Investors lost their appetite for Brinker International (EAT 4.21%) stock today after the operator of restaurant chains Chili's and Maggiano's Little Italy was downgraded by JPMorgan Chase.
Brinker shares closed 9.7% lower on the day.
The Wall Street titan cut its rating on Brinker from "overweight" to "neutral," saying that the casual-dining chain operator had "exhausted its ability to engineer" shareholder gains. The bank also said it was bearish on the overall restaurant sector.
Indeed, much of the restaurant industry, including casual dining, has struggled lately as food deflation has made supermarket prices cheaper, rising labor costs have cut into profits, and competition has increased. In its most recent quarter, Brinker saw comparable sales at company-owned Chili's restaurants fall by 2.3%. Adjusted earnings per share, meanwhile, decreased from $1.00 to $0.94.
Brinker's stock has struggled recently; shares are now down more than a third from their 2015 peak. Restaurant sales growth in general has slowed over the past year, and a number of Brinker's casual-dining peers have lost ground during that time, including Buffalo Wild Wings, BJ's Restaurants, and even Cheesecake Factory, which fell sharply earlier this week.
Comparable sales at Brinker have declined for the second year in a row. I'd expect the stock to continue to be challenged until its underlying performance improves.