UPDATE:Brinker 1Q Profit Up 36% As Margin Soars;Sales Slump
October 27 2010 - 8:59AM
Dow Jones News
Brinker International Inc.'s (EAT) fiscal first-quarter earnings
rose 36%, with margins rising at Chili's Grill & Bar
restaurants on lower expenses and more profit-friendly meal
promotions, although sales still suffered.
Brinker, whose profit topped analysts expectations, has been
trying to strike the right balance between offering discounts to
attract customers and improving profits.
Though margins are improving by cutting labor costs and less
aggressive discounts, Brinker's flagship Chili's chain is still
struggling to grow sales despite some competitors like DineEquity
Inc.'s (DIN) Applebee's and Ruby Tuesday Inc. (RT) showing
improving results.
Brinker's same-store sales fell 4.2%, including 5% at Chili's, a
loss that comes on top of a 6% decline a year earlier when the
chain offered its most aggressive promotions. Chili's same-store
sales decline moderated in September, falling 1.3%.
Other casual-dining chain's sales have been boosted due to more
benign discounting as they attract customers willing to pay more
for a meal. Chili's customer traffic fell 8.1% in the latest
quarter, when the company's advertised a shared appetizer and two
entrees for $20. Last year, Chili's offered an additional dessert
for the same-price.
Analysts attribute Chili's struggles to its position in the
crowded bar-and-grill category, where chain's need to offer
aggressive deals to set themselves apart. Chili's also lacks a
distinctive enough menu to bring in customers without competing on
price, analysts say.
The parent company of Chili's has emerged from the recession
considerably smaller and with a renewed focus on improving the
existing operations of the second-largest casual-dining chain in
the U.S. The company sold an 80% stake in Romano's Macaroni Grill
two years ago, unloaded On The Border Mexican Grill & Cantina
earlier this year for $180 million and has been closing
underperforming company-owned operations.
For the quarter ended Sept. 29, Brinker reported a profit of
$21.4 million, or 21 cents a share, up from $15.8 million, or 15
cents a share, a year earlier, which included 3 cents of gains.
Revenue decreased 6% to $544.9 million. Year-earlier revenue
dropped 21% amid restaurant closings and the sale of 198 others,
mostly from its Romano's Macaroni Grill locations, in which Brinker
sold a majority stake in December 2008.
Analysts polled by Thomson Reuters most recently forecast
earnings of 15 cents on revenue of $660 million.
Operating margin rose to 4.9% from 2.6% on lower operating
costs.
Shares closed Tuesday at $20.11 and were inactive premarket. The
stock is up 35% this year.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
(Tess Stynes contributed to this article.)
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