Brinker (EAT) Banks on Menu Innovation and Franchising

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Brinker International, Inc. EAT is currently focusing on franchising and digital initiatives.

Recently, the company reported second-quarter fiscal 2018 results , with earnings surpassing the Zacks Consensus Estimate and increasing 22.5% year over year. The recent tax reform drove earnings.

In fact, earnings beat the consensus mark in three of the trailing four quarters, delivering an average positive surprise of 8.65%. Meanwhile, estimates for 2018 have gone up 5.3% over the last 30 days, reflecting analysts’ optimism surrounding the stock.

Revenues, missed the consensus mark in the second quarter and declined slightly year over year, mainly due to soft company sales at Chilli’s.

However, sales-building efforts like menu innovation and enhancing digital services are expected to drive traffic and comps, both at Chili’s and Maggiano’s.

Shares of Brinker have gained 5.1% in the past three months, outpacing 1% loss of the industry .

Efforts to Drive Traffic and Sales

Brinker remains firm on its goal to revive revenues through a range of initiatives such as streamlining of menu and strengthening value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of an improved service platform.

In the second quarter, the company simplified Chili’s core menu by improving recipes and strengthening its value proposition with higher-quality ingredients and new cooking techniques. Notably, for the rest of the year, Brinker plans to focus on marketing and operational execution that will drive traffic and help the company gain market share.

At Maggiano’s, the company is continuing to deliver differentiated dining experience with the rollout of a new menu. The new menu expands dining options to drive incremental visits. In the second quarter, Maggiano’s delivered record sales and the company’s earnings growth was largely attributable to the chain’s holiday season profit.

Brinker is also investing heavily in technology-driven initiatives, like online ordering, to augment sales and boost guest count. 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. Moreover, Brinker effectively uses the social media platforms and email database to drive customer awareness and boost traffic. These initiatives will contribute significantly to Brinker’s business.

Meanwhile, the To-Go platform has been the fastest growing segment of the company. In the second quarter, the company delivered positive To-Go sales driven by double-digit increases in online ordering.

Moreover, the company launched a digital curbside platform in its company-owned restaurants. Thus, take-out guests can now order, pay, and get their food easily through the Chili’s app. With about half of the company’s online guests using it, the service is ensuring simpler, faster, effortless experience to take-out guests, thereby resulting in higher check, this should thus improve sales.

Franchising & Expansion to Strengthen Brand

To survive in an industry that largely depends on franchising, Brinker started to pursue expansion through franchisees and partnerships. The company acquired 103 franchised Chili’s Grill and Bar restaurants from Pepper Dining Holding Corp. in 2015. Notably, in fiscal 2017, Brinker’s franchise operated locations increased 40%.

Management is gearing up for international expansion as well, especially in the faster growing emerging markets. Though it is faced with a few bottlenecks in the Middle East, the company’s Latin American business has been solid. The company is also on the lookout to expand its brand in existing markets and enter new ones. Brinker intends to open 38 to 43 restaurants globally, including new markets like Panama, Chile and Vietnam, in fiscal 2018.

Expansion, both through company-owned restaurants and franchises, is expected to continue to strengthen Brinker’s brand and augment guests’ experience. The franchisee expansion should boost the company’s top and bottom lines.

Zacks Rank & Other Stocks to Consider

Brinker sports a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the same space are Domino’s DPZ , Darden Restaurants DRI and BJ’s Restaurants BJRI , all carrying a Zacks Rank #2 (Buy). You can see  the complete list of today’s Zacks #1 Rank stocks here .

Domino’s, Darden’s and Bj’s earnings are expected to grow 36.8%, 17.9% and 20.9%, respectively, in 2018.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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