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Wyman Roberts, CEO of Chili’s Grill & Bar parent Brinker International Inc., dubbed the chain’s second quarter “a tale of three cities,” in a nod to the classic Charles Dickens novel.
Roberts cited “A Tale of Two Cities” in a call with analysts Wednesday to describe the Dallas-based casual-dining operator’s disappointing second-quarter earnings.
Roberts and Tom Edwards, Brinker’s chief financial officer, said Chili’s “above-restaurant” management reorganization resulted in the elimination of 70 positions.
Brinker would take a pre-tax charge of about $6 million for the layoffs, Edwards said, as reflected in second-quarter results.
“We expect to generate savings of over $5 million in fiscal ’17, and annual savings of approximately $12 million,” he added.
The restructuring would “reduce layers, enable faster decisions, simplify execution and get us closer to our guests,” Edwards said.
“We basically reduced 70 head counts, basically equally mix in the field and in the restaurant support center,” he said. “We eliminated a level from our operational structure and extended out our area directors’ span of control (reducing some area directors).”
Roberts said the second quarter started with positive sales in October, a negative service incident on Veterans Day in November and industrywide challenges in December.
Brinker’s net income for the second quarter ended Dec. 28 fell 27.4 percent, to $34.6 million, or 69 cents per share, from $47.7 million, or 80 cents per share, in the same period last year. Revenue fell 0.9 percent, to $771 million, from $788.6 million in the prior-year quarter.
“The second quarter was really a mixed bag for us,” Roberts said. “We started off fairly strong. When we talked back in October, we were feeling pretty good. Then, the brand experienced a situation at one of our Chili’s restaurants on Veterans Day that played out extensively on social media, followed by a couple of very tough weeks.”
Chili’s came under fire on social media after a manager in a Cedar Hill, Texas, restaurant took away a free meal from an Army veteran after another lodged a complaint during a Veterans Day offer on Nov. 11.
The Veterans Day incident, which he said the company worked immediately to rectify, “took a little bit of the wind out of our sails,” Roberts said.
“While our second-quarter results are not where we want them to be, we are working to build share in the short term and ensure the long-term health of our brand,” he said.
Roberts said the casual-dining segment as a whole softened in December.
“We believe that’s because of the shift in holiday traffic to online, which is starting to impact how holiday-shopping patterns play out,” Roberts said, adding that fewer customers visited malls.
The shift away from brick-and-mortar shopping areas will require the brand to re-evaluate its marketing plan for December, when it usually takes a hiatus.
Chili's company-owned same-store sales in the second quarter declined 3.3 percent, while Maggiano's Little Italy same-store sales slipped 0.8 percent. Chili's franchise same-store sales decreased 3.5 percent, which included a 3-percent decline in the United States and a 4.2-percent decline at international restaurants.
As of Dec. 28, Brinker had 1,658 restaurants, including 1,606 Chili’s units and 52 Maggiano’s Little Italy locations.
Contact Ron Ruggless at Ronald.Ruggless@Penton.com
Follow him on Twitter: @RonRuggless
Day Star Restaurant Group shuttered a number of Lone Star Steakhouse & Saloon and Texas Land & Cattle restaurants this month, continuing a string of closures from the fall, according to local media reports.
The closings reduced the Plano, Texas-based company’s holdings to about 30 casual-dining restaurants, down from the 105 when the brands were acquired in late 2013.
Representatives of Day Star Restaurant Group did not return phone messages Tuesday or Wednesday. A search Tuesday of bankruptcy filings via the Pacer court records database did not produce any results for Day Star, Lone Star or Texas Land & Cattle.
Day Star co-founder Scott Smith was named Tuesday as a brand president for Southlake, Texas-based Del Frisco Restaurant Group’s Sullivan’s division. A spokesperson for Smith on Thursday said, Smith “is no longer involved with Day Star Restaurant Group and has not been since March 2016 when he stepped down due to disagreements with his partners on the direction of the company.”
Local media over the past week reported Lone Star closures from California and Colorado to Michigan and South Dakota. The recent closings followed a number last year, including restaurants in Iowa and Pennsylvania.
Several Texas Land & Cattle Steak House locations closed on Jan. 20, including one in Killeen, Texas, and another restaurant in Dallas’ Uptown neighborhood. Employees at the Dallas location on that Friday afternoon told potential customers they had just been notified of the unit’s closing.
Lone Star Steakhouse’s website now lists 16 locations in nine states. The greatest concentration is four units, in both Illinois and North Carolina.
The Texas Land & Cattle website now lists 15 units in four states, with most of them in Texas.
Unit counts are down considerably from when Smith, who served as chairman and CEO of Day Star, and Tim Dungan, president and chief financial officer, formed Day Star and bought the two brands in December 2013 from private-equity firm Lone Star Funds.
At the time of that acquisition, Texas Land & Cattle had 27 restaurants in five states, and Lone Star Steakhouse operated 78 restaurants in 29 states.
For Nation’s Restaurant News’ Top 200 last year, Lone Star, with 64 units at the end of December 2015, had $131.2 million in estimated fiscal-year sales and Texas Land & Cattle, with 25 units at the end of December 2015, had an estimated $65.6 million in fiscal-year sales.
Day Star’s fiscal 2015 revenues were estimated at $196.7 million, down from an estimated $209.9 million in fiscal 2014.
Alan Liddle, NRN’s data and event content director, contributed to this report.
Contact Ron Ruggless at Ronald.Ruggless@Penton.com
Follow him on Twitter: @RonRuggless
This post is part of the On the Margin blog.
For at least three years, investors have pushed Bob Evans Farms Inc. to spin off BEF Foods, its packaged foods business.
Bob Evans has steadfastly resisted this idea. Not even a proxy fight, ignited by large shareholder Sandell Asset Management, could get the company to split its two businesses.
In March, Bob Evans CEO Saed Mohseni explained the company’s reluctance to sell: The packaged foods business gave the company a higher valuation.
“Bob Evans’ restaurant company is trading at a much higher multiple than most restaurants with declining [same-store] sales,” Mohseni said at the time.
In the end, the packaged foods business was simply too profitable to spin off. The restaurants were too big a challenge to continue as a public company. So, on Tuesday, Bob Evans elected to sell its restaurants to habitual big-chain buyer Golden Gate Capital for $565 million.
The multiple that Golden Gate will pay for the restaurant business is “a little north of 8x” cash flow. The 300 pieces of real estate included in the deal likely inflated the value of the business, however.
Set to become a packaged-foods business, Bob Evans Inc. is purchasing Pineland Farms Potato Company for $115 million, while also selling its restaurants. Bob Evans will be owned by a private-equity group known for buying up dine-in restaurants, such as California Pizza Kitchen and Red Lobster.
“The sale of Bob Evans Restaurants allows the company to concentrate on Bob Evans Foods, the fastest growing and more profitable segment of the business,” Mohseni said on a conference call Wednesday morning.
Think about it this way: In the third quarter ended Oct. 28, Bob Evans Restaurants generated $219.8 million in sales, down from $230.7 million a year ago. BEF Foods generated half that, $102.1 million, up from $99.5 million.
Yet BEF Foods generated $18.7 million in operating income, compared with $13.5 million for the restaurant division.
Which business would you rather have: the one with an operating profit margin of 18 percent and growing sales, or the one with an operating profit margin of 6 percent and falling sales?
The restaurant business is not easy. The decision by Bob Evans to focus on packaged foods illustrates this point. Bob Evans Restaurants has 28,000 workers. The food side employs about 1,000. The restaurant side accounted for “most” of the general and administrative spending for the combined company.
The restaurant business is facing profit and sales challenges in the coming months. While the restaurant division has worked hard in order to reverse its same-store sales slide — simplifying the menu, focusing more on breakfast and customer service — consumer demand for chain restaurants, especially dine-in restaurants, remains weak.
Labor costs, meanwhile, are rising amid demand for low-skilled labor. The food cost deflation that restaurants have enjoyed the past two years is likely going to end in the near future. That will make for profit challenges — unless consumers suddenly start spending at chains again.
And the dine-in business is particularly bothersome. Traffic in the casual-dining sector, including family-dining restaurants like Bob Evans, has been down 21 of the past 22 months, according to MillerPulse. That includes an awful, 5.3-percent decline in December.
Meanwhile, packaged foods companies are simply more valuable than casual- and family-dining restaurants and, frankly, the difference is not particularly close.
In October, Sandell compiled a group of Bob Evans’ competitors. Their enterprise values averaged about 7.9 times cash flow, roughly equal to the sale price Bob Evans fetched.
Packaged foods companies, meanwhile, averaged multiples of 13.2.
As if to illustrate this, investors wildly cheered news of the sale. The stock skyrocketed more than 25 percent on Wednesday, surpassing $60.
That was an all-time high for the stock.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at firstname.lastname@example.org
Follow him on Twitter: @jonathanmaze
The Krystal Company, the brand famous for its iconic square hamburgers, is celebrating National Root Beer Day all week. From August 8 through August 12, Krystal will offer its Root Beer floats at a special price of $0.99 from 2 p.m. to 5 p.m. in participating locations.
The Krystal Float is made with a blend of cold and frosty Barq's Root Beer, plus a scoop of creamy Blue Bunny vanilla bean ice cream.Chains: Krystal
For nine years Wendy's has offered the Baconator, featuring two quarter-pound patties of 100 percent pure fresh beef, six strips of thick-cut Applewood-smoked bacon, three slices of cheese, and a bakery-style bun.Chains: Wendy's
Burger King restaurants are introducing a Tex-Mex twist on its famous Whopper sandwich nationwide with its new Whopperito burger-burrito mash-up. After a local market debut that sparked widespread demand from guests, Burger King restaurants is now taking its Whopperito national at participating restaurants beginning August 15.Chains: Burger King
S&D Coffee Inc. has accepted an offer made by the Cott Corporation to be acquired.
Following the completion of the proposed transaction, S&D will be a subsidiary of Cott, still operating under the S&D Coffee & Tea name. Ron Hinson, at almost 38 years with the company, will remain president and CEO of S&D, and the management team will assume the same scope and responsibilities. Cott, a global, multi-beverage leader, will enable further development and acceleration of S&D’s business model.Chains: S&D Coffee
Blaze Fast-Fire’d Pizza, a leading fast-casual artisanal pizza chain, has opened its new flagship restaurant in Disney Springs at Walt Disney World Resort. Known for its chef-driven recipes, the 150th Blaze restaurant debuts in an architecturally innovative structure that was designed specifically for this location.Chains: Blaze Fast Fire'd Pizza
In response to a growing consumer sentiment towards cage-free eggs and the adoption of this policy by several other food service companies, Focus Brands is joining forces with others in the industry and announcing its commitment to sourcing ingredients that contain only cage-free eggs.
While not a large user of eggs or food items with egg as an ingredient, Focus Brands will work with its suppliers to ensure that all of its restaurant menu items will contain only cage free eggs by 2026.Chains: FOCUS BrandsCarvelCinnabonSchlotzsky'sMoe's Southwest GrillAuntie Anne'sMcAlister's Deli
Fort Worth, Texas-based Fuzzy’s Taco Shop, the award-winning, Baja-style, fast-casual Mexican restaurant group, hit a milestone this week with the opening of its 100th restaurant. The 100th Fuzzy's Taco Shop is in Oklahoma City, making it the fifth Fuzzy's Taco Shop in Oklahoma, the third in Oklahoma City, and the first tenant to open in the brand new Chisholm Creek mixed-use development in northwest Oklahoma City.Chains: Fuzzy's Taco Shop
McDonald’s is honoring the spirit of friendship that is at the heart of the Olympic values by celebrating nearly 100 kids from around the world with a once-in-a-lifetime, and first-ever, opportunity to participate in an Opening Ceremony at the Rio 2016 Olympic Games. The McDonald’s Olympic Kids will walk in the Parade of Nations at Rio’s famed Maracanã Stadium in front of 80,000 live spectators and billions of television viewers worldwide.Chains: McDonald's
Subway, the world’s largest sandwich chain, revealed a bold update to its iconic logo, along with a powerful new symbol. Consumers will catch a glimpse of the new logo in ads airing August 5.Chains: Subway
McAlister's Deli has announced its national partnership with Autism Speaks, the world’s leading autism science and advocacy organization. Throughout the month of August, McAlister’s will turn its famous sugar cookies blue, in support of the organization’s signature color. $0.75 from each cookie sold will support Autism Speaks’ mission of funding scientific research, increasing awareness of autism spectrum disorder, and advocating for the needs of people with autism and their families.Chains: McAlister's Deli