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Brinker expands value strategy at Chili's

A Heard on the Call report following second quarter earnings

Brinker International Inc. said Tuesday the company is expanding the “everyday value” strategy at its Chili’s Grill & Bar brand in a call with analysts discussing second quarter earnings.

The 1,574-unit casual-dining company reported earnings fell 4.8 percent on special charges in the second quarter, but revenue, same-store sales and traffic all rose at Chili’s and its Maggiano’s Little Italy brand.

Brinker reported profits of $35.7 million for the second quarter ended Dec. 28, down from $37.5 million the previous year. Earnings per share rose to 44 cents from 41 cents because of fewer outstanding shares in the most recent quarter.

Backing out gains and charges, earnings rose to 47 cents a share from 38 cents. Revenue rose 1.5 percent to $681.9 million from $671.9 million a year ago.

Chili's same-store sales rose 1.4 percent and customer traffic increased 1.1 percent in the quarter. Maggiano’s same-store sales increased 2.8 percent, and customer traffic increased 0.6 percent. The company offered guidance of a 2-percent same-store sales increase for the full year.

Doug Brooks, Brinker’s chairman and chief executive, credited the same-store sales gains to the “everyday value” strategy that includes Chili’s 2-for-$20 dinner and lunch combos, and Maggiano’s Classic Pasta and “Marcos Meal for Two” offerings.

Chili’s rolled out a menu last week that includes a new value steak offering and price-competitive upgrades with a 10-ounce top sirloin and a 12-ounce ribeye.

“Steak makes up a major menu category in [the] bar and grill [segment],” said Wyman Roberts, president of the Chili’s division, “and we’ve historically under-penetrated that category.”

Chili’s also has added a 6-ounce sirloin at about $10, depending on the location, Roberts said. The steak is being touted as a limited-time offer on Chili’s “2-for-$20” menu. “Early results are very encouraging,” Roberts said.

Watch a commercial for Chili’s new menu offerings; story continues on next page

Continued from page 1

Brinker executives also discussed:

Global leadership: Brinker has tapped Roberts and Guy Constant, chief financial officer, to co-lead Brinker’s international division, replacing Carin Stutz, who left in December as Brinker’s president of global business development to become chief executive at Così Inc. [/article/così-names-carin-stutz-chief-executive]

“After careful deliberation, we determined the global business would be best supported by capitalizing on the strong leadership talent and maximizing shared resources already in place in our global Brinker and Chili’s leadership teams,” Brooks said. Brinker at the end of the quarter had 241 Chili’s restaurants and one Maggiano’s abroad.

Lunch combos: Chili’s added lunch combos last January as part of its base menu in the third quarter last year, and the division is lapping that introduction with advertising for new soup and sandwich items, Roberts said.

Banquet sales: Maggiano’s banquet sales grew 9.1 percent in the second quarter, Brooks said, and the company also was growing its daily consumer business.

Media hiatus: Chili’s took five more advertising hiatus weeks in the first half of year, compared with the same period last year, Roberts said. “We do lower volume in our first quarter and second quarter than we do in the back half,” he said, “so we wanted to align our media more appropriately with what our business is.” The plan for second half of the fiscal year is to have as many on-air weeks as last year, he said.

International franchise development: Brinker had 22 net new international franchise openings in the past 12 months. International same-store sales increased 4.8 percent, compared with domestic franchise same-store sales of 1.7 percent. Brinker franchises 467 Chili’s restaurants domestically.

Commodities expected to moderate: Constant said about 75 percent of Brinker’s commodities are contracted through the end of fiscal 2012, which ends in June, and about 45 percent are contracted through the end of calendar 2012. Constant said that led Brinker to project commodity inflation will average 3 percent for the year.

Labor savings: Constant said most gains in the labor segment will come from the implementation of new “kitchen of the future” equipment, which Chili’s has installed in 180 of its company-owned restaurants. The kitchen retrofits are expected to be in all 821 company-owned Chili’s by this time next year, Constant said. Brinker stands by its estimate that the equipment will improve restaurant margins by 400 basis points with savings in labor, utilities and other cost areas.

“We’re not just cutting costs,” Brooks said. “We’re changing the way we operate our restaurants to become more efficient, which is resulting in sustainable margin improvements, increased consistency and better guest service.”

Brinker’s system includes 1,529 Chili’s restaurants and 45 Maggiano’s units. Brinker also retains a minority investment in Romano's Macaroni Grill.

Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless

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