Chili's tempered by marketing shift

by Monica Watrous
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DALLAS — The launch of a rewards program at Chili’s Grill & Bar proved less than rewarding for parent company Brinker International, Inc. in the recent quarter. Same-restaurant sales at the casual dining chain fell 0.8 percent as traffic declined on a shift in marketing strategy to transition to My Chili’s Rewards.

Wyman Roberts, c.e.o. and president of Brinker.

“To encourage migration into the rewards program, we made the decision to eliminate incentives to our e-mail database members, which has been working hard for us prior to the fourth quarter as we assumed most would transition to the rewards program,” said Wyman Roberts, CEO and president of Brinker, during an Aug. 6 earnings call with financial analysts. “As it turns out, most of our reward members are actually new guests, which caused an unexpected headwind for us.”

Additionally, servers at Chili’s focused on driving sign-ups into the program rather than promoting add-on sales, resulting in a lower per-person check average during the quarter.

For the fiscal year ended June 24, Brinker had net income of $196,694,000, equal to $3.12 per share on the common stock, up 28 percent from $154,039,000, or $2.26 per share, for the prior fiscal year. Revenues totaled $3,002,278,000, an increase of 3.2% over year-ago revenues of $2,909,495,000.

Fourth-quarter net income was $57,223,000, or 94c per share, up 7 percent from $28,820,000, or 44c per share, for the comparable period. Revenues for the quarter increased 0.6% to $764,147,000 from $759,880,000.

Comparable-restaurant sales at company-owned Chili’s restaurants rose 1.9 percent for the year. At Brinker’s Italian brand, Maggiano’s, comparable-restaurant sales increased 0.8% for the year and fell 0.1% for the quarter on lower traffic.

Looking ahead, the company expects to drive double-digit growth in earnings and revenue on increased local marketing strategies at Maggiano’s and menu innovation at Chili’s.

“Our recently launched tacos platform is resonating well with guests, and earlier this week, we introduced burritos with bold new flavors like prime rib and chicken smoked in-house,” Roberts said. “These new offerings achieved solid test results for quality, value and guest preference, so we're excited to watch them perform in the market. And there's much more to come in fiscal 2016 as we leverage our ability to smoke foods in-house, which is the key to building out Fresh Tex and further differentiating us from the industry.”

Chili's recently introduced burritos to its menu that feature ingredients like prime rib and chicken smoked in-house.

Despite initial headwinds from the roll-out of the rewards program, Roberts said sales trends have begun to improve.

“Today, our teams are focused on driving check, as well as sign-ups to My Chili's Rewards, and their efforts are already paying off,” Roberts said. “(Per-person average check) trends have turned positive the last few weeks, and the pace of sign-ups into the rewards program continues to be significantly stronger than our expectations.

“We're not quite three months into the national launch, and we are rapidly approaching 3 million members. Overall, we believe that Q4 sales softness is temporary and linked to the transition to the rewards program and the strength of the Chili's brand remains intact.”

For fiscal 2016, Brinker executives expect to deliver earnings per diluted share, excluding special items, to increase 16 percent to 19 percent in the range of $3.55 to $3.65. The company also anticipates revenues to increase 12 percent to 14 percent, including a 53rd week, and comparable restaurant sales to increase 1.5 percent to 2percent.
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