Brinker shares breakout following solid Q4 report, can it sustain gains?

Brinker International (NYSE: EAT) delivered a stellar Q4 2024 earnings report, significantly surpassing expectations on both earnings per share (EPS) and revenue. The company posted an adjusted EPS of $2.80, more than doubling the prior year’s $0.99 and beating the consensus estimate of $1.80. Revenue surged 26% year-over-year to $1.36 billion, well above the $1.24 billion analyst forecast. System-wide comparable sales soared 24.2%, driven by Chili’s exceptional performance, which reported a 31.4% rise in comparable restaurant sales, far exceeding the estimated 17.4%. The strong results have led to a sharp rally in Brinker’s stock, which is breaking out above the $155 level in pre-market trading, a key technical threshold for the stock.

Chili’s was the primary driver of Brinker's impressive growth, with domestic comparable restaurant sales climbing 30.8%. This growth was fueled by a 19.9% increase in traffic, bolstered by strategic advertising and a compelling value proposition that attracted both new and returning customers. The company’s operational improvements also contributed to higher retention and return visits. Meanwhile, Maggiano’s saw a modest 1.8% increase in comparable restaurant sales, underperforming relative to estimates but still contributing to overall growth. Franchise sales also grew, with Chili’s franchisees generating $232.3 million in revenue, up from $216.9 million in the prior year.

Brinker’s operating margins saw significant expansion, reflecting the company’s ability to drive profitability alongside top-line growth. The restaurant operating margin (non-GAAP) reached 19.1%, surpassing estimates of 15.9% and marking a substantial increase from 11.6% in the prior year. Higher sales volumes helped offset labor and commodity cost pressures, though some cost challenges remain in areas like management salaries, advertising, and maintenance expenses.

The company raised its full-year fiscal 2025 guidance, now projecting total revenues between $5.15 billion and $5.25 billion, up from previous forecasts of $4.70 billion to $4.75 billion. Brinker also increased its EPS guidance to a range of $7.50 to $8.00, significantly above the prior consensus estimate of $6.44. Capital expenditures are expected to be between $240 million and $260 million, reflecting continued investment in digital initiatives and restaurant upgrades.

From a valuation perspective, Brinker’s stock has seen a significant run-up, now trading near record highs. Analysts have taken note of the strong earnings momentum, with Goldman Sachs initiating coverage with a "buy" rating and a $150 target price, while Barclays and Wells Fargo raised their targets to $150 and $145, respectively. The stock's 20.8x Forward P/E ratio reflects investor optimism, though its high beta of 2.52 suggests volatility remains a factor. The breakout above $155 signals strong bullish sentiment, with further upside possible if the company continues to execute its growth strategy effectively.

Brinker’s results provide insight into the broader consumer dining landscape. Despite a competitive promotional environment, Chili’s has successfully driven traffic growth, indicating that consumers are still willing to dine out when presented with strong value propositions. This is a positive signal for the restaurant industry, particularly for casual dining chains that can effectively balance affordability and quality. Maggiano’s more modest growth, however, suggests that higher-end casual dining may face ongoing demand challenges.

Looking ahead, investors will be watching whether Brinker can sustain this level of performance amid potential headwinds like labor costs and macroeconomic uncertainties. The company’s improved fundamentals, including margin expansion and strong traffic trends, suggest it is well-positioned for continued growth. The upcoming quarters will be crucial in determining whether this breakout above $155 can be maintained and if Brinker can extend its market share gains in the casual dining sector.