Brinker International’s (NYSE:EAT) Posts Q1 Sales In Line With Estimates

Casual restaurant chain Brinker International (NYSE:)
reported results in line with analysts’ expectations in Q1 FY2024, with revenue up 5.97% year on year to $1.01 billion. The company’s outlook for the full year was also close to analysts’ estimates with revenue guided to $4.31 billion at the midpoint. Turning to EPS, Brinker International made a non-GAAP profit of $0.28 per share, improving from its loss of $0.69 per share in the same quarter last year.

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Brinker International (EAT) Q1 FY2024 Highlights:

• Revenue: $1.01 billion vs analyst estimates of $1.01 billion (small beat)
• EPS (non-GAAP): $0.28 vs analyst estimates of $0.05 ($0.23 beat)
• The company reconfirmed its revenue guidance for the full year of $4.31 billion at the midpoint (raised full year EPS guidance)
• Free Cash Flow of $12.2 million, up 69.4% from the previous quarter
• Gross Margin (GAAP): 11.3%, up from 6.97% in the same quarter last year
• Same-Store Sales were up 5.5% year on year (slight beat vs. expectations of up 5.4% year on year)
• Store Locations: 1,651 at quarter end, increasing by 6 over the last 12 months

“The first quarter results are a great start to the fiscal year and indicate our strategy is working and building momentum,” 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 DiningSit-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 GrowthBrinker 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 6.56% 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.

This quarter, Brinker International grew its revenue by 5.97% year on year, in line with Wall Street’s estimates. Looking ahead, the analysts covering the company expect sales to grow 3.52% over the next 12 months.

Number of StoresA restaurant chain’s total number of dining locations often determines how much revenue it can generate.

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 1,651 total locations, in line with its restaurant count a year ago.

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 has outpaced the broader restaurant sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 9.3% 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.

In the latest quarter, Brinker International’s same-store sales rose 5.5% year on year. This growth was in line with the 5.5% year-on-year increase it posted 12 months ago.

Key Takeaways from Brinker International’s Q1 Results
Sporting a market capitalization of $1.5 billion, Brinker International is among smaller companies, but its more than $14.4 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

Same store sales and revenue were roughly in line with expectations, showing that there were no surprises on the topline. We were impressed by how significantly Brinker International blew past analysts’ EPS expectations this quarter. That really stood out as a positive in these results. On the other hand, its gross margin sadly missed analysts’ expectations. With regards to guidance, full year revenue guidance was reiterated while EPS guidance was raised. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $33.95 per share.

The author has no position in any of the stocks mentioned in this report.