Chili's restaurant operator Brinker International (NYSE:EAT) will report Q2 2007 financial results tomorrow, Jan. 23, 2007. Will it be feast or famine?

What analysts say:

  • Buy, sell, or waffle? Twenty-one analysts are dining at Brinker's table. Sixteen say hold, four say buy, and one says "Check please!" with a sell.
  • Revenues. Sales are expected to run up the tab 7%, rising to $1.08 billion from last year's $1.01 billion.
  • Earnings. Profits are expected to jump 25%, however, rising to $0.39 per share.

What management says:
Facing a challenging operating environment, Brinker is moving to expand the franchised portion of its operations both here in the U.S. and internationally. Earlier this month, the restaurateur, which also owns Romano's Macaroni Grill, Maggiano's Little Italy, and the On the Border cantinas, announced it was selling 89 of its store-owned Chili's restaurants to Olympus Partners, a private investment firm that has previously or currently invested in Wendy's (NYSE:WEN) franchises and Yum! Brands' (NYSE:YUM) KFC and Taco Bell.

What management does:
Brinker's been benefiting from some lower dairy product costs and was able to lower its tax rate last quarter because of a decrease in stock-option compensation expenses. Yet the gains the company has been experiencing have come despite decreased same-store sales. Brinker's been able to push through price hikes, which have offset the lower number of people sitting at the tables.

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

One Fool says:
By pushing out more company-owned stores to franchises, Brinker is cutting its own expenses and putting them on someone else. It's hoped that a franchise operator like Olympus, for example, will be able to run the restaurants more efficiently than Brinker could, allowing it to reap more income through royalty payments. Olympus will then expand those stores with an additional 20 to 25 new ones, helping establish more of a footprint on the East Coast.

While the company has seen fit to issue generous stock-option grants to management so that general and administrative costs end up rising year over year, the stock had languished throughout much of the year until surprising investors with the seemingly upbeat report in October. It used that time to buy back its shares, which, while generally a positive move for shareholders, has been more useful in minimizing the dilution of stock from the stock-option grants.

All in all, though, despite some soft foot traffic into its restaurants, Brinker has managed the company's operations fairly well. If outside operators can establish that footprint more firmly, then investors can expect to see better results down the road.


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Related Foolishness:

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. OSI Restaurant Partners is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.