Karishma Vanjani and Evie Liu

Brinker International stock surged 16% on Wednesday to close at yet another record high, after the restaurant company reported better-than-expected quarterly earnings and lifted its full-year outlook for the second time in a row.

For the owner of Chili's Grill & Bar, the next challenge is to maintain the growth momentum to support its high stock valuations. The CEO said he has more plans for the coming quarters.

Brinker said earnings for the 13 weeks ended Dec. 25 were $2.80 a share, up from about a dollar last year and topping estimates of $1.86 listed on FactSet. Sales of $1.358 billion also beat the $1.25 billion consensus.

Brinker's shares are extending the strong gains that led to 30 record closes and a 206% increase in 2024.

Chili's, a casual dining chain that makes up about 90% of Brinker's overall revenue, has been the star of the show. It's benefiting from solid momentum pushed by Triple Dipper, an under $20 mix-and-match tray of three appetizers and three dipping sauces, that has taken social media by storm.

"Our team chose Triple Dipper to start the social media campaign because we believe it is consistent with the way the younger generations like to eat," CEO Kevin Hochman told Barron's, "They like to try lots of different things instead of just one big entree, and they like to customize."

That turned out to be a huge success. Triple Dipper's share in Chili's total sales has doubled from 7% to 14% since the social media campaign.

Simplifying the menu has also helped the firm improve its operational efficiency and quality. In the past two years, Chili's has got rid of a lot of menu items to focus on five core offerings -- burgers, Crispers, fajitas, margaritas, and Triple Dipper.

Chili's comparable sales increased by 31% year over year in the latest quarter. The gain was "driven both by new guests trying Chili's and return guests coming more frequently despite a more competitive promotional environment," Hochman said in a statement.

The momentum allowed Brinker to lift its adjusted earnings outlook for fiscal 2025 ending in June to a range of $7.50 to $8, beating the October guidance of $5.20 to $5.50 and August's $4.35 to $4.75.

Revenue is now estimated to be $5.15 billion to $5.25 billion in the fiscal year, also higher than the prior estimates.

Investors are certainly excited about the outlook: Brinker stock's one-year gain beats both Nvidia and the broader market.

Still, the solid report doesn't make the stock a Buy. Brinker's shares trade at 22.1 times their next 12-months earnings, largely in line with the highest ever valuation of 23.8 times seen over the past five years. Higher than historical valuations mean the stock is expensive as investors expectations ride high.

The sales momentum so far has supported the high valuation, with sales growth in the latest quarter more than doubling the prior quarter's. The comparisons, though, can become tougher in the later part of the fiscal year: Brinker posted same-store sales of 13.5% in the fourth fiscal quarter of 2024, the highest gain seen in more than two years.

"We believe risk/reward is balanced," UBS analyst Dennis Geiger said in a note this week, before earnings. "Expectations are already particularly elevated and shares are up 280% over the last 12 months, w/ valuation looking more full even on higher estimates."

Brinker will have a high bar to beat in its fiscal fourth quarter starting in April. The company is planning to launch a new menu item in the fourth quarter to continue the same-store sales momentum.

Hochman expects marketing expense to pick up in the second half of the year: "We're focused on making sure that in Q4 we have a new item, and we want to launch it with sufficient media weights to really create an impact in the industry and with the guests."

"As long as we're creating the operational improvements to sustain the traffic gains, and we're making more improvements going forward, there's no reason why this, this flywheel won't keep going," says the CEO.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 29, 2025 15:54 ET (20:54 GMT)

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