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Brinker's (EAT) Traffic-Driving Efforts to Drive Q2 Earnings

Zacks Equity Research

Brinker International, Inc. EAT is scheduled to report second-quarter fiscal 2019 results on Jan 29, before the market opens.

The company’s ambitious expansion plans, along with sales building, digital, operational and remodeling initiatives, are likely to have favored top-line growth in the fiscal second quarter while focus on franchising and other operational excellence may have driven earnings in the to-be-reported quarter.

The company has recorded earnings growth of 11.9%, 9.2%, 14.9% and 22.5% in the past four respective quarters, thereby, setting an upside trend. Moreover, the company’s earnings surpassed the consensus estimate in five of the trailing six quarters, the average beat being 7.2%.

Backed by this solid earnings trend, shares of Brinker have gained 21.5% over the past year, outperforming the industry’s 5.6% rally.

Let us delve deeper to find out how the company’s results will shape up in the fiscal second quarter.

Sales-Building Efforts to Drive Top-Line Growth

Brinker remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives. These include streamlining of menu and its innovation, strengthening value proposition, better food presentation, advertising campaigns, kitchen system optimization, and the introduction of a better service platform.

Particularly, emphasizing on menu innovation to propel revenues, the company started a plan — Vision 2020 — in 2016, focusing on menu innovation in Chili's, continuous improvement in service and atmosphere to differentiate the brand, and gain market traction to achieve long-term earnings per share growth target of 10-15%.

Meanwhile, Brinker’s remodeling efforts gained momentum, leading to improvement in sales. Notably, the company continues to invest in its reimage program. In fact, in the first quarter of fiscal 2019, it invested in a brand-wide reimage program that will drive traffic and comps over the next three years. Brinker’s remodeling initiative is thus expected to continue to invigorate its potential as a brand and augment guests’ experience.

Backed by rigorous top-line initiatives, Brinker witnessed 1.9% revenue growth in the first quarter of fiscal 2019. This trend is likely to have continued in the fiscal second quarter as well. Subsequently, the Zacks Consensus Estimate for revenues in the fiscal second quarter is pegged at $778.8 million, reflecting 1.6% year-over-year growth.

Bottom-line Picture Impressive

In the first quarter of fiscal 2019, Brinker recorded earnings growth of 11.9% year over year. Also, the consensus estimate pegs earnings at 89 cents for the fiscal second quarter, suggesting 2.3% growth from the year-ago quarter. We believe that the company’s earnings are favored by the focus on franchising.

Unlike most peers, Brinker used to focus on company-owned restaurants to gain full control over its operations and profits. However, to survive in an industry that depends largely on franchising, the company started to pursue expansion through franchisees and partnerships. For instance, Brinker acquired 103 franchised Chili’s Grill and Bar restaurants from Pepper Dining Holding Corp. in 2015. Notably, in fiscal 2017, Brinker’s franchise-operated locations increased 40%. Strong growth should continue to boost top and bottom lines of the company.

What Does the Zacks Model Unveil?

Our proven model does not show that Brinker is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Brinker has an Earnings ESP of 0.00%. Although the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brinker International, Inc. Price and EPS Surprise


Brinker International, Inc. Price and EPS Surprise | Brinker International, Inc. Quote

Stocks to Consider

Here are a few stocks from the Retail-Wholesale space that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the fourth quarter:

Amazon AMZN has an Earnings ESP of +0.68% and a Zacks Rank #2 at present. The company is scheduled to report quarterly results on Feb 7.

Caseys General Stores CASY has an Earnings ESP of +18.15% and it currently sports a Zacks Rank #1. The company is expected to report quarterly results on Mar 6.

RH RH has an Earnings ESP of +15.19% and it presently flaunts a Zacks Rank #1. The company is expected to report quarterly results on Mar 26.

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