I confess to a fondness for Chili's. The food is tasty—Mushroom Jack Fajitas are a particular favorite of mine—and often priced reasonably. The rewards program, of which I'm a member, is generous enough as well. That being said, it's been a while since I've last been in a Chili's, and for obvious reasons. Those same obvious reasons have recently delivered a blow to Chili's parent company Brinker International (NYSE:EAT), and that shows in the recent earnings report. However, there's every sign that the company is working hard to make a comeback happen, and the numbers bear that out well.
All The Obvious Problems Hit
Brinker International, just prior to the coronavirus disaster, had been trading reliably in the $40 to $45 range, with a few tentative forays higher, for a little over six months. From August 2019 to February 2020, the company was holding the line with almost shocking regularity.
That's when the bottom dropped out, and the combination of forced closures in its own restaurants—Brinker International also counts Maggiano's Little Italy locations among its properties—and forced closures for its customer base's jobs hit the company hard. Most restaurants can't hold out long without their dining rooms, and those facilities were—and in some cases still are to some extent—closed by government mandate.
The stock dropped precipitously, hitting a low of $8.58 on March 17. Then, however, something exciting happened; the stock began an immediate upward climb. Though the trajectory has been a bit on the flat side, the company is still gaining ground to the point where, yesterday, it closed at $30.11. While it's still off the $40-$45 range it spent late 2019 in, it's showing every sign that it can get back there.
The Latest Earnings Report Is a Disaster With a Hopeful Side
There's no denying that the last quarter was rough on Brinker International. With comparable sales down 36.7% overall—that's lower than even the expected 35.9% loss—that's a hit for anyone. Worse, the hit was universal; Chili's lost 32.2% in comparable sales, but at Maggiano's, the hit was better than double at 66.7%.
The company also didn't roll out any full-year guidance, but at least the earnings per share losses aren't quite as bad as expected. The EPS figures were expected to be a loss of $0.56, while actual EPS losses are set to turn out between $0.25 and $0.40 lost.
It was clear that investors were willing to cut the company some slack, however; no one really plans for a pandemic, and Brinker brands are looking to do what they can to get through the worst of it. With restaurants allowed to at least partially reopen over much of the country, future results won't be firing on all cylinders but it should no longer look like the bloodbath it did in March through about June.
Why It's Still Likely a Good Idea to Buy In
We took a look at Brinker International back in late May, when the pandemic's impact was still not yet fully felt, and we were more than ready to issue buy recommendations as a result. The company's quick pivot to delivery and take-out options allowed the company to recover at least some of its losses, and with dining rooms coming back online, that should only help.
Of course, there are some larger economic shocks afoot. Those who noted that the extended closures would result in a certain proportion of jobs simply never coming back were absolutely right; some of those businesses required to close just for a couple months ended up closing for good, and we're still seeing some of the fallout to this day. Just ask Macy's (NYSE:M), Men's Wearhouse (NYSE:TLRD) or any other brand that's declared bankruptcy since this started.
Brinker International, however, is in a better position. As the economy recovers—and it does seem to be doing that much, at least from its catastrophic, government-mandated lows of March into April—the desire for people to get back out and enjoy the long-established menu favorites therein will recover as well.
Additionally, the “pent-up demand” cycle we've been hearing about will likely be a distributed one, as people overcome their fears of coronavirus at different stages and get back out into the world again. The restaurant sector has already done surprisingly well; look at recent word from Restaurant Brands (NYSE:QSR) among others, who have made at least partial recoveries from the days of near-total closure. Couple that on with its robust, pandemic-surviving take-out measures and the company should be ready to weather a lot of trouble and make its stock a buying opportunity in the making.
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