Growth is still on the menu at Brinker International (NYSE: EAT ) . The company behind Chili's, Macaroni Grill, and other casual-dining concepts posted fiscal second-quarter profits from continuing operations before special items of $0.40 a share. That clocked in a penny ahead of Wall Street's consensus appetite, and stacks up nicely against the $0.31 a share Brinker earned a year earlier.
Unfortunately, reality isn't as rosy as that 29% spurt in per-share profitability would seem to suggest. For starters, the company has been wolfing down shares outstanding through buybacks and a poorly executed Dutch auction. Income from continuing operations actually rose just 12% higher, divided by fewer shares outstanding to create meatier bottom-line growth. Share buybacks are a good thing, but investors can't fall for the inflated per-share figures as sustainable.
Brinker's real problem rests a few lines higher on the income statement. Revenues inched just 6% higher, despite robust expansion through new company-owned and franchised locations. In a troubling trend, all four of the company's chains posted lower comps for the quarter and for the month of December. Yes, even the smaller On the Border and Maggiano's Little Italy eateries failed Brinker, leading to a company-wide 2.1% slide in same-unit sales for the quarter.
Sure, it's great to see a company grow earnings at a faster clip than its revenues. What investors need to do, though, is keep watching those comps, because if Brinker's restaurants continue to fall out of favor, it will ultimately impact the bottom line.
This isn't a problem at other casual-dining chains. Cheesecake Factory (Nasdaq: CAKE ) posted a 0.8% gain at the unit level for the quarter. Ruby Tuesday's (NYSE: RI ) quarter ended three weeks earlier than Brinker's, yet it posted a mere 0.2% decline in comps. For the month of December, Darden (NYSE: DRI ) posted an 8% uptick in comps at Red Lobster, with marginally positive improvement at Olive Garden. Applebee's (Nasdaq: APPB ) also closed out last month in the black.
So go ahead and give Brinker a round of applause for its operating prowess. Now it's time to see what the company can cook up to get the hungry back into its restaurants. That's important, because you can't squeeze more out of an empty table.
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Longtime Fool contributor Rick Munarriz loved when NBC's The Office hosted the Dunder-Mifflin awards inside a Chili's last year. He does own shares in Cheesecake Factory. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
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