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Brinker International (EAT) Up 21.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·6 mins read

It has been about a month since the last earnings report for Brinker International (EAT). Shares have added about 21.1% 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 its most recent earnings report in order to get a better handle on the important drivers.

Brinker Q4 Earnings & Revenue Beat Estimates

Brinker reported fourth-quarter fiscal 2020 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate.

Following the release, CEO and President, Wyman Roberts stated, "Leaning into these existing strategies with a clear focus and continually prioritizing the safety of our Team Members and Guests has allowed us to accelerate our performance and deliver industry leading results."

Earnings & Revenue Discussion

The company reported adjusted loss per share of 88 cents, narrower than the Zacks Consensus Estimate of a loss of $1.47. In the year-ago quarter, the company had reported adjusted earnings of $1.36.

Quarterly revenues of $563.2 million beat the consensus mark of $558 million by 0.9%. However, the top line declined 32.5% on a year-over-year basis. Notably, the downside can be primarily attributed to the COVID-19 pandemic, partially offset by the acquisition of 116 Chili's restaurants in the first quarter of fiscal 2020 along with an increase in off-premise sales.

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

Chili’s revenues in the fiscal fourth quarter fell 27.1% year over year to $528.6 million, primarily attributed to lower traffic, temporary dining room closures and capacity limitations owing to the global pandemic. However, this was partially offset by the acquisition of 116 Chili's restaurants (during the first quarter fiscal 2020) and increased off-premise sales.

Chili's company restaurant expenses (as a percentage of company sales) in the fiscal fourth quarter rose 92% year over year compared with 84.8% in the prior-year quarter. The increase was primarily driven by sales deleverage owing to COVID-19 along with high expenses related to delivery fees and supplies, and unfavorable commodity pricing. However, these were partially offset by lower advertising, labor, repairs and maintenance expenses, and favorable menu item mix.

In fourth-quarter fiscal 2020, company-owned comps declined 32.2% from the prior-year quarter.

Comps at Chili's franchised restaurants declined 49.5% against 0.4% growth in the year-ago quarter. At international franchised Chili’s restaurants, the same fell 66.1% compared with the year-ago quarter’s 0.5% decline. Meanwhile, at the U.S. franchised units, comps declined 39.9% against 0.9% growth in the year-ago quarter.

At Chili's, domestic comps (including company-owned and franchised) fell 33% compared with 1.3% growth in the prior-year quarter.

As of Jul 29, 2020, 885 Chili's restaurants with dining rooms (or patios) were open. The segment's comparable restaurant sales declined 10.9% quarter to date (as of Jul 29, 2020).

Maggiano's

Maggiano's sales fell 68.2% year over year to $34.6 million primarily due to lower dining and banquet room traffic because of COVID-19 along with temporary dining and banquet room closures and limited capacity of reopened locations. However, this was partially offset by increased off-premise sales. Comps dropped 66.7% year over year.

Maggiano's company restaurant expenses (as a percentage of company sales) in the fiscal fourth quarter rose 115.5% year over year compared with 87.1% in the prior-year quarter. The increase was primarily led by sales deleverage owing to COVID-19 along with high expenses related to delivery fees and supplies, and unfavorable commodity pricing. However, these were partially offset by lower advertising, labor, repairs and maintenance expenses, better menu item mix, lower utilities expenses and favorable menu pricing.

As of Jul 29, 2020, 52 Maggiano's restaurants with dining rooms (or patios) were open. The segment's comparable restaurant sales declined 44.6% quarter to date (as of Jul 29, 2020).

Operating Results

Total operating costs and expenses declined 20% to $616.4 million from $770.1 million in the year-ago quarter. However, restaurant operating margin — as a percentage of company sales — was 6.4% compared with 14.9% in the prior-year quarter.

Balance Sheet

As of Jun 24, 2020, cash and cash equivalents amounted to $43.9 million compared with $13.4 million as on Jun 26, 2019.

Long-term debt was $1,208.5 million as of Jun 24, 2020, compared with $1,206.6 million on Jun 26, 2019. Total shareholders’ deficit in the reported quarter came in at ($479.1) million compared with ($778.2) million as of Jun 26, 2019.

As of Jun 24, 2020, the company made dividend payments worth $57.4 million, compared with $60.3 million as on Jun 26, 2019.

Fiscal 2020 Highlights

Adjusted earnings for fiscal 2020 were $1.71 compared with $3.93 reported in 2019.

Total revenues for fiscal 2020 were reported at $3,078.5, compared with $3,217.9 in 2019.

For 2020, operating income (as a percentage of total revenues) came in at 2% compared with 7.2% reported in 2019.

Other Business Updates

On Jun 23, 2020, the company in partnership with Doordash launched a new virtual brand – It’s Just Wings. Notably, 1,050 of its company-owned restaurants were launched nationally.

Fiscal First Quarter 2021 Outlook

For first-quarter fiscal 2021, adjusted net loss per share is expected in the range of 40 cents to 25 cents. The Zacks Consensus Estimate for the same is currently pegged at a loss of $1.47 per share. Operating cash flow is expected to be positive, while comparable restaurant sales are expected to decline low to mid-teens.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 68.4% due to these changes.

VGM Scores

At this time, Brinker International has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Brinker International has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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