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Why Is Brinker International (EAT) Down 16.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Brinker International (EAT). Shares have lost about 16.4% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Brinker Earnings & Revenues Match Estimates in Q1

Brinker reported first-quarter fiscal 2022 results, wherein both earnings and revenues matched the Zacks Consensus Estimate. However, both the metrics improved year over year. The company benefited from robust performance of Chili's and Maggiano's.

Earnings & Revenue Discussion

The company’s adjusted earnings per share was 34 cents, in line with the Zacks Consensus Estimate. Brinker had reported an adjusted earnings of 28 cents in the year-ago quarter.

Quarterly revenues of $876.4 million matched the consensus mark. The top line improved 18.4% on a year-over-year basis.

Chili's

Chili’s revenues in the fiscal first quarter jumped 14.7% year over year to $787.6 million, primarily owing to increase in dining room sales and traffic at the company’s franchise restaurants.

Chili's company restaurant expenses (as a percentage of company sales) in the fiscal first quarter increased to 89.4% year over year from 87.5%. The increase was primarily due to rise in restaurant labor costs, which include wage rates, training and overtime. Higher repairs and maintenance expenses, and increase in utilities expenses also drove expenses. Traffic in the quarter under review climbed 9.4% year over year.

In first-quarter fiscal 2022, company-owned comps advanced 17% year over year, against a decline of 10.9% in the year-ago quarter. The segment’s company-owned comps increased 13.4% in the fiscal first quarter, compared with the same period in 2021.

Comps at Chili's franchised restaurants increased 23.1% against a decline of 11.5% in the year-ago quarter. At international franchised Chili’s restaurants, the same surged 32% versus the year-ago quarter’s decrease of 21.9%. Meanwhile, at the U.S. franchised units, comps climbed 17.8% against the year-ago quarter’s slump of 5.6%.

At Chili's, domestic comps (including company-owned and franchised) climbed 13.8% year over year against the prior-year quarter’s decline of 7%.

Maggiano's

Maggiano's sales surged 65.7% year over year to $88.8 million, primarily due to increase in dining and banquet room sales, and higher delivery sales. The upside, however, was offset by decrease in To-Go sales. Comps increased 62.6% year over year. Traffic in the quarter rose 39.1% year over year.

Maggiano's company restaurant expenses (as a percentage of company sales) in the fiscal first quarter came in at 91.4%, compared with 100.2% in the prior-year quarter. The decrease was primarily due to sales leverage and lower To-Go supplies expenses. Nevertheless, the downside was negated by increased restaurant labor costs including training, wage rates, overtime and manager bonuses, higher repairs and maintenance expenses.

Operating Results

Total operating costs and expenses contracted to $850.8 million from $715.7 million in the year-ago quarter. Restaurant operating margin — as a percentage of company sales — was 10.4% compared with 11.6% in the prior-year quarter.

Balance Sheet

As of Sep 29, 2021, cash and cash equivalents amounted to $31.2 million compared with $58.8 million as on Sep 23, 2020.

Long-term debt was $999.7 million as of Sep 29 30, 2021, compared with $917.9 million on Jun 30, 2021. Total shareholders’ deficit in the reported quarter was ($325.5) million compared with ($303.3) million as of Jun 30, 2021.

Fiscal 2022

The company has reaffirmed its fiscal 2022 guidance, which was released on Aug 18. It continues to anticipate net revenues in the range of nearly $3.75 billion to $3.85 billion. Earnings per share are anticipated to be between $3.50 and $3.80.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -25.37% due to these changes.

VGM Scores

At this time, Brinker International has a strong Growth Score of A, 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 quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. It's no surprise Brinker International has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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