Brinker International revealed a short-term downside to last year’s tax reform law, attributing a $3.9 million cut in net income to a revaluation of deferred taxes under the new codes.
The parent of Chili’s and Maggiano’s took a one-time write-off of $8.7 million for the second quarter ended Dec. 27 to cover the revaluation. Brinker indicated that the hit to profits in the quarter will be tempered by a rollback in the company’s effective tax rates for the fiscal year to 28%, from 36%. The change in the statutory tax rate will translate into a tax reduction of $4.8 million for the second quarter. The company said its federal rate will drop to 21% for fiscal 2019 and beyond.
Brinker explained that deferred taxes are an asset. The value of its deferment was in effect lowered by the rollback in rates set by the federal tax reform package that was passed in December. Those reduced levels took effect Jan. 1.
The company’s net income for the quarter was also affected by a $4.3 million charge for restaurant closures. Brinker ended the quarter with four fewer company-run restaurants than it had in the year-ago quarter.
The company also revealed continued weakness in the fundamentals of its core business, the Chili’s casual-dining chain. A 4.4% drop in traffic lowered the same-store sales of company-run units by 1.5%, despite a 2.3% boost from price increases. Comps for domestic franchised restaurants decreased 1.7%.
Maggiano’s comparable sales rose 1.8% on a 1.1% gain from price increases and 1.1% benefit from changes in sales mix. Traffic slipped by 0.4%.
Brinker’s net income for the 13-week period was $25.4 million, a 26.8% decline from the year-ago quarter. Revenues were $766.4 million, a slide of 0.6% year over year.