Brinker Continues to See Strong Customer Traffic Trends, but Optimism Already Reflected in Shares

Brinker International EAT again posted solid financial results in its first fiscal quarter, reflecting continued strong comparable-store sales and operating margin expansion. Total sales were up 2.1% year over year to $668 million, primarily due to increased traffic at the firm's two concepts, Chili's and Maggiano's. Consistent with our assumptions, the firm expects fiscal 2012 revenue to be up 2%-3% and operating margins to expand 50 basis points, leading to earnings per share of $1.80-$1.95. We believe the shares are currently modestly overvalued, and we remain concerned that a correction among restaurant stocks may occur as macroeconomic pressures and menu price increases from earlier in the year weigh on traffic industrywide.