Brinker International, Inc. (EAT), Darden Restaurants, Inc. (DRI): You Should Do More Than Just Eat at Chili’s

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It always surprises me to see a little bit of Americana in Asia, particularly Tex-Mex chain Chili’s Grill & Bar. Brinker International, Inc. (NYSE:EAT) has done a great job with Chili’s international expansion and creating a restaurant concept that diners enjoy and love. According to the company’s website:

Every day from Chicago to Cairo, more than a million people dine at Brinker International restaurants.

What I like about Chili’s is that it appeals to the value-conscious consumer with entrees priced from $5 to $20. In a difficult economy, Chili’s is one place that customers can go and get a great meal at a reasonable price without having to go to a fast-food chain.

Latest results

This month, Brinker International, Inc. (NYSE:EAT) released its fourth quarter and full fiscal year financial results. Earnings rose 26.2% to $0.77 per share compared to the fourth quarter of last year. This marked the 12th consecutive quarter of earnings per share growth for the company. For the full year, earnings per share rose 19.4% year-over-year to $2.34.

Brinker International, Inc. (NYSE:EAT)The operating margin improved from 9.8% to 11.6% due to better cost-control measures. Chili’s U.S. comparable-restaurant sales decreased 0.3% in the fourth quarter, but international comparable-restaurant sales increased 2.3%. Brinker International, Inc. (NYSE:EAT) also owns Maggiano’s Little Italy with 45 locations and that chain saw comparable sales increase for the 14th consecutive quarter by 0.2%.

Brinker International, Inc. (NYSE:EAT) continued to return money to shareholders. During the fourth quarter, the company repurchased 3.5 million shares for $141.6 million. Its dividend increased 25% over last year’s fourth quarter. The annual dividend will now be $1 per share for a yield of 2.3%. Brinker International still has $330 million left on its authorized share-repurchase plan heading into the next quarter.

Growth going forward

One of the key drivers for Brinker International, Inc. (NYSE:EAT) will be the continued development of its menu offerings. In May, Chili’s rolled out three new flatbreads. The goal is to not only sell them as appetizers, but as entrees as well. The company was able to gain exposure for the new flatbreads with its comprehensive email database. The plan for Chili’s is to gain exposure in the pizza category with the new flatbreads and drive comparable-restaurant sales.

Chili’s is also focused on further international expansion, particularly in Canada. Brinker International, Inc. (NYSE:EAT) just completed the acquisition of 11 restaurants in Canada from its largest Canadian franchisee. According to CEO Wyman Robert on the company’s earnings call:

With these locations, primarily in Alberta, but good consumer acceptance for the brand across the country, we’re bullish on the growth potential for Chili’s in Canada.

The focus for Brinker International at Maggiano’s is on the roll-out of its new smaller restaurants. The first prototype will open in Annapolis, MD later this year. The restaurants will have a new menu and a lower investment model. Brinker International sees the new concept having a greater return on investment and expects it to drive new restaurant expansion for Maggiano’s.


Two of Brinker International, Inc. (NYSE:EAT)’s biggest competitors in the casual-dining space are Darden Restaurants, Inc. (NYSE:DRI) and DineEquity Inc (NYSE:DIN). Darden is the largest of the two with over 2,100 restaurants under the names Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s and Yard House. DineEquity operates Applebee’s and International House of Pancakes (IHOP).

Darden Restaurants, Inc. (NYSE:DRI) is focused on international expansion in Latin America. The focus will be expanding its Red Lobster, Olive Garden and LongHorn Steakhouse brands in the region. To do so, the company is partnering with Grupo Piramide and Dosil. Grupo Piramide will develop Darden restaurants in Guatemala, El Salvador, Honduras, Costa Rica and Nicaragua. Dosil will be focused on Peru. Darden already has a franchise agreement with International Meal Company in Brazil, Colombia, Panama and the Dominican Republic. According to senior vice president of business development Kim Lopdrup:

As we’ve stated previously, Darden Restaurants, Inc. (NYSE:DRI) remains committed to owning and operating its restaurants domestically. We believe the best way to expand internationally, however, is to partner with outstanding local chain restaurant operators, so we can benefit from their existing infrastructure, market knowledge and relationships.

In the U.S., Darden Restaurants, Inc. (NYSE:DRI) is finally focusing on the affordability factor. I remember growing up and going to Red Lobster was considered a real splurge. Darden is working to change that by advertising its new core menu at Red Lobster, Olive Garden and LongHorn Steakhouse. Darden is offering daily and weekly specials to get diners in the door. By focusing on affordability and the great customer service that Darden Restaurants are known for, comparable-restaurant sales should start to pick up.

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