uploads///Food Inflation

Brinker International’s Food Costs Could Moderate

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Jan. 30 2015, Updated 3:05 p.m. ET

Food costs

During the previous quarter, Brinker International saw an improvement in its cost of sales by 30 basis points—one-hundredth of a percentage. This rise was driven by the company increasing its menu prices. In the previous quarter, we learned that the company installed new fryers in its restaurants, which lowered its oil use.

 

Poultry prices were in the company’s favor as well. Brinker saved as many as 40 basis points—one-hundredth of a percentage.

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You can see, in the chart above, a sharp rise in the prices of burger meat in 2014. The rise in prices was due to a shortage in supply caused by severe weather in the US. Higher cheese and avocado prices also dug into EAT’s costs. This affected several restaurants, such as McDonald’s (MCD), Burger King (BKW), Darden Restaurants (DRI), Bloomin’ Brands (BLMN), and other companies included in the Consumer Discretionary SPDR fund (XLY).

Costs remain moderated

The prices of poultry, meat, dairy, seafood, and produce remained stable in November and December, as you can see in the chart above. Brinker purchases meat, avocado, and cheese at spot prices as opposed to contracted prices, which adds to its higher costs. However, as of the last quarter, 85% of the company’s commodities were contracted through 2014’s end and 37% were contracted through year end 2015. So EAT may report moderated food costs with its upcoming earnings.

We’ll now turn to EBITDA[1. earnings before interest, tax, depreciation, and amortization] analysis for the company’s upcoming earnings.

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