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Brinker's 1st-Q profit falls 37% as sales slip

DALLAS Brinker International Inc., parent to the Chili’s Grill & Bar chain, reported on Tuesday a 36.8-percent drop in its first quarter profit because of sales pressures and higher commodity prices.

Brinker’s profit for the quarter ended Sept. 24 dropped to $23.8 million, or 23 cents per share, from $37.6 million, or 34 cents per share, a year ago. Revenues fell 6.7 percent to $984.4 million, on negative same-store sales, the sale of 76 corporate restaurants to franchisees and 49 restaurant closures.

Earlier this month Brinker had cautioned investors about a weaker quarter because of a “challenging sales environment.” As one of the largest casual-dining companies, its results typically are watched as a sign of what may come when others file quarterly reports and offer guidance for the remainder of the year. P.F. Chang’s is expected to report Wednesday, and The Cheesecake Factory and BJ’s Restaurants are expected to announce results on Thursday.

“Aside from [Brinker’s] quarterly results, which we knew were bad, we’ve heard anecdotal evidence that casual-dining sales have materially further deteriorated in October,” said analyst John Glass at Morgan Stanley. “This could add additional risk to estimates across the casual-dining industry.”

As previously reported, Brinker’s blended same-store sales slid 4 percent, which reflected declines of 3 percent at Chili’s, 3.3 percent each at On The Border and at Maggiano’s, and 9 percent at Macaroni Grill.

Commodity prices pushed up the cost of sales in the quarter, as a percentage of revenue, to 28.4 percent from 27.7 percent the year before. Brinker cited increases in prices for beef, ribs, chicken, produce, oils and sauces. The company raised menu prices to offset those higher costs, it said.

“While we anticipated difficult year-over-year comparisons for the quarter, operating performance was worse than expected,” said Chuck Sonsteby, Brinker’s chief financial officer for Brinker. “The sequential pressures on our guests as the quarter unfolded further reduced revenues to an extent that could not be offset through cost efficiencies.”

Brinker’s first quarter results included a loss from the Romano’s Macaroni Grill brand, which it plans to sell for $131.5 million by the end of this calendar year. The company plans to keep a 19.9-percent ownership in the 226-unit chain after the sale.

Brinker also reiterated its forecast for 2009 per-share earnings, which call for a decline of between 15 percent and 25 percent from 2008, when the company earned $1.41 per share. The company earlier had forecast per-share earnings growth of between 8 percent and 10 percent. The revised guidance included the expectations for an annual drop of between 2 percent and 4 percent in blended same-store sales.

The company also said it plans to cut capital expenditures for the current fiscal year by $40 million. It expects to spend between $135 million and $145 million on capital expenses for fiscal 2009, down from year-ago spending of $270 million.

At the end of the first quarter, Brinker owned or franchised 1,911 restaurants, including 1,474 Chili’s, 169 On The Border Mexican Grill & Cantinas, 42 Maggiano’s Little Italy units and 226 Macaroni Grills.

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