Brinker's New Look Will Come At A Cost; Shares Fall
20 Ottobre 2009 - 6:51PM
Dow Jones News
Brinker International Inc. (EAT) shares dropped sharply as the
restaurant operator continues to see consumer weakness and plans to
invest in a new menu, equipment and training at its Chili's Grill
& Bar to wean customers off discounts.
Brinker also expects franchisees to open fewer stores in its
current fiscal year, as credit remains tight and fewer suitable
sites are available.
Before Chili's new menu takes hold, Brinker will keep pressing
promotions to bring in guests, a strategy that will hurt margins.
Shares fell $1.60, or 9.7%, to $14.91, even as Brinker's
first-quarter earnings and sales topped estimates. Investors were
also turned off as Brinker did not update its full-year earnings
guidance, analysts said.
Stifel Nicolaus & Co. analyst Steve West said Brinker's
earnings were helped by lower interest expense and taxes, a
low-quality upside. Analysts expected restaurants to see benefits
from lower food costs, but Brinker's saw unfavorable prices, partly
as it was locked into a long-term chicken contract.
"Less bad is no longer relatively good anymore. The Street's
tired of it," West said.
Casual-dining restaurants have been locked in a discounting
battle for some time, pumping deals to attract customers. After
slashing costs earlier this year, Brinker is now sacrificing some
of those improved margins to offer customers deals, like an
appetizer, two entrees and dessert at Chili's for $20.
At the same time, Brinker also hopes the discounts can help its
largest brand Chili's down a path of differentiation. Brinker
tweaked the "3 for $20" promotion in its latest iteration to steer
more customer to try Chili's burger and ribs, which are being
prepared in a new way. Brinker is also adding tacos at Chili's,
hoping to set the chain apart from competitors like DineEquity
Inc.'s (DIN) Applebee's and the privately held T.G.I. Friday's.
"The space has gotten very crowded and become a sea of
sameness," Brinker's Chief Marketing Officer Wyman Roberts said.
"We know we have to break away from the pack."
The change will require investments in equipment and training.
Brinker said it will take some unprofitable items off its menu to
offset those costs, resulting in a leaner menu.
Analysts fear the longer Brinker discounts, the harder it will
be for customers to pay full price at their restaurants. In
Brinker's latest quarter, Chili's same-store sale fell 3.1% in
August when it ran its "3 for $20" promotion, but it widened to
5.4% when it eased off the deal in September.
"People are concerned they have to discount to get sales,"
Telsey Advisory Group analyst Tom Forte said.
- By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
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