Why Brinker International, Inc. Shares Dropped 14% in October

By Jeremy BowmanFool.com

What: Brinker International was serving up a cold meal last month to investors as shares of the Chili's parent fell 14% according to data from S&P Capital IQ. Shares tumbled on a disappointing earnings report as the chart below shows.

EAT data by YCharts.

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So what:Brinker's profit actually beat expectations as the restaurant chain posted earnings per share of $0.56, ahead of estimates by a penny and up 12% from $0.50 a year ago. However, comparable sales were down 1.1% at domestic Chili's as revenue of $762.2 million was well short of expectations at $783.3 million. CEO Wyman Roberts acknowledged, "Our top line performance fell short of our expectations, and we are moving aggressively to respond to competitive activity and return to positive sales and traffic."

Management maintained its EPS guidance of $3.55-$3.65 for the year, but lowered its revenue forecast, saying it now expects growth of 10%-12%, down from 12%-14%. Comp sales guidance was also lowered to -0.5% to -1.5% from positive 1.5% to 2%.

Now what:Despite the recent slowdown, Brinker shares have performed well over the long term as the stock is up 140% over the last five years, though it's pulled back this year. Though much of the attention in the restaurant industry has been put on the fast-casual sector, Brinker has bucked the trend in casual dining. Rivals likeDarden Restaurants, for example, have struggled during much of that time with its flagship Olive Garden brand seeing comps fall in recent years.

With new restaurant growth slowing, Brinker will look to the 103 restaurants it acquired from franchisees to drive this year's growth, but negative comps will put pressure on additional profits. An aggressive share buyback program should continue to drive earnings per share higher, however, especially with its P/E ratio now below 15. If Brinker can deliver on its EPS guidance, the stock should be able to recover some of its losses this year.

The article Why Brinker International, Inc. Shares Dropped 14% in October originally appeared on Fool.com.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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