HACKENSACK N.J. Chili’s Grill & Bar parent Brinker International Inc., while in talks to shed its 230-unit Romano’s Macaroni Grill chain, intends to continue growing its multiple brands through franchising and international expansion. —
“We remain committed to being a portfolio company,” Douglas H. Brooks, chairman, president and chief executive of the Dallas-based company, told a gathering of financial analysts here Sept. 11. —
Brinker and its franchisees operate nearly 1,800 casual-dining restaurants, including the 1,361-unit Chili’s chain. Brooks addressed the analysts at a new Brinker-owned branch of the 41-unit Maggiano’s Little Italy chain chain, the company’s second Maggiano’s in New Jersey. —
In August, Brinker said it was exploring the sale of Romano’s Macaroni Grill, the second largest of its four chains. Brinker also owns the On the Border Mexican Grill & Cantina brand, encompassing 158 branches. —
Offering validation for its portfolio strategy at a time when activist investors have been calling for some multichain conglomerates to shed noncore assets, Brinker posted a 5-percent annual increase in revenues to $4.38 billion for its June-ended fiscal 2007, yielding a net profit of $230.1 million, up 8.3 percent from 2006 results. —
The company now is looking abroad for continued growth. —
“International opportunities are an important part of our future,” said Charles Sonsteby, Brinker’s vice president and chief financial officer. He told the analysts that several new executives had been hired from the Outback Steakhouse and T.G.I. Friday’s brands to expand Brinker brands’ global business. —
“International franchisees continue to commit to build more and more locations, with increasing interest in building multiple brands,” Brooks said. —
Foreign franchise operators of Brinker brands have committed to build 93 restaurants over the next three years, he added, which by 2010 would bring the number of units outside the United States to 158. That “almost doubles our number of international restaurants,” Brooks said. —
“We’ve proactively invested in leadership and infrastructure to build the global business over the long term,” he said. —
Brinker franchisees have 70 restaurants in Latin America, the largest overseas region, followed by the Middle East. —
The first On the Border restaurants are scheduled to open in Asia and the Middle East this fall, with more to follow, Brooks said. “International franchisees will build a total of 29 On the Border restaurants outside the United States under our current development commitment,” he said. —
Brinker officials have reported that On the Border restaurants have average annual sales of about $2.9 million, with average per-person checks of $13.78. —
Domestically, Brinker has just introduced a smaller version of On The Border that is “more efficient than the original,” Brooks said. Two of those restaurants opened in August, and a third was opened during the first week of September in the Atlanta Hartsfield-Jackson International Airport by HMSHost Corp. The downsized outlets, which are about 1,700 square feet to 2,000 square feet smaller than standalone units, cost about $1 million less to open, Brooks said. They work in endcap sites and in-line sites because of a smaller back-of-house area. —
“This new design is built for speed,” Brooks said. Servers at the smaller units use hand-held point-of-sale systems and credit card processing technology “that enables faster service that our time-constrained guests are looking for,” Brooks said. —
Meanwhile, Brinker has been selling corporate restaurants to franchisees. Sonsteby said the company has maintained company markets where there is “significant scale.” It is selling stores in markets “where local ownership can unlock brand value,” he said. —
Brinker has engineered “a dramatic shift” in its chain development model, Sontseby said. —
“In 2006, we opened 129 company-owned restaurants,” he said. “In 2007, 149. Our estimate for 2008, is between 80 and 93. Fiscal year 2009 will be reduced even further, with our first look at 49 to 53 company openings. This evolution from dominance of company development to one where domestic franchise and international growth almost equals company-owned growth has benefits.” —
He said that helps Brinker win market share with lower risk investment. —
Securities analyst John Ivankoe of JPMorgan describes Brinker’s slower rate of company-unit development, sales of its restaurants to franchisees and their new-unit development as “a positive” that won’t affect same-store sales of Brinker-owned restaurants. In a report, Ivankoe said: “Franchise-unit development will take place in non-company markets or internationally, and we therefore don’t expect an impact to company U.S. comps. We don’t expect refranchising beyond fiscal 2008, but expect the company ownership mix to drop from 73 percent to 60 percent by fiscal 2010’s end.” —
Ivankoe said Brinker plans to remodel 180 Chili’s units, or 13 percent of the system, in the current fiscal year, and that those kinds of upgrades previously have driven same-store sales. —
Stock analyst John Glass of CIBC World Markets in Boston said Brinker’s “current round of refranchising appears to be winding down, with a 60-40 company-franchise mix a two-year goal” that would mark a change from the current 73-27 ratio. —
“Our Chili’s system is now 32 percent franchised,” Brooks said, adding that proceeds from selling company-owned stores to franchisees have helped Brinker repurchase 19 million of its shares, reducing the number of shares outstanding by nearly 6 percent. —
Because of discussions regarding the possible sale of Romano’s Macaroni Grill, Brinker executives said they were limited in the amount of information they could divulge. However, they did say the chain generated $760 million in sales systemwide last year. Average-restaurant volume was $3.2 million, and the average per-person check was $15.33. —
Maggiano’s generated $340 million in revenues, and all its restaurants are owned by Brinker. That chain’s average annual sales per location are about $9 million, and its average per-person check of more than $25. —
