Chili's In Franchise Growth

DALLAS-Softness in sales and rising costs will lead Brinker International to slow the number of new company-owned restaurants in fiscal 2008, even as franchisees continue to expand in selected markets, executives said at its second-quarter conference call.

A softness in sales and rising real estate prices will lead the company to cut its 2008 capital expenditures by 20%, reducing the number of company-owned restaurants to be opened. However, the company has recently signed agreements with four franchisees that will result in expansion in the United States, Peru, South Korea and Canada.

“Our plans are to continue to grow the Chili’s brand at a rational pace while taking things more slowly with the other brands,” said Charles M. Sonsteby, executive vp and CFO.

The bulk of the growth will be in the company’s Chili’s concept, including the opening of 20 to 44 new units on the East Coast in coming years, if Brinker’s franchise agreement with Pepper Dining Inc., is approved. Under the agreement, Pepper also would acquire 89 company-owned locations, making it the largest franchise agreement in Brinker’s history. Brinker expects the deal to close in the fourth quarter.

International expansion also will continue. The company plans to open 35 restaurants internationally this year, and will double the international growth in 2008 over 2007, said Douglas Brooks, president and CEO.

Overall, the company reported income from continuing operations of $44.2 million, up from $39.4 million the previous year. Revenues were $1.07 billion for quarter, up 6.1% percent from the same period in fiscal 2006, despite a comparable-restaurant sales decline of 2.1%.

At the end of the quarter, Brinker either owned, operated, or franchised 1,712 restaurants under the names Chili’s Grill & Bar (1,275 units), Romano’s Macaroni Grill (247 units), On The Border Mexican Grill & Cantina (151 units), and Maggiano’s Little Italy (39 units).