Brinker's Sales Growth Prospects Keeps KeyBanc On The Sidelines

Although Brinker International, Inc. EAT achieved five straight quarters of traffic growth at Chili's, the company faces increasingly difficult comps in 2020 and its same-store sales growth “remains a show-me story,” according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Eric Gonzalez initiated coverage of Brinker with a Sector Weight rating.

The Thesis

Traffic growth at Chili's is particularly admirable, given that this segment had underperformed for years, Gonzalez said in the note. He added that Brinker had delivered on its 2019 same-store sales, margin and EPS targets despite some obstacles.

Although Brinker could generate margin expansion in 2020, same-store sales growth is “a show-me story," pointing out that the company had rolled out its 3 for $10 initiative in the fourth quarter.

Chili's same-store sales growth could clock at 1.5% in 2020, with the casual dining industry likely to moderate as the year progresses. Chili’s takeout sales grew 15% to 20% in each of the last four fiscal quarters. The analyst believes the recent partnership with DoorDash could help the company sustain that momentum going forward.

However, he wrote that “profit flow-through from third-party platforms, including DoorDash, are generally less profitable by virtue of their take-rates, which we estimate to be in the mid-teens range for Chili’s.”