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Foolish Forecast: Reading Brinker's Menu

By Rich Smith – Updated Nov 15, 2016 at 7:07PM

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Views you can use to get clues on tomorrow's news.

Feeling peckish? Drop by Brinker (NYSE:EAT) for a bite tomorrow morning. The Chili's operator will be open early with its fiscal Q2 2006 earnings announcement slated for before the market opens. Here's a quick look at the menu.

Wall Street Wisdom:

  • General consensus. Twenty-five analysts follow Brinker and are split on their opinions. Twelve say buy; 12 advise holding; and the tiebreaker: one brave soul says sell.
  • Revenues. This gaggle of analysts agrees that Brinker should post $1.01 billion in sales tomorrow, a 7% rise over last year.
  • Earnings. This may explain the sell: Despite the revenue growth, analysts expect a $0.01 year-over-year decline in earnings to $0.46 for the quarter.

Margin watch:
Reviewing the company's recent performance in transforming top-line sales into bottom-line profits, here's what we see:

Margins

6/04

9/04

12/04

3/05

6/05

9/05

Gross

17.6%

17.6%

17.2%

16.9%

16.1%

16.0%

Op.

8.6%

8.6%

8.1%

8.1%

7.3%

7.1%

Net

4.1%

3.3%

3.2%

4.5%

4.1%

4.4%



All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-months performance for the quarters ending in the named months.

Brinker's bottom-line performance still looks pretty solid. Still, gross margins appear to be facing pressure, and the company hasn't been able to cut operating costs sufficiently to offset them. Beware. (Learn more about margins here.)

Key ratios:
Even with analysts predicting healthy 15%-per-annum growth over the next five years, this meal looks expensive. It's priced at 20 times multiples to both earnings and free cash flow.

Competitors:
If there's one thing America has plenty of, it's restaurants. Brinker faces competition from a host of alternative eateries, among them Applebee's (NASDAQ:APPB), Darden (NYSE:DRI), and Outback Steakhouse (NYSE:OSI).

Fool contributor Rich Smith does not own shares of any company named above.

None

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Stocks Mentioned

Brinker International, Inc. Stock Quote
Brinker International, Inc.
EAT
$25.53 (-5.02%) $-1.35
Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
DRI
$122.39 (-2.44%) $-3.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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