A strangely cold welcome.
Shares of Brinker International (EAT), the parent company of Chiliz and Maggiano’s, were anything but buoyant on Wednesday after reporting fourth-quarter earnings. The stock was down 10.7% by the close of trading.
Kevin Hochman, a former KFC marketing guru who is now CEO of Brinkers, said the market got it wrong and was missing the turnaround story.
“When you look at our competitors reporting that their traffic is declining, we’re not seeing that, so we know it’s tough, but we have industry-leading values,” Hochman said on Yahoo Finance’s Morning Brief (video above).
Investors seem fixated on Brinker’s lower-than-consensus full-year earnings outlook as the company ramps up marketing for the relaunch of its fajitas and new restaurant equipment. The company now expects full-year earnings per share of $4.35 to $4.75, below the market’s estimate of $4.68.
Combined with high expectations entering the quarter (the stock price had risen 55% since the beginning of the year prior to the earnings release), the disappointment was inevitably a blow.
It didn’t help that the company’s quarterly profit came in $0.07 below expectations, leading some in the market to wonder if the estimates were too high.
The Chili’s Restaurant logo lights up in El Paso, Texas, on Oct. 23, 2019. (Associated Press/Rogelio V. Solis) (Associated Press)
But that overlooks the impressive sales growth at Brinker’s largest store, Chili’s, which may be gaining market share in an environment where consumers are increasingly looking for lower prices.
Chiliz’s sales jumped 14.8% last quarter (versus the 6.3% estimate), as the chain stole value-hungry customers from fast-food giants like McDonald’s (MCD) with the introduction of its new $10.99 “Big Smasher” burger, which gets you a half-pound burger, fries, and a drink (plus tax).
McDonald’s U.S. same-store sales fell 0.7% in the most recent quarter. At Hochman’s former employer, Yum Brands (YUM), Taco Bell same-store sales rose 5% and KFC’s U.S. sales fell 5%. Wendy’s (WEN) second-quarter same-store sales rose 0.6%.
Brinker shares rebounded on Thursday, up 6% in early morning trading.
“We view our initial guidance for FY25 as conservative and encourage investors to buy shares on dips. The underlying price-to-earnings trend remains solid ([high single digits] “We believe the effectiveness of the company’s marketing efforts, giving it more flexibility in the timing of new product introductions, will help it sustain continued strong same-store sales and outperforming the industry,” Stifel analyst Chris O’Cull said in a client note.
Hochman is focusing on revamping its value messaging and menu items: The company plans to revamp its fajita menu in the coming months, with a focus on improving fajita skins and other ingredients.
The story continues
Fajitas are a $200 million-a-year business for Chiliz.
“This is a great example of our transformation — taking a staple product that we sell a lot of and that Americans think of and remaking it into something that’s much better and more valuable for our customers,” Hochman said of the fajitas’ revival.
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Brian Sozzi is editor-in-chief of Yahoo Finance. Follow Sozzi on X Brian Sozzi You can also find me on LinkedIn. Looking for tips on deals, mergers, the activist landscape, and more? Email me at brian.sozzi@yahoofinance.com.
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