Brinker: March sales drove 3Q profit

After a challenging environment in January and February, Brinker International Inc. reported Tuesday that March same-store sales improved at its Chili’s Grill & Bar and Maggiano’s Little Italy brands and helped the company log a third-quarter profit.

For the quarter ended March 27, Brinker reported net income rose to $52 million, or 71 cents per share, from $44.9 million, or 56 cents per share, in the same period last year. Revenue inched up 0.1 percent to $724.8 million.

The company’s operating margins improved to 17.9 percent from 17.2 percent in the year-earlier period amid some easing of commodity prices and mid-quarter introductions of a new pizza platform, executives said in a conference call with analysts.

Same-store sales at restaurants open at least 18 months fell 1.1 percent at Chili's and rose 0.4 percent at Maggiano's during the quarter. Consolidated same-store sales for both brands fell 0.9 percent.

Chili’s sales turned positive in March, coming in at 1.3 percent for the month after being negative in January and February, the company said.

“We had a bad February, clearly,” said Guy Constant, Brinker’s chief financial officer. “I think the whole space did. We’re happy it’s over. I think what we are seeing now in terms of the macro economy is kind of where we’ve been over the past two or three years.”

Constant noted that the quarter was marked by slow job growth and muted consumer confidence. “But we know we can generate results in that kind of economy,” he said.

Wyman Roberts, Brinker’s chief executive and president, told analysts he remained confident about the new menu platforms made possible with kitchen remodels.

“The rollout of our new kitchens is complete across our domestic system, with the franchise system now fully online, ” Roberts said. "With this new equipment in place, we’re exploring menu innovation we wouldn’t have had capability to execute in the past.”

Pizzas and flatbreads are among the first new menu offerings out of the new kitchens. “We’re excited about the potential this [pizza-flatbread] category has for us to introduce more guests to the product — a product, by the way, that has the added benefit of better-than-average margins,” Roberts said. Flatbreads will be rolled out to the entire system in the fourth quarter, and Brinker expects to see it produce margin improvements as well as help increase traffic when advertising and marketing support get behind both pizzas and flatbreads.

“That’s when we’ll have the messaging that I think really has the potential to drive traffic,” Roberts said. “I think pizza can do some good things for us, but it’s really the combination of pizzas and flatbreads that could get this to a scale for a message that is compelling to drive some traffic.”

The pizzas and flatbreads will also be offered in the “2 for $20” dinner and lunch combo menus. “It will be available to our guests in various different places on the menu,” Roberts said.

“We anticipate guest excitement for the category will continue to build with the rollout of flatbreads in the next few weeks,” he said. “In the future, we see the potential of the pizza and flatbread category mixing up to 10 percent of our menu.”

Brinker extended its reimaging program to 47 more restaurants in the third quarter, bringing the total so far to 316, the executives said. The company expects to have 370 reimaged restaurants by the end of the fiscal fourth quarter. Constant said the company aims to achieve a 3-percent sales lift at the reimaged units.

At the Maggiano’s brand, Brinker has been emphasizing the beverage programs. “Our skilled bartenders are creating handcrafted classic cocktails featuring fresh-squeezed juices and handmade garnishes,” Roberts said, noting that those cocktails, as well as a new option that allows guests to trade up to a nine-ounce wine pour, “have made a measurable impact” on checks.

In the international division, Brinker added six new restaurants, including the new market of Colombia. The company has units in 32 nations outside of the United States.

Brinker has a total of 1,268 domestic Chili’s units and 44 Maggiano’s units in addition to 276 international Chili’s units.

Contact Ron Ruggless at [email protected].
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