) -- Shares of
fell 3% at midday after an Argus Research analyst issued a downgrade on the operator of Chili's restaurants.
Analyst John Staszak downgraded Brinker shares to hold, from buy, on the view that the chain restaurateur faces "a tough couple of quarters going forward."
Brinker is "doing a lot to improve margins and operations" but has faced declining same-store sales, or sales at stores open at least one year, and that trend is expected to continue.
Brinker said last week
, including a 4.1% decrease at Chili's and a 1.3% increase at Maggiano's Little Italy restaurants. The company also forecast that fiscal 2011 comps would be flat to down 2%, with the first half of the year being more challenging as it laps heavy promotions it offered customers in the first half of fiscal 2010.
Staszak said industry players like
are better buys from an investment standpoint, eating Brinker's proverbial lunch in terms of market share as consumers continue to look to lower-priced dining options amid a still-uncertain economic environment.
Adding to the analyst's argument was Brinker's recent sale of On The Border Mexican Grill & Cantina restaurants to
, an affiliate of
Golden Gate Capital
, which will lead to lost revenue and profits as the company adjusts to a smaller version of itself. Brinker completed the $180 million sale on June 30.
Brinker will be fine in the long run but the near-term outlook is tough," Staszak said, given the company's strategy of repurchasing shares and reducing its debt. He expects Brinker will turnaround toward the end of its current fiscal year in June 2011.
Brinker missed top- and bottom-line expectations for its fiscal fourth quarter but forecast 2011 earnings in line with analysts' consensus call. The company said full year revenue should decrease between 2% and 4%, from 2010 revenue of $2.86 billion, to a range between $2.75 billion and $2.8 billion. Analysts expect the company to book 2011 revenue of $2.81 billion.
Brinker posted net fiscal-fourth-quarter earnings of $63.6 million, or 62 cents per share, up from $42.2 million, or 41 cents per share, in the year-earlier period.
Adjusted earnings, which exclude On The Border results, were $45.2 million, or 44 cents per share, missing analysts' consensus call for earnings of $47.5 million, or 46 cents per share. Analysts typically exclude one-time items and discontinued operations when forecasting earnings estimates.
Brinker International Group's Stock Rating Report (EAT) Rating and Financial Analysis
-- Reported by Miriam Marcus Reimer from New York.
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