Chili’s domestic same-store sales fell 2.1 percent in the second quarter ended Dec. 23, parent company Brinker International Inc. said Wednesday, as weak oil prices kept the chain’s customers home in many markets.
Brinker stock fell more than 5 percent Wednesday following the announcement.
“Our topline performance is not yet where it needs to be, but our business model remains strong,” Brinker CEO Wyman Roberts said during the company’s earnings call Wednesday.
There was higher regional variability in the company’s sales in the quarter than usual, Roberts said, with “some parts of the country better than others,” yet “none as strong as we want them to be.”
Particularly problematic were oil-rich states like Texas, Oklahoma and Louisiana, where Chili’s same-store sales fell 6.6 percent in the quarter, the company said. That was 2.5 percentage points worse than those markets in the first quarter, and 4.7 percentage points below the rest of the system. Restaurants in those three states represent 17 percent of the system.
“These are historically strong markets that are in a down cycle,” Roberts said. Weakness in those states, “may force our competitors to leave the markets. But we believe this is a cycle.”
Oil prices have plunged in recent months to below $30 per barrel. That has been good for gas prices, which have fallen along with oil prices. But the decline has been tough on communities that depend heavily on oil production. Some executives have suggested that their restaurants in those communities have struggled.
Chili’s biggest issue from a sales standpoint is traffic. Traffic at corporate restaurants in the second quarter fell 4 percent, the company said. So while Chili’s has been able to get customers to spend more, there are fewer of them.
Brinker is working to boost business. One effort is a partnership with Plenti, a U.S.-based customer loyalty coalition. Other participating companies include AT&T, ExxonMobil, Macy’s, Nationwide Insurance, RiteAid, Enterprise Rent-A-Car and Hulu.
Plenti is operated by American Express and enables members to earn points by shopping at member companies. Members of Chili’s My Chili’s Rewards program will be able to receive benefits from both that loyalty program and Plenti, the company said in a release Wednesday.
For Chili’s, the partnership will give the chain access to many more than the 4.4 million members of My Chili’s Rewards, Roberts said.
“That pretty dramatically extends Chili’s potential reach,” Brinker CFO Thomas Edwards said during the earnings call.
The deal with Plenti also comes as Brinker works to reduce the costs of its loyalty program while improving the program’s ability to generate more sales. Additionally, the company recently reached a deal with the mobile ordering company Olo to rebuild its online ordering platform, hopefully to generate more to-go and delivery sales.
Chili’s also hopes to build additional sales this year with a new steak platform called Sizzling Steak. Some of the steak dishes will be included in the chain’s 2-for-$20 platform.
“We’re renovating our core products to make them better,” Roberts said. “We’re going to innovate across our menu.” Executives added that they are “more committed than ever” to improve service at the company’s restaurants.
Chili’s operates nearly 1,600 restaurants, 936 of which the company operates in the U.S. The company added 103 locations last year with the acquisition of franchisee Pepper Dining Holding Corp.
The acquisition led to higher sales and profits for Brinker in the second quarter. Total revenue increased 6.2 percent in the quarter, to $788.6 million, due largely to the additional units.
Net income in the second quarter increased 15.5 percent, to $47.7 million, or 80 cents per share, from $41.3 million, or 64 cents per share the previous year. Excluding special items, earnings per share increased 9.9 percent, to 78 cents, from 71 cents the previous year.
Same-store sales at Brinker’s Maggiano’s Little Italy brand decreased 1.8 percent in the quarter, due largely to a 2.9-percent decrease in traffic.
Restaurant operating margin as a percent of sales declined slightly in the quarter, to 16.1 percent of sales, from 16.4 percent. The company said that profits improved due in part to lower costs for many food items like hamburger and avocados, but labor costs rose somewhat in the quarter.
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