What happened
Shares of Brinker International (EAT 3.54%), which owns the Chili's and Maggiano's Little Italy restaurant concepts, rose a quick 15.9% when trading got underway on Feb. 2. About an hour into Wall Street's day the stock was still up by 12.5%. The company's fiscal second-quarter 2022 earnings update was the big story.
So what
Brinker's fiscal second-quarter 2022 sales came in at $904.5 million, up a tad over 21% from the $746.2 million brought in during the same quarter of the prior fiscal year. Both the Chili's and Maggiano's nameplates benefited from increasing in-person dining, though falling takeout orders constrained the benefit some. The top line here was basically in line with analyst expectations, so the sales result wasn't likely the big story today.
Image source: Getty Images.
What most likely got investors so excited about Brinker's shares was the bottom line, which, adjusted for one-time items, came in at $0.71 per share in the fiscal second quarter versus $0.35 in the prior year. That is a big improvement and was also well above the $0.50 per share that analysts had been calling for. It makes sense that investors were upbeat about that result. Notably, despite facing rising costs for ingredients and labor, the company's restaurant operating margin improved to 11% from 10.7% in the same period of the prior fiscal year. The company noted that lower delivery fees, price increases, and the ability to leverage higher in-person dining levels all helped it deal with the inflation headwinds facing the restaurant industry. Given that inflation and labor costs are big industry issues right now, the positive margin news was probably another big support for the shares.
Now what
Brinker had a good quarter and investors rewarded it for that success in morning trading today. That's a pretty simple story, though it will be important to keep an eye on how well it deals with rising costs over the next few quarters. Although sales have been improving, at some point inflation could become a more troublesome headwind and lead often mercurial investors to switch from a positive to a negative view of things.
