A bizarrely chilly 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 said 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 the company ramps up marketing around a fajitas relaunch and new restaurant equipment. The company forecast full-year earnings per share 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 $0.07 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 can 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 by 5% and KFC US sales drop 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 ([high single digits] 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 of 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.
Three times each week, I field insight-filled conversations with the biggest names in business and markets on my Opening Bid podcast. Find more episodes on ourvideo hub. Watch on yourpreferred streaming service. Or listen and subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
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Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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