Here's Why Chili's Is Eating Red Lobster's and Ruby Tuesday's Lunch

Brinker International
Casual dining stocks aren't dead as an investment category. Investors just need to know where the tasty treats can be found on the menu.

Chili's Grill & Bar parent Brinker International (EAT) moved higher on Wednesday after reporting better than expected quarterly results. Company sales climbed higher, fueled by a 0.3 percent increase in comparable-restaurant sales. Its international locations fared even better.

Some casual dining chains that are bucking the general downward trend and posting positive comps are doing so by discounting aggressively to keep patrons coming. But that's not Chili's game at all. Net margins actually expanded nicely at Brinker, with adjusted earnings per share climbing 18 percent during its fiscal second quarter.

The 1,557-unit Chili's chain is doing just fine. But the same can't be said about its competition.

Red Ink, Ruby Ink

Seeing shares of Brinker open 8 percent higher after posting better than expected quarterly results may be painful for investors in Ruby Tuesday (RT) or Red Lobster parent Darden Restaurants (DRI). Those two stocks took a hit the last time they offered up fresh financials.

Ruby Tuesday and Red Lobster are falling out of favor with the hungry, with comps plunging 7.8 percent and 4.5 percent respectively in their latest quarters. Both companies have fallen short of Wall Street profit targets in each of their past three quarters. Brinker, on the other hand, has now surpassed bottom-line expectations in three of the past four quarters.

With Ruby Tuesday's profits turning to losses and Darden so disillusioned with Red Lobster that it's looking to sell it or spin it off, it's easy to see why savvy investors looking at the casual dining sector are turning to Brinker. The stock hit a new 52-week high on Wednesday, and this could be just the beginning.

Tech is the Secret Ingredient

Why is Chili's succeeding at a time when profits at many of its peers are receding? Barron's argued earlier this month that Chili's is in the sweet spot of serving low-priced meals to high-income consumers. It's the other way around at Red Lobster: Seafood isn't cheap, and affluent foodies looking for it choose to frequent more upscale eateries or indie-owned chains.

Chili's should keep growing in 2014 -- and not just because the economy is at last showing signs of vitiality, or because people are eating out more again in general.

Chili's also has technology on its side. Back in September, it announced that it would be teaming up with Ziosk to install touchscreen tablets at every table. Unlike DineEquity's (DIN) Applebee's, which also plans to roll out tablets at every table later this year, the tablets at Chili's will be merely for ordering drink refills and dessert, and for paying the bill at the end of the meal. That's not quite as ambitious a plan as they have at Applebee's, where the tablets will allow entire orders to be placed.

If casual dining can't compete with the quality of fine dining or the speed of fast food and fast casual, it can at least make the time spent at the restaurant more engaging by providing games and other diversions for diners as they wait for their food.

Chili's is at the forefront of tech in casual dining, and it seems to be serving the right food at the right price points to the right people. Ruby Tuesday, Red Lobster, and other laggards aren't keeping up. So it may be too late to order something else off the growth menu.

(Correction: A previous version of this article incorrectly stated that customers can't use Chili's tabletop touchscreen tablets to pay for their meals. This feature has been part of the system since it was rolled out in September.)

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days.

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Chili\'s should keep growing in 2014 -- and not just because the economy is at last showing signs of vitiality.....

LOL !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

January 24 2014 at 2:16 PM Report abuse +1 rate up rate down Reply

Get enough touchpads and make customers pickup their own orders and more waitstaff to have to provide healthcare for....what a concept!

January 24 2014 at 11:52 AM Report abuse rate up rate down Reply

The tablet idea at Applebees sounds kool , but then why would I leave a tip ?

January 24 2014 at 8:41 AM Report abuse -1 rate up rate down Reply
Papa Hunk

They are each great - but it\'s hard to beat that roadkill.

January 24 2014 at 12:02 AM Report abuse rate up rate down Reply

I am not a fan at all of chain restaurants. Olive Garden is the worst. Red Lobster is next. There is a LongHorn right near where I work and I have been there for lunch quite a few times and I have to say it is better than most. They change their menu often, offer healthy choices and their multi grain bread is really good.

January 23 2014 at 11:59 PM Report abuse +1 rate up rate down Reply

I love Grilled Salmon. At age 83 it is good for me to eat. What I don't understand is being owned by the same company, Longhorn's Gtilled Salmon is twice better in the way grilled, size and the taste, plus the bread at Longhorns is far beter for your health than cheese biscuts !!!

January 23 2014 at 11:40 PM Report abuse rate up rate down Reply
1 reply to Parnick's comment

farm raised fish isn\'t good for you - it is fed a diet of non animal products that create the wrong type of fat structure

January 24 2014 at 3:25 AM Report abuse rate up rate down Reply

go to a steak house, you can't go wrong.

January 23 2014 at 11:29 PM Report abuse -1 rate up rate down Reply

We were a party of five last night at Chili's. The service was so slow we were there for over 2 hours. I didn't order French Fries but when they came I was told to share them with the others at the table. They were cold. I had ordered sweet potato fries and they arrived cold too. Two of the meals were correct and at least warm. The other meals were in part cold and hot. Go figure.
We are not in any hurry to return there. I'd rather go to Ruby's.

January 23 2014 at 11:09 PM Report abuse -1 rate up rate down Reply

Ate lunch at Red Lobster for the first time in years recently.My meal was good and got a boxed mix of their famous Garlic cheese biscuits at WalMart.I don't shop there often tho.I only buy boxed or canned goods.

January 23 2014 at 10:29 PM Report abuse -1 rate up rate down Reply

Chili's is my favorite restaurant because the atmosphere is pleasant, they have the best burgers in town, the service is fast, and their onion rings are to die for. I haven't been to Red Lobster in a few years, but my experiences there were not good ones. I had fish soup that was horrible, on another visit had shrimp scampi that tasted as if it had just come from the freezer, it took forever to get our food, and they were always rather over-priced. If you want decent sea food, you really need to go to the ocean to get it.

January 23 2014 at 8:12 PM Report abuse +1 rate up rate down Reply