Chili’s Grill & Bar is unlikely to return to deep discounting, Brinker International Inc.’s chief executive said Thursday.
While some casual-dining competitors are offering limited promotions, such as TGI Friday’s current $10 all-you-can-eat appetizers, Brinker chief executive and president Wyman Roberts told analysts on the company’s fourth-quarter earnings call that deep discounting was not in its plans.
“Our strategy is that’s not the long-term solution, so we’re going to focus on an overall value proposition that’s embedded in our menu,” Roberts said. “As we focus on making sure our value proposition is strong, we tend to weather these shorter-term limited time promotion sort of things fairly well.”
Brinker’s strategy at Chili’s, as well as at Maggiano’s Little Italy, is to “manage the value proposition, understand what your consumers want, and do it in a way that allow your operators to deliver it consistently day in and day out,” Roberts said.
Brinker reported Thursday a 37.8-percent decrease in net income for the June 25-ended fourth quarter, which included about $39.5 million in charges for reserves related to the 2004 California meal and rest break class-action litigation.
The Dallas-based parent of Chili's Grill & Bar and Maggiano's Little Italy reported net income of $28.8 million, or 43 cents per share, for the fourth quarter, falling from $46.4 million, or 64 cents a share, in the prior-year period.
Despite lower earnings than many analysts had expected, Brinker’s report of same-store sales increases at Chili’s sent its shares up more than 4 percent at midday Thursday.
“We think investors are focused on the positive 2.5-percent quarterly comp at Chili’s, which was more than 100 basis points better than expected and represented the highest quarterly comp in seven quarters,” said Stephen Anderson, an analyst with Miller Tabak + Co. LLC, in a note Thursday.
“We view strong execution and value positioning at both concepts, as well as the return of Chili’s to its Tex-Mex roots as a concept differentiator, as reasons for the better-than-expected top-line results,” Anderson added.
Nicole Miller Regan, senior research analyst with Piper Jaffray & Co., said in a note: “We believe [first-quarter 2015] trends could be off to an encouraging start given the work to date around new menu platforms, culinary innovation and the roll out of the company's table-top-technology platform.”
That platform, Ziosk, was initially rolled out this year and in the fourth quarter last year across its 823 company-owned restaurants.
Roberts told analysts the new Ziosk tablets would have little effect on Chili’s labor model.
“Ziosk hasn’t been rolled out to our restaurants as a huge labor-savings initiative,” Roberts said. “We look at it as an enhancement to the guest experience through entertainment, through them being able to pace their experience more to their desired need and a service enhancement for our team members.”
Roberts said the tabletop tablets were leading customers to pay more often at the table, slightly increasing tip levels and producing valuable data on patrons.
“We’ve got more guests providing feedback to us than … anyone in the retail space,” Roberts said, adding that the data would be used to improve the customer experience.
In addition, he said, the tablets get reprogrammed several times a year, and the company has potential for new revenue streams with each new software rollout.
In its earnings release, Brinker said it was including about $39.5 million in fourth-quarter charges related to various litigation matters, including the class-action litigation pending in California.
The case stems from a lawsuit filed in 2004 by five Chili’s employees who charged that the company illegally denied them breaks for every five hours worked. The complaint was later certified as a class-action suit that was estimated to include potentially up to 63,000 current and former employees.
Brinker said Thursday that the parties participated in mediation on April 8, where preliminary settlement discussions began that ultimately culminated in a preliminary settlement agreement reached Wednesday.
“This preliminary settlement agreement remains subject to court approval and seeks to resolve all claims in exchange for a maximum settlement payment not to exceed $56.5 million,” Brinker said. “The company established a reserve of approximately $39 million related to this pending class action litigation.”
The actual amount of any settlement payment could vary from the company's reserve, Brinker said.
Brinker International has 1,615 casual-dining restaurants, with 1,569 Chili’s locations and 46 Maggiano’s units.
Contact Ron Ruggless at [email protected].
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