Banking

Brinker Dives As Rising Labor, Food Costs Hit Profits

Brinker International (EAT), which operates Chili’s and Maggiano’s restaurants, posted preliminary first-quarter earnings well below expectations late Tuesday. Brinker stock gapped down Wednesday.




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“Brinker’s first quarter delivered positive sales and continued to significantly outpace the industry in traffic,” Brinker CEO Wyman Roberts said in a statement. “But the COVID surge starting in August exacerbated the industrywide labor and commodity challenges and impacted our margins and bottom line more than we anticipated.”

Brinker reported EPS of 34 cents, 50% below the 68 cents expected by FactSet analysts. Revenue came in at $876.4 million, slightly below consensus for $876.8 million.

Restaurant operating margin fell to 10.4% vs. 11.6% in the first quarter of fiscal 2021. The primary drivers of the decline were 150 basis points of higher restaurant labor costs and 60 bps of higher commodity costs, the company said in a statement. Brinker is holding an investor day event today.

Other restaurant stocks fell on Wednesday, as they struggle with similar issues. BJ’s Restaurants (BJRI) sank 6%. Darden Restaurants (DRI) lost 2.3%. Cheesecake Factory (CAKE) retreated 2.7%.

Fast-casual chain Chipotle Mexican Grill (CMG), which reports third-quarter earnings on Thursday, fell 1%.

Brinker Stock

Shares plunged nearly 11% intraday trading on the stock market today, hitting their worst levels in nearly a year. Brinker stock closed 9.7% lower to 44.21.

Its relative strength line took a dive, touching lows not seen in more than a year, according to MarketSmith.

Brinker stock has weak fundamentals, as it tries to claw its way back from pandemic shutdowns amid higher operating costs. Its RS Rating is 14, while its EPS Rating is 45.

Meanwhile, Chipotle stock has been trading below its 50-day line since late September. FactSet analysts expect Chipotle to post EPS of $6.32, 68% above the year-ago period, on 21% sales increase to $1.94 billion.

Industrywide Headwinds

The National Restaurant Association said rising vaccination rates and easing of capacity restrictions bolstered sales in spring and summer. But the positive sales trajectory wasn’t sustainable.

Nearly six in 10 operators said business conditions were worse in September than they were in June, according to a National Restaurant Association survey.

Eating and drinking places registered total sales of $72.4 billion on a seasonally adjusted basis in September, according to preliminary data from the U.S. Census Bureau. That was only slightly higher than $72.1 billion in July and $72.2 billion in August.

However, in inflation-adjusted terms, eating and drinking place sales in September were down 0.5% from July’s level.

“The delta variant was a factor in deteriorating business conditions, according to most restaurant operators,” the industry group said in a statement. 

In a September 2021 survey, 78% of operators said their restaurant experienced a decline in customer demand for indoor on-premises dining, as a result of the increase in coronavirus cases due to the delta variant.

However, coronavirus cases have plunged over the past several weeks.

Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.

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