Here's Why Investors Should Retain Brinker (EAT) Stock Now
Brinker International, Inc. EAT is benefiting from improved menu pricing and a favorable menu item mix. Also, focus on various sales-building and expansion initiatives bodes well. However, rising restaurant labor and commodity costs continue to hurt the company.
The Zacks Rank #3 (Hold) company’s earnings and sales in fiscal 2024 are likely to witness growth of 18.4% and 4.6% year over year, respectively. The company also has a long-term earnings growth rate of 8%.
Let’s delve deeper.
Growth Drivers
Shares of EAT have increased 7.8% in the past year compared with the industry's 5.1% rise. Brinker remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining its menu and its innovation, strengthening its value proposition, better food presentation and advertising campaigns.
In third-quarter fiscal 2023, the company's 3 for Me TV campaign significantly narrowed the traffic gap and boosted Chili's market share growth. Following the strategy's success, the company plans to expand it from four weeks to 21 weeks on TV in fiscal 2024. The strategy will emphasize value and Core Four menu items. This approach will be complemented by offers, innovation, menu merchandising and digital strategy to increase brand awareness and drive revenues.
The company is also developing a more advanced CRM program to boost customer frequency. In the fourth-quarter fiscal 2023, the company partnered with GALE, a renowned digital and CRM agency with a strong reputation in the restaurant industry. The collaboration aims to reduce CRM discounts and allocate those funds towards more efficient and sustainable communication, delivering targeted messaging to reduce the time between visits.
The company wants to expand the brand in existing markets and enter new ones. Brinker is also gearing up for international expansion, especially in the faster-growing emerging markets. During the fourth quarter of fiscal 2023, the company opened seven new Chili's restaurants, bringing EAT's fiscal year openings to 14. These recent openings continue to strengthen Chili's brand, as three of them consecutively reported record new opening sales in this quarter.
The company continues to focus on Chili’s international expansion through development agreements with new and existing franchise partners. As of June 28, 2023, the company has 18 active development arrangements. In fiscal 2023, it opened 18 new locations and entered into three additional arrangements, including existing and new franchise partners.
For fiscal 2024, the company expects to open 12 company-owned restaurants and 19-25 franchise-operated restaurants.
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Headwinds
A rise in food and beverage costs and restaurant labor costs, including wage rates, is likely to impact the company negatively. Higher repair and maintenance expenses, increased property tax, and utility expenses are added concerns. Total operating costs and expenses in the fiscal fourth quarter of 2023 were $1,016.2 million compared with $976.8 million reported in the year-ago quarter. For Fiscal 2024, our model predicts Total operating costs and expenses to increase 2.8% year over year to $4,102.2 million.
Key Picks
Some better-ranked stocks from the Zacks Retail-Wholesale sector are:
BJ's Restaurants, Inc. BJRI sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have increased 5.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 435.3% growth, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. ARCO currently carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 11.4%. The stock has gained 29.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.
Chuy's Holdings, Inc. CHUY holds a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 26.6%, on average. Shares of CHUY have surged 61% in the past year.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS implies increases of 9.5% and 32.9%, respectively, from the year-ago period’s levels.
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