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Brinker (EAT) Q1 Results Hurt by High Costs, Stock Down

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Brinker International, Inc. EAT provided selected business results for first-quarter fiscal 2022 and business update for second-quarter fiscal 2022. The company’s shares declined 12.2% in the after-hour trading session on Oct 19 following its announcement that higher-than-expected labor and commodity costs due to the COVID-19 surge in August impacted the bottom line and margins.

First-Quarter Results

Adjusted earnings in the quarter increased to 34 cents, compared with 28 cents reported in the prior-year quarter. However, adjusted earnings missed the Zacks Consensus Estimate of 68 cents.

In first-quarter fiscal 2022, Brinker’s company sales increased 18% year over year to $859.6 million. Total revenues were $876.4 million, marginally missing the Zacks Consensus Estimate of $877 million.

In the quarter under review, Restaurant operating margin, as a percentage of company sales decreased 120 basis points year over year to 10.4%. The decline was primarily due to 150 bps of higher restaurant labor costs and 60 bps of higher commodity costs.

The company-owned comparable restaurant sales increased 17% year over year owing to 10.8% increase in traffic. Comparable restaurant sales at Chili's and Maggiano's improved 13.4% and 62.6%, respectively.

Shares of Brinker have declined 27% in the past six months against the industry’s growth of 1.5%. The dismal performance can primarily be attributed to the coronavirus pandemic.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Comparable Restaurant Sales (Fiscal 22 vs. Fiscal 20)

Brinker comparable restaurant sales for the month of July, August and September increased 8%, 2.4% and 6.1%, respectively. Chili's comparable restaurant sales for the month of July, August and September climbed 8.8%, 3.1% and 7%, respectively. Meanwhile, Maggiano's comparable restaurant sales in July advanced 1.6%, but declined 2.2% and 0.5%, in August and September, respectively.

Month to date through Oct 13, comparable restaurant sales for Brinker, Chili's and Maggiano's increased 6.6%, 7.3% and 1.5%, respectively.

Zacks Rank & Key Picks

Brinker currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same space are Darden Restaurants, Inc. DRI, Chipotle Mexican Grill, Inc. CMG and Dave & Buster's Entertainment, Inc. PLAY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darden Restaurants has a three-five year earnings per share growth rate of 10%.

Chipotle's 2021 earnings are expected to surge 137.3%.

Dave & Buster's Entertainment has a trailing four-quarter earnings surprise of 201.8%, on average.


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