Brinker Continues to Deliver Positive Comps, Mitigates Higher Input Costs

Brinker International EAT posted solid financial results in its second fiscal quarter, reflecting continued strong comparable-store sales and operating margin expansion. Total sales were up 1.5% year over year to $682 million, primarily because of higher pricing as input costs rose. The firm gave no update to fiscal 2012 guidance. In the forecast issued last quarter, and consistent with our assumptions, the firm expected fiscal 2012 revenue to be up 2%-3% and operating margins to expand 50 basis points to 8.3%, 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.