth quarter of fiscal 2019, 0.3% of unfavorable menu item mix, partially offset by 0.4% of lower management salaries and taxes, 0.3% of increased menu pricing, 0.3% of favorable other net Company restaurant expenses and sales deleverage. Income Taxes Thirteen Week Periods Ended
Twenty-Six Week Periods Ended
December 25, December 26, December
25,
2019 2018 Change 2019 2018 Change
Effective income
tax rate 3.8 % 8.6 % (4.8 )% 6.6 % 13.0 % (6.4 )%
The effective income tax rates in the thirteen and twenty-six week periods ended
December 25, 2019 decreased compared to the thirteen and twenty-six week periods
ended December 26, 2018 primarily driven by the impact of the fiscal 2019 sale
leaseback gain.
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