What Makes Brinker International Better Than Its Peers?

The company again posted positive same-store sales and much higher profit. With little differentiation between its casual-restaurant concepts and others', what makes Brinker more successful?

May 3, 2014 at 8:30AM

The last quarter of 2013 was a tough one for many casual restaurants, though Brinker International (NYSE:EAT) fared better than most. In the just-ended period, the company seems to have maintained its respectable earnings performance, coming in right around where analysts had expected it. Brinker may not be a household name, but its two chief properties, Chili's and Maggiano's, certainly are. The no-brainer casual restaurant concept of the 1990s and early 2000s is under fire these days, as evidenced by many of Brinker's peers. So what is it that Brinker does to keep the numbers positive and achieve forward momentum? From the looks of it, a steady increase in prices and trend toward franchised stores is leading the charge. 

Decent results
To be clear, Brinker's results were by no means amazing. This is not a business experiencing the same kind of tailwinds as some quick-service restaurants and trendy chains. But when compared to its most similar peers, such as Darden Restaurants' Olive Garden (which cannot seem to plug the customer drain at the bottom of its locations), Brinker's positive trends are encouraging.

Traffic at Chili's was down in the quarter by about 1.2%, even though the franchise ultimately netted a 0.7% same-store sales gain. Compensating for the fewer customers was a higher average check and product mix. Maggiano's posted more anemic figures -- up just 0.2% and held back by a 0.9% drop in traffic. International Chili's locations as well as Maggiano's in its entirety marked the 17th quarter in a row of positive same-store sales. While this quarter's gains weren't thrilling, the collective gains over a four-year period are worth paying attention to.

Investors may have gawked at the 16.7% jump in adjusted earnings per share, though keep in mind that Brinker has steadily bought back shares throughout its fiscal year -- nearly $200 million worth, year to date. The company did improve its operating margins, which was also partially responsible for the substantial EPS jump.

The good, the bad
Franchise businesses are great. They require less up-front capital for expansion and generally encourage healthier margins than their company-owned brethren. In Brinker's last quarter, franchise fees rose more than 6%. There is significant potential here, as the company has only a fraction of its restaurants under the franchise model. To illustrate, Chili's company-owned stores accounted for $645.8 million in sales this past quarter. Brinker's total franchisee revenue was only $414 million, with the company's take coming in just shy of $20 million.

On the less appealing end of things is the fact that Brinker trades at nearly 16 times forward earnings and is not growing at a rate that justifies the multiple. For some, this doesn't matter, but price-conscious investors will not find much here for them. Average estimates for full-year 2014 earnings come in at $2.74, with the next year's at $3.14 per share -- a year-over-year rate of 14.5%. That's certainly not bad in isolation, but keep in mind some of this earnings growth will come in the form of share buybacks. Revenue is due to climb just 3.4% over the same period.

Brinker is doing better than many of its peers, and its chains have found a way to remain relevant in today's extremely challenging casual-restaurant landscape. While the company isn't necessarily a buy today, it is certainly one to keep an eye on in the long run.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Michael Lewis has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers