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Pepper Dining Acquisition Improved Brinker International’s Revenue

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Jan. 25 2016, Updated 7:55 p.m. ET

Increase in revenue

The 2Q16 revenues of Brinker International (EAT) were at $789 million, an increase of over 6.2% from 2Q15’s revenue. The increase in revenue was largely due to the acquisition of Pepper Dining in 1Q16.

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Revenue by segment

On June 25, 2015, the company acquired Pepper Dining, which was operating 103 Chili’s franchise-operated restaurants. The acquisition increased revenue from company-owned restaurants from $602 million to $651 million, an increase of 8.1%. However, the decline in same-store sales growth negatively affected the revenue generated from this segment. Although the same-store sales growth of franchise-operated restaurants was positive, the revenue generated from this segment declined due to the sale of franchise-operated restaurants by Pepper Dining.

Maggiano’s 2Q16 revenue

The decline in same-store sales growth negatively affected the revenue from this segment. In 2Q16, the company increased its restaurant count by two units, but Maggiano’s revenue decreased by 1% year-over-year. However, some of the decline was offset by the growth in revenue during the holiday season. The brand was benefitted by its banquet space in malls along with an increase in its delivery business by 10%.

Outlook

To stop the decline of same-store sales growth at its restaurants, Brinker International’s (EAT) management has taken several steps, which we’ll discuss later in the series. The company’s management expects these measures will help in increasing its revenue in 3Q16 by 6.5% to 7.5% year-over-year. In the next article, we’ll discuss the company’s revenue drivers.

Alternatively, you can gain exposure to the restaurant industry by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY), which has holdings in McDonald’s (MCD), Starbucks (SBUX), and Yum! Brands (YUM).

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