Why Is Brinker International (EAT) Down 1.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Brinker International (EAT). Shares have lost about 1.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Brinker International due for a breakout? 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 drivers.
Brinker Q2 Earnings and Revenues Surpass Estimates
Brinker reported second-quarter fiscal 2023 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis.
Kevin Hochman, chief executive officer and president of Brinker International, stated, "Our focus on the Team Member and Guest experience, coupled with a more strategic pricing strategy, has allowed us to grow our top line and sequentially improve our margins. We will build on this solid foundation as we continue to implement our strategic initiatives and move the business forward."
Earnings & Revenue Discussion
In the quarter under review, Brinker reported adjusted earnings per share (EPS) of 76 cents, surpassing the Zacks Consensus Estimate of 51 cents. In the prior-year quarter, the company reported an adjusted EPS of 71 cents.
In the fiscal second quarter, total revenues of $1,019 million beat the Zacks Consensus Estimate of $990 million. The top line increased 10.1% on a year-over-year basis. The company gained from the solid performance of Maggiano's.
Chili's
Chili’s revenues in the fiscal second quarter increased 8.7% year over year to $878.7 million. The gain was primarily due to increased menu pricing and the acquisition of 68 restaurants in fiscal 2022, marginally overshadowed by lower traffic.
Chili's company restaurant expenses (as a percentage of company sales) in the fiscal second quarter increased to 89.7% year over year from 88.6% reported in the prior-year quarter. The upside can be attributed to a rise in commodity costs, delivery fees, manager salary expenses, hourly wage rates, rent and utilities expenses, marginally offset by sales leverage.
Chili's company-owned traffic in the quarter declined 7.6% year over year against the 6.3% growth reported in the prior-year quarter.
The segment’s company-owned comps increased 8% in the fiscal second quarter from the year-ago quarter.
At Chili’s, domestic comps (including company-owned and franchised) rose 7.5% year over year compared with an 11.5% rise in the prior-year quarter’s levels.
Maggiano’s
Maggiano’s sales rose 19.3% year over year to $140.3 million, primarily due to an increase in the dining room and banquet traffic and a rise in menu pricing. This and growth in off-premise business added to the upside. Comps increased 21.2% year over year. Traffic in the quarter rose 8.4% year over year compared with a gain of 53.3% reported in the prior-year quarter.
Maggiano's company restaurant expenses (as a percentage of company sales) in the fiscal second quarter were 80.1% compared with 82.9% reported in the prior-year quarter. The decrease was primarily due to sales leverage. However, this was partially offset by commodity price inflation, higher hourly wage rates, delivery fees, and repair and maintenance costs.
Operating Results
Total operating costs and expenses in the fiscal second quarter were $978.3 million compared with $886 million reported in the year-ago quarter. The restaurant operating margin, as a percentage of company sales, was 11.6% compared with the 12.1% reported in the prior-year quarter.
Balance Sheet
As of Dec 28, 2022, cash and cash equivalents amounted to $14.7 million compared with $19.5 million as of Sep 28, 2022.
Long-term debt as of Dec 28, 2022, was $1,023.3 million compared with $1,020.8 million as of Sep 28, 2022. Total shareholders’ deficit in the reported quarter was ($267.5) million compared with ($296.6) million reported in the previous quarter.
Fiscal 2023 Outlook
For fiscal 2023, The company anticipates total revenues in the range of $4.05-$4.15 billion. Capital expenditures are expected in the range of $170-$180 million. The company expects fiscal 2023 diluted EPS in the range of $2.60-$2.90.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Brinker International has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Brinker International has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Brinker International is part of the Zacks Retail - Restaurants industry. Over the past month, McDonald's (MCD), a stock from the same industry, has gained 1.7%. The company reported its results for the quarter ended December 2022 more than a month ago.
McDonald's reported revenues of $5.93 billion in the last reported quarter, representing a year-over-year change of -1.4%. EPS of $2.59 for the same period compares with $2.23 a year ago.
For the current quarter, McDonald's is expected to post earnings of $2.29 per share, indicating a change of +0.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +1% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for McDonald's. Also, the stock has a VGM Score of C.
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