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Why Is Brinker International (EAT) Up 22.3% 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 added about 22.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Brinker International due for a pullback? 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 drivers.

Brinker's Beats on Q1 Earnings, Revenues Miss Estimates

Brinker International reported mixed results for first-quarter fiscal 2019, wherein earnings surpassed estimates while revenues marginally lagged the same.

Adjusted earnings of 47 cents per share surpassed the Zacks Consensus Estimate of 42 cents by 11.9%. The bottom line also grew by the same percentage from the year-ago quarter, driven by higher revenues.

Quarterly revenues were $753.8 million, which lagged the consensus estimate of $753.9 million. The top line, however, increased 1.9% on a year-over-year basis. The company’s traffic-building strategies and efforts to capture greater market share have aided top-line growth.

Let’s take a closer look at the fiscal first-quarter numbers.

Brand Performances

Brinker primarily engages in 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

Revenues at Chili’s totaled $640.3 million in the reported quarter, up 2% from the prior-year quarter. The upside was driven by rise in comps.

The brand’s company-owned comps rose 2%, owing to 4% improvement in traffic, partially offset a 2% decline in mix. However, comps compared favorably with increase of 0.6% recorded in the fourth quarter and decline of 3.4% in the year-ago quarter.

Comps at Chili's franchised restaurants decreased 0.2% compared with a 4.1% decline in the year-ago quarter and a 1.4% drop in the fiscal fourth quarter. At international franchised Chili’s restaurants, comps declined 3% compared with the last reported quarter’s decrease of 2.9% and year-ago quarter’s decline of 7.9%. Meanwhile, the same increased in the domestic franchised units by 1.5% compared with the year-ago quarter’s decline of 1.7% and the fiscal fourth quarter’s decline of 0.5%.

At Chili's, domestic comps (including company-owned and franchised) moved up 1.9% compared with the last reported quarter’s increase of 0.4% and the year-earlier quarter’s decline of 3%.

Maggiano's

Maggiano's sales declined 1.5% year over year to $88 million primarily due to a decrease in restaurant capacity.

Comps remained flat in the reported quarter against a decline of 2.6% in the year-ago quarter, courtesy of 2.3% increase in pricing, partially offset by 2.1% decline in traffic.

Operating Results

Total operating costs and expenses decreased roughly 0.5% to nearly $706.9 million compared with $710.8 million in the year-ago quarter. While the cost of sales margin contracted 70 basis points (bps), restaurant labor margin remained flat year over year.

Restaurant operating margin, as a percentage of company sales, was 11.1% compared with 12.6% in the prior-year quarter.

Balance Sheet

As of Sep 26, 2018, cash and cash equivalents were $11 million compared with nearly $9 million at the end of first-quarter fiscal 2018.

Long-term debt was $1.2 billion as of Sep 26, 2018, compared with $1.5 billion as of Jun 27, 2018. Total shareholders’ deficit in the reported quarter was $815.9 million compared with $718.3 million as of Jun 2, 2018.

Management approved a quarterly dividend of 38 cents per share of the company’s common stock in the first quarter, which is payable on Dec 27 to shareholders of record as of Dec 7.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Brinker International has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second 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 trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Brinker International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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