Brinker International's (NYSE:EAT) Posts Q2 Sales In Line With Estimates

Radek Strnad /
2024/01/31 6:54 am EST

Casual restaurant chain Brinker International (NYSE:EAT) reported results in line with analysts' expectations in Q2 FY2024, with revenue up 5.4% year on year to $1.07 billion. The company's outlook for the full year was also close to analysts' estimates with revenue guided to $4.33 billion at the midpoint. It made a non-GAAP profit of $0.99 per share, improving from its profit of $0.76 per share in the same quarter last year.

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Brinker International (EAT) Q2 FY2024 Highlights:

  • Market Capitalization: $1.80 billion
  • Revenue: $1.07 billion vs analyst estimates of $1.08 billion (small miss)
  • EPS (non-GAAP): $0.99 vs analyst estimates of $0.95 (4.6% beat)
  • The company reconfirmed its revenue guidance for the full year of $4.33 billion at the midpoint
  • Free Cash Flow of $48.6 million, up from $12.2 million in the previous quarter
  • Gross Margin (GAAP): 14%, up from 12.4% in the same quarter last year
  • Same-Store Sales were up 4.4% year on year
  • Store Locations: 1,658 at quarter end, increasing by 10 over the last 12 months

"Our second quarter marked another quarter of year over year growth with continued margin improvement, driven by our strategy to simplify operations, improve our food, service, and atmosphere, and deploy an effective marketing plan," said Kevin Hochman, Chief Executive Officer and President of Brinker International.

Founded by Norman Brinker in Dallas, Texas, Brinker International (NYSE:EAT) is a casual restaurant chain that operates under the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.

Sit-Down Dining

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Sales Growth

Brinker International is one of the larger restaurant chains in the industry and benefits from a strong brand, giving it customer mindshare and influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 6.3% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre as its restaurant footprint remained unchanged, implying that growth was driven by more sales at existing, established dining locations.

Brinker International Total Revenue

This quarter, Brinker International's revenue grew 5.4% year on year to $1.07 billion, missing Wall Street's expectations. Looking ahead, Wall Street expects sales to grow 3.7% over the next 12 months, a deceleration from this quarter.

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Number of Stores

The number of dining locations a restaurant chain operates is a major determinant of how much it can sell and how quickly company-level sales can grow.

When a chain like Brinker International doesn't open many new restaurants, it usually means there's stable demand for its meals and it's focused on improving operational efficiency to increase profitability. As of the most recently reported quarter, Brinker International operated 1,658 total locations, in line with its restaurant count a year ago.

Brinker International Operating Retail Locations

Taking a step back, Brinker International has kept its locations more or less flat over the last two years compared to other restaurant businesses. A flat restaurant base means Brinker International needs to boost foot traffic and turn tables faster at existing restaurants or raise prices to generate revenue growth.

Same-Store Sales

Brinker International's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 7.7% year on year. Given its flat restaurant base over the same period, this performance stems from increased foot traffic or larger order sizes per customer at existing locations.

Brinker International Year On Year Same Store Sales Growth

In the latest quarter, Brinker International's same-store sales rose 4.4% year on year. By the company's standards, this growth was a meaningful deceleration from the 9.1% year-on-year increase it posted 12 months ago. We'll be watching Brinker International closely to see if it can reaccelerate growth.

Key Takeaways from Brinker International's Q2 Results

We were impressed by how significantly Brinker International blew past analysts' gross margin expectations this quarter. We were also glad its full-year earnings guidance exceeded Wall Street's estimates. However, its revenue unfortunately missed analysts' expectations and its full-year revenue guidance slightly missed Wall Street's estimates. Overall, this quarter's results still seemed fairly positive and shareholders could feel optimistic. The stock is flat after reporting and currently trades at $40.69 per share.

So should you invest in Brinker International right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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