Brinker International Inc.'s (EAT) shares rose in early trading after the operator of Chili's Grill & Bar and other restaurants forecast fiscal third-quarter earnings ahead of expectations, as lower labor and other costs overcame disappointing sales.

The casual-dining chain operator said Monday it expects per-share earnings of 44 cents to 45 cents, excluding special items, for the quarter ended March 25, up from 33 cents a year earlier.

Analysts had been looking for per-share earnings of 29 cents a share, according to Thomson Reuters.

In recent trading, Brinker shares were up $1.60, or 9.8%, at $17.85.

Brinker said that an improvement in margins related to better costs of sales, labor, pre-opening and other expenses were favorable to earnings, although top-line trends continued to remain challenging.

Same-store sales for the quarter declined 5.6%, including a 5.2% decline at Brinker's Chili's restaurants, and a 5% and 9.5% decline, respectively, at On The Border and Maggiano's locations.

The numbers imply a 9.7% decline in traffic across the three brands, Morgan Stanley restaurant analyst John Glass noted, a red flag signaling that the casual-dining industry isn't out of the woods yet.

Brinker's "significant traffic declines signal that the casual dining consumer remains in a funk," Glass said in a research note. "The environment will likely remain tough sledding for all [casual-dining restaurants] over the near term."

Casual-dining operators have been relying on cost cuts from tighter labor controls and scaled-back development to overcome declines in guests, who are eating more at home to cope during the recession.

Restaurants have been offering more deals to lure customers, a strategy that can take its toll on top-line sales due to lower checks for guests. Even when guests do come, operators say that customers are cutting back on extras like appetizers, drinks and desserts to keep their bills down.

Still, Brinker executives have been bullish on improving their margins in 2009, as the company scales back opening new company-owned units and lowers expenses. The company is planning just 13 new company-owned restaurants in fiscal 2009, and no new company stores the next year.

The company instead is looking overseas for growth, with plans to double its international presence over the next five years.

Brinker shares have staged a rally this year, rising 63% so far, outperforming the broader S&P 500 index, which is down 9.5%.

-By Paul Ziobro, Dow Jones Newswires; 201-938-2046; paul.ziobro@dowjones.com