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Brinker International (EAT) Up 13.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Brinker International (EAT). Shares have added about 13.2% 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 catalysts.

Brinker Q3 Earnings & Revenues Beat Estimates, Rise Y/Y

Brinker International reported solid third-quarter fiscal 2020 results, wherein earnings and revenues not only surpassed the Zacks Consensus Estimate but also grew year over year. 

Adjusted earnings of $1.28 per share surpassed the consensus estimate of 48 cents and also increased 1.6% from the year-ago quarter. The upside was primarily driven by reduced performance-based compensation expenses and income taxes, partially offset by a decline in traffic due to COVID-19. The company has withdrawn its fiscal 2020 guidance owing to the same.

Quarterly revenues of $860 million not only beat the consensus mark of $850 million but also improved 2.5% on a year-over-year basis. Notably, the upside was driven by increased capacity at the 116 Chili's restaurants, which were acquired in the fiscal first quarter. However, this was partially offset by the traffic decline.

Brand Performances

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

Chili's

Revenues at Chili’s totaled $764.4 million in the reported quarter, up 4.3% from the prior-year quarter on an increase in off-premise sales as well as revenues generated from the acquisition of Chili's restaurants. However, this was partially offset by a decline in net comparable restaurant sales due to reduced dining room traffic as well as 10 temporary store closures due to the pandemic.

Notably, Chili’s transitioned to a 100% off-premise business model by the end of the third quarter of fiscal 2020. Chili's off-premise sales, which include both to-go and delivery, grew approximately 20% of sales, with around 14% coming from to-go and 6% from delivery.

In third-quarter fiscal 2020, company-owned comps declined 5.3% from the prior-year quarter.

Comps at Chili's franchised restaurants declined 7.7% compared with a 0.2% decline in the year-ago quarter. At international franchised Chili’s restaurants, the same fell 9.5% compared with the year-ago quarter’s decline of 3.9%. Meanwhile, at the U.S. franchised units, comps declined 6.3% against 2% growth in the year-ago quarter.

At Chili's, domestic comps (including company-owned and franchised) fell 5.4% compared to 2.7% growth in the year ago quarter.

Maggiano's

Maggiano's sales fell 10.3% year over year to $95.6 million, primarily due to a decline in dining and banquet room traffic due to COVID-19 as well as adverse weather conditions.

Comps dropped 9.9% year over year.

Operating Results

Total operating costs and expenses jumped roughly 6.5% to $818.9 million from $769.1 million in the year-ago quarter. However, restaurant operating margin — as a percentage of company sales — was 12.8% compared with 14.3% in the prior-year quarter.

Balance Sheet

As of Mar 25, 2020, cash and cash equivalents amounted to $167.2 million compared with $12.2 million as on Mar 27, 2019.

Long-term debt was $1,428.9 million as of Mar 25, 2020, compared with $1,206.6 million on Jun 26, 2019. Total shareholders’ deficit in the reported quarter was $574.7 million compared with $778.2 million as of Jun 26, 2019.

As of Mar 25, 2020, the company made dividend payments worth $43.3 million, compared with $46 million as on Mar 27, 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 43.15% due to these changes.

VGM Scores

Currently, Brinker International has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

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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