EAT Stock Alert: Why Shares of Brinker Are Plunging Today

The shares of casual restaurant chain owner Brinker (NYSE:EAT) are sinking 12% in early trading. EAT stock is tumbling after the firm’s profits for its fiscal fourth quarter, which ended on June 26, came in below analysts’ average estimates. The firm’s full-year bottom line guidance also missed analysts’ mean outlook. On a positive note, the company’s revenue did increase 11% last quarter versus the same period a year earlier as a number of its initiatives bore fruit.

Among the restaurant chains owned by Brinker are Chili’s and Maggiano’s.

Brinker’s Results and Guidance

Brinker’s Q4 revenue increased 11% year-over-year to $1.2 billion, roughly in line with analysts’ mean estimate. However, its earnings per share, excluding certain items, came in at $1.61, well below the average outlook of $1.72. The company’s EPS jumped 30 cents YOY.

The firm provided adjusted EPS guidance for its current fiscal year of $4.35 to $4.75, below analysts’ average estimate of $4.78. However, it is expected to generate revenue of $4.45 billion to $4.62 billion this year, above the mean estimate of $4.52 billion.

What’s more, the restaurant owner’s comparable restaurant sales did jump 13.5% year-over-year last quarter, led by a 14.8% increase in Chili’s comparable sales. According to Brinker, Chili’s growth, in turn, was partially driven by the launch of its new Big Smasher Burger. The meal features Thousand Island dressing, American cheese, red onions, pickles, and lettuce. Advertising and price increases also helped drive Chili’s strong growth. Moreover, Chili’s traffic rose by an impressive 5.9% YOY.

Analysis of EAT Stock

The company appears to be growing at a very healthy pace, while its profits likely came in below analysts’ average estimates primarily because of its investments in advertising, which appear to have worked well. Further, its forward price-to-earnings ratio is a reasonable 14.7 times.

On the other hand, the firm could be hurt over the longer term by lower consumer spending trends and tougher comparisons as it laps the introduction of the Smasher Burger.

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.