Brinker International Earnings Preview

Brinker International [[EAT]] is scheduled to report their fiscal second quarter 2010 results before the market opens on Wednesday, January 20, 2010. Based on our analysis, we at are expecting Brinker to report worse than expected quarterly results that will disappoint Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $768.8 million and EPS of $0.20. This would represent a 7% decline in revenues from last year’s $829.0 million in the same period. The current analyst consensus estimates calls for revenues of $770.3 million and EPS of $0.22.


Earnings Analysis

Declining store traffic and an absence of a compelling value proposition will likely result in disappointing quarterly results from Brinker. Earlier in the year the company’s key Chili’s restaurants appeared to be gaining some traction with their “3 courses for $20” promotion. However, they significantly modified their promotion in the fourth quarter before completely eliminating it in December. This appears to have had a negative impact on their traffic volumes and we anticipate little improvement on last quarter’s 6% decline in same store sales (SSS).


Stock Performance

In 2009, Brinker’s stock gained over 41% and easily outperformed the 19% increase in the Dow Jones industrial average. However, the stock has languished in a tight trading range in recent months and has actually declined 28% since April.



Brinker stock is now trading at 11x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. While Brinker’s shares appear to be trading at a compelling valuation, we believe there remains further downside for this stock.


Recommendation: Sell with a $13 price target


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