EAT Brinker International Inc

Brinker International Inc. (EAT) has recently reported fourth quarter 2011 adjusted earnings per share of 48 cents, surpassing the Zacks Consensus Estimate by a penny. Earnings were also above 44 cents reported in the prior-year quarter.

On a GAAP basis, the owner of Chili’s Grill & Bar and Maggiano's Little Italy has reported fourth quarter earnings of 49 cents per share versus 42 cents posted in the year-ago quarter.

In fiscal 2011, adjusted and GAAP earnings in the quarter were 1.52 and 1.53, respectively, as against $1.15 and 1.01 in the prior fiscal year.

Total revenue dropped 3.4% year over year to $717.5 million due to a 7.5% decrease in capacity given an extra operating week in the fourth quarter of fiscal 2010. However, the quarter’s revenue strode past the Zacks Consensus Estimate of $707 million. In fiscal 2011, total revenue declined 3.4% to $2.8 billion.

However, same-restaurant sales at company-owned restaurants increased 2.6% on the back of a respective 2.1% 5.7% growth at Chili's and Maggiano's.  

Quarter Performance

Chili's Grill & Bar restaurant reported total revenue of $603.9 million, down 4.7% year over year due to tough comparisons resulted from an additional week in the prior year. However, higher guest traffic and increased menu prices provided a partial offset. Maggiano's sales were $96.1 million in the quarter. Royal and franchise revenue went up 4.8% to $17.5 million.

Chili's Grill & Bar restaurant experienced a 2.1% rise in traffic, while Maggiano's restaurant traffic increased 5.8%.

Comparable-restaurant sales at franchised restaurants grew 3.1% from the prior-year quarter on same-restaurant sales upside of 1.5% at franchised domestic restaurants and 7.7% at international restaurants.

Restaurant operating margin was flat year over year at 18.3%. Margin at Chili’s declined slightly due to higher restaurant manager bonuses and vacation expense offset somewhat by labor savings initiatives and favorable cost of sales from an improved product mix. Restaurant margin at Maggiano's improved mainly on decreased restaurant labor.

The Dallas-based restaurant pointed out that its tax rate was 28.9% during the quarter as compared with 24.3% in the fourth quarter of 2010.

Financial Position

At quarter end, the company had current assets of $221.4 million and shareholder equity of $438.9 million. During the fourth quarter, the company repurchased 2.5 million shares for approximately $62.9 million.

Outlook

Brinker reaffirmed its adjusted earnings guidance range of $1.80 to $1.95 for fiscal 2012. The company continues to expect full-year revenues and comparable-restaurant sales to increase 2–3% year over year.

Capital expenditure is estimated between $155 and $165 million for 2012.

Unit Update

At the end of the fourth quarter, Brinker had 1,579 restaurants, of which 1,299 were Chili’s, 44 were Maggiano's and 236 were international. Among international, franchise restaurants by brand were 235 Chili's and one Maggiano's.

Our Take

Brinker’s earnings increased, but revenues declined. However, Brinker is repositioning its Chili’s brand to offset the declining sales momentum and record more sustainable and stable growth. Additionally, the company is making efforts to expand its margins through disciplined cost management. Additionally, the company is boosting shareholder value through share repurchase activity as well as dividend payment.

Wendy’s currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of the peers of Brinker, The Wendy’s Co. (WEN) posted second quarter 2011 adjusted earnings of 5 cents per share which matched our estimate.

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