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Brinker International (EAT) Declines 42% in a Year: Here's Why

·4 min read

Shares of Brinker International, Inc. EAT have declined 42.1% in the past year compared with the industry’s decrease of 14%. High costs and dismal traffic continue to hurt the company’s performance.

This Zacks Rank #5 (Strong Sell) company reported fourth-quarter fiscal 2022 results, wherein earnings missed the Zacks Consensus Estimate. The company reported adjusted earnings per share (EPS) of $1.15, missing the Zacks Consensus Estimate of $1.16. In the year-ago quarter, it had reported an adjusted EPS of $1.68.

Moreover, in the past 30 days, earnings estimates for fiscal 2023 have witnessed downward revisions of 30% to $2.60 per share. Let’s delve deeper and find out the factors hurting the company’s performance.

Primary Concerns

The rise in food and beverage costs and restaurant labor costs, which include wage rates, training and overtime, continue to hurt the company. Higher repairs and maintenance expenses and increased utility expenses are also raising expenses.

During the fiscal fourth quarter, food and beverage costs (as a percentage of company sales) increased 1.8% year over year, owing to a rise in meat, poultry and other commodity inflation. Restaurant labor costs (as a percentage of company sales) increased 0.9% year over year. The restaurant operating margin — as a percentage of company sales — was 10.2% compared with 17.1% reported in the prior-year quarter.

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Zacks Investment Research


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The company anticipates inflation to be in the mid-teens in fiscal 2023. For first-quarter fiscal 2023, the company anticipates food and beverage expenses to be more than $50 million. It expects the restaurant operating margin to be between 4.5% and 5.5%.

Moreover, high debt remains a concern for the company. Long-term debt, as of Jun 29, 2022, totaled $989.1 million compared with $987.9 million as of Mar 30, 2022. The company ended the fiscal fourth quarter with cash and cash equivalent of $13.5 million compared with $12.9 million in the previous quarter.

Although the cash balance has improved sequentially, it may not be enough to manage the high debt level. Debt-to-capitalization ratio at the end of the fiscal fourth quarter came in at 137.2%.

Traffic remains a concern for the company. Although most dining services are open, traffic is still low compared with the pre-pandemic levels. Going forward, the company intends to monitor the situation regularly to gauge the impacts of COVID-19. It expects Chili's traffic to remain in the low single-digits in fiscal 2023.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Tecnoglass Inc. TGLS, Cracker Barrel Old Country Store, Inc. CBRL and Arcos Dorados Holdings Inc. ARCO.

Tecnoglass currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 24.4%, on average. Shares of the company have increased 3.6% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for TGLS’s 2022 sales and EPS suggests growth of 28.2% and 47.7%, respectively, from the year-ago period’s levels.

Cracker Barrel currently carries a Zacks Rank #2 (Buy). It has a long-term earnings growth of 6.9%. Shares of the company have decreased 21.3% in the past year.

The Zacks Consensus Estimate for CBRL’s 2022 sales and EPS suggests growth of 16.3% and 15.4%, respectively, from the year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2. It has a long-term earnings growth of 34.4%. Shares of the company have risen 36.9% in the past year.

The Zacks Consensus Estimate for ARCO’s 2022 sales and EPS suggests growth of 27.1% and 104.2%, respectively, from the year-ago period’s levels.


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