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Brinker International (EAT) Up 14.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Brinker International (EAT - Free Report) . Shares have added about 14.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Brinker International due for a pullback? 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 catalysts.

Brinker's Q4 Earnings Beat, Revenues Miss Estimates

Brinker reported mixed fourth-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. With this, the bottom line outpaced the consensus mark for the second straight quarter, while the top line fell short of the same after registering a beat in the preceding two quarters.

Adjusted earnings came in at $1.36, which surpassed the Zacks Consensus Estimate of $1.35 and improved 14.3% from the year-ago quarter. Quarterly revenues totaled $834.1 million, which missed the consensus mark of $836 million but improved 2.1% on a year-over-year basis. The company’s traffic-building strategies and efforts to capture increased market share have aided the top line.

Brand Performances

Brinker primarily engages in ownership, operation, development and franchising of various restaurant brands under the names Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s).

Chili's

Revenues at Chili’s totaled $701.9 million in the reported quarter, up 2% from the prior-year quarter. The upside was driven by comps growth and rise in To Go sales.

The brand’s company-owned comps rose 1.5% on account of a 3.9% increase in pricing, partially offset by a decline of 1% in mix and a 0.5% decrease in traffic. In third-quarter fiscal 2019, company-owned comps rose 3%.

Comps at Chili's franchised restaurants inched up 0.4% against a decline of 1.4% registered in the year-ago quarter and a drop of 0.2% in the third quarter. At international franchised Chili’s restaurants, the same fell 0.5% compared with the third quarter's decrease of 3.9% and the year-ago quarter’s decline of 2.9%. Meanwhile, at the U.S. franchised units, comps increased by 0.9% against the year-ago quarter’s decline of 0.6%. However, in third-quarter fiscal 2019, the metric rose 2% year over year.

At Chili's, domestic comps (including company-owned and franchised) grew 1.3% compared with the last quarter’s increase of 2.7%. Moreover, the figure inched up 0.3% in the prior-year quarter.

Maggiano's

Maggiano's sales decreased 0.3% year over year to $102.9 million primarily due to decline in comparable restaurant sales.

Comps dropped 0.2% on a 1.3% decline in traffic. Comps had increased 0.4% in the prior-year quarter.

Operating Results

Total operating costs and expenses jumped roughly 3.1% to nearly $770.1 million compared with $746.7 million in the year-ago quarter. Restaurant operating margin, as a percentage of company sales, was 14.9% compared with 15.9% in the prior-year quarter.

Balance Sheet

As of Jun 26, 2019, cash and cash equivalents amounted to $13.4 million compared with nearly $10.9 million at the end of Jun 27, 2018.

Long-term debt was $1.2 billion as of Jun 26, 2019, compared with $1.5 billion as of Jun 27, 2018. Total shareholders’ deficit in the reported quarter was $778.2 million compared with $718.3 million as of Jun 27, 2018.

Management approved a quarterly dividend of 38 cents per share of the company’s common stock in the fiscal fourth quarter, which is payable Sep 26 to its shareholders of record as on Sep 6.

2020 Guidance

Brinker expects to acquire 116 Chili's restaurants in the first quarter of fiscal 2020 from its franchisee — ERJ Dining. The impact of this acquisition has been included in fiscal 2020 guidance.  For the fiscal year, Brinker expects revenues to increase in the range of nearly 9-10%. Comps are anticipated to increase within the 1.75-2.5% band. However, restaurant operating margin is expected to contract 20 bps year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -8.04% due to these changes.

VGM Scores

At this time, Brinker International has an average Growth Score of C, though it is lagging a bit 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 has been net zero. Notably, Brinker International has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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