BJRI BJs Restaurants Inc

The leading casual dining restaurant company in the world, Brinker International Inc (EAT) reported third quarter 2011 adjusted earnings per share (EPS) of 47 cents, surpassing the Zacks Consensus Estimate of 45 cents as well as the prior-year quarter earnings of 37 cents. The upside in earnings was driven by continued margin expansion at Chili's and top-line growth at Maggiano's.

On a GAAP basis, the owner of Chili’s Grill & Bar and Maggiano's Little Italy reported third quarter earnings of 45 cents per share, higher than 39 cents posted in the year-ago quarter. 

Quarter Performance

Total revenue inched up 0.5% year over year to $717.1 million and also surpassed the Zacks Consensus Estimate of $709.0 million. The year-over-year upside in revenues was due to higher same-restaurant sales at company-owned restaurants. However, system-wide comparable restaurant sales dipped 0.2%.

Chili's Grill & Bar restaurant’s total revenue dropped slightly to $608.4 million, as the restaurant continues to face challenges in improving comparable restaurant sales. However, Maggiano's sales increased to $91.6 million, driven by a rise in traffic. The royalty and franchise revenues also spiked 3.6% to $17.1 million.

Comparable restaurant sales at company-owned restaurants rose 0.1% year over year during the quarter. By restaurant concepts, comparable restaurant sales fell 0.3% at Chili's Grill & Bar, but climbed 3.4% at Maggiano's. Despite a drop in guest check average and capacity, Chili's Grill & Bar restaurant experienced a 0.2% increase in traffic. Restaurant traffic at Maggiano’s also rose 3.3%.

Comparable restaurant sales at franchised restaurants inched down 0.9% from the prior-year quarter, as same-restaurant sales at franchised domestic restaurants plunged 2.0%, partially offset by a 2.6% upside at international franchised restaurants.

Restaurant operating margin escalated 150 basis points (bps) year over year to 18.3%, driven by lower cost of sales and labor. 

Store Update

During the reported quarter, the company opened seven international franchised restaurants and three franchised restaurants under the Chili’s brand. However, Brinker closed one company-owned restaurants under the Chili’s brand.

Financial Position

As of March 30, 2011, the company reported current assets of $243.2 million and shareholder’s equity of $465.7 million. During the third quarter, the company repurchased 4.5 million shares for approximately $107.1 million and reduced its long-term debt by $5.4 million sequentially to $508.1 million.

The company paid a quarterly dividend of 14 cents per share in the third quarter.

Outlook

Brinker reaffirmed its adjusted earnings guidance range of $1.30 to $1.42 for fiscal 2011. The Zacks Consensus Estimate for fiscal 2011 is $1.49. The company continues to expect full-year revenues to decrease between 2% and 4% from the last year's revenues of $2.86 billion. The company projects comparable restaurant sales in a range of flat to negative 2%.

The company plans to open 33 to 40 franchised restaurants in 2011, including 8 to 10 franchised restaurants under the Chili’s brand and 25 to 30 internationally.

Our Take

System-wide comparable restaurants sales remained sluggish in the reported quarter, but same-restaurant sales at company-owned restaurants improved. Moreover, Brinker is repositioning its Chili’s brand to offset its declining sales momentum and record more sustainable and stable growth. Additionally, the company is making efforts to expand its margins through disciplined cost management and is also expected to benefit from capacity contraction and the consequent lower unit capital expenditure. 

One of Brinker’s competitors, BJ’s Restaurants, Inc. (BJRI) reported first quarter 2011 adjusted earnings of 25 cents per share, above the Zacks Consensus Estimate of 19 cents, driven by strong comparable restaurant sales growth.

Brinker holds a Zacks #2 Rank, implying a short-term Buy rating on the stock. We also reiterate our long-term Outperform recommendation.

 
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