Shares of Brinker International (EAT -3.02%) rose by a mouthwatering 37.6% in January, according to data from S&P Global Market Intelligence. The company behind the popular restaurant chains Chili’s and Maggiano’s Little Italy delivered an earnings report strong enough to boost other restaurant stocks that day.
Breaking down Brinker’s spectacular quarter
Brinker reported second-quarter results on Jan. 29, and it was a blowout performance.
Earnings more than doubled year over year, landing at $2.80 per share. Revenues rose 27% to $1.36 billion. Your average analyst firm would have settled for earnings of roughly $1.56 per share on sales near $1.19 billion.
The Chili’s parent saw more restaurant traffic than expected and followed up with a lesson in fiscal discipline. Brinker held back its operating costs, pushing its companywide operating margin up from 5.8% to 12.4%. That’s nothing short of impressive.
The secret sauce behind these beefy results is a 31% increase in comparable-store sales for Chili’s. Brinker achieved this traffic boost by simplifying its menu, running an effective marketing campaign, and refocusing on higher-quality ingredients. These moves resonated with consumers, resulting in great word-of-mouth marketing and stunning financials.
How Brinker cooked up a tasty comeback
Mind you, this is more of a turnaround story than a march to fresh glory. Brinker’s sales took a hard hit during the coronavirus pandemic, and it took years to repair the company’s damaged cash flows.
But the work has been done. Brinker’s free cash flows are back to record highs, as is the stock price. Restaurant industry watchers are already studying Brinker’s turnaround story as a potential all-time classic. It looks like CEO Kevin Hochman’s laser focus on simplicity and great customer experiences was a good idea. Furthermore, Brinker upgraded its kitchen information systems in the summer of 2023, hoping to take advantage of data analytics on a grand scale.
That lesson in effective restaurant management seems to come straight from the desk of Captain Obvious, but it’s not easy to find other examples of the same idea in practical use. Many restaurants seem to think that a longer menu with more choices will satisfy every potential dinner guest, even it that leads to complicated ingredient inventories and more training for the cooks and chefs.
Brinker is showing everyone how it’s done, and it’s hard to ignore these tremendous business results. I expect a plethora of copycats to pop up over the next few years. Five years from now, it may be time to thank Brinker for inspiring a new focus on customer service across the restaurant sector.
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
