Brinker International

Brinker International, Inc. is a multinational casual dining company that owns the Chili's Grill and Bar and Maggiano's Little Italy restaurant chains. The company currently owns, operates, or franchises a total of 1,602 restaurants under the names Chili's Grill & Bar (1,557 restaurants) and Maggiano's Little Italy (45 restaurants) worldwide.

Chili's Grill and Bar

Chili’s menu features Baby Back Ribs smoked in-house, Big Mouth Burgers, Sizzling Fajitas, hand-battered Chicken Crispers and house-made Chips and Salsa, as well as pizzas and flatbreads. Their menu also offers a generous selection of appetizers, entrees and desserts at affordable prices. Chili’s offers a full selection of alcoholic beverages available from the bar but they are known for their Margaritas and draft beer. For guests seeking convenience, the company offers a "To Go" service that can be ordered by calling the restaurant or on-line or via mobile app, and most Chili’s offer a separate To Go entrance for service.

During the year ending June 26, 2013, at company-owned restaurants, entrée selections ranged in menu price from $6.00 to $17.69. The average revenue per meal, including alcoholic beverages, was approximately $13.99 per person. Food and non-alcoholic beverage sales constituted approximately 86.1% of Chili’s total restaurant revenues and alcoholic beverage sales accounting for the remaining 13.9%. Our average annual sales volume per Chili’s restaurant during this same year was $3.0 million.

Maggiano's Little Italy

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24 August 2014
Price $49.37
1yr Target $51.93
Analysts 14
1yr Cap Gain 5.18%
Dividend $0.96
Yield 1.94%
1yr Tot Return 7.12%

Market Cap $3.21 Bil
Payout Ratio 42.47%
Beta 0.97
EPS (ttm) $2.26
EPS next yr $3.50
P/E 21.85
PEG 1.66
Debt/Equity 13.63%
ROA 10.50%
ROE 156.10%

Maggiano’s is a full-service, casual dining Italian restaurant brand that, with it's interior ambience, transports its guests back to the classic Italian-American restaurant style found in of New York’s Little Italy in the 1940s. Their restaurants feature individual and family-style menus, and our restaurants also have extensive banquet facilities designed to host large party business or social events. They have a full lunch and dinner menu offering chef-prepared, classic Italian-American fare in the form of appetizers, entrées with bountiful portions of pasta, chicken, seafood, veal and prime steaks, and desserts. They also offer a full range of alcoholic beverages, including a selection of Handcrafted Classic Cocktails and premium wines. In addition, Maggiano’s offers a full carryout menu as well as local delivery services.

During the year ending June 26, 2013, entrée selections ranged in menu price from $12.95 to $42.50. The average revenue per meal, including alcoholic beverages, was approximately $26.72 per person. Food and non-alcoholic beverage sales constituted approximately 83.0% of restaurant revenues, with alcoholic beverage sales accounting for the remaining 17.0%. Sales from events at our banquet facilities made up 19.4% of our total restaurant revenues for the year. Our average annual sales volume per Maggiano’s restaurant during this same year was $8.81 million.

New Openings

Brinker plans on opening a number of additional company-owned and franchised restaurants in 2014. They expect to open 11-12 company-owned and 4-6 franchised Chili's restaurants in the North American market. In the International market they expect to open 2 company-owned and 31-35 franchised Chili's restaurants. They also expect to open 2-3 additional Maggiano's restaurants within the North American market. Currently there are no franchised Maggiano's restaurants and none of them are located outside North America. Of the Chili's restaurants, 35% of the domestic and 96% of the international restaurants are franchised.

Historical Highlights

• 1975: The first Chili's Grill & Bar opens in Dallas, Texas.
• 1983: The company goes public.
• 1988: The first Romano's Macaroni Grill opens in Leon Springs, Texas.
• 1991: Chili's, Inc. is renamed Brinker International, Inc.
• 1995: Brinker complete's the acquisition of Maggiano's and establishes a strategic partnership with Lettuce Entertain You Enterprises.
• 2005: Brinker sells off the Corner Bakery Cafe concept.
• 2008: Brinker sells the majority stake in Romano's Macaroni Grill to Mac Acquisition LLC. (Brinker still owns a minority interest in Mac Acquisition)
• 2010: Brinker sells On the Border Mexican Grill & Cantina to OTB Acquisition LLC.

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The Fundamentals

The fundamentals below look somewhat uneven unless you view them in terms of the historical highlights above. The addition of Romano's Macaroni Grill increased the revenues of Brinker International while the loss of Romano's Macaroni Grill, the Corner Bakery Cafe concept, and On the Border Mexican Grill & Cantina decreased the company's revenues. Similar effects occurred to the company's earnings. Surprisingly dividends per share were actually increased each year from the initial dividend in 2006. 

With the company finally focused on their two main restaurant concepts, revenues are estimated to grow 3.79% in 2015 and 7.30% in 2016. Earnings are estimated to increase 14.92% in 2015 and 13.63% in 2016. Dividends are estimated to increase 16.66% in 2015 and 14.28% in 2016. (Brinker announced on Thursday, Aug 21, a dividend increase to $0.28 from $0.24, a 16.66% increase).

Year (June)
2016 Est
2015 Est
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003

Revenues
$3.13 Bil
$3.01 Bil
$2.90 Bil
$2.84 Bil
$2.82 Bil
$2.76 Bil
$2.85 Bil
$3.27 Bil
$4.23 Bil
$4.37 Bil
$4.15 Bil
$3.91 Bil
$3.70 Bil
$3.28 Bil

Earnings
$3.50
$3.08
$2.68
$2.20
$1.87
$1.53
$1.34
$0.77
$0.49
$1.85
$1.62
$1.15
$1.02
$1.13

Dividends 
$1.28
$1.12
$0.96
$0.80
$0.64
$0.56
$0.47
$0.44
$0.42
$0.33
$0.20
N/A
N/A
N/A

Payout Ratio
36.57%
36.36%
35.82%
36.36%
34.22%
36.60%
35.07%
57.14%
85.71%
17.83%
12.34%
%
%
%

Prior to 2010 Brinker consisted of multiple restaurant concepts which were fully developed and eventually sold. As a result, the 5 and 10 year growth rates below include entire restaurant chains that are no longer part of Brinker International. The 3 year growth rates more accurately represents the corporation as it exists today. While I like to see growth rates over multiple periods, I think for Brinker International it's best to see the 3 year growth rates as best representing the company and its organizational structure as it exists today.

Revenue Growth Rate
3 year = 1.64%
5 year = -2.38%
10 year = -2.41%

Earnings Growth Rate
3 year = 20.31%
5 year = 28.33%
10 year = 10.14%

Dividend Growth Rate
3 year = 19.46%
5 year = 16.88%
8 year = 21.66%

The Technicals

From a technical perspective it's pretty easy to see that the stock is overpriced on a daily basis but more appropriately priced on a weekly basis. It's also obvious that the stock was a steal 2-3 weeks ago when it was priced in the $44.00 area. Technically I would wait for a combination of a pullback to the lower Bollinger Band with the momentum indicators in oversold territory before I'd commit funds to this company.

Daily Chart

Weekly Chart

The Competition

Brinker International is part of the Restaurant Industry which is part of the Services Sector of the economy. Below are a few of the major corporations included in this industry. They each pay at least a minimal dividend and they are listed in the order of their market capitalization.

1. McDonald's Corporation  (MCD)
   
2. Yum Brands, Inc.  (YUM)
   
3. Burger King Worldwide, Inc  (BKW)
   
4. Darden Restaurants, Inc.  (DRI)
   
5. Dunkin' Brands Group, Inc.  (DNKN)
   
6. Domino's Pizza, Inc.  (DPZ)
   
7. Brinker International, Inc.
   
8. The Wendy's Company  (WEN)
   
9. Cracker Barrel Old Country Store, Inc.  (CBRL)
   
10. Jack in the Box, Inc.  (JACK)
    
11. The Cheesecake Factory, Inc.  (CAKE)
    
12. Texas Roadhouse, Inc.  (TXRH)
    
13. DineEquity, Inc.  (DIN)
    
14. Sonic Corporation  (SONC)
    
15. Bob Evans Farms, Inc.  (BOBE)

Conclusion

I like the Restaurant Industry in General and Brinker International in particular. I believe that the fast food industry is currently facing headwinds due to the fact that the lower end of the economy is struggling. The casual dining portion of this industry, however, seems to be doing quite well. I think this segment of the industry is viewed more as an evening out with friends and family as opposed to the fast food restaurants which are viewed as simply getting a quick meal on the run. I think as the economy improves, the casual dining restaurants will continue to improve and the fast food restaurants will begin to see their customer base return. 

But I like to buy companies that are on sale and based upon the technicals, this company currently is not. My intent is to wait for a pullback in the price of the stock to an area near $44-$45. By waiting, the P/E ratio will fall to a level at or below 20, the one year estimated capital gain will increase to above 16%, and the dividend yield will increase to near 2.50%. These are actually ideal numbers for a dividend growth investor and would signal to me that this is a great company at a great price.

The Live Interactive Chart

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1. The Restaurant Industry
   
2. McDonald's Corp
   
3. Cracker Barrel Old Country Store
   

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