Chili's CEO on what's next for investors after its $10.99 burger and fries deal
08/15/2024 22:39Chili's CEO weighs in on the company's plans after a big quarter.
A bizarrely chili reception.
Shares of Chili's and Maggiano's owner Brinker International (EAT) were anything but sizzling on Wednesday after its fiscal fourth quarter earnings. The stock tanked 10.7% by the close of trading.
Former KFC marketing master turned Brinker CEO Kevin Hochman says Mr. Market got it wrong and is sleeping on his turnaround story.
"We see our competitors report and they have down traffic — we just haven't seen it in our business. So we know things are tough out there, but we have industry leading value," Hochman said on Yahoo Finance's Morning Brief (video above).
Investors appeared to lock in on Brinker's below consensus full fiscal year profit outlook, as it ramps up marketing around a fajitas re-launch and new restaurant equipment. The company forecast full year EPS of $4.35 to $4.75, short of estimates of $4.68.
Couple that with high expectations going into the quarter — shares were up 55% year to date prior to the results —and any letdown was inevitably punished.
Not helping was a 7 cent earnings miss for the quarter. There's some sentiment on the Street that estimates may have wandered too high.
But lost in the sauce is the eye-popping sales gains at Chili's, Brinker's largest unit. The chain may be gaining share in an environment where consumers are trading down.
Last quarter, sales at Chili's exploded 14.8% (compared to estimates of 6.3%) as the chain wrestled value-seeking diners away from fast food giants such as McDonald's (MCD) by offering a new $10.99 "Big Smasher" burger. For $10.99 before tax, diners snag a half pound burger, fries and a drink.
McDonald's US same-store sales fell 0.7% in the most recent quarter. Hochman's former employer Yum! Brands (YUM) saw Taco Bell same-store sales rise 5%, KFC US sales dropped by 5%. Wendy's (WEN) second quarter same-store sales rose 0.6%.
Brinker's stock rebounded on Thursday, up 6% in early trading.
"We view the initial FY25 guidance as conservative, and recommend investors buy shares on the pullback. Underlying comp trends remain stout (HSD in July, stronger August to date), and we believe the effectiveness of the company's marketing efforts is providing optionality on the timing of new product rollouts, which should allow the company to continue driving positive comp momentum and industry outperformance," said Stifel analyst Chris O'Cull in a client note.
Hochman is keeping his foot on the gas on value messaging and revamping menu items. The company will relaunch its fajitas offering in a couple months with a focus on improved fajita shells and other ingredients.
Fajitas are a $200 million a year business for Chili's.
"This is a great example of our turnaround. We're taking the core items that we sell a lot of and that Americans think of, and we're just making them a whole lot better and more valuable for the guests," Hochman said of the fajitas reboot.
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Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].