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Casual Dining Restaurant with the Highest 1Q16 Earnings Margin

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EBIT margins

EBIT (earnings before interest and tax) is key to investment decisions. EBIT indicates the efficiency of a company’s business. It affects EPS (earnings per share) and should ultimately drive share prices. In 1Q16, only one of the five casual dining restaurant companies in our series posted a rise in EBIT margins compared to 1Q15.

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The leaders

With nearly 40% of its restaurants franchised, Brinker International (EAT) enjoys the highest EBIT margin. EAT’s margins declined from 12.1% in 1Q15 to 10.9% in 1Q16. The sales deleverage due to negative same-store sales growth and an increase in labor and restaurant expenses led to the decline in EBIT margin.

EAT was followed by Texas Roadhouse (TXRH) with an EBIT margin of 10.2%. Despite a sales leverage due to positive same-store sales growth, TXRH’s EBIT margin declined in 1Q16 due to an increase in labor wages and G&A (general and administrative) expenses.

TXRH was followed by Buffalo Wild Wings (BWLD) with an EBIT margin of 9.4%. BWLD’s 1Q16 margin declined from 10% in 1Q15 due to an increase in investments to enhance guest experience. This led to an increase in labor costs and depreciation and amortization expenses.

The laggards

Bloomin’ Brands (BLMN) posted the lowest EBIT margin among our five companies. Sales deleverage and an increase in labor expenses lowered BLMN’s 1Q16 margins to 7.9% from 9.2% in 1Q15.

BLMN was followed by The Cheesecake Factory (CAKE), which forms 0.15% of the holdings of the iShares S&P Mid-Cap 400 Value (IJJ). CAKE’s EBIT margin improved from 7.9% in 1Q15 to 8.8% in 1Q16 due to lower seafood and poultry costs, which drove the cost of sales down.

In the next part of our series, we’ll look at EPS (earnings per share) growth for our casual dining restaurants.

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