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Why Is Brinker International (EAT) Down 6.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Brinker International (EAT - Free Report) . Shares have lost about 6.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Brinker International due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Brinker Q4 Earnings Miss Estimates, Revenues Surpass

Brinker reported mixed fourth-quarter fiscal 2022 results, with earnings missing the Zacks Consensus Estimate but revenues beating the same. The top-line increased year-over-year while the bottom line declined on a year over year basis.

Earnings & Revenue Discussion

In the quarter under review, adjusted earnings per share (EPS) came in at $1.15, missing the Zacks Consensus Estimate of $1.16. In the prior-year quarter, the company had reported an adjusted EPS of $1.68.

During the fiscal fourth quarter, total revenues of $1,021.5 million beat the Zacks Consensus Estimate of $1,017 million by 0.4%. The top line increased 1.3% on a year-over-year basis. The company gained from the solid performance of Maggiano's.

Chili's

Chili’s revenues in the fiscal fourth quarter decreased 1.1% year over year to $904.2 million. The decline was primarily due to the impact of the additional operating week in the prior year as well as the decline in To-Go sales, marginally overshadowed by dining room sales growth. Moreover, the acquisition of 66 restaurants in fiscal 2022 (previously owned by franchisees) added to the positives in the prior year’s quarter.

Chili's company restaurant expenses (as a percentage of company sales) in the fiscal fourth quarter increased to 89.8% year over year from 82.9% reported in the prior-year quarter. The upside can be attributed to a rise in commodity costs, sales deleverage, advertising, utility expenses, rent expenses and increased restaurant labor costs, which include wage rates.

Chili's company-owned traffic in the quarter decreased 5.7% year over year compared with the 51.2% growth reported in the prior-year quarter.

The segment’s company-owned comps increased 0.3% in the fiscal fourth quarter from the year-ago quarter’s levels.

At Chili's, domestic comps (including company-owned and franchised) rose 0.1% year over year compared with a 62.1% rise reported in the prior-year quarter.

Maggiano's

Maggiano's sales soared 24% year over year to $117.3 million, primarily due to an increase in dining and banquet room sales. Comps increased 30.1% year over year. Traffic in the quarter rose 17.9% year over year compared with a gain of 81.7% reported in the prior-year quarter.

Maggiano's company restaurant expenses (as a percentage of company sales) in the fiscal fourth quarter were 89% compared with 85% reported in the prior-year quarter. The increase was due to a rise in commodity costs, restaurant labor costs, manager bonuses and supervision expenses.

Operating Results

Total operating costs and expenses in the fiscal fourth quarter came in at $976.8 million compared with $908 million reported in the year-ago quarter. Restaurant operating margin — as a percentage of company sales — was 10.2% compared with the 17.1% reported in the prior-year quarter.

Balance Sheet

As of Jun 29, 2022, cash and cash equivalents amounted to $13.5 million compared with $23.6 million as of Jun 30, 2021.

Long-term debt as of Jun 29, 2022, came in at $989.1 million compared with $917.9 million as of Jun 30, 2021. Total shareholders’ deficit in the reported quarter came in at ($268.1) million compared with ($303.3) million reported in the previous quarter.

Fiscal 2023 Outlook

For fiscal 2023, The company anticipates total revenues in the range of $3.9-$4 billion. Capital expenditures are expected in the range of $155-$165 million. The company expects fiscal 2022 diluted EPS in the range of $2.45-$2.85.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -292.1% due to these changes.

VGM Scores

Currently, Brinker International has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Brinker International has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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