The Ratings Game: Chili’s parent to boost prices higher than expected as supply chain and labor costs take a toll
Brinker International Inc. stock sank 10% during premarket hours on Wednesday before pulling back to a 5.7% decline during trading hours after the Chili’s parent preannounced fiscal first-quarter results that show labor, supply chain and commodity challenges are taking a toll.
Earnings per share are expected to be 28 cents per share, up from 23 cents last year. Adjusted EPS is expected to be 34 cents, below the FactSet consensus for 68 cents.
Revenue totaled $876.4 million, up from $740.1 million last year and just below the FactSet consensus for $876.8 million.
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Comparable sales rose 17% with Chili’s up 13.4% and Maggiano’s up 62.6%.
“[T]he COVID surge starting in August exacerbated the industry-wide labor and commodity challenges and impacted our margins and bottom line more than we anticipated,” said Wyman Roberts, chief executive of Brinker
in a statement.
Brinker is hosting its investor day event on Wednesday.
“We are responding to these COVID headwinds with increased focus on hiring and retention efforts, and working with our partners to gain further stabilization of the supply chain environment. In addition, we have taken immediate incremental pricing actions, increasing our full year target to 3% to 3.5%, to offset inflationary costs and protect margins as we move forward.”
KeyBanc Capital Markets says Brinker shares are “undervalued” compared with other casual dining chains, and the Chili’s chain probably gained share during the quarter. Analysts rate Brinker stock overweight with a $58 price target.
“Given the magnitude of Brinker’s F1Q22 earnings shortfall, the burden will be on the company to convince investors that margins can be managed more effectively through the end of the year,” analysts said.
“It was not long ago when high-teens restaurant margins seemed like a realistic possibility in the next few years. But we believe it will be more important for Brinker to reset near-term expectations to a more achievable level—where investors can feel comfortable owning a high-quality casual dining stock at a discounted valuation relative to its historical self.”
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Stifel rates Brinker stock hold with a $55 price target.
“While we were pleasantly surprised with the strength of the comparable sales results for the quarter and into the early weeks of F2Q, concerns about margin pressure could lead to near-term downward revisions in FY22 earnings estimates,” wrote Stifel analysts.
“The company has launched two virtual restaurant concepts, It’s Just Wings and
Maggiano’s Italian Classics, which are helping drive sales and increased profitability at existing locations, however, we believe the recovery of the core Chili’s business may prove prolonged in light of increased COVID concerns.”
Brinker stock has tumbled 18.3% for the year to date while the S&P 500 index
has gained 20.8% for the period.