DALLAS — The virtual brand It’s Just Wings helped Brinker International, Inc., the owner of Chili’s and Maggiano’s, get through the worst times of COVID-19. The brand will stick around, although in a smaller format, as the pandemic’s effects lessen.
“So let me just start with virtual brands will continue to play a meaningful role in our business,” said Kevin Hochman, president and chief executive officer of Brinker, in an Aug. 24 call to discuss fiscal-year results. “I mean they're currently about 6% of mix. So, they're a part of our business now. That said, we do need to right-size the time and attention and investment for a sales layer that's 6% of the business.
“So specifically, we have to make sure that we're right-sizing the amount of incremental pantry SKU (stock-keeping unit) ingredients that we need to service these brands. For example, on the Maggiano's virtual brand, it's currently 26 unique SKUs to service about 2% of the business. That is just too much, right? So we've got to make sure that we cut that number probably by more than half.”
Brinker will switch around some of the It’s Just Wings menu items. A smoked wing item will be eliminated. Chicken tenders, offered by Chili’s, could join the It’s Just Wings menu. Chicken wing flavors and curly fries from It’s Just Wings could join the Chili’s menu.
“The core Chili's does about 24 times the sales of It's Just Wings,” Hochman said. “So why not take these amazing flavors and these amazing curly fries, put them into the Chili's business as a premium at the bar. We are very bullish on what that could mean for the business.”
Dallas-based Brinker International in the fiscal year ended June 29 reported net income of $117.6 million, equal to $2.62 per share on the common stock, which was down 11% from $131.6 million, or $2.89 per share, in the previous fiscal year, which had 53 weeks instead of 52. Revenues rose 14% to $3.80 billion from $3.34 billion. Comparable restaurant sales increased 8.6% at Chili’s and 53% at Maggiano’s.
Brinker’s stock price on the New York Stock Exchange closed at $28.84 on Aug. 24, which was down 4.9% from a close of $30.34 on Aug. 23.
In the fourth quarter, net income of $40.2 million, or 92¢ per share on the common stock, was down 46% from $75 million, or $1.64 per share, in the previous year’s fourth quarter. Revenue increased 1.3% to $1.02 billion from $1.01 billion
“Traffic was negative at Chili's for the quarter and decelerated throughout as some guests appear to react to the challenging inflationary environment, particularly during the weeks of very elevated gas prices,” said Joseph G. Taylor, chief financial officer. “We also experienced approximately a 1% negative sales impact to the quarter as some restaurants were not able to fully open dining rooms, particularly at peak times or had to throttle back online orders giving limited staff availability.
“I would note that Chili's traffic trends since the end of the quarter saw sequential improvement into August, although they remain in the mid-single-digit negative territory.”
Inflation in the fourth quarter was close to 15%, he added.
For the current fiscal year Brinker executives expect revenues in the range of $3.9 billion to $4 billion.
“Our cautious view of economic conditions, particularly for our value-oriented guests, reflects negative traffic expectations in the low single digits for Chili's,” Taylor said. “We believe the significant headwinds from commodity inflation will lessen as we move through the year, a trend that could continue for a period beyond the current fiscal year.”
Brinker plans to take near-term pricing for both Chili’s and Maggiano’s.
“Chili's is expected to exit the first quarter at close to 8% price, a level the brand will maintain throughout the fiscal year,” Taylor said. “Maggiano's will exit the first quarter in the mid-5% range and is anticipated to average closer to 7% for the year.”