Brinker International, Inc. (EAT) is on the Hedgeye Restaurants LONG bench.
HEDGEYE OPINION
Brinker International, Inc. (EAT) reported disappointing earnings numbers today, with both company and franchise owned restaurants missing revenue estimates (Company $737.4mm vs consensus $753.5mm; Franchise $21.1mm vs consensus $22.8mm).
With regard to same store sales, company owned stores missed (see below), and domestic Chili’s franchises missed (see below), but International franchises beat estimates (+0.9 vs CM +0.2).
Going forward, there is better news ahead from a more aggressive customer experience facelift, seemingly aimed at attracting more millennial consumers. CEO, Wyman Roberts, expressed unbridled optimism when talking about the perceived upside their beer tap expansion would have on strengthening the brand and differentiating Chili’s within the category. In addition, aggressive marketing will be put behind their To-Go business, which grew by more than 5% this quarter.
Lastly, the company is tracking to positive same store sales in 2Q17.
NOTABLE COMPANY THOUGHTS
"We remain optimistic about our growth plans despite a choppy Q1 and are seeing traction with stronger comparable restaurant sales for Chili's in October. In Q1, the casual dining category was more challenging than we anticipated, but we are gaining share and are rolling out multiple growth platforms (craft beer taps, happy hour, To Go, Plenti points for My Chili's Rewards loyalty program) that we expect will build through H2 and beyond," (Wyman Roberts, CEO and President)
HEDGEYE – The craft beer program is EAT’s way of attracting Millennials, but seems like a short term solution to a larger issue.
“Chili’s Bar has been a big relevance play for the brand’s future growth and we continue to see positive results of our efforts here. During the quarter, we doubled the number of beer taps in about half of our restaurants. Now we are offering local craft beers on tap, making Chili's a more relevant player in the bar space,” (Wyman Roberts, CEO and President)
HEDGEYE – With the expansion of beers on tap being a recent play, it is hard to get a read on the effect it has had on traffic. Therefore, the “relevancy” of the initiative will be clearer in 2Q17 and beyond.
In response to a question regarding whether the improvement in their Texas stores was due to the new craft beer program or a bigger economic reason: “Craft beer could certainly be helping, and we know that happy hour when we rolled it out last year was a help to traffic in Texas. Of the markets showing sequential improvement, a good portion of those are in Texas. A matter of fact, the majority are in Texas and some in Louisiana and Oklahoma. So I think it's a combination of items.”
HEDGEYE – We will be exploring the trends in Texas more closely!
QUICK COMPS
Same Store Sales
- Total (1.3%) vs. consensus (0.2%)
- Chili’s (1.4%) vs. consensus (0.3%)
- Maggiano’s (0.6%) vs. CM +0.4%
Traffic
- Company Owned
- Chili’s (4.1%) vs CM (2.7)
- Chili’s Franchise
- Domestic (1.6%) vs CM (0.5%)
- International +0.9% vs CM +0.2%
- Total Chili’s Domestic (1.3%) vs. year-ago (1.1%)
- Total System (1.1%) vs year-ago (0.5%)
Revenue:
- Company: $737.7mm vs. consensus $753.5mm
- Franchise: $21.1mm vs. consensus $22.8mm
- Costs of Sales: 26.1% vs. consensus 25.6%
- Restaurant margin 13.3% vs. consensus 13.9%
- G&A 4.4% vs. consensus 4.9%
FY17 Outlook:
- Comp sales growth of 1.5%-2.0%
- Adjusted EPS of $3.40- $3.50
- Expect weighted average share count to be near the bottom of $50mm - $53mm range
- Project 35 – 40 new openings internationally for the full year (Recently signed a development agreement with a new partner in Bolivia, expanded the development agreement in Mexico, and are progressing with opportunities for development in new countries
Please call or e-mail with any questions.
Howard Penney
Managing Director
Shayne Laidlaw
Analyst
