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Brinker 2Q In Line, Revs Up - Analyst Blog

Posted
1/23/2013 9:27:00 AM
By: Zacks.com
Referenced Stocks:AFCE;CAKE;EAT;KKD

Brinker International Inc. ( EAT ) recently reported second-quarter fiscal 2013 adjusted earnings of 50 cents per share, up 6.4% from the year-ago quarter. The annual surge in the earnings was due to the company's higher margins.

The earnings in the quarter were at the higher end of the company's guidance range of 48-50 cents per share and it was in line with the Zacks Consensus Estimate.

Revenue

During the quarter, revenue has increased 1.2% year over year to $689.8 million, driven by system-wide comparable restaurants sales growth of 1.5%. The revenue during the quarter missed the Zacks Consensus Estimate of $693 million.

The company has previously stated that its comparable restaurants sales growth in second-quarter fiscal 2013 will be at or below 2%-3% owing to slow, industry sales and reduced consumer spending.

Based in Dallas, Texas, Brinker International primarily engages in the ownership, operation, development and franchising of various restaurant brands under the names of Chili's Grill & Bar (Chili's) and Maggiano's Little Italy (Maggiano's).

Chili's Grill & Bar restaurant reported revenues of $563.3 million, up 1.2% year over year. The rise was due to the increased pricing and favorable mix-shift. Comparable restaurant sales at Chili's Grill & Bar restaurant rose 1.0%.

Maggiano's sales increased 0.6% to $105.8 million in the quarter, buoyed by effective pricing and mix. Same-restaurant sales at Maggiano's inched up 0.6% for the 12th time owing to the 2.3% escalation in menu price and 0.7% favorable mix-shift. However, it was adversely impacted by a 2.4% traffic decline.

Franchise and Other revenue surged 2.0% to $20.6 million, owing to the rise in royalty revenues. Comparable restaurant sales at franchised restaurants were 2.4%, aided by 2.2% and 2.7% growth in franchised domestic and international comparable restaurant sales, respectively.

Margins

Restaurant operating margin increased annually by 30 basis points (bps) to 15.7%.

Restaurant margins at Chili's Grill & Bar expanded on higher cost of sales. Restaurant margin at Maggiano's also improved, mainly on better cost of sales neutralizing the increased workers' compensation insurance costs.

Liquidity Position

At the end of second quarter of 2013, the company had current assets of $262.6 million versus $190.6 million in the prior quarter. Shareholders' equity amounted to $252.9 million, down from $268.1 million at the end of the previous quarter.

Share Repurchase & Dividend

During the quarter, the company bought-back 1.5 million shares worth $45.1 million.

During the quarter, the company paid its regular quarterly dividend of 20 cents per share.

Unit Update

During the quarter, the company opened seven international franchise restaurants and closed one franchise-owned Chili's restaurant. At the end of the quarter, Brinker operated 1,593 restaurants, of which 1,275 were Chili's, 44 were Maggiano's and 274 restaurants belonged to the international market.

Outlook

The company has maintained its guidance for fiscal 2013. The company expects adjusted EPS in the range of $2.30-$2.45, up 17% to 25% y/y. The targeted growth is expected to come from 2%-3% same-store sales gains, operating margin improvement of 100 bps and share count reduction of approximately 6%. Diluted weighted average shares outstanding are projected between 74 to 76 million in fiscal 2013.

Despite 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.

Franchise revenues are anticipated to increase in the mid-single digits range, benefiting from the expansion of the restaurant base.

The company expects to open nearly 32 to 37 international franchise restaurants in fiscal 2013 with two new restaurants under Chili's brand.

Brinker currently retains a Zacks Rank #3 (Hold). Moving ahead, retail restaurateurs, which are expected to perform well, include The Cheesecake Factory Incorporated ( CAKE ), Krispy Kreme Doughnuts Inc. ( KKD ) and AFC Enterprises Inc. ( AFCE ). All these stocks carry a Zacks Rank #2 (Buy).



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