Brinker International stock was falling Wednesday morning, after the restaurant operator withdrew second-quarter guidance, citing rising Covid-19 infections. It is a reminder that eateries face a brutal winter ahead, even if investors are already focused on a post-vaccine future in 2021.
Brinker International (ticker: EAT) rescinded its guidance, given a resurgence of indoor dining restrictions in many locations. While 90% or more of its Chili’s and Manggiano’s restaurants were operating with open dining rooms in late October, that figure had fallen to 77% and 69%, respectively, by last week.
That said, Brinker stressed that Chili’s is outpacing its peers and gaining market share, and that it still has enough cash on hand to keep operating.
Brinker shares were down 3.7% to $54.40, while the Dow Jones Industrial Average was flat.
The shares have risen 31% year to date, and have climbed more than sevenfold from their March lows, helped in recent months by improving traffic in the summer months and, more recently, positive vaccine news. That has given investors confidence about the company’s post-Covid future. While the winter looks bleak, analysts expect the biggest restaurant players to bounce back, as many smaller rivals permanently close.
However, Brinker’s latest update is a reminder that, while mass vaccination is a catalyst, it isn’t here yet.
Stephens analyst James Rutherford reiterated an Outperform rating and $55 price target, although he warned that the news shows that earnings estimates may have to be lowered. “We are not surprised by the announcement and have been pointing to an expected slowdown across casual dining, which mostly has not yet been factored into consensus estimates.”
Likewise, Quovadis President John Zolidis notes that this puts at risk hopes that the restaurant industry will see sequential improvement in the fourth quarter of this year and the first quarter of the next. “Our guess is that investors will try to look through the coming round of negative earnings revisions for the group, but as we get further into 2021 risk increases that estimates will have to be reduced materially.”
This article was originally posted by MarketWatch.