Please ensure Javascript is enabled for purposes of website accessibility

Brinker's Portion Control

By Rick Munarriz – Updated Nov 15, 2016 at 12:22AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Brinker's latest quarter is tasty, but a little undercooked on top.

Growth is still on the menu at Brinker International (NYSE:EAT). The company behind Chili's, Macaroni Grill, and other casual-dining concepts posted fiscal second-quarter profits from continuing operations before special items of $0.40 a share. That clocked in a penny ahead of Wall Street's consensus appetite, and stacks up nicely against the $0.31 a share Brinker earned a year earlier.

Unfortunately, reality isn't as rosy as that 29% spurt in per-share profitability would seem to suggest. For starters, the company has been wolfing down shares outstanding through buybacks and a poorly executed Dutch auction. Income from continuing operations actually rose just 12% higher, divided by fewer shares outstanding to create meatier bottom-line growth. Share buybacks are a good thing, but investors can't fall for the inflated per-share figures as sustainable.

Brinker's real problem rests a few lines higher on the income statement. Revenues inched just 6% higher, despite robust expansion through new company-owned and franchised locations. In a troubling trend, all four of the company's chains posted lower comps for the quarter and for the month of December. Yes, even the smaller On the Border and Maggiano's Little Italy eateries failed Brinker, leading to a company-wide 2.1% slide in same-unit sales for the quarter.

Sure, it's great to see a company grow earnings at a faster clip than its revenues. What investors need to do, though, is keep watching those comps, because if Brinker's restaurants continue to fall out of favor, it will ultimately impact the bottom line.

This isn't a problem at other casual-dining chains. Cheesecake Factory (NASDAQ:CAKE) posted a 0.8% gain at the unit level for the quarter. Ruby Tuesday's (NYSE:RI) quarter ended three weeks earlier than Brinker's, yet it posted a mere 0.2% decline in comps. For the month of December, Darden (NYSE:DRI) posted an 8% uptick in comps at Red Lobster, with marginally positive improvement at Olive Garden. Applebee's (NASDAQ:APPB) also closed out last month in the black.

So go ahead and give Brinker a round of applause for its operating prowess. Now it's time to see what the company can cook up to get the hungry back into its restaurants. That's important, because you can't squeeze more out of an empty table.

For more on casual dining, check out:

Got a taste for Brinker or its competitors? Why not bring it to CAPS? There's always room for one more at our new stock-rating service.

Longtime Fool contributor Rick Munarriz loved when NBC's The Office hosted the Dunder-Mifflin awards inside a Chili's last year. He does own shares in Cheesecake Factory. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

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
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
CAKE
$28.43 (-2.44%) $0.71

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.