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Brinker (EAT) Banks on Expansion Efforts Amid High Debt Woes

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Brinker International, Inc. (EAT - Free Report) is likely to benefit from its expansion plan and sales-building initiatives. Also, the company’s remodeling program bodes well.  

In the past six months, shares of Brinker have gained 62.6% compared with the industry’s 10.8% growth. Moreover, an upward revision in earnings estimates for fiscal 2021 reflects analysts’ optimism regarding the company’s growth potential. Over the past 30 days, the Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 0.4% to $2.54 per share.

However, high debt and the slowdown in the market caused by the pandemic remain concerning.

Factors Driving Growth

Brinker has been expanding its business despite the crisis in the economy, especially in the faster-growing emerging markets. The company is looking out for expanding in the international markets as well as entering new ones. In fiscal 2018, 2019 and 2020, the company opened 34, 23 and 31 restaurants, respectively, globally. In first- and second-quarter fiscal 2021, it opened seven and three restaurants, respectively. Nonetheless, the company anticipates opening 17-20 restaurants in fiscal 2021.

Moreover, Brinker remains consistent in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining the menu and its innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of a better service platform.

Over the past few years, Brinker has been taking remodeling and redesigning initiatives, which has been resulting in sales improvement. It is persistently investing in reimaging its brand, which will drive more traffic over the next three years.
 
On the digital front, the company has implemented various features on its online platforms to increase sales and boost guest services. Moreover, Brinker uses social media platforms and email databases to drive customer awareness and boost traffic. These initiatives will likely contribute significantly to Brinker’s business in the near future.

 

 

Concerns

During second-quarter fiscal 2021, comps at Chili's Grill & Bar and Maggiano's Little Italy restaurants were negatively impacted by dining room closures and capacity limitations due to the rise in COVID-19 cases. Also, Brinker is witnessing weak sales trend at Maggiano’s.

In the fiscal second quarter, Maggiano's sales slumped 49% year over year to $64.3 million primarily due to lower dining sales on account of the COVID-19 outbreak. Maggiano's restaurant expenses (as a percentage of company sales) in the fiscal second quarter soared 94.5% from the prior-year quarter’s 83.3%. The increase was primarily due to sales deleverage and high expenses related to delivery fees and supplies, unfavorable menu item mix, adverse commodity pricing, and higher insurance expenses.

Notably, high debt remains concerning for Brinker. Long-term debt as of Dec 23, 2020, totaled $1,134.6 million compared with $1,158.3 million as of Sep 23, 2020. The company’s debt-to-capitalization came in at 164.3% compared with 167.1% at the end of Sep 23, 2020. The company ended the quarter with cash and cash equivalents of $64.1 million, which may not be enough to manage the high debt level.

Zacks Rank

Brinker — which shares space with Jack in the Box Inc. (JACK - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and Chipotle Mexican Grill, Inc. (CMG - Free Report) in the Zacks Retail – Restaurants industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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