Financing

Despite Chili’s Q2 gains, investors give Brinker a drubbing

Comps and guest counts rose for both of the company’s casual brands.
Photograph: Shutterstock

Guest traffic rose 2.9% at company-operated Chili’s Grill & Bar restaurants and 1.3% at Maggiano’s Little Italy units during the second quarter ended Dec. 26, but that didn’t spare parent Brinker International from being hammered on Wall Street. Investors bid down Brinker’s share price by more than 11% in the hours after the results were released.

The price dropped despite what the Street usually views as indicators of a restaurant company’s health. Same-store sales for Chili’s, Brinker’s largest business by far, rose 2.9% at company stores and 3.4% at franchised branches, for a blended increase of 3%. Maggiano’s comps rose 1.8%. Menu inflation contributed little to those gains, with Chili’s nudging up prices by just a percentage point. Maggiano’s hikes were even lower, at 0.9%.

However, margins slipped for both brands. Restaurant operating margins for the two declined to 12.4% for the quarter, compared with the 14.9% for the year-ago period.

Brinker said profits from Chili’s were eroded by higher occupancy costs, the result of new leases negotiated after a sales-leaseback deal. Rents were also cited as the reason for Maggiano’s margin contraction.

The company also posted a $2.1 million charge for closing restaurants and $2.6 million in renovation costs.

Overall, Brinker’s net income rose 26.5%, to $32 million, on a 3.2% rise in revenues, to $790.7 million.

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