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Is It Time to Dine on Brinker?

Back in April, my Foolish colleague Rick Aristotle Munarriz said that Brinker's (NYSE: EAT  ) comparable same-store sales would have to improve for investor confidence to return. Well, we now have the restaurateur's latest quarterly figures, and it looks like the company again came up short of comps growth for the fourth period. There may be a small glimmer of hope, however, as comps did see a noticeable improvement in the month of July. Let's take a closer look at what's going on with Brinker.

None of its four brands fared well in Q4 in terms of comps performance. Chili's, Macaroni Grill, On the Border, and Maggiano's all saw comps decline against the comparable period from a year ago. In the company's Q4 earnings conference call, CEO Doug Brooks blamed the weak sales on what he described as a "tough operating environment for the restaurant industry."

It is true that other casual diners are feeling the pinch from rising commodity costs and high fuel prices, as well as general economic uncertainties. Applebee's (Nasdaq: APPB  ) , Ruby Tuesday (NYSE: RI  ) , and O'Charley's (Nasdaq: CHUX  ) have each struggled in recent months. But we should also note that not every casual diner has suffered. Texas Roadhouse (Nasdaq: TXRH  ) for example, actually managed to increase comps despite these same challenges.

In light of this, I am more comfortable placing the blame for weaker sales on both a challenging environment and poor company performance. To further back up my case, we can look at Chili's comparable same-store sales in the month of July, which were higher by 2% than those in July 2006. What's the difference? Well, the economic environment really didn't change all that much in July, did it? Not really. In fact, one could argue that with increased credit worries hitting the market in recent weeks, there is greater economic uncertainty now than even a couple of months ago.

The difference for Chili's is twofold: It increased menu prices by 2% to offset increased commodity pressures, and it refreshed its menu options, which guests appear to be digging. Management revealed in the call that the menu items have been very well-received, exceeding even their own expectations.

Looking out into 2008, management is calling for comps growth of 2% to 2.5%, suggesting perhaps that July was more than an anomaly. Is it time, then, for Fools to dine on this investment opportunity? With improving comps and a renewed focus on Chili's expansion (which will get a nice boost of capital if management can find a suitor to purchase its Macaroni Grill concept), Brinker is looking more attractive now than at any other time in 2007.

The Motley Fool's newest investment advisory service, CAPS -- a community made up of more than 60,000 individual investors from all over the world -- gives Brinker a two-star rating (out of five). What's your call on the company? Join CAPS and offer your pick -- it's fun, and it's free! 

Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.

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