On Jul 4, 2013, Zacks Investment Research upgraded Brinker International Inc. (EAT) to a Zacks Rank #1 (Strong Buy) based on its upbeat outlook for the full year. Since the release of its third-quarter earnings, its share price has risen about 8.7%.
Why the Upgrade?
Despite a slowdown in the restaurant industry, management expects comparable restaurant sales to increase 2%–3% year over year in fiscal 2013 with a price increase of 1% to 2% at Chili’s. Operating margin is likely to increase as much as 100 bps. In addition, a share repurchase program will also boost earnings growth.
Brinker has outlined a set of initiatives including new kitchen equipment system, an effective marketing strategy and an integrated point-of-sale system to reinvigorate its brands. Its foray into the new pizza category is also a positive for the stock. Extensive refurbishment of units is also in the cards. We expect these schemes to benefit its results in the forthcoming quarters.
On Apr 23, despite registering flat revenues of $742.8 million, Brinker reported third-quarter fiscal 2013 adjusted earnings of 72 cents per share, up 20% year over year and ahead of the Zacks Consensus Estimate by 4.3%. Higher margins and the company’s “Plan to Win” initiative led to this increase. Brinker’s restaurant operating margin expanded 70 basis points (bps) to 17.9%, benefiting from increased margins at two of its segments — Chili's and Maggiano’s.
The restaurateur is expected to report its fourth-quarter earnings on Aug 2, 2013. The Zacks Consensus Estimate at the moment is 75 cents per share which represents more than 20% jump in earnings.
Other Stocks to Consider
Some other players which attained Zacks Rank #1 (strong Buy) this week include Ruth's Hospitality Group Inc. (RUTH), Nautilus Inc. (NLS) and Krispy Kreme Doughnut Inc. (KKD).
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