Why Is Brinker International (EAT) Down 10% Since Last Earnings Report?

A month has gone by since the last earnings report for Brinker International (EAT). Shares have lost about 10% 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 drivers.

Brinker Q3 Earnings & Revenues Surpass Estimates

Brinker reported third-quarter fiscal 2019 results, wherein top and bottom lines surpassed the Zacks Consensus Estimate.

Adjusted earnings of $1.26 surpassed the consensus mark of $1.20 by 5% and improved 16.7% from the year-ago quarter. Quarterly revenues totaled $839.3 million, which surpassed the consensus mark of $833 million and improved 3.3% on a year-over-year basis. The company’s traffic-building strategies and efforts to capture increased market share have aided top-line growth.

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 $709.8 million in the reported quarter, up 3% from the prior-year quarter. The upside was driven by comps growth.

The brand’s company-owned comps rose 2.9% on account of 3% improvement in traffic, partially offset by a decline of 1.7% in mix. However, the metric remained same as that recorded in the second quarter and compared favorably with a decline of 0.4% in the year-ago quarter.

Comps at Chili's franchised restaurants decreased 0.2% compared with a decline of 2.2% registered in the year-ago quarter and a drop of 0.8% in the second quarter. At international franchised Chili’s restaurants, the same fell 3.9% compared with the secondquarter’s decrease of 6.5% and the year-ago quarter’s decline of 0.2%. Meanwhile, at the domestic franchised units, comps increased by 2% against the year-ago quarter’s decline of 3.3%. However, the figure gained 3.4% in the second quarter.

At Chili's, domestic comps (including company-owned and franchised) grew 2.7% compared with the last quarter’s increase of 3.3%. However, the figure declined 1.1% in the prior-year quarter.

Maggiano's

Maggiano's sales increased 0.2% year over year to $101.8 million primarily due to rise in comparable restaurant sales.

Comps grew 0.4% on a year-over-year flat traffic. Comps had also increased 0.5% in the prior-year quarter.

Operating Results

Total operating costs and expenses jumped roughly 4% to nearly $769.1 million compared with $739.8 million in the year-ago quarter. While the cost of sales margin expanded 30 bps, restaurant labor margin contracted 10 bps year over year.

Restaurant operating margin, as a percentage of company sales, was 14.3% compared with 16.1% in the prior-year quarter.

Balance Sheet

As of Mar 27, 2019, cash and cash equivalents amounted to $12.2 million compared with nearly $13.4 million at the end of Mar 27, 2018.

Long-term debt was $1.2 billion as of Mar 27, 2019, compared with $1.5 billion as of Mar 27, 2018. Total shareholders’ deficit in the reported quarter was $814.2 million compared with $718.3 million as of May 27, 2018.

Management approved a quarterly dividend of 38 cents per share of the company’s common stock in the fiscal third quarter, which is payable Jun 27 to its shareholders of record as on Jun 7.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Brinker International has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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 trending upward for the stock, and the magnitude of this revision looks promising. Notably, Brinker International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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