Same-store sales at Chili’s Grill & Bar company-operated restaurants fell 0.8 percent in the company’s fiscal fourth quarter, which ended June 24, and executives with parent company Brinker International Inc. say their loyalty program bears part of the blame.
In particular, CEO Wyman Roberts said on the company’s earnings call Thursday, that the transition to My Chili’s Rewards impacted sales in the quarter. Wait staff, he said, concentrated on getting guests to sign up for the loyalty program, instead of promoting add-on items like appetizers and desserts.
As a result, average check at the chain fell. “Mix shift,” or the amount of items customers order, fell 1.8 percent. Traffic also fell 0.5 percent. “The softness is temporary,” Roberts said, noting that franchisees, which did not implement My Chili’s Rewards, saw same-store sales grow 2.1 percent in the period. Systemwide same-store sales rose 0.2 percent. “The strength of the Chili’s brand remains intact.”
Executives said that wait staff has shifted to selling more add-on items and that customers are already starting to order more food items.
Executives have high hopes for the loyalty program. Chili’s is integrating the program into its Ziosk tabletop tablets. Nearly 3 million customers have signed up for the program, and many of them are lighter users.
Executives believe the program has the ability to get those lighter users to dine out at Chili’s more often. Customers face the potential of losing points if they don’t use them within 90 days, which is intended to prompt usage. Sales and traffic begin to improve after three months. “That gives us confidence we’ll deliver our targeted (same-store sales) for the full year,” Roberts said.
“We’re using big data to make faster and better decisions,” Roberts said. “That can focus operators on what’s most important.”
Executives said they expect same-store sales to increase 1.5 percent to 2 percent in the 2016 fiscal year, with lower sales in the current quarter that will recover as the year progresses.
“The beauty of the program is that it’s so rich with data,” Roberts said. “We will understand a lot about what they like, what dayparts they prefer, what their preferences are with food and beverages. We can really target and specifically incent them about things we know they care about.”
Net income in the quarter doubled, to $57.2 million from $28.8 million. Excluding special items, however, the increase was more modest, at 4 percent, to $58.8 million or 94 cents per share from $56.6 million, or 85 cents.
For the full year, adjusted net income increased 7.8 percent to $198.7 million or $3.09 per share, from $184.4 million or $2.71 per share.
Total revenues in the quarter at Brinker increased 0.6 percent to $764.1 million from $759.9 million.
Chili’s sister chain, Maggiano’s, reported a 0.1-percent decline in same-store sales, including a 1.9 percent decline in traffic. Companywide for both brands, same-store sales fell 0.7 percent.
“We were disappointed with our sales performance in the fourth quarter,” Roberts said, though he noted that company-store sales still outperformed the category by 140 basis points.
The results did not meet Wall Street’s expectations. The company’s stock fell by more than 6 percent in morning trading. Brinker’s stock is now down 5 percent for the year to date.
Chili’s acquired 103 restaurants from a franchisee, Pepper Dining Inc., in the quarter. The company is working to improve sales and margins at the restaurants, and plans to reimage 87 of the locations.
“This was an opportunistic situation where Pepper Dining was for sale,” Roberts said, calling it a “strategic acquisition.”
One analyst did ask executives about the company’s owned real estate. Several restaurant companies, including casual dining operator Darden Restaurants, are selling or spinning off real estate.
While not ruling out the idea, executives indicated they’re focused elsewhere. “Broadly, we’re always open to value creating ideas,” CFO Thomas Edwards said. “Our main focus right now is on our current growth initiatives.”
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