Chili’s begins soft rollout of new menu items

Chili’s Grill & Bar this week began a soft rollout of a new menu that features three new steak items with two sides for under $12, a restaurant analyst reported Friday.

The new steaks and several other new menu items take advantage of Chili’s kitchen retrofit that has now been completed in all of the Dallas-based Brinker International Inc. division’s company-owned stores and nearly a quarter of the franchised units, wrote analyst Christopher O’Cull of KeyBanc Capital Markets Inc. in a report.

The new line of steaks, called Over the Top Steaks, include a bacon and Cheddar version, a queso-pepper steak and a parmesan-crusted version, all priced at less than $12 with two sides, O’Cull said. Other menu changes include two “lighter fare” offerings, a Skillet Chocolate Chip Cookie dessert, and two new side dishes.

Dallas-based Brinker International plans advertising support for the new items. Some ads start this week, and television ads for the steaks will begin airing late this month. “The three new steak items are expected to be the hero of the advertising spots,” O’Cull said, “which should compare favorably [to] the prior-year $20 Dinner for Two promotion.”

O’Cull added that the new items should benefit restaurant margins. In the first quarter, the company reported operating margins at company-owned restaurants improved 1.5 percent, to 14.6 percent.

Company management told O’Cull that it plans to finish installing new back-office menu software and the new kitchen equipment by the end of the fiscal third quarter. The kitchen retrofit includes a new combination oven and impinger conveyor oven, both of which are used for the new items. Earlier this fall, Chili’s had tested a new pizza platform as well.

At the end of the first quarter on Sept. 26, Chili’s had 821 company-owned domestic units and 453 franchised U.S. units. The Brinker brand had 267 international stores.

“Chili's company-owned restaurants completed the rollout of the kitchen retrofit this week,” O’Cull said, “and 20 to 25 percent of the franchise locations have implemented the changes.”

Company management told O’Cull that it plans to finish installing new back-office menu software and the new kitchen equipment by the end of its fiscal third quarter in 2013.

Chili’s and other casual-dining brands like Olive Garden and Red Lobster at Darden Restaurants have raised warning signals about same-store sales trends in the segment. However, O’Cull said KeyBanc channel checks indicate Chili’s same-store sales “were softer in late September/early October … but improved in November to a level similar to this summer,” which showed 2-percent to 3-percent increases.

“Given the more compelling December promotion, we remain comfortable with a 1.5-percent [same-restaurant-sales] assumption for fiscal 2Q,” O’Cull said.

For the Sept. 26-ended first quarter, Brinker’s net income rose 18.2 percent to $27.9 million, or 36 cents per share, compared with $23.6 million, or 28 cents per share, a year earlier. Revenue rose 2.3 percent to $683.5 million, reflecting same-store sales gains of 2.8 percent at Chili’s and 0.9 percent at Brinker’s other casual-dining division, Maggiano’s Little Italy.

Brinker International had 1,585 casual-dining restaurants at the end of its first quarter.

This article has been revised to reflect the following correction:

Correction: December 7, 2012 A previous version of this story misstated that Chili's will begin television advertising for its new steak items this weekend. The commercials will begin airing late this month.

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