Casual restaurant chain Brinker International (NYSE:EAT) reported Q3 CY2024 results exceeding the market’s revenue expectations, with sales up 12.5% year on year to $1.14 billion. The company’s full-year revenue guidance of $4.73 billion at the midpoint also came in 2.3% above analysts’ estimates. Its non-GAAP profit of $0.95 per share was also 38.6% above analysts’ consensus estimates.
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Brinker International (EAT) Q3 CY2024 Highlights:
- Revenue: $1.14 billion vs analyst estimates of $1.10 billion (3.4% beat)
- Adjusted EPS: $0.95 vs analyst estimates of $0.69 (38.6% beat)
- EBITDA: $111.6 million vs analyst estimates of $93.96 million (18.8% beat)
- The company lifted its revenue guidance for the full year to $4.73 billion at the midpoint from $4.59 billion, a 3.1% increase
- Management raised its full-year Adjusted EPS guidance to $5.35 at the midpoint, a 17.6% increase
- Gross Margin (GAAP): 14.3%, up from 11.3% in the same quarter last year
- Operating Margin: 5%, up from 2.4% in the same quarter last year
- EBITDA Margin: 9.8%, up from 7.2% in the same quarter last year
- Free Cash Flow Margin: 0.6%, similar to the same quarter last year
- Locations: 1,625 at quarter end, down from 1,651 in the same quarter last year
- Same-Store Sales rose 12% year on year (5.5% in the same quarter last year)
- Market Capitalization: $4.34 billion
"Great food, with great service at industry leading value is driving strong Chili's sales and traffic," said President and CEO, Kevin Hochman, "Our continued success proves the importance of listening to our guests & team members and delivering on the critical things important to them."
Company Overview
Founded by Norman Brinker in Dallas, Texas, Brinker International (NYSE:EAT) is a casual restaurant chain that operates under the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.
Sit-Down Dining
Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
Brinker International is one of the larger restaurant chains in the industry and benefits from a well-known brand that influences consumer purchasing decisions. However, its scale is a double-edged sword because there are only a finite number places to build new restaurants, making it harder to find incremental growth.
As you can see below, Brinker International’s sales grew at a mediocre 6.9% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as its restaurant footprint remained unchanged.
This quarter, Brinker International reported year-on-year revenue growth of 12.5%, and its $1.14 billion of revenue exceeded Wall Street’s estimates by 3.4%.
Looking ahead, sell-side analysts expect revenue to grow 2.3% over the next 12 months, a deceleration versus the last five years. This projection is underwhelming and shows the market thinks its offerings will see some demand headwinds.
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Restaurant Performance
Number of Restaurants
A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.
Brinker International operated 1,625 locations in the latest quarter, and over the last two years, has kept its restaurant count flat while other restaurant businesses have opted for growth.
When a chain doesn’t open many new restaurants, it usually means there’s stable demand for its meals and it’s focused on improving operational efficiency to increase profitability.
Same-Store Sales
A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth for restaurants open for at least a year.
Brinker International has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 7.9%. Given its flat restaurant base over the same period, this performance stems from a mixture of higher prices and increased foot traffic at existing locations.
In the latest quarter, Brinker International’s same-store sales rose 12% annually. This growth was an acceleration from the 5.5% year-on-year increase it posted 12 months ago, which is always an encouraging sign.
Key Takeaways from Brinker International’s Q3 Results
We were impressed by how significantly Brinker International blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 5.9% to $102.99 immediately following the results.
Sure, Brinker International had a solid quarter, but if we look at the bigger picture, is this stock a buy?When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
