Brinker International (NYSE: EAT ) , the company with the "EAT" ticker symbol and the Chili's casual-dining concept, is unloading its Corner Bakery Cafe unit for an undisclosed amount of money. I think investors should be cheering the move -- but the stock has been roughly flat in the days following the announcement. So, what gives?
In the bakery/restaurant segment, Panera Bread (Nasdaq: PNRA ) , with more than 740 locations, is the kingpin. Corner Bakery, with 92 locations in only eight states, just completed its best year in terms of top-line and bottom-line results. That left Brinker with a choice. It could invest heavily to grow the brand or sell at a time when business was good. I applaud its decision to sell.
Over the past two years, Brinker has jettisoned the Big Bowl Asian Kitchen, EatZi, and Cozymel's Costal Grill concepts. The company has also taken a $14.1 million charge to fully impair the investment and notes receivable for Rockfish Seafood Grill, of which it owns 43%. All of this downsizing allows the company to focus its resources on its remaining brands: Romano's Macaroni Grill, On The Border Mexican Grill & Cantina, and Maggiano's Little Italy.
That's not to mention Chili's restaurants, which account for 68% of the company's total locations and 74% of the profit contribution. It's the cash cow, and there is still plenty of opportunity to grow the brand. So why fiddle with the Corner Bakery (or any of the other businesses that have been sold) when you have a winner on your hand?
About a year ago, Applebee's (Nasdaq: APPB ) was thought to be a near-term threat to the core Chili's brands. But results for the most recently ended quarter showed Applebee's same-store sales increasing 3.7% while Chili's increased 4.2%.
But despite all the good news on Chili's, I wouldn't suggest getting your wallet out to buy Brinker shares just yet. Look at the strong same-store sales at Darden Restaurants (NYSE: DRI ) and its projected earnings multiple for this year of 14.8 -- versus 15.3 at Brinker. And don't let The Cheesecake Factory's (Nasdaq: CAKE ) high earnings multiple of 28 scare you away. Debt-free and expected to grow earnings at 22% annually for the next five years, Cheesecake Factory has a lot to offer.
Also worth considering as it relates to the investment case (or lack thereof), Brinker has 8.7 million options outstanding. That's 10% of its outstanding shares. That's a lot.
Still, Brinker sees 15% annual earnings growth ahead. Maybe analysts will raise their annual-growth estimates of 13% now that the company is better focused. Is it worth it? You've got the menu -- it's your call.
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