EAT – 4Q Less Than Toxic

As I have said before, the company’s improved capital allocation decisions should generate more favorable returns going forward as should its move to a higher franchise ownership mix (expected to reach 35% franchise ownership by the end of 2008). Additionally, Brinker’s recent restructuring of its restaurant support center in 3Q08, which represented a 10% reduction of costs, should give the company some leverage on the G&A line.
  • 3 recent data points to think about:
  • Our proprietary grass roots survey gives us confidence that the favorable trends at Chili’s from last quarter have continued. Chili’s same-store sales were up 1.6% in 3Q08 after being down 2.4% in 2Q and negative for all of fiscal 2007. These improved trends seem to reflect management’s sentiment from its 3Q earnings call in April when they said, “so the short-term trend appears positive and we’re off to a good start and expect the stimulus checks to help in May and June. In addition it appears California and Florida are doing better. With still negative performance both those markets appear to have bottomed down in December and have shown improvement each month since.”
  • NPD data points to an uptick in traffic trends within the bar and grill segment in the March-May 2008 timeframe. According to NPD, casual dining posted a 1% increase in traffic with the bar and grill category posting the largest incremental year-over-year traffic gains, up 4%. The casual dining “varied menu” lost traffic, which suggested a trade off to bar and grill.
  • Bennigan’s recent filing for Chapter 7 bankruptcy protection and the subsequent restaurant closures should benefit Chili’s as Bennigan’s was a direct competitor within the bar and grill segment. Additionally, Chili’s more penetrated U.S. states overlapped with those of Bennigan’s so the closures should also help Chili’s from a capacity standpoint (please refer to my Bankruptcy Cycle Continues – July 30 posting for more details).
EAT Same-Store Sales

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