Brinker International Inc.'s (EAT) fiscal first-quarter earnings rose 36%, with margins rising at Chili's Grill & Bar restaurants on lower expenses and more profit-friendly meal promotions, although sales still suffered.

Brinker, whose profit topped analysts expectations, has been trying to strike the right balance between offering discounts to attract customers and improving profits.

Though margins are improving by cutting labor costs and less aggressive discounts, Brinker's flagship Chili's chain is still struggling to grow sales despite some competitors like DineEquity Inc.'s (DIN) Applebee's and Ruby Tuesday Inc. (RT) showing improving results.

Brinker's same-store sales fell 4.2%, including 5% at Chili's, a loss that comes on top of a 6% decline a year earlier when the chain offered its most aggressive promotions. Chili's same-store sales decline moderated in September, falling 1.3%.

Other casual-dining chain's sales have been boosted due to more benign discounting as they attract customers willing to pay more for a meal. Chili's customer traffic fell 8.1% in the latest quarter, when the company's advertised a shared appetizer and two entrees for $20. Last year, Chili's offered an additional dessert for the same-price.

Analysts attribute Chili's struggles to its position in the crowded bar-and-grill category, where chain's need to offer aggressive deals to set themselves apart. Chili's also lacks a distinctive enough menu to bring in customers without competing on price, analysts say.

The parent company of Chili's has emerged from the recession considerably smaller and with a renewed focus on improving the existing operations of the second-largest casual-dining chain in the U.S. The company sold an 80% stake in Romano's Macaroni Grill two years ago, unloaded On The Border Mexican Grill & Cantina earlier this year for $180 million and has been closing underperforming company-owned operations.

For the quarter ended Sept. 29, Brinker reported a profit of $21.4 million, or 21 cents a share, up from $15.8 million, or 15 cents a share, a year earlier, which included 3 cents of gains.

Revenue decreased 6% to $654.9 million. Year-earlier revenue dropped 21% amid restaurant closings and the sale of 198 others, mostly from its Romano's Macaroni Grill locations, in which Brinker sold a majority stake in December 2008.

Analysts polled by Thomson Reuters most recently forecast earnings of 15 cents on revenue of $660 million.

Operating margin rose to 4.9% from 2.6% on lower operating costs.

Shares closed Tuesday at $20.11 and were inactive premarket. The stock is up 35% this year.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com