Brinker (EAT) Misses Q1 Earnings & Revenues, Stock Down

Brinker International, Inc. (NYSE:EAT) posted lower-than-expected first-quarter fiscal 2017 results with both earnings and revenues missing the Zacks Consensus Estimate.

Share price of this Texas-based casual-dining restaurant declined over 5% in yesterday’s trading session following the release.

Earnings and Revenue Discussion

Adjusted earnings of 49 cents per share lagged the Zacks Consensus Estimate of 55 cents by 10.9%. Further, earnings decreased 12.5% year over year due to lower revenues and margins.

Quarterly revenues declined 0.5% year over year to $758.5 million due to lower comps, partially offset by increased restaurant capacity. Company sales decreased 0.4% while franchise and other revenues declined 4.5%. Also, revenues missed the Zacks Consensus Estimate of $779 million by 2.7%.

Comps declined 1.3% in the quarter. However, comps slightly improved sequentially from a 1.8% decline in the prior quarter.

Behind the Headline Numbers

Brinker International primarily engages in the 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

Chili's reported revenues of $648.6 million, down 0.7% year over year.

Chili's company-owned comps fell 1.4% due to a 4.1% decline in traffic partially offset by a 1.5% and 1.2% improvement in mix and price, respectively..Comps compared favorably with the prior-quarter decline of 1.8% and the year-ago comparable period decrease of 1.6%.

Comps at its franchised restaurants went down 0.6% as against 2.2% growth in the year-ago quarter and 3.4% decline in the last quarter.

Traffic at Chilli’s continued to be impacted by overall sluggishness in the industry but the company received positive response in July through new advertising initiatives, the 3 FOR ME value bundle and its Craft Burgers. Meanwhile, restaurants in markets with significant exposure to the energy industry, which constitute about 17% of its system, witnessed a 4.1% decline. However, it improved roughly 40 basis points (bps) from fourth quarter 2016.

Comps declined 0.9% in international franchised Chilli’s restaurants, comparing unfavorably with the year-ago quarter growth of 4.8% but faring much better than the prior quarter decline of 5.5%. Comps in the domestic franchised units fell 1.6% as against growth of 0.8% in the year-ago quarter and fall of 2.1% in the prior quarter.

Domestic comps (including company-owned and franchised) at Chili's declined 1.3%, comparing favorably with the prior quarter decline of 1.8%. We note that comps were down 1.1% in the prior year quarter.

Maggiano's

Maggiano's sales increased 1.6% to $88.8 million. However, though comps were down 0.6%, it compared favorably with a decline of 1.7% in the year ago quarter and in the prior quarter. The decline in the quarterly comps reflected lower category sales and negative mix due to large party dining room performance.

BRINKER INTL Price, Consensus and EPS Surprise

Expenses and Margins

Total costs and expenses increased 1.5% to $717.0 million, mainly due to higher company restaurant expenses.

Cost of sales margin improved 50 basis points, primarily reflecting favorable commodity pricing.

Restaurant labor margin was unfavorable 70 bps in the quarter due to wage rate increase.

Restaurant operating margin, as a percent of company sales, was unfavorable by 130 bps primarily due to seasonality along with higher advertising and labor costs.

Fiscal 2017 Guidance

For fiscal 2017, Brinker maintained its previously issued earnings per share guidance in a range of $3.40 to $3.50.

It expects average shares outstanding to be at the bottom of its previously announced expected range of 50 million to 53 million in fiscal 2017.

Moreover, the company expects comps growth to be in the lower range of its previously issued guidance of 1.5–2% for the full year.

Zacks Rank and Stocks to Consider

Brinker currently carries a Zacks Rank #2 (Buy).

Other favorably ranked restaurant stocks include Potbelly Corporation (NASDAQ:PBPB) , Wingstop, Inc. (NASDAQ:WING) and Domino’s Pizza, Inc. (NYSE:DPZ) . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Potbelly’s current year growth estimate is pegged at 26.7% compared with the industry average of 8.3%.

Wingstop’s current year growth estimate is pegged at 18.1% compared with the industry average of 8.3%.

Domino’s recently posted third-quarter 2016 positive earnings surprise of 6.67%. Over the trailing four quarters it delivered an average positive earnings surprise of 1.39%.

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