Brinker Beats, Revenue Up

Brinker International Inc. ( EAT - Analyst Report ) , the casual dining restaurant operator, reported fourth quarter 2012 adjusted earnings of 61 cents per share, surpassing the Zacks Consensus Estimate of 58 cents per share and also increased 27.1% from the year-ago quarter earnings of 48 cents per share. The better-than-expected results were driven chiefly by a strong top-line as well as unit growth.

Total revenue at the Dallas, Texas-based company crept up 1.5% year over year to $728.4 million due to a 2.1% rise in system-wide comparable restaurants sales. However, reported revenue lagged the Zacks Consensus Estimate of $734 million.

In full year 2012, the company reported adjusted earnings of $158.0 million, or $1.96 per share, versus $140.1 million, or $1.52 per share, in the prior year. Total revenue grew 28% to $784.5 million.

Quarter Performance

Chili's Grill & Bar restaurant reported revenues of $614.6 million, up 1.8% year over year while Maggiano's sales spiked 1.7% to $97.7 million in the quarter. However, Royalty and franchise revenue fell 8.0% to $16.1 million, due to a non-recurring expense of development fee refund, related to the discontinuation of Maggiano's international development.

Comparable restaurant sales at Chili's Grill & Bar restaurant climbed 2.2% for the fifth consecutive quarter benefiting from a 1.2% rise in traffic and 1.3% hike in menu price. Same-restaurant sales at Maggiano's climbed 1.9% for the 10th time in a row driven by menu price (up 2.6%) and mix-shift (up 0.1%), partially offset by lower traffic of 0.8%.

Comparable restaurant sales at franchised restaurants ascended 2.1%, aided by growth of 2.4% and 1.3% in franchised domestic and international, respectively.

Restaurant operating margin expanded 130 basis points (bps) year over year to 19.6%. Despite the food cost inflation, margins at Chili’s Grill & Bar expanded on lower restaurant labor and restaurant expenses. Restaurant margin at Maggiano's improved mainly on increased pricing, lower vacation expense, better cost of sales and benefit from sales leverage on fixed costs related to higher revenue, partially offset by higher commodity costs.

The restaurant company reported adjusted tax rate of 28.3% during the quarter compared with 28.9% in the fourth quarter of 2011. Interest expense decreased $0.2 million year over year due to lower interest rates.

Financial Position

At the end of 2012, the company had current assets of $194.8 million and shareholders’ equity of $309.9 million. During the fourth quarter, the company repurchased 2.7 million shares for approximately $78.9 million.

Outlook

Brinker provided its outlook for fiscal 2013, in which it expects adjusted earnings to be in the range of $2.30 to $2.45, up 17% to 25%.The company anticipates comparable restaurant sales for full-year to increase 2–3% year over year and operating margin to expand by 100 bps.

Unit Update

During the quarter, the company acquired two Chili's restaurants from a franchisee and closed one company-owned Chili's restaurant. The company also opened 10 international franchise restaurants.

At the end of 2012, Brinker operated 1,581 restaurants, of which 1,279 were Chili’s, 44 were Maggiano's and 258 franchised restaurants in the international market. International franchise restaurants operate 257 Chili’s restaurants and one Maggiano’s restaurant.

Our Take

Brinker remains on track to double its EPS by 2015, driven by sales initiatives which would aid its top-line and margin expansion through disciplined cost management. Additionally, the company is boosting shareholders’ value through share repurchases as well as dividend payment. Moreover, we are optimistic about its earnings guidance for 2013 which is ahead of the Zacks Consensus Estimates. However, stiff competition and food cost inflation are expected to remain headwinds for the company.

Brinker currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Outperform recommendation on the stock.

Panera Bread Co. ( PNRA - Analyst Report ) , one of Brinker’s peers, posted second quarter 2012 adjusted earnings of $1.50 per share, comfortably surpassing the Zacks Consensus Estimate of $1.39 and year-ago-quarter’s earnings of $1.18. The better-than-expected results were driven by a solid top-line growth.