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Brinker International Inc. (EAT), -1.04% shares sank 4.6% in Wednesday premarket trading after the restaurant company reported second-quarter earnings and sales that missed consensus and cut its guidance. Brinker, whose brands include Chili’s Bar & Grill and Maggiano’s Little Italy, reported net income of $34.6 million, or 69 cents per share, down from $47.7 million, or 80 cents per share, for the same period last year. Adjusted EPS was 71 cents, falling short of the 74-cent FactSet forecast. Sales for the quarter totaled $748.7 million, down from $765.7 million last year and missing the $786.0 million FactSet consensus. Systemwide same-restaurant sales fell 3.1% for the quarter. Brinker now sees full-year adjusted EPS in the range of $3.05 to $3.15, and revenue down 2% to 2.5% from the $3.3 billion reported in 2016. The FactSet estimate is for EPS of $3.55 and sales of $3.2 billion. Same-store sales are expected to be down 1.5% to 2.0%, compared with a flat FactSet estimate. Brinker shares are down nearly 4% for the past year while the S&P 500 index SPX, +0.11% is up 21.5% for the same period.
Investors lost their appetite for Brinker International (NYSE:EAT) stock after the operator of restaurant chains Chili’s and Maggiano’s Little Italy was downgraded by JPMorgan Chase. Brinker shares closed 9.7% lower on the day. The Wall Street titan cut its rating on Brinker from “overweight” to “neutral,” saying that the casual-dining chain operator had “exhausted its ability to engineer” shareholder gains. The bank also said it was bearish on the overall restaurant sector. Indeed, much of the restaurant industry, including casual dining, has struggled lately as food deflation has made supermarket prices cheaper, rising labor costs have cut into profits, and competition has increased. In its most recent quarter, Brinker saw comparable sales at company-owned Chili’s restaurants fall by 2.3%. Adjusted earnings per share, meanwhile, decreased from $1.00 to $0.94.
Shares of Brinker International (NYSE: EAT) slipped last year as the Chili’s parent got swept up by the restaurant recession. According to data from S&P Global Market Intelligence Opens a New Window., the stock lost 22% over the year, plagued by comparable sales declines and underwhelming earnings growth. The stock fell consistently through the first three quarters of the year, trading nearly 40% down at one point, but it recovered after a strong earnings report in November and on broader optimism during the holiday season.
Brinker got started off on the wrong foot in January with a weak second-quarter earnings report, pushing the stock down 6.2%. Comparable sales at company-owned Chili’s stores fell 3.3% as traffic dropped 6.5%. As a result, earnings per share dropped to $0.71 from $0.78 the year before, in spite of aggressive share buybacks. Management also lowered its outlook for the year, calling for comparable restaurant sales to fall 1.5%-2% for the year.
The restaurant industry is in the middle of a retrenchment, as casual-dining chains such as Brinker have cut back on new store openings and retooled their menus and experimented with add-ons such as delivery. Chili’s, for instance, has introduced curbside pick-up. While comparable sales and earnings per share continue to decline, there are signs that the restaurant recession is easing and the slowdown in new store openings should help Brinker in 2018. With a revamped menu and strong economic conditions, this year looks as if it should be better for the Chili’s parent than last.
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