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Brinker (EAT) Soars 141% in 6 Months: Can the Rally Continue?

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Brinker International, Inc. (EAT - Free Report) continues to benefit from a range of sales-building initiatives including streamlining of menu, innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform. Consequently, the company’s shares have soared 141.6%, compared with the industry’s rally of 23.4%. However, high debt and the coronavirus pandemic remain a concern.

Factors Driving Growth

Brinker remains committed to its goal to drive traffic and revenues through sales-building initiatives. The company is also focusing on digitalization to drive growth. On Jun 23, 2020, the company in partnership with Doordash launched a new virtual brand — It’s Just Wings. Notably, 1,050 of the company-owned restaurants were launched nationally.

In the first half of fiscal 2020, Maggiano’s commenced testing of electronic check presenters, which not only facilitates pay at the table option to provide convenience and efficiency to guests but also increases digital guest engagement. Maggiano’s also entered into an exclusive partnership with DoorDash to create a more affordable rate structure, making third party delivery more sustainable and efficient for the brand to operate. During the fiscal second-quarter, guests were provided the option of online ordering directly through Maggiano’s website apart from the DoorDash platforms.

Owing to the integration of DoorDash into the point of sales (POS) system and a shift in marketing focus (from national TV spots to digital platform), the company is witnessing gradual increase in e-commerce conversions. Resultantly, digital sales of off-premise meals have grown from low teens to more than 50% in the fiscal fourth quarter.

Brinker is one of the few fast-casual restaurant chains that have been expanding despite a sluggish economic development. Management is gearing up for international expansion, especially in the faster growing emerging markets. Notably, the company is always on the lookout for oppurtunities to expand brand presence in existing markets and foray into new ones. In fiscal 2018, 2019 and 2020, the company had opened 34, 23 and 31 restaurants, respectively, globally. In first-quarter fiscal 2021, the company opened seven new restaurants. Nonetheless, the company anticipates opening 18-21 restaurants in fiscal 2021.

 

Concerns

Although the company made a solid start to the fiscal second quarter, comps at Chili's Grill & Bar and Maggiano's Little Italy restaurants were negatively impacted by dining room closures and capacity limitations due to a rise in COVID-19 cases.

Notably, comps at Chili's for the week ended Oct 28, Nov 4, Nov 11, Nov 18, Nov 25, Dec 2 and Dec 9 declined 1%, 3.9%, 28.5%, 5.7%, 13.3%, 13.8% and 12.3% compared with the same period in the prior year, respectively. Despite the negative trend, it is worth mentioning that Chili's comparable restaurant sales have still outpaced the casual dining industry during the fiscal second quarter.

Meanwhile, comps at Maggiano's for the week ended Oct 28, Nov 4, Nov 11, Nov 18, Nov 25, Dec 2 and Dec 9 decreased 34%, 44.1%, 42.4%, 44.5%, 39.4%, 53.8% and 63.9%, respectively. Moreover, comps at company-owned were down 4.9%, 8.9%, 10.3%, 11.4%, 16.4%, 21.1% and 21.7%, for the week ended Oct 28, Nov 4, Nov 11, Nov 18, Nov 25, Dec 2 and Dec 9, respectively.

Moreover, high debt remain a concern. Long-term debt as of Jun 24, 2020, amounted to $1,208.5 million compared with $1,428.9 million as on Mar 25, 2020. Moreover, the company ended the quarter with cash and cash equivalents of $43.9 million, which may not be enough to manage the high debt level.

Zacks Rank & Key Picks

Brinker currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Jack in the Box Inc. (JACK - Free Report) , Ruth's Hospitality Group, Inc. (RUTH - Free Report) and FAT Brands Inc. (FAT - Free Report) , each carrying a Zacks Rank #2 (Buy).

Jack in the Box has a three-five year earnings per share growth rate of 10.6%.

Ruth's Hospitality and FAT Brands earnings in 2021 are expected to soar 264.6% and 127%, respectively.

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