UPDATE:Brinker International 2Q Profit More Than Doubles; Revenue Down

Brinker International Inc.'s (EAT) fiscal second-quarter earnings more than doubled, but both sales and traffic at banner brand Chili's Grill & Bar continued to fall.

A key indicator of the casual-dining chain's performance, same-store sales and customer traffic declines illustrate Brinker's continued struggles coming out of the recession.

The parent company of Chili's and Maggiano's benefited from stronger margins and lower overhead costs in its fiscal second quarter, reporting results that beat analysts' expectations. But sales at Chili's remained weak, as Brinker expected.

In the quarter ended Dec. 29, same-store sales dropped 3.5% at company-owned restaurants, including a 4.9% slide at Chili's. The quarter also included a 53rd week, without which sales performance would be even more lackluster. Meanwhile, Maggiano's increased same-store sales by 4.7%.

Chili's customer traffic was down 7.1%, though that was an improvement from the fiscal first quarter when it dropped 8.1%. Chili's capacity was down 3.1% due to fewer restaurants.

"Despite undeniably impressive margin improvements, we continue to wait for evidence of top line momentum, which has yet to materialize," Morgan Stanley analyst John Glass says in a note.

Chili's has emerged from the recession considerably smaller. It still hasn't found the right recipe to increase sales, in contrast to some of its rivals, and carve out a niche in an overly saturated bar and grill sector.

Chili's biggest competitors in the space, Ruby Tuesday Inc. (RT) and DineEquity Inc.'s (DIN) Applebee's have seen significant sales improvement, implying they are leaving Chili with less of what little market share the bar-and-grill space has left.

Brinker has been focused on spicing up its existing locations to better stand up to the competition and striking a balance of discounting without letting it cut too deep into profits.

Chili's latest discount is a lunch combo that offers an appetizer, sandwich and fries for $6 to $8. Combined with quicker order-serving times, it puts Chili's in a better competitive stance against the growing fast-casual industry, including poster child Chipotle Mexican Grill Inc. (CMG), which is said to be stealing market share from Chili's.

Brinker had been losing customers, partly because it toned down the aggressiveness of its promotions. Glass says Brinker has at least another month or more "of tough promotional laps before a clearer top line read."

Cost restructuring has been Brinker's only redemption, as it lowers labor costs and makes kitchens more cost-efficient through redesigns.

For the quarter, Brinker reported a profit of $37.5 million, or 41 cents a share, up from $18.3 million, or 18 cents a share, a year earlier. Excluding restructuring related expenses and restaurant closings, earnings from continuing operations were 38 cents a share, up from 25 cents.

Revenue decreased 4.8% to $671.9 million, though that was an improvement from a year earlier, when revenue fell 18%, partly on restaurant closures and the sale of the Romano's Macaroni Grill locations.

Analysts polled by Thomson Reuters most recently forecast earnings of 32 cents on revenue of $670 million.

Restaurant operating margin rose 2.1 percentage points to 17.4%. Shares rose 8% to $22.59 in recent trading.

-By Annie Gasparro and Tess Stynes, Dow Jones Newswires; 212-416-2244; annie.gasparro@dowjones.com

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