(EAT) Brinker International Builds Up in Canada

Brinker International Inc. (EAT) is set to buy 11 of its franchised Chili’s restaurants based in Alberta, Canada from Speedy Creek Ltd., which has long been one of its franchisees. The acquisition, which is expected to be carried out by one of Brinker’s operational arms, is slated to be sealed by the end of Jun 2013.

As per the agreement, Gerry Inglis, who was previously engaged in assisting Speedy Creek to manage Chili’s restaurants, is now appointed as the president of Brinker’s operating unit in Canada. Moreover, the company will continue to deploy Speedy Creek’s operational strategy to strengthen its brand’s position in the region.

These 11 Alberta-based Chili’s restaurants generated revenues of nearly $35.0 million annually. We believe that the strong growth prospects and solid revenues make these restaurants a lucrative acquisition target. Post acquisition, both the sales and the profit from these 11 acquired units will go to Brinker rather than only the franchisee royalty fees.

In 1991, Brinker’s Chili’s restaurant stepped into Canada through its first international franchise partner, Speedy Creek. Over the past 20 years, Chili’s restaurant with its lowest per person average check and one of the highest average unit volumes in the industry is growing rapidly in the Canadian market. With its flexible price structure, the brand has become popular with consumers, making it a solid value proposition. This acquisition is expected to further boost the company’s Canadian presence.

While most of the other restaurateurs such as McDonald’s Corp. (MCD), Yum! Brands Inc. (YUM) and Domino’s Pizza, Inc. (DPZ) are concentrating on the transition to a franchisee-based model, this Zacks Rank #3 (Hold) company is shifting toward company-owned operations. This transition affirms management’s confidence in its core business model.
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