Brinker International Offers a Pullback Opportunity on EPS Miss

Key Points

• Brinker International, operator of Chilli’s Grill & Bar and Maggiano’s Little Italy restaurants, reported a fiscal Q4 2024 EPS miss after seven consecutive quarters of EPS beats.
• Brinker lowered fiscal full-year 2025 EPS but raised revenue guidance because it expects increased foot traffic to continue. However, labor and repair costs are also expected to rise to meet the demand.
• Brinker reported amazing comparable restaurant-level sales growth of 13.5% YoY, outpacing the industry and competitors such as Texas Roadhouse, Olive Garden, Outback Steakhouse, Chipotle, and Sweetgreen.

Casual dining restaurant operator Brinker International Inc. NYSE: EAT missed its Q2 2024 EPS estimates and provided mixed forward guidance. As expected, this news caused shares to gap down over 10% the following morning. However, investors took the opportunity to buy the dip and continue buying until the stock recovered its losses and returned to where it was before the earnings release. The recovery underscores the one key metric for restaurants that Wall Street pays the most attention to: comparable restaurant sales (comps), also known as same-store sales (SSS).

Brinker International operates in the consumer discretionary sector, competing with casual dining operators like Darden Restaurants Inc. NYSE: DRI, Texas Roadhouse Inc. NASDAQ: TXRH, and Bloomin’ Brands Inc. NASDAQ: BLMN.

Brinker's Company-Owned and Franchised Restaurants

Brinker is best known for its two iconic brands, Chili’s Grill & Bar and Maggiano’s Little Italy. It added a virtual brand called It’s Just Wings, which operates out of existing Chili’s and Maggiano’s kitchens. As of June 26, 2024, the company operated 1,614 total company-owned and franchised restaurants. Brinker owns 1,117 domestic Chili’s, four international Chili's, and 50 Maggiano’s restaurants, for a total of 1,171 company-owned restaurants.

Franchisees own 97 domestic Chili’s, 344 international Chili’s, and two domestic Maggiano’s restaurants. Brinker collects around 4% of gross sales on franchised restaurants, which are operated independently by the franchisees, who license the brand and operating systems. The disparity between company-owned and franchised operations can be rather large due to the more favorable location, budgets, rigorous quality control, and performance standards.

Brinker Outpaces Rivals in YoY Sales Growth, Despite Earnings Miss

While Brinker missed EPS estimates, likely due to incurring more labor expenses due to increased foot traffic, the market focuses more on year-over-year (YoY) comps or SSS growth. Chili’s fiscal Q4 2024 comp sales growth was 14.8% YoY, while Maggiano’s experienced 2.5% YoY comp growth. Total overall comp growth was 13.5% YoY.

This bested competitors like Texas Roadhouse with an impressive 9.3% YoY comp sales in its latest quarter. It also beat fast-casual operators Sweetgreen Inc. NYSE: SG at 9% and Chipotle Mexican Grill Inc. NYSE: CMG at 11.1% YoY comp sales growth. However, the difference is the aforementioned beat both top and bottom-line guidance, whereas Brinker missed EPS expectations. Nonetheless, the robust comp sales attracted buyers on the sell-off to rush into the stock.

EAT Stock Forms a Symmetrical Triangle Pattern

The daily candlestick chart for EAT indicates a symmetrical triangle pattern. This is comprised of a descending upper trendline that started at the $76.02 swing high connecting to the ascending lower trendline that started at $56.27. EAT is attempting to break out through the upper trendline at $69.84, just ahead of the apex. The daily relative strength index (RSI) is rising to the 58-band. Pullback support levels are at $65.82, $60.98, $56.27, and $51.72.

Brinker's EPS Miss Spooks Investors

After seven consecutive quarters of EPS beats, Brinker reported fiscal Q4 2024 EPS of $1.61, missing consensus analyst estimates by 13 cents. Revenues rose an impressive 12.3% YoY to $1.21 billion, beating consensus estimates of $1.17 billion. The operating margin rose to 6.1%, while the restaurant operating margin rose to 15.2%. The company closed the quarter with $64.8 million in cash on hand.

“Big Smasher” Burger Boosts Chili’s Traffic, but Increases Expenses

Comparable restaurant sales at Chili’s rose a whopping 14.8% YoY, primarily due to increased menu prices and higher traffic. The launch of the “Big Smasher” burger, powered by its heavy marketing campaign and viral strength on TikTok, helped drive the comps. The surge in new customers to Chili’s prompted the company to proactively increase restaurant staff and bolster repairs and maintenance costs, which ate into the EPS. It also exceeded the company’s planned targets for annual and long-term performance-based compensation plans, resulting in a $13.2 million increase in general and administrative expenses in Q4 2024.

Brinker Issues Mixed Guidance

Brinker sees fiscal full-year 2025 EPS of $4.35 to $4.75, which is below consensus analyst estimates of $4.80. Full-year 2025 revenues are expected between $4.55 billion and $4.62 billion, beating $4.53 consensus estimates. The company clearly expects the trend to continue, but the added expenses to handle the extra traffic are expected to chew into its earnings.

Brinker CEO Kevin Hochman commented, "We achieved another quarter of solid progress against our strategy to deliver profitable, sustainable growth. We significantly outperformed the industry in both sales and traffic during the quarter, while maintaining record high guest metrics."

Hochman explained the EPS miss, "With significantly increased traffic at Chili's and many guests trying Chili's for the first time, we quickly accelerated investments in labor and the facilities to ensure a great experience."

Brinker International analyst ratings and price targets are at MarketBeat. There are 17 analyst ratings on EAT stock, comprised of seven Buys, seven Holds, and three Sells. Consensus analyst price targets point to $61.85.