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Why Is Brinker International (EAT) Down 5.2% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for Brinker International, Inc. (EAT - Free Report) . Shares have lost about 5.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is EAT 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’s Q3 Earnings & Revenues Surpass Estimates

Brinker reported better-than-expected top and bottom-line results for the third quarter of fiscal 2018. Adjusted earnings of $1.08 surpassed the Zacks Consensus Estimate of $1.03 by 4.9%. The bottom line increased 14.9% from the year-ago quarter on higher sales. Also, the company’s savings in tabletop device and Plenti program costs more than offset high labor costs.

Quarterly revenues of $812.5 million beat the consensus estimate of $802.2 million by 1.3%. Revenues, however, increased a meager 0.2% year over year.

Brand Performances

Brinker primarily engages in the ownership, operation, development and franchising of various restaurant brands under the names, Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s).

Chili's

Chili’s reported company sales of $688.9 million in the quarter, down 0.1% from the prior-year quarter due to declining comps, partially offset by capacity increase in the United States.

The brand’s company-owned comps fell 0.4% due to a 2.1% decline in traffic, partially offset by a 1.1% and 0.6% improvement in pricing and mix, respectively. However, comps compared favorably with the prior-quarter decline of 1.5% and year-ago drop of 2.3%.

Comps at Chili's franchised restaurants went down 2.1% compared with a 2.5% decline in the year-ago quarter and 1% drop in the last quarter. At international franchised Chili’s restaurants, comps declined 0.2% against the prior-quarter’s increase of 0.1% and compared favorably with the year-ago quarter’s decline of 7.1%. Meanwhile, the same fell in the domestic franchised units by 3.2% against the year-ago quarter’s growth of 0.3% and compared unfavorably with second quarter’s decline of 1.7%.

At Chili's, domestic comps (including company-owned and franchised) declined 1.1%, narrower than the prior-quarter’s drop of 1.6% and the year-earlier quarter’s decline of 1.7%.

Maggiano's

Maggiano's company sales rose 0.6% year over year to $101.6 million, primarily owing to an increase in comps.

Comps grew 0.5% in the quarter, against a fall of 1.6% in the year-ago quarter, on a 1.3% increase in pricing and 0.6% rise in mix, partially offset by a 1.4% decline in traffic. Markedly, comps compared unfavorably with the prior-quarter’s growth of 1.8%.

Operating Results

Total operating costs and expenses increased roughly 0.3% to nearly $739.8 million from $737.8 million in the year-ago quarter. While cost of sales margin expanded 60 basis points (bps), restaurant labor margin increased 40 bps year over year.

Restaurant operating margin, as a percentage of company sales, remained flat year over year. Net income in the quarter increased 10.7% from the year-ago quarter to $46.9 million.

Balance Sheet

As of Mar 28, 2018, cash and cash equivalents were $13.4 million compared with nearly $9 million on Mar 29, 2017.

Long-term debt was $1.36 billion as of Mar 28, 2018, compared with $1.32 billion as of Jun 28, 2017. Total shareholders’ deficit in the quarter was $1.3 billion, compared with $1.4 billion as of Jun 28, 2017. Capital expenditures as of Mar 28, 2018, were $69.5 million. Free cash flow was $168.2 million.

Management approved a quarterly dividend of 38 cents per share of the company’s common stock in the third quarter, which is payable on Jun 28 to shareholders of record as of Jun 8.

2018 Guidance

For the full fiscal year, Brinker expects revenues to be flat to down 0.5% compared with fiscal 2017. Comps are expected to decline within the range of 0.5% to 1%. Restaurant operating margin is also expected to fall 65-75 bps year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter.

VGM Scores

At this time, EAT has a great Growth Score of A and a grade with the same score on the momentum front. The stock was also 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, EAT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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