* Q2 EPS 29 cents vs. Street view of 22 cents
* Q2 revenue down 17.6 pct
* Q2 same-store sales down 3.1 percent
* Shares up 10.5 percent
(Recasts with analyst, executive comment; adds LOS ANGELES to
By Lisa Baertlein and Phil Wahba
LOS ANGELES/NEW YORK, Jan 20 Chili's Grill &
Bar parent Brinker International Inc (EAT.N) posted quarterly
profit on Wednesday that topped Wall Street's view on better
than expected sales at established restaurants, sending shares
up as much as 13.3 percent.
Despite aggressive discounts to lure consumers, Brinker's
same-store sales were more resilient than analysts had
Brinker's sales at established restaurants fell 3.1 percent
during the quarter. JP Morgan analyst John Ivankoe said that
appeared to be better than the casual dining industry's overall
4.8 percent drop reported by sales tracking firm KnappTrack.
The narrower same-store sales decline boosted hopes for the
battered mid-market restaurant segment, which began to falter
months before the United States officially slipped into
recession in late 2007.
"We believe the surprise reflects an improving industry
trend as well as the reintroduction of discounting at Chili's,"
Bernstein Research analyst Sara Senatore said in a note.
The company's profit beat was also helped by lower
restaurant expenses and smaller interest payments as it paid
Brinker, which also owns On the Border and Maggiano's
Little Italy restaurants, reported net income of $18.3 million,
or 18 cents a share, for the second quarter ended Dec. 23,
compared with a loss of $21.8 million, or 21 cents a share, a
In the year-earlier quarter, Brinker completed the sale of
a majority interest the Romano's Macaroni Grill chain while
retaining a minority stake.
Excluding one-time items related to that sale, Brinker
posted a profit of 29 cents per share for the quarter.
Revenue fell 17.6 percent to $781.9 million, in large part
because of the sale of the Macaroni Grill restaurants.
Analysts on average were expecting earnings of 22 cents per
share on revenues of $774.2 million, according to Thomson
THE DISCOUNT DILEMMA
As consumers continue to spend cautiously, restaurant
operators have been discounting to lure diners. The risk in
that strategy comes when specials fail to draw enough customers
-- or when those customers do not buy other high-margin items
like cocktails and soft drinks.
Brinker said in October that its so-called 3 for $20
promotion at Chili's -- offering two entrees and both an
appetizer and a dessert to split between two diners -- had cut
But in the recent quarter, that promotion helped stem a
fall in sales at established restaurants by driving customer
traffic, said Brad Ludington, an analyst with KeyBanc Capital
"It may be a loss leader to bring some people in, but I
don't think it's translating into high enough bar sales to
drive margin improvements," said Ludington.
To that end, Brinker executives said they will focus
near-term advertising on new, simplified menus but they intend
to return to "value" messaging before the end of the current
During the quarter, interest expense fell by more than a
third to $6.8 million. Restaurant expense as a percentage of
revenue fell to 56 percent from 58 percent in the prior year,
primarily due to having fewer employees following the sale of
189 Romano's Macaroni Grill restaurants a year ago.
Shares were up $1.61 or 10.5 percent to $16.92 in afternoon
trade; earlier, the stock got as high as $17.35.
Brinker rivals Darden Restaurants Inc (DRI.N) and
DineEquity Inc (DIN.N) were up 1.8 percent and 3.3 percent,
(Editing by Michele Gershberg and Gerald E. McCormick)