Shareholders may have felt that BrinkerInternational (NYSE:EAT) was on the brink of disappointing after last month's warning that second-quarter results would fall short of expectations. But a look through its latest quarterly report paints a different picture.
The restaurant operator, with franchises that include Chili's, Corner Bakery Cafe, Maggiano's, Macaroni Grill, and On The Border, is in stiff competition with other diversified enterprises such as Darden (NYSE:DRI) and Outback Steakhouse (NYSE:OSI). Despite the battle for the consumer wallet and appetite, Brinker is holding its own.
Revenue growth remained solid, increasing 10.9% compared with the same period a year ago. Chili's and Maggiano's were its strongest performers, with same-store sales increasing 2.7% and 2.6%, respectively. According to the conference call, the company's sales momentum built up throughout the quarter, and management expects it to continue into the foreseeable future. Gift card sales, particularly in December, were a significant factor in top-line growth for the period. In addition, Brinker continues to see strength at its international restaurant sites.
Beyond sales, another positive is that despite increased energy costs, Brinker's cost of sales as a percentage of net revenues actually declined slightly to 28.5%, from 28.6% a year ago. In its share program, it has repurchased $167 million worth of stock year to date, with another $108 million still available. That's helping to bring value to shareholders, decreasing the company's diluted weighted average of shares outstanding by nearly 10% year over year.
That said, prospective investors will want to monitor Brinker's general and administrative expenses as a percentage of net sales. In the second quarter, they increased a sharp 10.9%. These higher expenses are due to its performance-based incentives and equity-based compensation package.
The combination of solid sales and share buybacks resulted in an 11.4% increase in earnings per share. Brinker expects to earn $2.09 to $2.14 per share for fiscal 2006, in line with analyst expectations. At roughly 18 times current-year estimated earnings, Brinker's stock bears a reasonable price tag for an enterprise producing double-digit sales and earnings growth. When you include its positive outlook for unit growth and international opportunities, Brinker certainly looks like a reasonable long-term investment.
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
