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Brinker International Inc. launched a “virtual” brand, It’s Just Wings, during the last week of fiscal 2020 and Chief Executive Wyman Roberts says it already has the potential to be a $150 million brand in its first year.
It’s Just Wings is delivery-only and exists across Brinker’s EAT, +4.54% 1,050 Chili’s and Maggiano’s restaurants, using those facilities and the company’s partnership with DoorDash to sell chicken wings, curly fries and fried Oreo cookies. (Oreo is a Mondelez International Inc. MDLZ, +0.29% brand.)
Wyman said on the Wednesday fourth-quarter earnings call that the chicken chain is generating more than $3 million in weekly sales, much of it incremental business.
“[W]e had to buy a couple of small refrigerators in a couple of restaurants, but for the sales volume that it generates, it’s really capital-free,” Wyman said, according to FactSet.
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“And we get to leverage all of the expertise we have in our restaurants, in terms of culinary ability. We get to leverage the equipment we already have. And things like our combi, which is a great piece of equipment that allows us to smoke our ribs, now also allows us to smoke wings and offer a differentiated product from a lot of people in the category.”
For the fourth-quarter ending June 24, Brinker reported an adjusted loss per share of 88 cents, ahead of the FactSet consensus for a loss of $1.35, and revenue of $563.2 million, down 32.5% year-over-year and below the FactSet outlook for $572.9 million.
Brinker stock has gained 16.3% for the week to date, but has tumbled 17.8% for the year so far. The S&P 500 index SPX, +0.11% has gained 4.6% for 2020 to date.
Chicken wings have been a hot item during the pandemic, with Wingstop Inc. WING, +2.47% reporting earnings and revenue that beat expectations at the end of July, and raising its dividend.
Domino’s Pizza Inc. DPZ, +0.78% has also focused on its chicken wings, saying an improved version should help the pizza delivery company take market share.
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Raymond James calculates that an annual sales run-rate of $150 million comprises about 20 orders a day.
“It’s Just Wings is off to a strong start, offsetting temporary headwinds in California (re-closed dining rooms in early July; ~11% of units), and we believe has the potential to be ~15% accretive to pre-COVID Ebitda run-rates (consistent with management’s Year 1 sales contribution of $150M +),” analysts led by Brian Vaccaro wrote.
“Combined with solid cost controls that have pushed store margins into the low double-digit-percent range in recent months, we are increasingly optimistic that the company can achieve pre-COVID Ebitda/EPS levels in a post-COVID world.”
Raymond James rates Brinker stock outperform with a $40 price target, up from $33.
“Relative to other brands, Brinker is uniquely positioned to execute the concept given its scale, partnership with DoorDash/point-of-sale system integration, state-of-the-art kitchen equipment, and company ownership structure that allows for quick decision-making,” KeyBanc Capital Markets wrote in a note.
Analysts also note the same-store sales recovery happening at Chili’s, with the chain ending the month down 10.9%. Most company-owned restaurants (84%) were down by 3.8%. These results put the chain ahead of much of the competition, analysts say.
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KeyBanc rates Brinker stock sector weight.
“We expect continued sales gains from off-premise, value and It’s Just Wings, while dining room reopens drive total system comps/sales,”wrote UBS analysts led by Dennis Geiger.
“Even with shares up significantly on earnings, and ongoing risk from COVID spikes and pressured discretionary income, opportunities for greater upside exist with continued execution.”
UBS rates Brinker stock neutral with a $38 price target, up from $27.
