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Brinker (EAT) Banks on Remodelling Efforts, Traffic Dismal

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Brinker International, Inc. (EAT - Free Report) is likely to benefit from its remodelling efforts, digitization, virtual brand and expansion initiatives. Also, increased focus on its sales-building initiatives bode well. However, dismal traffic on account of capacity limitations along with weak sales at Maggiano’s is a concern.

Let us discuss the factors that highlight why investors should hold on to the stock for the time being.

Factors Driving Growth

Brinker’s focus on remodeling efforts bodes well. Notably, the company continues to invest in its reimage program. Also, consistent investments in a brand-wide reimage program are likely to drive traffic and comps over the next three years. In order to support this initiative, the company is likely to spend approximately $20 million for capital and technological advancements in fiscal 2021. Brinker’s remodeling initiative is thus expected to continue to invigorate its potential as a brand and enhance guests’ experience in the upcoming periods.

Moreover, Brinker is steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and its innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform. This along with focus on virtual brand — It’s Just Wings — bodes well. During third-quarter fiscal 2021, the company stated that the brand has been well received by its customers and domestic franchise partners. Per the company, it is also on track to achieve the $150-million target. Currently, with a footprint in nine countries (160 locations) outside the United States, the company intends to execute multiyear virtual brand strategy to support its operating business model.

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.

Meanwhile, 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 had opened 34, 23 and 31 restaurants, respectively, globally. In the first, the second and the third quarter of fiscal 2021, the company opened seven, three and six new restaurants, respectively. Nonetheless, the company anticipates to open 18-22 restaurants in fiscal 2021.

Concerns

Shares of Brinker have declined 15.3% in the past three months against the industry’s growth of 7.1%. Notably, the dismal performance was primarily caused by the coronavirus pandemic. Although, the company has reopened all of its dining rooms and patios, it is still witnessing dismal traffic due to capacity limitations. Owing to the uncertainty of the crisis, the company stated that chances of further capacity restrictions, restaurant closures and supply chain disruptions cannot be ruled out.



Moreover, Brinker is witnessing weak sales trend at Maggiano’s. In the fiscal third quarter, Maggiano's sales slumped 30.2% year over year to $65.4 million primarily due to lower dining sales on account of COVID-19. However, this was partially mitigated by increased off-premise sales. During the quarter, comps in the segment plunged 29.6% year over year.

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 Chuy's Holdings, Inc. (CHUY - Free Report) , Dine Brands Global, Inc. (DIN - Free Report) and Texas Roadhouse, Inc. (TXRH - Free Report) , each sporting a Zacks Rank #1.

Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.

Dine Brands 2021 earnings are expected to surge 268.7%.

Texas Roadhouse has a three-five year earnings per share growth rate of 10%.

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