Based on its recent financial performance, it is apparent that the strategy is having a positive impact. Its March quarter (reported on May 18), which was its second quarter into the turnaround initiative, comfortably exceeded analysts' expectations on both the top and bottom lines. For the first time in six quarters, EAT showed positive year/year revenue growth as well. Still, there was work to do as company-owned Chili's restaurants decreased 0.4% on a comparable sales basis.
This morning, EAT issued its fiscal Q4 results which did indeed build upon last quarter's performance. While its headline numbers were merely inline with consensus this time, with EPS of $1.19 and revenue of $817.1 mln, what particularly stood out was the improved results at its Chili's restaurants. These restaurants account for 97% of its total restaurants.
Namely, company-owned restaurant sales were up 0.6%, versus (2.2%) in the year ago quarter, drive by mix-shift and higher traffic. After falling by 3.2% last quarter, Chilis’ franchised restaurants also showed marked improvement at (1.4%). Maggiano's, meanwhile, posted a positive 0.3% figure due to menu price increases.
With the improved comparable sales numbers, EAT's total revenue increased by 0.8% to $817.1 mln. This was another small step in the right direction, up from Q3's +0.2% bump. It also was its strongest year/year growth in two years.
On the downside, restaurant operating margin has been sliding lower as higher wages and health insurance expenses are cutting into operating profits. Improved sales leverage is helping to offset some of these pressures, but, restaurant operating margin did slip to 15.9% from 16.1% last quarter, and 17.0% in the year ago quarter. The good news is, restaurant expenses, as a percent of company sales, decreased year/year primarily due to lower loyalty program related expenses and lower technology-related operating lease expenses and sales leverage.
Looking ahead, EAT is projecting revenue growth to accelerate a little more to +1.0-2.25% with comparable restaurant sales up 0.75-1.75%. The improvement may seem underwhelming, but, to go from the negative 2-8% performance last year, to positive growth moving higher, in a very difficult & competitive environment, is quite impressive.
So overall, while the company is still facing plenty of headwinds (competition, higher labor costs, commodity inflation, etc), EAT is making progress in its turnaround plan.