Market Overview

EAT, Pray, Love

No, not the movie, but the investment mantra if you are a shareholder of Brinker International (NYSE: EAT) this afternoon. The owner of Chili's and Maggiano's reported stronger than expected earnings this morning. As a result, shares are up almost 15% as of the time of this writing.

The company, based in Dallas, reported earnings of 49 cents per share on $717.5 million in revenues for the quarter. This is down 34% from last year, when the company earned 62 cents per share. Nonetheless, the company was able to beat Wall Street estimates, which were 46 cents per share on $709.6 million.

"Brinker's performance in fiscal 2011 demonstrates we're delivering on our promise of strengthening our business model and driving top line sales and traffic growth, especially considering that during the fourth quarter, we were up against an extra operating week from 2010. The strategies we laid out 18 months ago continue to gain traction, driving positive sales and traffic growth that outpaced the bar and grill segment. Looking ahead to fiscal 2012, we'll continue to build on our momentum from 2011 and we're confident we'll achieve our goal of doubling Brinker's earnings per share by 2015," said Doug Brooks, President and Chief Executive Officer.

"The initial investments we've made to improve our overall guest experience resulted in Brinker achieving its fifth consecutive month of positive sales and traffic. And due to our continued focus on operational execution and cost management, restaurant operating margin was flat at 18.3 percent, even though we had one less operating week this year. We look forward to continuing this momentum into fiscal 2012 and delivering long term value to our shareholders," said Guy Constant, Executive Vice President and Chief Financial Officer.

The company also gave guidance for 2012, which was sharply higher than what Wall Street had been expecting. For 2012, Brinker's expects to earn anywhere between $1.80 and $1.95 per share. Wall Street analysts expect $1.77 per share, on average.

Howard Penney, a New York city based restaurant analyst tweeted some thoughts off the conference call, and the company was very positive on the quarter, as well as the outlook going forward.

Some of the highlights from the conference call:

-"61% of commodities are contracted through the end of calendar 2011 about 10% is lower than our typical contracted rate"

-"achieving its fifth consecutive month of positive sales and traffic"

-250 re-imaged restaurants by the end of FY12

-Lunch traffic positive....

At 13.3 times 2012 and sporting a 2.6% dividend yield, shares of Brinker International are not cheap, but are not expensive either. As the company continues to deliver more growth to its Chili's restaurants that are being re-imaged, earnings estimates will be taken up. As such, the price targets are likely to be taken up.

EAT, pray, love. Not exactly the greatest investment mantra of all time, but not bad for a $5 lunch either.

ACTION ITEMS:

Bullish:
Traders who believe that casual dining is on the way back might want to consider the following trades:

  • Aside from Brinker, consider Darden Restaurants (NYSE: DRI), Denny's (NASDAQ: DENN) and DineEquity (NYSE: DIN).

Bearish:
Traders who believe that casual dining is nowhere close to rebounding may consider alternate positions:

  • With oil around $80, it is hard to see casual dining not coming back. However, if economic numbers continue to get worse, then people will stop eating out as much, or will trade down. Names like Wendy's (NYSE: WEN) or McDonald's (NYSE: MCD) could benefit at the expense of the casual dining space.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: Earnings Long Ideas News Guidance Short Ideas Trading Ideas Best of Benzinga

 

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