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Chili's Parent Brinker Lower; Labor Costs, Commodity Inflation Cut Margins

Brinker says the industrywide labor shortage and rising commodity prices are eating into its profit margins.

Shares of Brinker International  (EAT) - Get Brinker International, Inc. Report dropped on Wednesday after the parent of restaurant chains Chili's and Maggiano's said that inflation was eating into its profit margins. 

The Dallas company said that the Covid-19 surge starting in August worsened an industrywide labor shortage and that rising commodity costs are narrowing its margins and hurting the bottom line. 

"We are responding to these Covid headwinds with increased focus on hiring and retention efforts, and working with our partners" to further stabilize the supply-chain environment, Chief Executive Wyman Roberts said in a statement.

Brinker shares at last check dropped 12% to $43.21. 

The company reported fiscal-first-quarter sales increased 18% to $859.6 million from $728.2 million in the year-earlier period. Analysts surveyed by FactSet were expecting the company to report revenue of $876.8 million. 

The restaurant operating margin as a percentage of sales shrank to 10.4% from 11.6% a year earlier. 

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The company said the main drivers of that narrowed margin were 1.5 percentage points of higher restaurant-labor costs and 0.6 percentage point of higher commodity costs. 

Brinker said that labor costs rose due to market-rate and merit increases as well as temporary incremental overtime and training costs.

The company will report its first-quarter results on Nov. 3.

Last week, U.S. President Joe Biden said the Port of Los Angeles would start operating 24/7 as part of an effort to alleviate the global supply-chain disruption. 

Around 40% of shipping containers enter the U.S. through the ports of Los Angeles and Long Beach, Calif.

The ongoing disruption in the global supply chain has caused spikes consumer-product prices to spike. On Tuesday, the International Monetary Fund cut its global-growth forecast, blaming supply disruptions and the Covid pandemic.