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Bear of the Day: Brinker International (EAT)

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Based in Dallas, TX, Brinker International EAT is a restaurant holding company that owns and operates casual dining establishments like Chili’s Grill & Bar and Maggiano’s Little Italy.

Q1 Earnings Disappoint

Back in October, Brinker reported fiscal 2022 first quarter results that were hampered by a Covid-19 surge in August and industry-wide labor and commodity challenges.

Like many companies in the service industry this year, Brinker struggled to find enough workers to hire since the extended unemployment benefits ended up paying many people more to stay home thank to work. Needing to entice workers, Brinker then hiked its pay rate, but last summer’s coronavirus outbreak exacerbated the company’s struggles.

Looking at the numbers, sales rose 18% to nearly $860 million, while operating income increased almost 5% year-over-year.

Brinker posted earnings of $0.34 per diluted share, up from $0.28 in Q1 2021.

Total company-owned comparable restaurant sales rose 17% year-over-year and 8% compared to the same period in fiscal 2020. Traffic at both Chili’s and Maggiano’s was also solid in the first quarter.

However, restaurant operating margin sunk over 10% because labor costs surged 150 basis points and commodity costs rose by 60 basis points.

Bottom Line

EAT is now a Zacks Rank #5 (Strong Sell).

10 analysts have cut their full year earnings outlook over the past 60 days. While Brinker’s bottom line is expected to increase about 16.4% year-over-year, the consensus estimate has significantly fallen, down over one dollar to $3.63 per share, for fiscal 2021. Next year’s earnings consensus has dropped as well, with eight analysts lowering their estimate.

Shares have been volatile so far in 2021. Year-to-date, EAT has fallen more than 37% compared to the S&P 500’s gain of 23%.

In light of last quarter’s challenges, management has taken steps to improve business and its growth outlook. CEO and President Wyman Roberts said that the current staffing and supply chain issues were “good problems to solve because they're largely within our control.”

Brinker is also confident in its strategic initiatives it’s been implementing that will drive traffic and increase top-line growth. The company currently expects annual revenues between $3.75 billion and $3.85 billion for 2022.

But, business may still be rocky for the time being, so investors should be cautious if they decide to add EAT to their portfolio right now.


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