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Conclusion: One of the key factors outlined in my Brinker Black Book was the enhancement of EPS growth in FY11 by the resumption of its share repurchase program.  The company’s announcement that it increased its share authorization adds to my confidence that meaningful EPS growth is on the way at Brinker.

One of my primary reasons for being bullish on EAT has always been rooted in the strength of the company’s balance sheet.  Specifically, the company has the financial flexibility to invest behind Chili’s.  To that end, Brinker reaffirmed its financial strength yesterday when its Board authorized an additional $325 million in share repurchases.

Brinker reaccelerated its share repurchase program during the first quarter after completing the refinancing of its debt facility and closing the On The Border transaction in 4Q10.  During the company’s 4Q10 earnings call, management said, “we look forward to returning to a more rapid share repurchase strategy.”  Brinker bought back 5.3 million shares for $92.7 million during the first quarter.  At the end of Q1, approximately $197 million was available under the company’s share repurchase authorizations and subsequent to the end of the quarter; Brinker bought back an additional 4.3 million shares for $83.1 million.

Given the company’s FY11 guidance of $115 to $125 million in free cash flow, combined with the $215 million of cash on the balance sheet at the end of Q1, the company has ample flexibility to continue to buy back shares during the balance of the year.  This accelerated level of share buybacks will enable the company to partially offset any near-term earnings shortfall that could result from a continued slowdown in comp trends at Chili’s.  That being said, I continue to think that comp growth at Chili’s should begin to turnaround come fiscal 3Q11 when the concept will no longer be lapping last year’s “3 Courses for $20” promotion. 

Howard Penney

Managing Director