UPDATE: Brinker Up As It Cooks Up Cost Savings To Beat On 2Q
January 22 2009 - 12:09PM
Dow Jones News
With consumers cutting back on restaurant visits and spending
less when they do go, Brinker International Inc. (EAT) hunkered
down in its fiscal second-quarter by slashing spending for
remodeling stores, closing underperforming ones and controlling
other expenses.
The news helped the operator of Chili's Grill & Bar and
other casual dining chains top analyst estimates for earnings and
revenue, and sent shares rallying $2.82, or 34%, to $11.12, in
recent trading.
While more prudent cost controls and capital spending helped
propel Brinker through its current quarter, the company faces
continuing headwinds in declining same-store sales that show few
signs of abating soon.
"The sales environment still remains challenging and will likely
remain so for the next few quarters, but it appears that some of
the costs may be easing," SMH Capital restaurant analyst William
Hamilton said.
Same-store sales at Brinker's Chili's, Maggiano's and On The
Border Mexican Grill restaurants fell 4.5% for the quarter ended
Dec. 24, and Brinker Chief Executive Douglas Brooks said a
disappointing holiday season brought "little relief" to sales and
that government efforts to stimulate consumer spending are still a
far off from being realized.
"While there are multiple efforts to reenergize the economy and
encourage consumer spending, we realize that lasting change will
only happen over time," Brooks said. "At Brinker, we are not
waiting for external action to strengthen our company."
Brinker said that it will close up to 35 underperforming
restaurants, most in the upcoming quarter, and it also plans to
spend $110 million this fiscal year on remodels of Chili's
restaurants and other capital expenditures, down from $147
million.
Brinker becomes the latest chain to announce it would close some
locations, something analysts are calling on the casual-dining
sector to accelerate to overcome a glut of eateries in the U.S.
Goldman Sachs analyst Steven Kron recently said that as many as
12,000, sit-down restaurants, or 8% of all locations, are needed to
close to correct a supply-demand imbalance.
Like other restaurant chains, Brinker also expects to see relief
from falling ingredient prices as commodity costs ease.
While Brinker showed the ability to control costs this quarter
and benefitted from a slightly better tax rate as well, Morgan
Stanley restaurant analyst John Glass said he's unsure how many of
those benefits are sustainable in the future. More important is
that declining cash flows and sales show no signs of abating in the
near term, he said.
"We reiterate that casual dining remains a dangerous place for
investors as it appears the deceleration in industry sales is only
accelerating into 2009," Glass said in a note to investors.
Brinker swung to a loss of $21.8 million, or 21 cents a share,
for the quarter, compared to year earlier net income of $54.5
million, or 52 cents in the recent quarter. The company recorded
$85.1 million in charges related to restaurant closings and another
$43.3 million loss related to the sale of an 80% stake in Macaroni
Grill last month.
Excluding charges, earnings from continuing operating came in at
27 cents a share, beating analyst expectations of 18 cents a share,
according to Thomson Reuters.
Brinker's revenue slumped 7.8% to $949.4 million from the
year-ago period, although that also beat analyst expectations of
$839 million.
Brinker said it expects to refinance a $300 million credit
facility that was to mature in October "in a matter of weeks,"
Chief Financial Officer Charles Sonsteby said.
Shares of another casual-dining giant, Darden Restaurants Inc.
(DRI), also rose Thursday, adding 7.2% in recent trading to $26.68,
as the operator of Olive Garden, Red Lobster and other restaurants
reaffirmed its fiscal 2009 guidance ahead of an investor
meeting.
-By Paul Ziobro, Dow Jones Newswires; 201-938-2046;
paul.ziobro@dowjones.com
(Shirleen Dorman contributed to this report.)
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