Brinker International, Inc. EAT reported mixed second-quarter fiscal 2019 results, wherein earnings came in line with the Zacks Consensus Estimate but revenues surpassed the same. Following the results, shares of the company tanked 10.7% on Jan 29 as investors’ sentiment was hurt by dismal international franchise comparable sales at Chili's restaurants. However, the stock has gained 20.6% compared with the industry’s 10.9% growth in a year’s time.
Adjusted earnings of 89 cents per share came in line with the Zacks Consensus Estimate and increased 2.3% on a year-over-year basis. Quarterly revenues totaled $790.7 million, which surpassed the consensus mark of $779 million and improved 3.2% on a year-over-year basis. The company’s traffic-building strategies and efforts to capture increased market share have aided top-line growth.
Let’s take a closer look at the fiscal second-quarter numbers.
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 $640.6 million in the reported quarter, up 2.7% from the prior-year quarter. The upside was driven by comps growth.
The brand’s company-owned comps rose 2.9% on 2.9% improvement in traffic, partially offset by a 0.9% decline in mix. However, the metric compared favorably with increase of 2% recorded in the first quarter and decline of 1.5% in the year-ago quarter.
Comps at Chili's franchised restaurants decreased 0.8% compared with a 1% decline registered in the year-ago quarter and a 0.2% drop in the fiscal first quarter. At international franchised Chili’s restaurants, the same fell 6.5% compared with the last reported quarter’s decrease of 3% and year-ago quarter’s gain of 0.1%. Meanwhile, at the domestic franchised units, comps increased by 3.4% compared to the year-ago quarter’s decline of 1.7% and the fiscal first quarter’s gain of 1.5%.
At Chili's, domestic comps (including company-owned and franchised) grew 3% compared with the last reported quarter’s increase of 1.9% and the year-earlier quarter’s decline of 1.6%.
Brinker International, Inc. Price, Consensus and EPS Surprise
Maggiano's
Maggiano's sales increased 1.5% year over year to $120.9 million primarily owing to rise in comparable restaurant sales.
Comps grew 1.8% on a 1.3% rise in traffic. Comps had also increased by 1.8% in the prior year quarter.
Operating Results
Total operating costs and expenses jumped roughly 4.1% to nearly $741.1 million compared with $712 million in the year-ago quarter. While the cost of sales margin expanded 20 basis points (bps), restaurant labor margin rose 30 bps year over year.
Restaurant operating margin, as a percentage of company sales, was 12.4% compared with 14.9% in the prior-year quarter.
Balance Sheet
As of Dec 26, 2018, cash and cash equivalents amounted to $16.2 million compared with nearly $14.7 million at the end of Dec 27, 2017.
Long-term debt was $1.3 billion as of Dec 26, 2018 compared with $1.5 billion as of Jun 27, 2018. Total shareholders’ deficit in the reported quarter was $855.2 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 second quarter, which is payable Mar 28 to its shareholders of record as on Mar 8.
Zacks Rank & Key Picks
Brinker currently has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same space include Starbucks Corporation SBUX, Wingstop Inc. WING Darden Restaurants, Inc. DRI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Starbucks has reported better-than-expected earnings in the trailing three quarters.
Wingstop long-term earnings are expected to grow by 19.5%.
Darden Restaurants’ current-year earnings are likely to witness an 18.3% growth.
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