Brinker Posts First Top-Line Gain of Fiscal 2011; Margins Continue to Expand

Brinker International EAT presented solid third-quarter results and is on track to meet our full-year estimates. For fiscal 2011, we project a low-single-digit revenue decline, despite a 5.4% decrease year to date, as the firm cycles out of heavier promotional activities in the year-ago period in the back half of the year. Additionally, we estimate that the operating margin will expand to around 7.0%-plus in fiscal 2011, up from 6.4% in the prior year, as Brinker benefits from operational efficiencies and menu price increases, partially offset by higher beef prices in the back half of the year. This is in line with management's 70- to 100-basis-point margin improvement forecast. Results were in line with our expectations, and we are maintaining our fair value estimate of $19 per share.