Brinker International Inc (EAT.N) reported quarterly profit that topped Wall Street's expectations on cost controls and a lower-than-expected tax rate, but shares fell 3.6 percent due to soft sales at its mainstay Chili's restaurants.
The results from Dallas-based Brinker come at a time when it and other full-service restaurant operators are fighting hard to win the business of frugal diners. Brinker is also working to turnaround business at Chili's, which accounts for most of its sales.
The company, which also owns the Maggiano's Little Italy chain, said restaurant operating margins rose 70 basis points to 17.9 percent in the third quarter ended March 27 - helped by waste reduction efforts, lower seafood prices and new kitchen equipment that reduced labor costs.
Net income rose to $52.0 million, or 71 cents per share, from $44.9 million, or 56 cents per share, a year earlier.
Excluding one-time items, Brinker earned 72 cents per share. Analysts on average were looking for a profit of 69 cents per share, according to Thomson Reuters I/B/E/S.
Total revenue, including sales and franchise revenue, rose 0.1 percent to $742.8 million, above market estimates of $742.0 million.
Sales at restaurants open at least 18 months fell 1.1 percent at Chili's and rose 0.4 percent at Maggiano's during the quarter. Eighteen analysts polled by Consensus Metrix were looking for a 0.9 percent fall at Chili's and a gain of 0.7 percent at Maggiano's.
Overall same-restaurant sales fell 0.9 percent at Brinker during the quarter, less than the overall industry's 1.2 percent decline. Nevertheless, Brinker's March restaurant sales suggested a deteriorating trend versus its peers, Bernstein Research analyst Sara Senatore said in a client note.
Brinker has rolled out pizzas and flatbread at its Chili's bar and grill restaurants, a move analysts are watching closely.
"I think it can be a (sales) driver for them. But it's not immediate because Chili's is not really known for pizza," Sterne, Agee & Leach analyst Lynne Collier said.
Shares in Brinker were down $1.41 at $37.42 in midday trading on the Nasdaq, just off all-time highs.
(Reporting by Lisa Baertlein in Los Angeles and Maria Ajit Thomas in Bangalore; Editing by Supriya Kurane and Sofina Mirza-Reid)