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Brinker (EAT) Rides on Menu Innovation Despite High Costs
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Brinker International, Inc. (EAT - Free Report) remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform. However, high costs — stemming from restaurant operations — might continue to hurt profits.
Recently, Brinker reported fourth-quarter fiscal 2018 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. Adjusted earnings, however, grew 9.2% from the year-ago quarter on higher revenues.
Notably, the company beat the consensus mark for earnings in four out of the trailing six quarters. Driven by earnings growth in the past three quarters, shares of Brinker have gained 26.3% in the past year, outperforming the industry’s collective increase of 6.3%. Earnings estimates for 2019 have also increased 1.9% over the past month, reflecting analysts’ optimism surrounding the company’s future earnings potential.
Top Line to Grow on Sales Building Efforts
In order to drive incremental sales, Brinker is focusing on simplifying Chili’s core menu by improving recipes and strengthening its value proposition, with some higher-quality ingredients and new cooking techniques to deliver better food at even more compelling price points. In fact, the early momentum, resulting from the menu launch, has been positive. At Maggiano's, the company is poised to continue delivering differentiated dining experience, with the rollout of a new menu. The new menu expands dining options to drive incremental visits. Since its launch in early March, management has noted improved momentum in sales and guest satisfaction, especially with weekend brunch. It is also aiding the brand in gaining market share.
In addition to menu innovation, Brinker is steadfast in its expansion strategies. In fiscal 2018, the company opened 34 restaurants, bringing its international restaurant count to 383. Brinker expects to open more than 30 restaurants globally in fiscal 2019, which will include new markets like Asia, with focus on China and Vietnam.
Notably, Brinker’s remodeling efforts have gained momentum, leading to sales improvement. The company continues to invest in its reimage program. In fact, in the first quarter of fiscal 2019, the company plans to invest in a brand-wide reimage program, which will drive traffic and comps over the next three years. Thus, Brinker’s remodeling initiative is expected to continue to invigorate its potential as a brand and augment guests’ experience.
Owing to such sales building initiatives, the consensus estimate for sales in fiscal 2019 is pegged at $3.2 billion, suggesting 1.6% growth from the year-ago quarter.
Bottom Line to Gain From Franchising
Unlike most peers, Brinker used to focus on company-owned restaurants to gain full control over its operations and profits. However, to survive in an industry that depends largely on franchising, the company started to pursue expansion through franchisees and partnerships. Brinker acquired 103 franchised Chili’s Grill and Bar restaurants from Pepper Dining Holding Corp. in 2015. In fiscal 2017, Brinker’s franchise operated locations increased 40%. Moreover, in fiscal 2018, the company witnessed its top line to gain from growth in franchise and other revenues that offset the slow comps growth.
We believe franchising would facilitate lower capital requirements and boost Brinker’s earnings. The consensus estimate predicts fiscal 2019 earnings to grow 8.3% year over year.
High Costs Hurt Margins
Like Darden (DRI - Free Report) , Yum! Brands (YUM - Free Report) , Chipotle (CMG - Free Report) and most of its other peers, Brinker has been shouldering high costs of labor. Additionally, costs related to various sales-boosting initiatives, including advertising expenses, along with commodity inflation, are expected to continue hurting margins. Thus, the company’s profits in the upcoming quarters might remain under pressure despite its cost-saving initiatives. In fact, the Zacks Rank #3 (Hold) company expects restaurant operating margin to be down 160-180 basis points in fiscal 2019 as it invests specifically in its core food equities.
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Brinker (EAT) Rides on Menu Innovation Despite High Costs
Brinker International, Inc. (EAT - Free Report) remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform. However, high costs — stemming from restaurant operations — might continue to hurt profits.
Recently, Brinker reported fourth-quarter fiscal 2018 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. Adjusted earnings, however, grew 9.2% from the year-ago quarter on higher revenues.
Notably, the company beat the consensus mark for earnings in four out of the trailing six quarters. Driven by earnings growth in the past three quarters, shares of Brinker have gained 26.3% in the past year, outperforming the industry’s collective increase of 6.3%. Earnings estimates for 2019 have also increased 1.9% over the past month, reflecting analysts’ optimism surrounding the company’s future earnings potential.
Top Line to Grow on Sales Building Efforts
In order to drive incremental sales, Brinker is focusing on simplifying Chili’s core menu by improving recipes and strengthening its value proposition, with some higher-quality ingredients and new cooking techniques to deliver better food at even more compelling price points. In fact, the early momentum, resulting from the menu launch, has been positive. At Maggiano's, the company is poised to continue delivering differentiated dining experience, with the rollout of a new menu. The new menu expands dining options to drive incremental visits. Since its launch in early March, management has noted improved momentum in sales and guest satisfaction, especially with weekend brunch. It is also aiding the brand in gaining market share.
In addition to menu innovation, Brinker is steadfast in its expansion strategies. In fiscal 2018, the company opened 34 restaurants, bringing its international restaurant count to 383. Brinker expects to open more than 30 restaurants globally in fiscal 2019, which will include new markets like Asia, with focus on China and Vietnam.
Notably, Brinker’s remodeling efforts have gained momentum, leading to sales improvement. The company continues to invest in its reimage program. In fact, in the first quarter of fiscal 2019, the company plans to invest in a brand-wide reimage program, which will drive traffic and comps over the next three years. Thus, Brinker’s remodeling initiative is expected to continue to invigorate its potential as a brand and augment guests’ experience.
Owing to such sales building initiatives, the consensus estimate for sales in fiscal 2019 is pegged at $3.2 billion, suggesting 1.6% growth from the year-ago quarter.
Bottom Line to Gain From Franchising
Unlike most peers, Brinker used to focus on company-owned restaurants to gain full control over its operations and profits. However, to survive in an industry that depends largely on franchising, the company started to pursue expansion through franchisees and partnerships. Brinker acquired 103 franchised Chili’s Grill and Bar restaurants from Pepper Dining Holding Corp. in 2015. In fiscal 2017, Brinker’s franchise operated locations increased 40%. Moreover, in fiscal 2018, the company witnessed its top line to gain from growth in franchise and other revenues that offset the slow comps growth.
We believe franchising would facilitate lower capital requirements and boost Brinker’s earnings. The consensus estimate predicts fiscal 2019 earnings to grow 8.3% year over year.
High Costs Hurt Margins
Like Darden (DRI - Free Report) , Yum! Brands (YUM - Free Report) , Chipotle (CMG - Free Report) and most of its other peers, Brinker has been shouldering high costs of labor. Additionally, costs related to various sales-boosting initiatives, including advertising expenses, along with commodity inflation, are expected to continue hurting margins. Thus, the company’s profits in the upcoming quarters might remain under pressure despite its cost-saving initiatives. In fact, the Zacks Rank #3 (Hold) company expects restaurant operating margin to be down 160-180 basis points in fiscal 2019 as it invests specifically in its core food equities.
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
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