Brinker International Gains From Chili's Momentum Amid Cost Pressures

Brinker International EAT continues to benefit from strong performance at Chili’s, driven by higher traffic, effective marketing and brand-building initiatives, and ongoing improvements in food quality and in-restaurant experience. Ongoing remodeling efforts are supporting guest engagement, while continued menu enhancements reinforce the brand’s long-term relevance. Management remains focused on balancing value-oriented offerings with margin expansion and adapting to evolving consumer preferences to support sustainable long-term growth.

Shares of this casual dining chain have gained 18.1% in the past three months, outperforming the Zacks Retail - Restaurants industry’s 1.4% rise. Its earnings topped the Zacks Consensus Estimate in each of the trailing four quarters, with an average being 18.7%.

The fiscal 2026 earnings estimate has edged up to $11.74 per share from $11.71 over the past 30 days. While Brinker International continues to face headwinds from rising costs, persistent inflationary pressures and softer sales at the Maggiano’s segment, the stock maintains a favorable trajectory. This reflects improving operating efficiencies and margin expansion, which support expectations for solid absolute earnings growth.

Brinker International — a Zacks Rank #3 (Hold) stock — has a favorable VGM Score of A. Let’s take a closer look at the key factors supporting the stock’s performance and the challenges that may hold it back.

Factors Aiding EAT Stock

Sales-Building & Margin-Driving Initiatives: Brinker International continues to drive sales growth through a disciplined focus on its core fundamentals of food, service and atmosphere. The company is strengthening its value proposition through consistent, price-pointed offerings, menu upgrades, and strategic marketing and brand-building initiatives that are driving sustained traffic gains. Although margin expansion may moderate amid commodity inflation and targeted investments, management remains focused on maintaining profitability through sales leverage, disciplined cost controls and strategic initiatives that support long-term shareholder value creation.

In the first quarter of fiscal 2026, Brinker International reported total revenues of $1.35 billion, reflecting an 18.5% year-over-year increase, driven largely by sustained strength at Chili’s. The brand posted same-store sales growth of 21.4%, supported by a 13.1% increase in traffic, marking EAT’s 18th consecutive quarter of positive comparable sales growth. Operational discipline and strong sales leverage translated into solid profitability gains, with restaurant operating margin expanding 270 basis points year over year to 16.2% despite modest headwinds from food and commodity cost inflation.

Remodeling & Expansion Initiatives: Brinker International is pursuing a disciplined approach to remodeling and expansion focused on strengthening brand identity and supporting long-term growth. At Chili’s, the first four remodel pilot restaurants are expected to be completed by the end of the current quarter. The program, inspired by the original Greenville Avenue prototype, is designed to restore the brand’s distinctive personality while modernizing the guest experience. In parallel, management is rebuilding its development pipeline and positioning the company for a return to positive net new unit growth, with expansion efforts expected to scale beginning in fiscal 2027.

Focus on Menu Innovation: Brinker International is driving traffic and brand relevance through targeted menu innovation focused on core offerings rather than short-term promotions. The ribs upgrade has been a standout, with sales up 35% and profitability improving 29%, supported by higher food quality scores and positive guest feedback. Beverage innovation is also contributing, as the frozen Patrón Margaritas platform is generating twice the unit sales of the prior offering despite a higher price point. New items supported sales growth and food-grade improvements, while the original Skillet Queso is being reintroduced alongside the new version to meet demand from loyal guests. Looking ahead, a chicken sandwich platform refresh is planned for the back half of fiscal 2026.

Factors Hindering Growth of EAT Stock

High Costs & Expenses: Elevated costs continue to weigh on the company’s performance. In the first fiscal quarter, total operating costs and expenses rose to $1.23 billion, up from $1.08 billion in the same period last year. Advertising expense totaled 2.5% of sales, declining 10 basis points year over year due to leverage. However, management expects advertising spending to increase meaningfully in the second quarter to support traffic-driving initiatives. While the increased marketing investment has proven effective, a sustained reliance on advertising could pressure margins if top-line growth begins to moderate.

Inflationary Pressures: Commodity inflation, particularly in food and beverages, negatively impacted margins by 60 basis points. Management now expects commodity inflation, inclusive of tariffs, to run in the mid-single-digit range for fiscal 2026, up from prior expectations.

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This article originally published on Zacks Investment Research (zacks.com).

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