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Financing

Brinker's happy holidays end on sour omicron note

The variant led to staffing headaches at Chili’s and Maggiano’s in January, putting a kink in their comeback from COVID.
Chili's exterior
Photograph: Shutterstock

The first part of January was a tough stretch for restaurants, Chili’s and Maggiano’s included.

Lots of workers at the casual-dining chains called out sick with COVID-19, and some restaurants had to limit their operating hours as a result, executives from parent company Brinker International said Wednesday during the company’s fiscal second quarter earnings call.

They didn’t go into specifics, but hinted that the sales impact of the omicron variant will be significant. 

"The January period will be a setback to our overall operating results," CFO Joe Taylor told analysts. 

The stumble—which execs said has quickly improved—was a sour aftertaste to a strong holiday season in which the brands flexed their muscles amid a healthier operating environment.

Chili’s same-store sales were up 5% on a two-year basis for the quarter ended Dec. 29, while Maggiano’s were down 5.6%. Takeout and delivery remained elevated at about 30% of overall sales while dine-in business also increased.

“With diminished COVID interference, our business model continues to perform well, particularly at volume,” CEO Wyman Roberts said.

He specifically highlighted Maggiano’s in that regard.

“Maggiano's had a great December,” he said. “It really showed us that, hey, that's a brand that is even more impacted by COVID because of the large-party nature of the banquet side.”

Operating margins also improved, from 10.7% a year ago to 11%. Higher menu prices helped. Brinker raised prices 3% in the quarter to help offset higher food and labor costs. It raised them further last month, to a total of more than 4% at Chili’s and 5% at Maggiano’s.

Guests are apparently OK with it, executives said. They brushed off concerns that lower-income consumers might start pulling back amid across-the-board inflation. On the contrary, Roberts said, Chili’s is in a position to pick up some of those price sensitive customers.

“During COVID, interestingly, the consumer kind of shifted up in casual dining,” he said, noting the success of steakhouses. “We think that probably the first thing they'll do is come back down a little bit,” to concepts like Chili’s. 

“That's why we're very cautious about how we price and making sure that our pricing actions don't do damage to the overall value propositions that we offer.”

Analysts asked a lot of questions about pricing and margins Wednesday as they monitor how restaurants are managing rising costs. Roberts took the opportunity to highlight a less-obvious dynamic affecting profits these days: customers’ tendency to shift from dine-in to takeout during COVID spikes. That has a significant negative impact on check averages because of lower alcohol sales and other things, he said.

“I just wanted to share that because I do think sometimes it gets lost in the conversation about, are you taking 2% or 3%,” he said. “We have much more of an impact on [the] shift out of dining room into takeout than what another point in price is going to get us.”

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