Brinker (EAT) builds on expansion efforts amid high debt




Brinker International, Inc. EAT should benefit from its expansion plan and sales development initiatives. In addition, the company’s renovation program is auspicious.

Over the past six months, Brinker shares have gained 62.6% compared to the industry’s 10.8% growth. Additionally, an upward revision to earnings estimates for fiscal 2021 reflects analyst optimism about the company’s growth potential. Over the past 30 days, Zacks’ consensus estimate for fiscal 2021 earnings has risen 0.4% to $ 2.54 per share.

However, high debt levels and the market slowdown caused by the pandemic remain a concern.

Growth factors

Brinker has grown its business despite the economic crisis, particularly in faster growing emerging markets. The company seeks to expand into international markets as well as to penetrate new ones. During fiscal years 2018, 2019 and 2020, the company opened 34, 23 and 31 restaurants respectively worldwide. In the first and second quarters of fiscal 2021, it opened seven and three restaurants, respectively. Nonetheless, the company plans to open 17-20 restaurants in fiscal 2021.

Additionally, Brinker remains consistent in its goal of driving traffic and revenue through a range of sales development initiatives such as menu rationalization and innovation, strengthening of its value proposition, better food presentation. , advertising campaigns, optimization of the kitchen system and the introduction of a better service platform.

Over the past few years, Brinker has taken on redesign and redesign initiatives which have resulted in improved sales. He is constantly investing in re-branding his brand, which will drive more traffic over the next three years.

Digitally, the company has implemented various features on its online platforms to increase sales and boost customer services. Additionally, Brinker uses social media platforms and email databases to educate customers and increase traffic. These initiatives are likely to contribute significantly to Brinker’s business in the near future.

Concerns

In the second quarter of fiscal 2021, the compositions of Chili’s Grill & Bar and Maggiano’s Little Italy restaurants were negatively impacted by dining room closures and capacity limitations due to increased cases of COVID- 19. In addition, Brinker is witnessing a weak sales trend at Maggiano’s.

In the second fiscal quarter, Maggiano’s sales fell 49% year-over-year to $ 64.3 million, mainly due to lower restaurant sales due to the COVID outbreak -19. Maggiano’s restaurant spending (as a percentage of company sales) in the fiscal second quarter was up 94.5% from 83.3% in the previous year’s quarter. The increase is primarily due to deleveraging from sales and high expenses related to delivery and supplies costs, unfavorable menu item mix, unfavorable commodity prices and higher insurance expenses.

In particular, the high debt remains a concern for Brinker. Long-term debt as of December 23, 2020 was $ 1,134.6 million, compared to $ 1,158.3 million as of September 23, 2020. The company’s debt-to-capitalization ratio was 164.3% vs. 167.1% at the end of September 23, 2020. The company ended the quarter with cash and cash equivalents of $ 64.1 million, which may not be enough to handle the high level of debt. .

Zack Rank

Brinker – who shares space with Jack in the Box Inc. JACK, BJ Restaurants, Inc. BJRI and Chipotle Mexican Grill, Inc. CMG in Zacks’ Retail – Restaurants – currently carries a Zacks Rank 3 (pending). You can see The full list of today’s Zacks # 1 Rank (Strong Buy) stocks here.

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