These are tricky times for restaurateurs. People seem more than willing to go out to eat, but they gravitate toward distinct dining experiences at reasonable prices. Those companies that fit the bill, such as Cheesecake Factory (NASDAQ:CAKE), do fine while those that aren't as distinct -- such as Ruby Tuesday (NYSE:RI) -- are having a tougher time.
Brinker International (NYSE:EAT), operator of chains such as Chili's, Macaroni Grill, and Maggiano's, seems to be a middle-ground case. While Chili's fits into the "TipsyMcStagger phenomenon" I've talked about before, it does have attractive high-volume characteristics, and the company as a whole has several other popular franchises.
Results for the fiscal fourth quarter were like casual-dining fare -- pretty good as long as you had reasonable expectations going in. Sales climbed more than 2% as reported and more than 10% if you adjust for the extra week in the year-ago period. Systemwide same-store sales rose 3.7%, with On The Border leading the pack at 4.4%, Chili's coming in at 4.2%, Maggiano's at 2.8%, and 0.9% for Macaroni Grill.
Underlying those numbers, though, was a bit of information that gave me reason to pause. While Chili's, Macaroni Grill, and Maggiano's all reported reasonable price increases, restaurant traffic was down at all of them. Not by much, but still down. Ultimately, traffic drives the success of a chain so this is definitely worth some consideration.
I see two possible reasons for the decline. First, it would seem that Brinker was a bit less aggressive in its advertising during the period, and there is generally a link between TV time and foot traffic. Second, the company has a lot of restaurants in place and continues to open more, so there is likely some cannibalization between locations. For instance, there are at least three different Chili's restaurants within a 15-minute drive from my house.
What I like about this company, though, is the fact that it isn't afraid to try new concepts, even if they fail. Concepts like Big Bowl and the joint venture for Rockfish didn't quite work out, but Maggiano's seems to be pretty successful so far. Given that many managers are allergic to failure, I like that this team will take chances.
Brinker operates in a time-tested market niche and seems to have a fair grasp on what customers want. The stock doesn't look like any great bargain at today's prices, but I also wouldn't say that it's dangerously overpriced. Were I a shareholder, I'd probably want to keep an eye on store traffic trends and the results from the newer restaurant concepts.
For more Foolish food takes:
- Outback's Char-Grilled Quarter
- Benihana's Sizzling Results
- A Smaller Nibble for CKE
- A New England Rib Fest?
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
