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Here's Why Investors Should Hold On to Brinker (EAT) Now
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Brinker International, Inc.’s (EAT - Free Report) focus on expansion, digital initiatives, sales-building efforts and operational and remodeling initiatives are encouraging. In the past there months, the company’s shares have surged 53% compared with the industry’s increase of 12%. However, high debt and weak Maggiano’s performance are a concern. Let’s delve deeper.
Catalysts Driving Growth
Brinker is also investing heavily in technology-driven initiatives, like online ordering, to augment sales and boost guest services. Having installed a table top technology at all the company-owned restaurants in partnership with Ziosk, the company has now implemented handheld devices in all of California. This is resulting in increased efficiency and speed. During second-quarter fiscal 2020, the company replaced existing tabletop system with a more advanced system to enhance the guest experience and the efficiencies of the model.
In the first half of fiscal 2020, Maggiano’s started testing electronic check presenters that facilitate a pay at the table option to provide convenience and efficiency to guests as well as to increase digital guest engagement. Maggiano’s also entered into an exclusive partnership with DoorDash to create a more affordable rate structure, making third-party delivery more sustainable and efficient. During fiscal second quarter, guests were provided the option of online ordering directly through Maggiano’s website apart from the DoorDash platforms.
Brinker is one of the few fast-casual restaurant chains that have been expanding despite a sluggish economic development. Management is gearing up for international expansion as well, especially in the faster growing emerging markets. Notably, the company is on the lookout to expand brand in existing markets and enter new ones. In fiscal 2018, 2019 and 2020, the company had opened 34, 23 and 31 restaurants globally, respectively. Nonetheless, the company anticipates opening 15-20 restaurants in fiscal 2021.
Brinker is steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and its innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform.
Concerns
The coronavirus pandemic is expected to materially affect the company's operating and financial results for fiscal 2020. It has been undertaking numerous measures to protect employees, customers and business partners. It has suspended quarterly cash dividend and all share repurchase activity. Further, salaries of the executive committee have been deducted by 50%.
A strong balance sheet will help the company tide over the current crisis. Long-term debt as of Jun 24, 2020, came in at $1,208.5 million compared with $1,428.9 million as on Mar 25. However, its Times Interest Earned ratio stood at 1.1, down from 3.1 reported in the prior quarter. Moreover, the company ended the quarter with cash and cash equivalents of $43.9 million, which may not be enough to manage the high debt level.
Brinker is seeing a weak sales trend at Maggiano’s. In the fiscal fourth quarter, Maggiano's sales fell 68.2% year over year to $34.6 million primarily due to lower dining and banquet room traffic because of COVID-19 along with temporary dining and banquet room closures as well as limited capacity of reopened locations. However, this was partially offset by increased off-premise sales. Comps dropped 66.7% year over year.
Some other top-ranked stocks in the same space include Papa John's International, Inc. (PZZA - Free Report) , Wingstop Inc. (WING - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . Papa John's and Wingstop sport a Zacks Rank #1, while El Pollo Loco carries a Zacks Rank #2.
Papa John's has a three-five year earnings per share growth rate of 8%.
Wingstop’s 2021 earnings are expected to increase 15.5%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
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Here's Why Investors Should Hold On to Brinker (EAT) Now
Brinker International, Inc.’s (EAT - Free Report) focus on expansion, digital initiatives, sales-building efforts and operational and remodeling initiatives are encouraging. In the past there months, the company’s shares have surged 53% compared with the industry’s increase of 12%. However, high debt and weak Maggiano’s performance are a concern. Let’s delve deeper.
Catalysts Driving Growth
Brinker is also investing heavily in technology-driven initiatives, like online ordering, to augment sales and boost guest services. Having installed a table top technology at all the company-owned restaurants in partnership with Ziosk, the company has now implemented handheld devices in all of California. This is resulting in increased efficiency and speed. During second-quarter fiscal 2020, the company replaced existing tabletop system with a more advanced system to enhance the guest experience and the efficiencies of the model.
In the first half of fiscal 2020, Maggiano’s started testing electronic check presenters that facilitate a pay at the table option to provide convenience and efficiency to guests as well as to increase digital guest engagement. Maggiano’s also entered into an exclusive partnership with DoorDash to create a more affordable rate structure, making third-party delivery more sustainable and efficient. During fiscal second quarter, guests were provided the option of online ordering directly through Maggiano’s website apart from the DoorDash platforms.
Brinker is one of the few fast-casual restaurant chains that have been expanding despite a sluggish economic development. Management is gearing up for international expansion as well, especially in the faster growing emerging markets. Notably, the company is on the lookout to expand brand in existing markets and enter new ones. In fiscal 2018, 2019 and 2020, the company had opened 34, 23 and 31 restaurants globally, respectively. Nonetheless, the company anticipates opening 15-20 restaurants in fiscal 2021.
Brinker is steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and its innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform.
Concerns
The coronavirus pandemic is expected to materially affect the company's operating and financial results for fiscal 2020. It has been undertaking numerous measures to protect employees, customers and business partners. It has suspended quarterly cash dividend and all share repurchase activity. Further, salaries of the executive committee have been deducted by 50%.
A strong balance sheet will help the company tide over the current crisis. Long-term debt as of Jun 24, 2020, came in at $1,208.5 million compared with $1,428.9 million as on Mar 25. However, its Times Interest Earned ratio stood at 1.1, down from 3.1 reported in the prior quarter. Moreover, the company ended the quarter with cash and cash equivalents of $43.9 million, which may not be enough to manage the high debt level.
Brinker is seeing a weak sales trend at Maggiano’s. In the fiscal fourth quarter, Maggiano's sales fell 68.2% year over year to $34.6 million primarily due to lower dining and banquet room traffic because of COVID-19 along with temporary dining and banquet room closures as well as limited capacity of reopened locations. However, this was partially offset by increased off-premise sales. Comps dropped 66.7% year over year.
Zacks Rank & Other Key Picks
Yum Brands currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the same space include Papa John's International, Inc. (PZZA - Free Report) , Wingstop Inc. (WING - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) . Papa John's and Wingstop sport a Zacks Rank #1, while El Pollo Loco carries a Zacks Rank #2.
Papa John's has a three-five year earnings per share growth rate of 8%.
Wingstop’s 2021 earnings are expected to increase 15.5%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q2 2020, while the S&P 500 gained an impressive +44.0%, five of our strategies returned +50.9%, +93.8%, +122.2%, +153.0%, and even +156.8%.
This outperformance has not just been a recent phenomenon. From 2000 – Q2 2020, while the S&P averaged +5.5% per year, our top strategies averaged up to +51.7% per year.
See their latest picks free >>