Brinker Shares Drop 10% Due to Labor Issues, Food Costs Reduce Revenues

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Shares of Brinker International, Chili’s parent company, tumbled about 10% in early trading on Wednesday after the restaurant company released preliminary reports ahead of investor day that showed higher labor and food costs had an impact on its profitability.

“Brinker’s first quarter showed positive sales and continued to outpace the industry in traffic significantly,” Brinker CEO Wyman Roberts said in a statement. “But the surge in COVID that began in August has exacerbated industry labor and commodity issues and impacted our profitability and bottom line more than we expected.”

Brinker said he earned 34 cents a share excluding items. That’s roughly half the average analyst estimate of 69 cents per share in a Refinitiv poll.

The company’s revenue and traffic came in line with analysts’ forecasts, but were not strong enough to offset higher costs. Brinker reported net sales of $ 876.4 million, in line with Wall Street’s estimate. Sales of Little Italy’s Chile and Maggiano also met analysts’ expectations, although they declined in August and recovered in September.

Other restaurant companies that also tackle industry-specific staffing issues were less fortunate. The quarterly growth in sales of Domino’s Pizza in the same stores in the United States turned negative for the first time in more than a decade in the last quarter. CEO Ritch Ellison blamed the work environment, saying the shortage of workers is putting pressure on the number of orders restaurants can get. Some places have even shortened the hours.

The topic is likely to reappear in the earnings reports of other restaurants, and on Wednesday it put pressure on the shares of some of Brinker’s competitors. Darden Restaurants fell 1.5% and Cheesecake Factory fell 2%. Owner Outback Steakhouse Bloomin ‘Brands plunged 3% in early trading.

Brinker said it is raising prices to combat rising labor and raw material costs, with a target of 3% to 3.5% for the fiscal year, up from the previous 2% to 2.5% range. According to Raymond James analyst Brian Vaccaro, the move followed several years before the pandemic, when prices on the menu were lower than those of competitors. While the price increase helps Brinker protect its bottom line, it also carries the risk of customers moving to cheaper restaurants or choosing to eat at home.

Brinker shares are down 22% this year, bringing their market value to $ 2 billion. The company is expected to release full financial results for the first quarter on November 3.

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