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Brinker (EAT) Misses on Q2 Earnings, Cuts View; Stock Down

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

Share price of this TX-based casual-dining restaurant declined over 6% in yesterday's trading session following the release.

Earnings and Revenue Discussion

Adjusted earnings of 71 cents per share lagged the Zacks Consensus Estimate of 75 cents by 5.3%. Further, earnings decreased nearly 9% year over year due to lower revenues and margins.

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Quarterly revenues declined 2.2% year over year to $771 million due to lower comps, somewhat offset by increased restaurant capacity. Company sales also decreased 2.2%, while franchise and other revenues declined 2.6%. Moreover, revenues missed the Zacks Consensus Estimate of $795 million by nearly 3%.

Comps declined 2.9% in the quarter compared with a comps decline of 1.3% in the previous 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 $632.1 million, down 2.9% year over year.

Chili's company-owned comps fell 3.3%, due to a 6.5% decline in traffic partially offset by a 1.8% and 1.4% improvement in pricing and mix, respectively. Comps compared unfavorably with the prior-quarter decline of 1.4% and 2.8% decrease in the year-ago quarter.

Comps at its franchised restaurants went down 3.5% as against 0.9% growth in the year-ago quarter and 0.6% decline in the last quarter.

Comps declined 4.2% in international franchised Chilli's restaurants, as against the year-ago quarter growth of 2.6% and prior-quarter's rise of 0.9%. Comps in the domestic franchised units fell 3% as against decline of 0.1% in the year-ago quarter and fall of 1.6% in the prior quarter.

Domestic comps (including company-owned and franchised) at Chili's declined 3.2%, comparing unfavorably with the prior quarter decline of 1.3%. Comps were down 2.1% in the prior-year quarter.

Maggiano's

Maggiano's sales increased 1.7% year over year to $116.6 million.

Maggiano's comps fell 0.8% in the quarter due to a 2.5% and 0.9% decline in traffic and mix, respectively, partially offset by a 2.6% improvement in pricing. Comps compared unfavorably with the prior-quarter decline of 0.6% but favorably with the year-ago comparable period decrease of 1.8%.

Brinker International, Inc. Price, Consensus and EPS Surprise

Brinker International, Inc. Price, Consensus and EPS Surprise | Brinker International, Inc. Quote

Expenses and Margins

Total costs and expenses decreased 0.5% to $709.5 million.

Cost of sales margin improved 80 basis points, primarily reflecting favorable commodity pricing for chicken and ground beef, partially offset by higher avocado cost.

Restaurant labor margin was unfavorable 90 bps in the quarter primarily due to wage rate increase and higher employee health insurance cost.

Restaurant operating margin, as a percent of company sales, was unfavorable by 100 bps.

Fiscal 2017 Guidance

The company slashed its fiscal-2017 adjusted earnings per share projection to reflect the impact of lower category sales than originally planned. It now expects earnings in the range of $3.05 to $3.15 compared with $3.40-$3.50 guided previously. Notably, the Zacks Consensus Estimate for fiscal-2017 earnings stands at $3.33.

Moreover, the company expects comps growth to be down in the range of 1.5-2% for the full year. Restaurant operating margin is now estimated to be down roughly 90 bps year over year on a 52-week basis.

Zacks Rank & Stocks to Consider

Brinker currently has a Zacks Rank #4 (Sell). Better-ranked stocks in this sector include Dave & Buster's Entertainment, Inc. PLAY) , Wingstop Inc. WING and Papa John's International Inc. PZZA . While Dave & Buster's sports a Zacks Rank #1 (Strong Buy), Wingstop and Papa John's carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

The Zacks Consensus Estimate for Dave & Buster's fiscal 2017 earnings climbed 6.2% over the last 60 days. The company's earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 37.81%.

Wingstop's posted positive earnings surprise in each of the last four quarters, with an average beat of 11.99%. Meanwhile, for 2016, EPS is expected to improve 21.3%.

Papa John's earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 11.31%. Further, for 2016, EPS is expected to grow 20.3%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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