Brinker Up As It Cooks Up Cost Savings To Beat On 2Q

Brinker International Inc.'s (EAT) fiscal second-quarter earnings showed a continuing miserable environment for sit-down restaurants with no relief in sight, but the company surprised the Street by showing signs it was able to reign in costs.

The news sent Brinker shares up 26% in recent trading to $10.48, making up gains after losing more than 10% in the two days leading up to their earnings.

The operator of Chili's Grill & Bar and other casual restaurant chains swung to a fiscal second-quarter net loss of $21.8 million, or 21 cents a share, compared to year earlier net income of $54.5 million, or 52 cents a share, in the prior year period.

Same-store sales continue to drop, falling 4.5% at Brinker's Chili's, Maggiano's and On The Border Mexican Grill restaurants. The restaurant operator also took a loss on the sale of its stake in Romano's Macaroni Grill and a charge related to restaurant closings.

Excluding charges, though, earnings at continuing operations came in at 27 cents a share, beating analyst expectations of 18 cents a share, according to Thomson Reuters.

The results were bolstered as Brinker curtailed costs better than analysts expected, as benefits from opening fewer news stores bore fruit in lower pre-opening expenses and the company also shuttered underperforming locations, according to SMH Capital restaurant analyst William Hamilton.

But that doesn't leave the company out of the woods yet as same-store sales continue to be pressured as consumers eat out less and trade out of casual-dining chains to cheaper eats from fast-food chains and supermarkets.

"The sales environment still remains challenging and will likely remain so for the next few quarters, but it appears that some of the costs may be easing," Hamilton said.

Translating the cost-savings into earnings growth with such weak sales was particularly impressive, KeyBanc Capital Markets Inc. restaurant analyst Lynne Collier said, although top-line sales need to at least stabilize before signs of a recovery can emerge.

"While we're encouraged with their cost containment, we would look for better same-store sales first before we become more positive on the stock," Collier said.

Brinker's revenue slumped 7.8% to $949.4 million from the year-ago period, although that also beat analyst expectations of $839 million.

Shares of another casual-dining giant, Darden Restaurants Inc. (DRI), also rose Thursday, adding 3.6% in recent trading, as the operator of Olive Garden, Red Lobster and other restaurants reaffirmed its fiscal 2009 guidance ahead of an investor meeting.

-By Paul Ziobro, Dow Jones Newswires; 201-938-2046; [e-mail]

(Shirleen Dorman contributed to this report.)

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