Brinker (EAT) Tops Industry in the Past Six Months: Here's Why
Brinker International, Inc.’s EAT shares have gained 56.2% in the past six months compared with the Zacks Retail – Restaurants industry’s 12% rise. The company has been benefiting from menu adjustments and effective pricing strategies. Also, solid Chili's performance and focus on expansion initiatives bode well.
The Zacks Consensus Estimate for EAT’s fiscal 2024 sales and earnings per share (EPS) suggests increases of 4.9% and 30.7%, respectively, from the year-ago period’s levels. The company has a long-term earnings growth rate of 16.6%.
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Let’s discuss the factors substantiating its Zacks Rank #1 (Strong Buy).
Growth Catalysts
Focus on Menu Adjustments Bode Well: Brinker emphasizes menu adjustments to drive growth. During the second-quarter fiscal 2024, the company revised the menu by removing pictorial representations of wings and quesadillas to line listed, aiming to mitigate the trade-down effect observed from entrees. It emphasized merchandising premium items through a new feature card in the menu. This includes options such as the fajita trio, the Triple Dipper appetizer, and the classic sirloin, along with premium margaritas.
In the quarter, the company witnessed positive outcomes across its segments, thanks to elevated menu pricing and a favorable mix of menu items. Maggiano’s reported robust performance, with sales increasing by 4.7% year over year to $146.9 million. Favorable comparable restaurant sales, courtesy of increased menu pricing and favorable menu item mix, primarily drove the upside. Going forward, the company aims to drive sales of high-margin items and maintain its competitive pricing strategy.
Chili's to Drive Growth: Chili's has been a major growth driver for the company. Chili’s turn-around strategies generated positive results, with traffic and sales moving in a positive direction. These strategies are focused on simplifying Chili’s core menu by improving recipes, strengthening the value proposition with higher-quality ingredients and incorporating new cooking techniques to deliver better food at more compelling prices.
During the fiscal second quarter, revenues in the Chili’s segment rose 5.5% year over year to $927.2 million. The upside was primarily driven by increased menu pricing. During the quarter, domestic comps at Chili’s (including company-owned and franchised) rose 5.1% year over year. The company emphasizes the brand's new restaurant development to drive growth.
During the quarter, the company opened five new Chili's restaurants and reported solid performances with respect to the same. The company is optimistic about Chili's growth plans through fiscal 2024 and expects to outperform the industry in terms of sales.
Expansion Efforts: The company continues to focus on Chili’s international expansion through development agreements with new and existing franchise partners. Management is gearing up for international expansion as well, especially in the faster-growing emerging markets.
It is also supporting franchise partners with opportunities to expand sales through its virtual brand offerings. For the fiscal 2024, Chili’s has 10-11 new domestic openings and 19-24 new international openings scheduled in the pipeline.
Other Key Picks
Some other top-ranked stocks in the Retail-Wholesale sector include:
Fastenal Company FAST carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 2.6% on average. Shares of FAST have surged 49.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FAST’s 2024 sales and EPS indicates 6.1% and 6.4% growth, respectively, from the year-ago period’s levels.
Texas Roadhouse, Inc. TXRH carries a Zacks Rank #2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has gained 45.4% in the past year.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests rises of 14.1% and 25.8%, respectively, from the year-ago period’s levels.
Shake Shack Inc. SHAK carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 92.6%, on average. SHAK’s shares have surged 97.8% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS indicates 14.6% and 91.9% growth, respectively, from the year-ago period’s levels.
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