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Brinker Down 4% YTD: Can Growth Efforts Revive the Stock?

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Shares of Brinker International, Inc. (EAT - Free Report) have not been performing well in 2019. Year to date, the stock has declined 4.2%, against the industry’s rally of 20.6%. Dismal performance of international franchise comparable sales at Chili's restaurants remains a major concern.

Moreover, Brinker has been witnessing weak sales trend in Maggiano’s. In the fiscal fourth quarter, Maggiano's sales were down 1.8% year over year to $86.4 million primarily thanks to decline in comparable restaurant sales. Comps dipped 1.8% year over year owing to a decline 3% in traffic.

Higher labor costs due to increased wages have kept profits under pressure. In the fiscal first quarter, total operating costs and expenses rose roughly 6.8% to $754.8 million.

Despite the aforementioned negatives the company’s ambitious expansion plans, and sales building, digital, operational and remodeling initiatives are likely to bring the Zacks Rank #3 (Hold) company’s stock back on track. Let’s delve deeper and analyze the factors likely to help the stock recover.



 

Factors Likely to Drive Growth

Brinker remains focused on its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining and innovation of menu, strengthening value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform. The company commenced a strategic plan — Vision 2020 — focused on menu innovation in Chili's and continuous improvement in service and atmosphere to differentiate the brand. The primary aim of the plan is to gain market traction in order to achieve long-term earnings per share growth in the range of 10-15%.

In the trailing four quarters, Chili’s turn-around strategies have yielded results with traffic and sales moving in the positive direction. Chili’s comps grew 2.9% in first-quarter fiscal 2020. The company is of the opinion that the positive momentum is likely to continue in fiscal 2020 as well. It is focused on simplifying Chili’s core menu by improving recipes and strengthening value proposition with some higher-quality ingredients and new cooking techniques to deliver better food at even more compelling price points.

Over the past few quarters, Brinker’s remodeling efforts have gained momentum leading to sales improvement. Notably, the company continues to invest in its reimage program. In fact, it continues to invest in a brand-wide reimage program that will drive traffic and comps over the next three years. Brinker’s remodeling initiative is thus expected to continue to invigorate its potential as a brand and augment guests’ experience. The company expects reimage program to cover 140 and 160 restaurants in fiscal 2020.

Brinker is one of the few fast-casual restaurant chains that have been expanding presence. In fiscal 2018, the company had opened 34 restaurants. In fiscal 2019, it anticipates to open 27 restaurants globally, which will include new markets like Asia, with focus on China and Vietnam.

Key Picks

Some better-ranked stocks worth considering in the same space include Chipotle Mexican Grill, Inc. (CMG - Free Report) , The Habit Restaurants, Inc. and Wingstop Inc. (WING - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chipotle Mexican Grill, Habit Restaurants and Wingstop have an estimated long-term earnings growth rate of 19.7%, 10% and 15.3%, respectively.

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