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Here's Why You Should Retain Brinker (EAT) in Your Portfolio
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Brinker International, Inc. (EAT - Free Report) is likely to benefit from menu innovation, kitchen system optimization and digitization initiatives. Also, focus on the reimage program and expansion initiatives bodes well. However, pandemic-induced soft traffic and high debt levels are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
Brinker remains 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 the introduction of a better service platform. This along with focus on virtual brand — It’s Just Wings — bodes well. During fiscal 2021, Just Wings surpassed the $150-million target in the company-owned restaurants. Driven by the support of the company’s franchise partners, it's Just Wings achieved more than $170 million business in the United States. Also, many of the international franchisees are now operating the brand.
Brinker is investing heavily in technology-driven initiatives like online ordering to augment sales and boost guest services. During fiscal 2021, the company implemented technology enhancements to curbside its takeout system, which is already simplifying the operational side of the business and improving guest metrics. During the fiscal year, Just Wings went live with a website that offers online ordering for takeout as well as delivery. These initiatives will likely contribute significantly to Brinker’s business in the near future.
Brinker is one of the few fast-casual restaurant chains that have been expanding despite sluggish economic development. In fiscal 2018, 2019 and 2020, the company opened 34, 23 and 31 restaurants, respectively, globally. During fiscal 2021, the company opened 18 new restaurants, including eight company-owned, 10 total franchises. During the fiscal year, the company opened restaurants in six new locations and entered into two new arrangements — one with an existing franchise partner and another with a new franchise partner. Going forward, the company anticipates to open seven company-owned new restaurants and 8-14 franchise-operated restaurants in fiscal 2022.
Also, focus on reimage program bodes well. Brinker’s remodeling initiative is expected to continue boosting its potential as a brand and augment guests’ experience that are likely to drive traffic and comps over the next three years. The company is positioned to invest aggressively to grow its business in fiscal 2022 and beyond. For the coming year, Brinker’s will look for more ways to offer convenience, value and a great guest experience by doubling its pipeline of new restaurant openings and expanding its portfolio of brands.
Concerns
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Shares of Brinker have declined 26.2% in the past six months against the industry’s growth of 3.7%. The dismal performance was primarily caused by the coronavirus pandemic. Although the majority of dinning services are open, traffic is still low compared with pre-pandemic levels. We believe that the Delta variant of coronavirus might hurt traffic and sales in the upcoming periods.
Moreover, high debt is a concern for Brinker. The company’s long-term debt as of Jun 30, 2021, totaled $917.9 million compared with $1,107 million as on Mar 24, 2021. The company ended the fourth quarter of fiscal 2021 with cash and cash equivalents of $23.9 million compared with $63.6 million at fiscal third-quarter end, which may not be enough to manage a high debt level.
Some better-ranked stocks in the same space are McDonald's Corporation (MCD - Free Report) , Chipotle Mexican Grill, Inc. (CMG - Free Report) and Jack in the Box Inc. (JACK - Free Report) , each carrying a Zacks Rank #2 (Buy).
McDonald's has a three-five year earnings per share growth rate of 11.7%.
Chipotle's 2021 earnings are expected to rise 137.3%.
Jack in the Box has a trailing four-quarter earnings surprise of 26.4%, on average.
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Here's Why You Should Retain Brinker (EAT) in Your Portfolio
Brinker International, Inc. (EAT - Free Report) is likely to benefit from menu innovation, kitchen system optimization and digitization initiatives. Also, focus on the reimage program and expansion initiatives bodes well. However, pandemic-induced soft traffic and high debt levels are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
Brinker remains 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 the introduction of a better service platform. This along with focus on virtual brand — It’s Just Wings — bodes well. During fiscal 2021, Just Wings surpassed the $150-million target in the company-owned restaurants. Driven by the support of the company’s franchise partners, it's Just Wings achieved more than $170 million business in the United States. Also, many of the international franchisees are now operating the brand.
Brinker is investing heavily in technology-driven initiatives like online ordering to augment sales and boost guest services. During fiscal 2021, the company implemented technology enhancements to curbside its takeout system, which is already simplifying the operational side of the business and improving guest metrics. During the fiscal year, Just Wings went live with a website that offers online ordering for takeout as well as delivery. These initiatives will likely contribute significantly to Brinker’s business in the near future.
Brinker is one of the few fast-casual restaurant chains that have been expanding despite sluggish economic development. In fiscal 2018, 2019 and 2020, the company opened 34, 23 and 31 restaurants, respectively, globally. During fiscal 2021, the company opened 18 new restaurants, including eight company-owned, 10 total franchises. During the fiscal year, the company opened restaurants in six new locations and entered into two new arrangements — one with an existing franchise partner and another with a new franchise partner. Going forward, the company anticipates to open seven company-owned new restaurants and 8-14 franchise-operated restaurants in fiscal 2022.
Also, focus on reimage program bodes well. Brinker’s remodeling initiative is expected to continue boosting its potential as a brand and augment guests’ experience that are likely to drive traffic and comps over the next three years. The company is positioned to invest aggressively to grow its business in fiscal 2022 and beyond. For the coming year, Brinker’s will look for more ways to offer convenience, value and a great guest experience by doubling its pipeline of new restaurant openings and expanding its portfolio of brands.
Concerns
Shares of Brinker have declined 26.2% in the past six months against the industry’s growth of 3.7%. The dismal performance was primarily caused by the coronavirus pandemic. Although the majority of dinning services are open, traffic is still low compared with pre-pandemic levels. We believe that the Delta variant of coronavirus might hurt traffic and sales in the upcoming periods.
Moreover, high debt is a concern for Brinker. The company’s long-term debt as of Jun 30, 2021, totaled $917.9 million compared with $1,107 million as on Mar 24, 2021. The company ended the fourth quarter of fiscal 2021 with cash and cash equivalents of $23.9 million compared with $63.6 million at fiscal third-quarter end, which may not be enough to manage a 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 are McDonald's Corporation (MCD - Free Report) , Chipotle Mexican Grill, Inc. (CMG - Free Report) and Jack in the Box Inc. (JACK - Free Report) , each carrying a Zacks Rank #2 (Buy).
McDonald's has a three-five year earnings per share growth rate of 11.7%.
Chipotle's 2021 earnings are expected to rise 137.3%.
Jack in the Box has a trailing four-quarter earnings surprise of 26.4%, on average.