Brinker International, Inc. (EAT), the operator of Chili’s Grill & Bar, On The Border and Maggiano’s restaurants, recently reported first quarter 2010 results, registering a double-digit decline in both top and bottom lines. Despite lower operating expenses, fall in interest expense and lower effective tax rate, adjusted net profit for the quarter dropped 15% year-on-year to $17.5 million on account of fall in revenue.

Total revenue slipped 21% to $778.1 million due to a 6% decline in comparable restaurant sales and an 18.6% fall in restaurant capacity due to the sale of 198 restaurants and the closing of 49 restaurants since the first-quarter 2009. In the second-quarter 2009, Brinker sold the Macaroni Grill restaurants (which were 189 of the total restaurants sold) to a private-equity firm Golden Gate Capital for $88 million, keeping a minority stake of nearly 20%.

Brinker’s quarterly earnings of 17 cents a share surpassed the Zacks Consensus Estimate of 15 cents but dipped 15% from 20 cents posted in the prior-year quarter. On a reported basis, including one-time items, quarterly earnings came in at 15 cents a share, down 34.8% from 23 cents reported in the year-ago quarter.

Cost of sales, as a percentage of total revenue, narrowed 20 basis points to 28.2% due to menu changes and price increase, partially offset by higher commodity prices related to dairy, chicken and beef. Restaurant expenses shrank 30 basis points to 58.5% driven by lower utility and restaurant-opening expenses, partly offset by rise in labor costs.

Restaurants in the casual dining segment are experiencing sagging comps and declining traffic with cash strapped consumers shifting to low-priced dining options or eating at home. Other operators in the segment are Darden Restaurants Inc. (DRI), Red Robin Gourmet Burgers Inc. (RRGB) and Luby’s, Inc. (LUB).

By restaurant concepts, comps fell 6% at Chili’s Grill & Bar, 5.1% at On The Border and 6.6% at Maggiano’s. During the quarter, 12 franchise restaurants were opened, and one company-owned and one franchise restaurants were closed. During fiscal year 2010, Brinker expects to open 2 company-owned restaurants and 44 to 54 franchise restaurants.

Zacks Investment Research
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