UPDATE: Brinker CFO Bullish On Restaurant Margins
11 Mars 2009 - 6:06PM
Dow Jones News
Brinker International Inc. (EAT) is optimistic about continued
margin growth in the near term as it cuts back on opening new
restaurants, and seeks cost relief on items like trash pickup and
rent.
But pressures on top-line sales remain, as the casual-dining
giant sees both loyal and new customers cut back on visits, and
trim their checks with fewer appetizers and desserts.
Brinker, the operator of Chili's Grill & Bar, Maggiano's and
On the Border Mexican Grill, is seeing benefits as it carves out
costs related to opening new restaurants, Brinker Chief Financial
Officer Charles Sonsteby said Wednesday at a Bank of America and
Merrill Lynch consumer conference.
It plans to open just 13 new company-owned locations in fiscal
2009, and no new company units in fiscal 2010.
That comes as the company recently said it would close as many
as 35 underperforming restaurants, causing a net decline in the
number of stores for the fiscal year.
It is also trying to open up negotiations on a number of costs
like garbage pickup and negotiating with some landlords to try to
secure lower rents. Additional benefits are coming from lower food
costs and reduced turnover among employees.
"As we sit here today, I feel pretty good on margins for the
next six to nine months," Sonsteby said.
The tone is rosier than the one conveyed by executives in
Brinker's January earnings call when Sonsteby said the company was
unsure it could sustain its margins as sales slow, according to
Research Edge LLC analyst Howard Penney.
Brinker's "investor presentation this morning might be the most
bullish presentation I have heard from a casual dining restaurant
in over a year," Penney said in a note to investors. "The fact that
he is more comfortable with margins shows that the company is
managing the things it can currently control."
While cutting costs helped Brinker overcome slowing sales, the
chain isn't yet seeing relief on the latter as the economic
recession continues.
Diners continue to make fewer visits, and more are sharing
dishes, ordering fewer appetizers and cutting back on dessert to
try to save money, Sonsteby said.
In its most recent quarter, Brinker's same-store sales declined
4.5%.
Sit-down restaurants have been aggressive with promotions such
as two-for-one and all-you-can-eat offers to help drive traffic.
Sonsteby said Brinker's brands are trying to offer more new items
at lower prices rather than slash prices on existing items.
Brinker shares have staged a rally this week with a 23.4% jump,
after a Morgan Keegan analyst said that restaurants appear to be
more resilient to the economic downturn than other sectors
dependent on consumer spending.
In recent trading, Brinker shares were up $1.39, or 13%, at
$12.31.
Another casual-dining competitor showing a pop Wednesday was
Cheesecake Factory Inc. (CAKE), which jumped 82 cents, or 10%, to
$8.93, after a Goldman Sachs analyst upgraded shares on signs that
sales declines are stabilizing and that management may have more
fat to cut at the chain.
-By Paul Ziobro, Dow Jones Newswires; 201-938-2046;
paul.ziobro@dowjones.com