Chili’s reports ‘mixed bag’ in 2Q

Parent company CEO Wyman Roberts calls quarter “a tale of three cities”

Wyman Roberts, CEO of Chili’s Grill & Bar parent Brinker International Inc., dubbed the chain’s second quarter “a tale of three cities,” in a nod to the classic Charles Dickens novel.

Roberts cited “A Tale of Two Cities” in a call with analysts Wednesday to describe the Dallas-based casual-dining operator’s disappointing second-quarter earnings. 

Roberts and Tom Edwards, Brinker’s chief financial officer, said Chili’s “above-restaurant” management reorganization resulted in the elimination of 70 positions.

Brinker would take a pre-tax charge of about $6 million for the layoffs, Edwards said, as reflected in second-quarter results.

“We expect to generate savings of over $5 million in fiscal ’17, and annual savings of approximately $12 million,” he added. 

The restructuring would “reduce layers, enable faster decisions, simplify execution and get us closer to our guests,” Edwards said. 

“We basically reduced 70 head counts, basically equally mix in the field and in the restaurant support center,” he said. “We eliminated a level from our operational structure and extended out our area directors’ span of control (reducing some area directors).”

Roberts said the second quarter started with positive sales in October, a negative service incident on Veterans Day in November and industrywide challenges in December.

Brinker’s net income for the second quarter ended Dec. 28 fell 27.4 percent, to $34.6 million, or 69 cents per share, from $47.7 million, or 80 cents per share, in the same period last year. Revenue fell 0.9 percent, to $771 million, from $788.6 million in the prior-year quarter.

“The second quarter was really a mixed bag for us,” Roberts said. “We started off fairly strong. When we talked back in October, we were feeling pretty good. Then, the brand experienced a situation at one of our Chili’s restaurants on Veterans Day that played out extensively on social media, followed by a couple of very tough weeks.”

Chili’s came under fire on social media after a manager in a Cedar Hill, Texas, restaurant took away a free meal from an Army veteran after another lodged a complaint during a Veterans Day offer on Nov. 11.

The Veterans Day incident, which he said the company worked immediately to rectify, “took a little bit of the wind out of our sails,” Roberts said.

“While our second-quarter results are not where we want them to be, we are working to build share in the short term and ensure the long-term health of our brand,” he said.

Roberts said the casual-dining segment as a whole softened in December.

“We believe that’s because of the shift in holiday traffic to online, which is starting to impact how holiday-shopping patterns play out,” Roberts said, adding that fewer customers visited malls.

The shift away from brick-and-mortar shopping areas will require the brand to re-evaluate its marketing plan for December, when it usually takes a hiatus.

Chili's company-owned same-store sales in the second quarter declined 3.3 percent, while Maggiano's Little Italy same-store sales slipped 0.8 percent. Chili's franchise same-store sales decreased 3.5 percent, which included a 3-percent decline in the United States and a 4.2-percent decline at international restaurants. 

As of Dec. 28, Brinker had 1,658 restaurants, including 1,606 Chili’s units and 52 Maggiano’s Little Italy locations.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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