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Here's Why You Should Steer Clear of Brinker (EAT) Stock Now
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Shares of Brinker International, Inc. (EAT - Free Report) have declined 1.8% in past three months against the industry’s rise of 2.9%. The company has been witnessing headwinds stemming from elevated inflationary pressures and traffic challenges. Also, uncertain macroeconomic environment is a concern.
Earnings estimates for the fiscal 2024 have been revised downward by 0.7% in the past 30 days.
Let’s discuss the factors that are likely to impact this Zacks Rank #5 (Strong Sell) company’s growth potential.
Image Source: Zacks Investment Research
Primary Concerns
Brinker has been persistently shouldering increased expenses, which are detrimental to margins. A rise in restaurant labor and commodity costs continues to hurt the company. Brinker is encountering higher expenses, courtesy of its return to broad-based advertising and incremental repair and maintenance investment.
During third-quarter fiscal 2023, total operating costs and expenses amounted to $1,019 million compared with $931 million reported in the year-ago quarter. During the quarter, commodity inflation increased 9% year over year. The upside was primarily driven by a rise in poultry, beef and produce costs. Meanwhile, wage rate inflation increased 5% year over year.
The company anticipates inflationary environment to persist for some time. Also, dismal traffic in Chilis (compared with pre-pandemic levels) is a concern. The company is cautious about the challenging macroeconomic environment.
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 that have been exhibiting decelerating growth for some time due to various macro headwinds. This might limit discretionary spending, hurting the company’s top line. In fiscal third-quarter 2023, international comps grew 12.5% compared with the 28.4% growth in the prior-year quarter.
High debt is a major roadblock for the company. Long-term debt at the end of the’ fiscal third quarter came in at $930.7 million compared with $1,023.3 million reported in the previous quarter. The company ended the fiscal third quarter with cash and cash equivalents of $13.8 million (compared with $14.7 million reported in the previous quarter), which may not be enough to manage the high debt level.
The Zacks Consensus Estimate for PLAY’s 2024 sales and EPS indicates a rise of 17% and 27.6%, respectively, from the year-ago period’s levels.
Abercrombie & Fitch Co. (ANF - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 480.6%, on average. Shares of ANF have increased 112% in the past year.
The Zacks Consensus Estimate for ANF’s 2024 sales and EPS indicates a rise of 3.4% and 732%, respectively, from the year-ago period’s levels.
BJ's Restaurants, Inc. (BJRI - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 93%, on average. Shares of BJRI have increased 42% in the past year.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates a rise of 5.5% and 311.8%, respectively, from the year-ago period’s levels.
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Here's Why You Should Steer Clear of Brinker (EAT) Stock Now
Shares of Brinker International, Inc. (EAT - Free Report) have declined 1.8% in past three months against the industry’s rise of 2.9%. The company has been witnessing headwinds stemming from elevated inflationary pressures and traffic challenges. Also, uncertain macroeconomic environment is a concern.
Earnings estimates for the fiscal 2024 have been revised downward by 0.7% in the past 30 days.
Let’s discuss the factors that are likely to impact this Zacks Rank #5 (Strong Sell) company’s growth potential.
Image Source: Zacks Investment Research
Primary Concerns
Brinker has been persistently shouldering increased expenses, which are detrimental to margins. A rise in restaurant labor and commodity costs continues to hurt the company. Brinker is encountering higher expenses, courtesy of its return to broad-based advertising and incremental repair and maintenance investment.
During third-quarter fiscal 2023, total operating costs and expenses amounted to $1,019 million compared with $931 million reported in the year-ago quarter. During the quarter, commodity inflation increased 9% year over year. The upside was primarily driven by a rise in poultry, beef and produce costs. Meanwhile, wage rate inflation increased 5% year over year.
The company anticipates inflationary environment to persist for some time. Also, dismal traffic in Chilis (compared with pre-pandemic levels) is a concern. The company is cautious about the challenging macroeconomic environment.
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 that have been exhibiting decelerating growth for some time due to various macro headwinds. This might limit discretionary spending, hurting the company’s top line. In fiscal third-quarter 2023, international comps grew 12.5% compared with the 28.4% growth in the prior-year quarter.
High debt is a major roadblock for the company. Long-term debt at the end of the’ fiscal third quarter came in at $930.7 million compared with $1,023.3 million reported in the previous quarter. The company ended the fiscal third quarter with cash and cash equivalents of $13.8 million (compared with $14.7 million reported in the previous quarter), which may not be enough to manage the high debt level.
Zacks Rank & Key Picks
Some better-ranked stocks from the Zacks Retail and Wholesale sector are:
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) carries a Zacks Rank #1. PLAY has a trailing four-quarter earnings surprise of 6.8%, on average. Shares of PLAY have gained 30.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PLAY’s 2024 sales and EPS indicates a rise of 17% and 27.6%, respectively, from the year-ago period’s levels.
Abercrombie & Fitch Co. (ANF - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 480.6%, on average. Shares of ANF have increased 112% in the past year.
The Zacks Consensus Estimate for ANF’s 2024 sales and EPS indicates a rise of 3.4% and 732%, respectively, from the year-ago period’s levels.
BJ's Restaurants, Inc. (BJRI - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 93%, on average. Shares of BJRI have increased 42% in the past year.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates a rise of 5.5% and 311.8%, respectively, from the year-ago period’s levels.