Brinker International Inc. on Tuesday reported same-store sales down at both its Chili’s Grill & Bar and Maggiano’s Little Italy, with executives attributing some sales softness on the transition to Chili’s new loyalty program as well as general economic factors.
Wyman Roberts, Dallas-based Brinker’s president and CEO, said in a call with analysts that the company was intent on addressing the sales challenges.
“We know we need to improve our sales results,” Roberts said, adding later that “our sense of urgency is high” to address traffic and sales trends.
Brinker reported net income rose 1.4 percent in the first quarter ended Sept. 23 to $33.2 million, or 54 cents a share, from $32.7 million, or 49 cents a share, in the same period last year. Revenue in the quarter increased 7.2 percent, to $762.6 million from $711 million in the prior-year period.
Same-store sales fell 1.6 percent at company-owned Chili’s units and decreased 1.7 percent at Maggiano’s.
Roberts said the company anticipated some sales softness as the company transitioned to the new “My Chili’s Rewards” program, which was announced in April. “The shift from our direct-marketing program to loyalty hasn’t performed as strongly as expected,” he said, “and we’re now adjusting the mix of loyalty and direct marketing to optimize the investment.”
Roberts noted that the program is not yet generating the incremental traffic that was expected, but customer acceptance of and engagement in the program was strong.
“We’ve signed up more than 3.7 million members so far, and more than 16 percent of our checks include loyalty transactions,” Roberts said. “We know from the data that our rewards program members rate the brand even higher in terms of experience and are much more likely to return than the average Chili’s guest.”
Roberts said Chili’s is adjusting loyalty components and augmenting the program with direct marketing.
The rewards program was tested in three mid-size markets in November and December of last year with the results more positive than the national rollout produced, Roberts said. “We knew there would an initial ramp up as we built the database,” he said.
For example, users in the My Chili’s program lose their accrued points if they don’t log a visit within 120 days, and the company expected visits to increase as members reached that deadline. However, Roberts said tests indicated a higher return rate than what the company is actually seeing, which is leading Brinker to balance it with the direct marketing push.
Promotions planned for the quarter included highlighting lunch business with new products at “compelling” price points, offering bottomless chips and salsa with any fajita purchase and marketing appetizer and drink specials at happy hour.
As Chili’s launches its national happy hour program, Roberts said, the brand is using all the technology tools such as digital and social media, the email database, the rewards program and the Ziosk tabletop tablets “to build excitement around the program.”
Analysts also cited those tools. Nicole Miller Regan, senior research analyst with Piper Jaffray & Co., said in a note Tuesday: “Looking forward, we believe the company can utilize guest-facing technology initiatives (and assorted tool sets that allow Chili's team members to better execute) and ongoing menu evolution to deliver better-than-peer trends. That said, the company will likely need a few quarters before regaining its footing.”
Continued competitive pressures in casual dining, including an ongoing market-share battle and discounting promotions, also affected Brinker’s quarter, as did some regional economic softness, Roberts said.
“With persistently low oil prices and the appreciation of the dollar, we experienced even greater challenges within our oil [region] markets and border towns,” he said.
“While we’ve been seeing pockets of softness within those regions for a while, the top-line challenges expanded during the quarter across Texas, Oklahoma, Arkansas and Louisiana,” Roberts noted. That four-state region is home to about 30 percent of Brinker’s restaurants. “It’s unusual to see that much regional variability,” he said.
Brinker International owns and franchises 1,632 casual-dining restaurants, including 1,583 Chili's and 49 Maggiano’s.
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