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Brinker's (EAT) Strategic Initiatives Aid Amid High Costs
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Brinker International, Inc. (EAT - Free Report) is benefiting from strategic sales and expansion initiatives along with high contributions from Chili's and Maggiano's.
Shares of EAT have increased 12.2% in the past six months against the Zacks Retail - Restaurants industry’s growth of 9.7%. Earnings estimates for fiscal 2023 have moved north to $2.77 per share from $2.71 per share over the past 30 days. This depicts analysts' optimism over the company’s growth prospects.
However, the company is facing headwinds in the form of commodity price and wage inflation, as well as higher repair and maintenance expenses. Also, international market slowdown adds to the woes.
What’s Working in Favor of EAT?
Recently, EAT reported fiscal third-quarter 2023 results wherein its earnings and revenues topped the Zacks Consensus Estimate by 5.1% and 1%, respectively.
Image Source: Zacks Investment Research
Brinker remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and innovation, strengthening its value proposition, improving food presentation, initiating advertising campaigns, optimizing the kitchen system and introducing a better service platform. At the end of February 2023, the company launched its first advertising campaign in three years and gained a positive approach. The campaign continued till the end of March and this resulted in high demand for Chili's Three for Me Oldtimer with Cheese $10.99 meal. The company is witnessing pent-up demand for dine-in due to the easing of capacity restrictions. Moreover, the company stated that its dining room business is starting to surpass the pre-pandemic levels, courtesy of the normalization of the current scenario.
During the fiscal third quarter of 2023, Chili’s and Maggiano’s revenues increased 9.5% and 18.8%, respectively, year over year. The upside was backed by increased menu pricing, favorable menu item mix and higher dine-in traffic.
EAT is one of the few fast-casual restaurant chains that have been expanding despite sluggish economic development. During fiscal third-quarter 2023, the company opened 10 new restaurants, including three company-owned and seven franchises. In fiscal 2023, the company expects to open 14 company-owned restaurants and 17-21 franchise-operated restaurants. The company believes that more focus on sales channel expansion and brand-building awareness is likely to drive growth in the upcoming periods.
Headwinds
EAT is persistently facing macroeconomic headwinds that are restricting its growth. Rise in food and beverage costs and restaurant labor costs, including wage rates, continue to impact the company’s margins negatively. Higher repair and maintenance expenses along with increased property tax and utility expenses are added concerns. Total operating costs and expenses in fiscal third-quarter 2023 were $1,019 million compared with $931 million reported in the year-ago quarter.
Also, international comps might be under pressure in the coming quarters due to a slowdown in some of the international markets that it operates in. Brinker is highly exposed to various emerging nations, which have been exhibiting decelerating growth for some time due to various macro headwinds. This might limit discretionary spending, in turn, hurting the company’s top line. In fiscal third-quarter 2023, international comps grew 12.5% compared with 28.4% growth in the prior-year quarter.
Here are some better-ranked stocks from the Zacks Retail-Wholesale sector.
Chipotle Mexican Grill, Inc. (CMG - Free Report) sports a Zacks Rank #1. CMG has a long-term earnings growth rate of 31.8%. The shares of the company have risen 37.2% in the past six months.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS suggests growth of 13.9% and 33.4%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently sports a Zacks Rank #1. ARCO has a long-term earnings growth rate of 7.8%. The shares of the company have gained 11.8% in the past six months.
The Zacks Consensus Estimate for ARCO’s 2023 sales suggests growth of 13.4% from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) carries a Zacks Rank #2 (Buy). CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of the company have increased 8.5% in the past six months.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.1% and 23.4%, respectively, from the year-ago period’s levels.
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Brinker's (EAT) Strategic Initiatives Aid Amid High Costs
Brinker International, Inc. (EAT - Free Report) is benefiting from strategic sales and expansion initiatives along with high contributions from Chili's and Maggiano's.
Shares of EAT have increased 12.2% in the past six months against the Zacks Retail - Restaurants industry’s growth of 9.7%. Earnings estimates for fiscal 2023 have moved north to $2.77 per share from $2.71 per share over the past 30 days. This depicts analysts' optimism over the company’s growth prospects.
However, the company is facing headwinds in the form of commodity price and wage inflation, as well as higher repair and maintenance expenses. Also, international market slowdown adds to the woes.
What’s Working in Favor of EAT?
Recently, EAT reported fiscal third-quarter 2023 results wherein its earnings and revenues topped the Zacks Consensus Estimate by 5.1% and 1%, respectively.
Image Source: Zacks Investment Research
Brinker remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and innovation, strengthening its value proposition, improving food presentation, initiating advertising campaigns, optimizing the kitchen system and introducing a better service platform. At the end of February 2023, the company launched its first advertising campaign in three years and gained a positive approach. The campaign continued till the end of March and this resulted in high demand for Chili's Three for Me Oldtimer with Cheese $10.99 meal. The company is witnessing pent-up demand for dine-in due to the easing of capacity restrictions. Moreover, the company stated that its dining room business is starting to surpass the pre-pandemic levels, courtesy of the normalization of the current scenario.
During the fiscal third quarter of 2023, Chili’s and Maggiano’s revenues increased 9.5% and 18.8%, respectively, year over year. The upside was backed by increased menu pricing, favorable menu item mix and higher dine-in traffic.
EAT is one of the few fast-casual restaurant chains that have been expanding despite sluggish economic development. During fiscal third-quarter 2023, the company opened 10 new restaurants, including three company-owned and seven franchises. In fiscal 2023, the company expects to open 14 company-owned restaurants and 17-21 franchise-operated restaurants. The company believes that more focus on sales channel expansion and brand-building awareness is likely to drive growth in the upcoming periods.
Headwinds
EAT is persistently facing macroeconomic headwinds that are restricting its growth. Rise in food and beverage costs and restaurant labor costs, including wage rates, continue to impact the company’s margins negatively. Higher repair and maintenance expenses along with increased property tax and utility expenses are added concerns. Total operating costs and expenses in fiscal third-quarter 2023 were $1,019 million compared with $931 million reported in the year-ago quarter.
Also, international comps might be under pressure in the coming quarters due to a slowdown in some of the international markets that it operates in. Brinker is highly exposed to various emerging nations, which have been exhibiting decelerating growth for some time due to various macro headwinds. This might limit discretionary spending, in turn, hurting the company’s top line. In fiscal third-quarter 2023, international comps grew 12.5% compared with 28.4% growth in the prior-year quarter.
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.
Here are some better-ranked stocks from the Zacks Retail-Wholesale sector.
Chipotle Mexican Grill, Inc. (CMG - Free Report) sports a Zacks Rank #1. CMG has a long-term earnings growth rate of 31.8%. The shares of the company have risen 37.2% in the past six months.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS suggests growth of 13.9% and 33.4%, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently sports a Zacks Rank #1. ARCO has a long-term earnings growth rate of 7.8%. The shares of the company have gained 11.8% in the past six months.
The Zacks Consensus Estimate for ARCO’s 2023 sales suggests growth of 13.4% from the year-ago period’s levels.
Chuy's Holdings, Inc. (CHUY - Free Report) carries a Zacks Rank #2 (Buy). CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of the company have increased 8.5% in the past six months.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.1% and 23.4%, respectively, from the year-ago period’s levels.