A month has gone by since the last earnings report for Brinker International (EAT). Shares have lost about 2.3% 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 the most recent earnings report in order to get a better handle on the important drivers.
Brinker's Q3 Earnings and Revenues Surpass Estimates
Brinker International reported third-quarter fiscal 2023 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis. The upside was primarily driven by improved dine-in traffic, increased menu pricing and a favorable menu item mix.
Earnings & Revenue Discussion
In the quarter under review, Brinker reported adjusted earnings per share (EPS) of $1.23, surpassing the Zacks Consensus Estimate of $1.17. In the prior-year quarter, the company reported an adjusted EPS of 92 cents.
In the fiscal third quarter, total revenues of $1,083.2 million beat the Zacks Consensus Estimate of $1,072 million. The top line increased 10.5% on a year-over-year basis. The company gained from the solid performance of Chili's and Maggiano's.
Chili’s revenues in the fiscal third quarter increased 9.5% year over year to $963.4 million. The upside was primarily driven by increased menu pricing, higher dine-in traffic and a favorable menu item mix. However, this was partially offset by lower off-premise traffic.
Chili's company restaurant expenses (as a percentage of company sales) in the fiscal third quarter came in at 86.8% year over year compared with 86.9% reported in the prior-year quarter. The downside was primarily due to sales leverage. This was partially offset by a rise in commodity costs, repair and maintenance expenses, manager salary expenses, hourly wage rates and rent and utilities expenses.
Chili's company-owned traffic in the quarter declined 5.8% year over year against a 2.1% growth reported in the prior-year quarter.
The segment’s company-owned comps increased 9.6% in the fiscal third quarter from the year-ago quarter’s levels.
At Chili’s, domestic comps (including company-owned and franchised) rose 9.1% year over year compared with a 9.9% rise in the prior-year quarter’s levels.
Maggiano’s sales rose 18.8% year over year to $119.8 million, primarily due to an increase in the dining room and banquet traffic and a rise in menu pricing. Comps in the segment increased 21.6% year over year. Traffic in the quarter rose 9.5% year over year compared with a rise of 28.9% reported in the prior-year quarter.
Maggiano's company restaurant expenses (as a percentage of company sales) in the fiscal third quarter were 85.1% compared with 86.9% reported in the prior-year quarter. The downside was primarily due to sales leverage. However, this was partially offset by commodity price inflation, higher hourly wage rates, delivery fees and repair and maintenance costs, property taxes and utilities.
Total operating costs and expenses in the fiscal second quarter were $1,019 million compared with $931 million reported in the year-ago quarter. The restaurant operating margin, as a percentage of company sales, was 13.4% compared with the 13.1% reported in the prior-year quarter.
As of Mar 29, 2023, cash and cash equivalents amounted to $13.8 million compared with $14.7 million as of Dec 28, 2022.
Long-term debt as of Mar 29, 2023, was $930.7 million compared with $1,023.3 million as of Dec 28, 2022. Total shareholders’ deficit in the reported quarter was ($210.3) million compared with ($267.5) million reported in the previous quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
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.
Brinker International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Brinker International is part of the Zacks Retail - Restaurants industry. Over the past month, Chipotle Mexican Grill (CMG), a stock from the same industry, has gained 2.4%. The company reported its results for the quarter ended March 2023 more than a month ago.
Chipotle reported revenues of $2.37 billion in the last reported quarter, representing a year-over-year change of +17.2%. EPS of $10.50 for the same period compares with $5.70 a year ago.
Chipotle is expected to post earnings of $12.12 per share for the current quarter, representing a year-over-year change of +30.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Chipotle. Also, the stock has a VGM Score of C.
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