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Analyst Blog

On May 9, 2014, we issued an updated research report on Brinker International, Inc. (EAT - Analyst Report).

The Texas-based restaurateur posted mixed fiscal third-quarter 2014 results on Apr 23, wherein the earnings were in line with the Zacks Consensus Estimate but revenues missed the same. However, on a year-over-year basis, earnings were up 15.5% due to decent margins and revenues edged up 2.1%.

Company-owned comps improved and compared favorably with the prior-year quarter’s decline, as relatively sluggish comps at Maggiano's were offset by a better performance at Chili’s. However, comps were softer than last quarter’s increase due to declining traffic trends.

Brinker maintained its guidance for the fiscal year. The company expects comps growth guidance in the range of (1%) to 1% for fiscal 2014. The restaurateur expects restaurant operating margin to increase year over year in the range of 25–50 basis points (bps) in 2014. The company also maintained its earnings guidance in the range of $2.65 to $2.75 for fiscal 2014.

Following the implementation of point-of-sale (POS) back-office systems and proper waste control management, the company’s cost of sales is expected to improve in fiscal 2014. The company expects commodity inflation rate to remain flat throughout calendar 2014 as its commodities are hedged for most of the year.

Owing to the mixed performance in fiscal third quarter and a reaffirmed outlook for the year, estimates for full-year fiscal 2014 and 2015 have largely remained stable over the last 30 days.

We are encouraged by the company’s sales-building initiatives like menu innovation, extensive reimaging, better food presentation, kitchen system optimization and introduction of better service platform, which are expected to aid comps growth. Nevertheless, we remain concerned about Brinker’s declining traffic trends and rising food costs amid a sluggish macroeconomic environment.

Brinker, currently, carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Burger King Worldwide, Inc. (BKW - Analyst Report), Yum! Brands, Inc. (YUM - Analyst Report), Jack in the Box Inc. (JACK - Snapshot Report). All these stocks sport a Zacks Rank #2 (Buy).

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