UPDATE: Brinker CFO Bullish On Restaurant Margins

Brinker International Inc. (EAT) is optimistic about continued margin growth in the near term as it cuts back on opening new restaurants, and seeks cost relief on items like trash pickup and rent.

But pressures on top-line sales remain, as the casual-dining giant sees both loyal and new customers cut back on visits, and trim their checks with fewer appetizers and desserts.

Brinker, the operator of Chili's Grill & Bar, Maggiano's and On the Border Mexican Grill, is seeing benefits as it carves out costs related to opening new restaurants, Brinker Chief Financial Officer Charles Sonsteby said Wednesday at a Bank of America and Merrill Lynch consumer conference.

It plans to open just 13 new company-owned locations in fiscal 2009, and no new company units in fiscal 2010.

That comes as the company recently said it would close as many as 35 underperforming restaurants, causing a net decline in the number of stores for the fiscal year.

It is also trying to open up negotiations on a number of costs like garbage pickup and negotiating with some landlords to try to secure lower rents. Additional benefits are coming from lower food costs and reduced turnover among employees.

"As we sit here today, I feel pretty good on margins for the next six to nine months," Sonsteby said.

The tone is rosier than the one conveyed by executives in Brinker's January earnings call when Sonsteby said the company was unsure it could sustain its margins as sales slow, according to Research Edge LLC analyst Howard Penney.

Brinker's "investor presentation this morning might be the most bullish presentation I have heard from a casual dining restaurant in over a year," Penney said in a note to investors. "The fact that he is more comfortable with margins shows that the company is managing the things it can currently control."

While cutting costs helped Brinker overcome slowing sales, the chain isn't yet seeing relief on the latter as the economic recession continues.

Diners continue to make fewer visits, and more are sharing dishes, ordering fewer appetizers and cutting back on dessert to try to save money, Sonsteby said.

In its most recent quarter, Brinker's same-store sales declined 4.5%.

Sit-down restaurants have been aggressive with promotions such as two-for-one and all-you-can-eat offers to help drive traffic. Sonsteby said Brinker's brands are trying to offer more new items at lower prices rather than slash prices on existing items.

Brinker shares have staged a rally this week with a 23.4% jump, after a Morgan Keegan analyst said that restaurants appear to be more resilient to the economic downturn than other sectors dependent on consumer spending.

In recent trading, Brinker shares were up $1.39, or 13%, at $12.31.

Another casual-dining competitor showing a pop Wednesday was Cheesecake Factory Inc. (CAKE), which jumped 82 cents, or 10%, to $8.93, after a Goldman Sachs analyst upgraded shares on signs that sales declines are stabilizing and that management may have more fat to cut at the chain.

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