Concerns Surface That Brinker Earnings Will Be Pressured By Promotional Pricing, Increased Expenses

While traditionally Brinker International, Inc. EAT has achieved earnings growth on the back of above-peer-average growth in SSS, its comps in recent quarters have become weaker, Argus’s John Staszak said in a report. He maintained a Hold rating on the company, commenting that management now seems to be relying on share buybacks to drive EPS growth.

Brinker reported its F4Q16 revenue at $882 million, representing 15.4 percent y/y growth. The growth was achieved by the acquisition of 103 franchised Pepper Dining restaurants, which offset lower comps at Chili’s and Maggiano’s, analyst Staszak pointed out.

Related Link: Brinker's Q4 Results Beat Modestly, Guidance In Line

“Reflecting a 4.1% decline in restaurant traffic, offset in part by 1.3% more favorable product mix and 1.0% contribution from improved pricing, fourth-quarter same-store sales at company-owned Chili’s in the U.S. fell 1.8%,” Staszak noted.

Maggiano’s posted a 170bps decline in comps, with a 1 percent decline in restaurant traffic and a 2.5 percent negative contribution from product mix.

Earnings Concerns

The company seems to be trying to drive EPS growth by share repurchases, delaying G&A spending and other cost cutting measures. “We are concerned that the company will need to boost G&A spending in the coming quarters, and that competitors’ promotions will require it to lower menu prices. We believe this could weigh on earnings going forward,” the analyst wrote.

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