Brinker International saw its business track upward in the second quarter, perhaps providing early proof that recent traffic-driving initiatives are paying dividends. On a per-share basis, the parent company of Chili’s and Maggiano’s Little Italy posted profit of 54 cents, or net income of 25.4 million. Adjusted for pretax expenses and non-recurring costs, it was 87 cents per share, which easily topped Zacks Investment Research’s prediction of 71 cents per share. The company also posted revenue of $766.4 million, down 0.6 percent from a year ago and missing Wall Street’s expectation of $771.4 billion. Brinker’s stock is down 17 percent over the past 12 months.
A key figure—traffic—moved in the right direction. Chili’s traffic plummeted nearly 9 percent during the first quarter, a drop the company attributed primarily to hurricanes Irma and Harvey. Same-store sales also declined 3.4 percent. In the second quarter, traffic was down 4.4 percent at company-operated units compared to 6.5 percent in the prior-year period, and same-store sales fell 1.5 percent versus 3.3 percent in Q2 2017.
“Brinker saw performance improve across the business during the second quarter, especially related to our initiatives to change traffic trends at Chili’s,” Wyman Roberts, chief executive officer and president, said in a statement. “With this foundational strategy in place, we will focus on targeted segments of the business we believe will enhance the guest experience and drive traffic.”
Chili’s cut its menu by 40 percent in September to reduce operational complexity and turns its focus to core menu items, like burgers, ribs, and fajitas. The chain also revived its classic “I Want My Baby Back” advertising campaign, and unveiled a new social strategy to ignite engagement in late November. “We have seen our traffic trends turn and we’re going to use that momentum to continue to focus on building traffic at Chili’s,” Roberts said in November, adding that taking longer than 15 minutes dropped 40 percent since the new menu launch, and guests experiencing a faster experience and meals at a better value are more likely to return.
Chili’s franchised stores reported a 1.7 percent decrease in same-store sales in the second quarter versus a 3 percent decline in the prior-year period, and international franchise comps climbed 0.1 percent against a 4.2 percent fall in Q2 2017.
Maggiano’s reported same-store sales increases of 1.8 percent in the quarter versus the prior-year period’s 0.8 percent decline. Traffic was down 0.4 percent compared to a 2.5 percent drop as well.
Brinker’s operating income, as a percent of total revenues, was 7.1 percent for the second quarter compared to 8 percent for the second quarter of fiscal 2017.
As of December 27, Brinker owned, operated, or franchised 1,682 restaurants (1,630 Chili’s and 52 Maggiano’s).
The company said Chili’s restaurant labor, as a percent of company sales, increased year-over-year thanks to higher wage rates, and was offset by lower employee health insurance costs and incentive bonuses. Cost of sales also increased slightly thanks to “unfavorable product mix on beef, ribs, and chicken,” as well as “unfavorably commodity pricing on produce.” This was offset by increased menu pricing.
At Maggiano’s, restaurant labor decreased “due to sales leverage and lower incentive bonuses, partially offset by higher wage rates. Cost of sales, as a percent of company sales, was negatively impacted by unfavorable commodity pricing, partially offset by increased menu pricing,” the company said.
Brinker also noted that the Tax Act affected its fiscal 2018 outlook. The company estimates adjusted earnings per diluted share, excluding special items and the revaluation of Brinker’s deferred tax accounts, for fiscal 2018 will be in the range of $3.42–$3.52 including the effective rate impact of the Tax Act. Previously, the company expected the effective income tax rate excluding the impact of special items to be about 27–29 percent for fiscal 2018. Brinker’s effective tax rate excluding the impact of special items and the revaluation of the deferred tax accounts is now expected to be approximately 20–22 percent.
Brinker has made additional changes in recent weeks. The company announced that James Katzman, a retired partner of Goldman Sachs, was elected to the board of directors. Katzman spent his career advising companies on corporate financial matters and merger transactions. He also serves as a trustee for the Hershey Trust Company and Milton Hershey School, San Francisco Ballet, and Boys & Girls Clubs of Metro Phoenix.
“Jim brings tremendous business and financial experience to our board that will enlighten our discussions around creating value for our shareholders,” Joe DePinto, chairman of the board of Brinker, said in a statement.
The company also launched a no-cost education program for employees called “Best You EDU.” The program, which is free and available for any employee who works at least 24 hours per week with a minimum tenure of 90 days, provides opportunities for Brinker employees, ranging from hourly to management. Read more about it here.