Brinker International posted Monday a 12 percent increase in third-quarter profit as it saw its new two-level steak platform and bar initiatives at Chili’s Grill & Bar help boost sales.
Dallas-based Brinker, which also owns and operates the Maggiano’s Little Italy casual-dining chain, reported earnings of $44.9 million, or 56 cents a share, in the quarter ended March 28—up from $40.2 million, or 45 cents a share, in the prior-year period. Revenue in the quarter rose to $742 million from $717.1 million in the year-earlier quarter, partially boosted by higher menu prices.
Same-store sales at company-owned Chili’s increased 4.6 percent in the third quarter and rose 3.9 percent at company-owned Maggiano’s. However, March traffic performance raised a red flag, with Chili's up by only 0.5 percent and Maggiano’s down by 3.4 percent.
“This is our fifth consecutive quarter of positive growth,” said Doug Brooks, Brinker’s chairman, president and chief executive, during a Monday call with analysts. “We have successively lapped positive sales from last year. Our top-line growth is a result of the changes we have made to our business to attract guests, providing everyday value, enhancing our menu and upgrading our atmosphere.”
Brooks cited continuation of the $20 Dinner for Two and Lunch Combo platforms at Chili’s, and the Classic Pasta and Marco’s Meal for Two programs at Maggiano’s. He also credited growth to third-quarter upgrades in Chili’s steaks, fajita meat and salads.
"The biggest news, though, is probably the success we’ve had with our steaks,” said Wyman Roberts, president of the Chili’s division. Chili’s introduced a two-level steak initiative, which offers a six-ounce top sirloin steak at a value price and a 10-ounce cut for customers who are less price-sensitive, toward the end of the second quarter.
“We were considerably under-indexed when compared with some of our benchmark competitors on steak, and we saw that as a big opportunity,” explained Roberts in the conference call.
Chili’s is now selling three times as many steaks as it was before the initiative, noted Roberts. “We’ve seen a significant number of lunch guests trading up to this item,” he said, which has increased the lunch check.
The March sluggishness in traffic reflected a segment-wide slowdown in casual dining during the past four to six weeks, Roberts said. “It looks like it leveled off, but we’re not exactly sure where it’s going from here.”
Guy Constant, Brinker’s chief financial officer, said that while increasing gas prices might be a contributor to the recent traffic softness, it would likely have no long-term impact on casual-dining traffic. "Historically, sometimes when the prices move very quickly you see a little bit of a wobble for a four- to six-week period,” he explained.
Constant added," It's hard to look and see any real pockets of weakness across the entire business. … Almost all the regions are performing really well; maybe not quite as well in the Northeast, but you know California has picked up really well for us, and Texas continues to be extremely strong for us.”
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Among other topics Brinker executives discussed in Monday’s third-quarter earnings call with analysts:
Alcohol Sales: Chili’s is continuing its focus on the bar, Roberts said. “Even though we index fairly high in our alcohol mix relative to other casual dining, we think we can take it even higher,” he said. “The bar is a real important area for us because the margins are good and it differentiates us from some of the fast-casual competitors in the space.” Chili’s has introduced more coaching and teaching for the bar teams, introduced new drinks and increased marketing and incentives, he said. “We’ve already seen our alcohol mix increase 30 basis points,” Roberts added.
Chili’s “Kitchen of the Future” Initiative: Constant said the new kitchen equipment is in about 360 Chili’s units, “with completion of all company-owned Chili’s restaurant installations still anticipated by the end of December.” The rollout of a new point-of-sale system is in 144 restaurants, Constant added, with full rollout expected by the end of December. With those two initiations, Constant said Brinker expects capital expenditures to be $120 million for the fiscal year.
Brinker California Meal Break Case: Brooks said the company was pleased with the “positive outcome” of the California Supreme Court ruling. “Basically the court decided that California employers have to provide breaks but they don’t have force employees to take them,” Brooks said.
Gift Card Breakage: Third-quarter financials included a one-time $5.2 million gift-card revenue reduction. “This reduction was the result of a change in the estimate of gift-card breakage, driven by an increase in redemption experience,” Constant said.
Commodity Costs: Cost of sales increased 30 basis points over the prior-year period, to 27.5 percent, driven by unfavorable commodity prices of 60 basis points, stemming from higher meat, oils and dairy costs, Constant said, partially offset by lower produce costs.
Team Service: Chili’s team service model, introduced a year ago, has increased average service staff compensation to more than $18 hour, Roberts said, “which allows us to attract a high-caliber team member.”
Brinker has 1,574 casual-dining units worldwide, with 820 company-owned Chili’s and 44 company-owned Maggiano’s in the United States, and 462 franchised Chili’s domestically. Internationally, Brinker has 248 units.