Shares of Brinker International, Inc. EAT have performed exceptionally well in the past year, thanks to traffic-driving efforts, effective menu pricing, expansion initiatives and menu innovation. In the past year, the company’s shares have skyrocketed 219.3%, outpacing the industry and the S&P 500’s growth of 3.5% and 6.5%, respectively.

As of Friday’s close, the company’s shares stood at $143.77, below its 52-week high of $192.22 but significantly above its 52-week low of $43.37. EAT has outpaced other industry players like BJ's Restaurants, Inc. BJRI, Shake Shack Inc. SHAK and Chipotle Mexican Grill, Inc. CMG.

EAT’s Price Performance

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Brinker Trades at a Discount

Despite the company’s shares witnessing exceptional gain in the past year, it is still trading at a discount. EAT’s forward 12-month P/E ratio stands at 15.79X, lower than the industry. The stock is also trading at a discount compared to other industry players like BJ's Restaurants, Shake Shack and Chipotle.

EAT’s P/E Ratio (Forward 12 Months)

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Brinker’s Traffic Driving Efforts Aid

The company continues to drive traffic on the back of sales-building initiatives such as streamlining the menu and its innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization, and the introduction of a better service platform.

In the second quarter of fiscal 2025, Brinker saw increased traffic and guest counts due to the success of its marketing campaigns, including the better-than-fast-food TV campaign and the Triple Dipper social media campaign. Sales at Chili’s rose 31.4% and traffic increased 19.9% year over year. As operations improve, the company is seeing higher returns on marketing investments through more frequent guest visits.

EAT’s Expansion Efforts Look Solid

The company is leaving no stone unturned to expand its footprint. In fiscal 2024, Brinker opened nine Chili's restaurants. For fiscal 2025, Chili’s has nine to 11 domestic openings and 21-25 international openings scheduled in the pipeline. Then again, the company is planning to open one of Maggiano's domestic restaurant in fiscal 2025.

The company is positioned to invest aggressively to grow its business in fiscal 2025 and beyond. For the coming year, Brinker will look for more ways to offer convenience, value and a great guest experience by doubling its pipeline of restaurant openings and expanding its portfolio of brands.

Brinker’s Menu Innovation

EAT emphasizes menu adjustments to drive growth. In the second quarter of fiscal 2025, the company continued to drive momentum with food innovation. Following the success of the natural hot mozzarella sticks, Brinker introduced Honey Chipotle Mozz Sticks, which likely fueled social media excitement around the Triple Dipper campaign. The campaign's impact was significant, with Triple Dipper accounting for 14% of total sales in the fiscal second quarter, up from the fiscal first quarter.

The company is planning more food innovations in the fiscal fourth quarter, including a new item that will enhance the 3 For Me platform and build on the success of the Big Smasher launch. Brinker expects this new menu item to help increase traffic from a year ago.

Factors Likely to Hurt EAT

Uncertainty regarding the consumer environment in the second half of fiscal 2025 might hurt the company’s performance. Any deterioration in discretionary spending due to inflation, economic uncertainty, or shifts in dining preferences may affect guest traffic and spending.

The rise in labor costs, including wage rates, continues to impact the company negatively. In the second quarter of fiscal 2025, restaurant labor costs were $421 million compared with $356.1 million in the prior-year quarter. This upside was due to higher hourly labor expenses caused by increased wage rates, staffing levels and higher manager salaries. Higher repair and maintenance expenses are added concerns.

Restaurant expenses in the fiscal second quarter were $324.4 million, up from $294.7 million in the year-ago quarter. The company anticipates the inflationary environment to persist for some time.

Brinker’s Earnings Estimate Revisions

The Zacks Consensus Estimate for EAT’s fiscal 2025 sales and EPS implies year-over-year growth of 18.6% and 102.4%, respectively. Earnings estimate revisions for fiscal 2025 have witnessed upward revisions of 3.4% in the past 60 days. Conversely, industry players like BJ's Restaurants, Shake Shack and Chipotle’s earnings in 2025 are likely to witness year-over-year growth of 12.9%, 40.2% and 13.4%, respectively.

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End Note

Brinker has delivered an outstanding stock performance over the past year, fueled by strong traffic-driving initiatives, menu innovation and aggressive expansion plans. The company appears undervalued based on its forward P/E, and fundamentals remain solid with rising sales and traffic, particularly at Chili’s.

However, rising labor and operating costs, along with macroeconomic uncertainty and industry-wide traffic pressures, could weigh on Brinker’s future performance. Given the sharp increase in the stock and potential margin headwinds ahead, investors already holding EAT may consider staying the course, while new investors may want to wait for a more attractive entry point. EAT currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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