America can rightfully be called a Fast Food Nation. According to data from the National Restaurant Association, fast food accounted for about 28% of the $683.4 billion in overall U.S. restaurant sales in 2014. The Palo Alto Medical Foundation reports that 25% of Americans eat at fast food restaurants every day.
That said, fast food is losing market share to an up-and-coming style of restaurant — the “fast casual” — that occupies a niche in-between hamburger joints and formal eateries.
As many traditional fast food chains stumble, fast casuals are driving growth in the restaurant segment. According to the NPD Group, fast casual is the fastest-growing restaurant segment.
The most promising stock in the fast casual realm now is Brinker International, Inc. (EAT). Dallas-based Brinker owns, operates or franchises 1,593 restaurants under the names Chili’s Grill & Bar (1,549 restaurants) and Maggiano’s Little Italy (44 restaurants) worldwide. Chili’s is a 38-year-old chain and a pioneer in fast casual dining, with high consumer awareness and loyalty. Brinker employs 55,586 full-time employees around the globe.
And make no mistake, EAT stock is plenty appetizing.
As McDonald’s Corp. (MCD), the granddaddy of fast food, struggles with highly publicized declines in traffic, revenue and earnings, Brinker International is feasting on growth. Fueling consumer hunger for fast casual dining has been a lasting change in eating habits in the wake of the Great Recession of 2008-2009. Despite the economic recovery, consumers still haunted by the downturn are abandoning white cloth restaurants for higher-quality fast food that’s served with cutlery in a pleasant sit-down environment. The average fast casual meal costs between $7 and $11 and generates higher profit margins than conventional fast food in a paper sack.
Brinker is pushing into emerging markets, where increasingly affluent consumers are mimicking Western dietary habits. However, the company is doing so through franchisees, allowing the company to expand without taking on debt.
In recent years, the company has sold off its sluggish restaurant brands to focus on its flagship Chili’s chain. Brinker is also in the midst of a remodeling program for Chili’s and Maggiano’s, in tandem with the launch of new menu items that are a cut above the usual beef-and-chicken fare. All of those changes should ultimately boost EAT stock.
EAT Stock: A Tasty Treat
Brinker International posted fiscal 2015 first quarter earnings per share (EPS) of 50 cents, a year-over-year increase of 16.3%. Revenue in the quarter rose 3.4% to $686.9 million and comparable restaurant sales at company-owned restaurants rose 2.4%. Chili’s company-owned comparable restaurant sales rose 2.6%; Maggiano’s comparable restaurant sales rose 0.6%.
That’s a lot of numbers going up, and the fun doesn’t stop there. EAT stock upped its dividend 20% in the first quarter to 24 cents per share. The company also declared a dividend of 28 cents per share to be paid in the second quarter.
Despite the media hype and anecdotal stories that Americans are forsaking fast food to adopt healthier eating habits, there’s still plenty of business to be done. People around the world remain addicted to food that’s cheap, fast and instantly gratifying.
For consumers who are bored with burgers-and-fries and seek a slightly more upscale dining experience, Brinker International is increasingly the destination of choice, making EAT stock a tasty choice for investors.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
