Good morning, ladies and gentlemen, and welcome to the Brinker International Q2 F21 Earnings Call. At this time, all participants have been placed on a listen-only mode. And the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mika Ware. Ma’am, the floor is yours.

Thank you, Kate, and good morning, everyone. Welcome to the earnings call for Brinker International second quarter of fiscal 2021. With me on today’s call are Wyman Roberts, Chief Executive Officer and President; and Joe Taylor, our Chief Financial Officer. Results for the quarter were released earlier this morning and are available on our website at brinker.com. As usual Wyman and Joe will first make prepared comments related to our operating performance and strategic initiatives. Then we will open the call for your questions. Before beginning our comments, it is my job to remind everyone of our Safe Harbor regarding Forward-Looking Statements. During our call, management may discuss certain items which are not based entirely on historical facts. Any such item should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such risks and uncertainties include factors more completely described in this morning’s press release and the company’s filings with the SEC. And of course, on the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company’s ongoing operations. And with that said, I will turn the call over to Wyman.

Thanks Mika, and thanks everyone for joining us this morning. Q2 was a dynamic quarter and Joe is going to walk you through the details. As we think about all the craziness 2020 brought across our industry and our world, we are also appreciative of the invaluable lessons we gained. We learned we have the right team in the field and here at the restaurant support center. Our operators are working tirelessly every day to deliver great experiences for our guests and team members, as we aggressively pursue opportunities to grow our business organically. We learned that we can drive our business and increase market share, despite the hurdles brought on by a global pandemic and widespread civil and political unrest. In the second quarter, Chili’s increased its two-year trend of taking share and leading the category with an 18% beat in sales and a 25% beat in traffic, according to KNAPP-TRACK. We learned that our strategies work. The ways we leverage our scale and our ownership model and the investments we continue to make in technology, and improving our operational systems, they were working well for us prior to the pandemic and continued to work even more effectively throughout the year. Leveraging those competitive advantages opened up opportunities for us to grow our business in unique and innovative ways, like elevating our digital guest experience at both brands and leaning into virtual brands. Those things are hard to execute and even harder to replicate. So, we are taking those lessons into 2021, as we prepare to accelerate organic growth in a post-vaccine environment. We believe like most others that the widespread vaccine will indeed release pent-up dining room demand, and our operators are excited to return to full capacity and deliver more great guest experiences in person. But we don’t expect a return to the old normal. 2020 fundamentally changed us as consumers. We are forced to use technology to enjoy our favorite restaurants in new ways, like third-party delivery, curbside takeout, QR code menus, and mobile payments. And now that we have experienced greater convenience and control over our experience, we are not likely to give it all back. The Brinker team knew that convenience was a big opportunity even before the pandemic. 2020 just accelerated our commitment to embrace consumers’ gravitation toward digital interaction and meet them where they are. We believe digital sales and traffic will continue to be a strategic driver of our results in both the near and long term. So in preparation for fiscal 2022, we are dedicating even more time, effort, and capital to accelerating our competitive advantage as a digital leader in the category and aggressively pursuing opportunities to drive our top and bottom-line. At Chili’s, we are testing a fully integrated digital experience that gives our guests control over the pace of their experience and level of interaction with our team, whether they are dining in or off-premise. It is still low, but the team is making tremendous progress and the guests in our test restaurants are responding really well. We anticipate a rollout beginning fourth quarter. We have also spent a great deal of time and effort systematizing what goes out the side door at both our brands. We got really good at takeout and delivery during the height of quarantine. So, while our dining rooms are still limited at capacity, we are ensuring we have strong systems in place to support our operators and execute a robust off-premise business, even as our dining rooms return to full capacity. Delivering a best-in-class off-premise experience also supports virtual brands, which is a key component of our growth strategy. Our scale and our ownership model coupled with our ability to mine data and develop systems is proving very effective in this new world of virtual brands. It is just winging it on track and performing well. We believe there is significant upside. So, we are focused on building it into a strong, sustainable brand. Some of the biggest brands in the world right now are virtual. So, we know the model resonates with consumers, as long as you deliver a great product. Right now, we have a one channel solution. We are working to optimize that channel through incremental marketing opportunities and expand it to consumer touchpoints. We are also going to grow the brand through additional channels like takeout. We are ensuring we have the right systems in place that will best support our operators' ability to execute at a high level, especially as dining rooms reopen.

Listen, 2020 was a crazy year, but through it, we confirmed that our strategies are working and that we have an outstanding team in the field and at the restaurant support center. Every day, they demonstrate their ability to adapt, persevere, and win as vaccines roll out and our country begins to leave their homes once again, I firmly believe we will continue to win. And with that, I will turn the call over to Joe.

Hey, thanks, Wyman and good morning, everyone. Let me finish our prepared comments by providing some detail and context to our second quarter results, as well as offer a few insights for our January period's sales performance. For the second quarter of fiscal 2021, Brinker delivered adjusted diluted EPS of $0.35. Brinker’s total revenues were $761 million and consolidated reported net comp sales were negative 12.1%. A couple of items to note for the quarter. First, let me highlight impacts just to consolidate a quarter resulting from Maggiano’s performance, which was highly constrained by COVID restrictions and appropriate consumer reactions to the pandemic. As a reminder, the second quarter is traditionally their highest performing quarter. However, this year COVID eliminated most of their typically robust banquet and corporate catering channels, both of which tend to over-deliver during the second quarter. The brand's operating profit was $22 million below last year, constituting virtually all of the reduction in consolidated operating profit for Brinker. The impact on consolidated comp sales and restaurant operating margin were also outsized with the brand reporting net comp sales of negative 47% and a restaurant operating margin of 5.5%, down more than 11% from the prior year. With the second quarter now behind us, we expect the impact from Maggiano’s to consolidate the performance of Brinker to be more muted as we head into the rest of the fiscal year, particularly as the brand recovers from both an improved operating environment and the implementation of performance-driving initiatives. Now moving on to Chili’s, the brand continued its relatively strong performance, although also impacted by COVID restrictions during the latter half of the quarter. Operating income for the brand was relatively close to last year at only $1.6 million. Chili’s reported net comp sales for the second quarter at negative 6.3%, this result does contain a holiday flip, which benefited the brand by approximately 100 basis points as Christmas moved out of Q2 and into Q3. The brand continues to meaningfully outperform the casual dining sector with our gaps strengthening in both sales and traffic through the second quarter. Graphic gaps in the KNAPP index exceeded 20% throughout the quarter, performance relative to the competition was strong throughout the country with double-digit sales gaps recorded in regions from the East to West Coast. Included in the consolidated adjusted net income for the quarter was the tax benefits of approximately $2.4 million, primarily driven by employment tax credits. Part of this benefit is a $1.8 million catch-up related to Q1, which was over-accrued relative to our current expectations for annual tax liability. The consolidated restaurant operating margin for the second quarter was 10.7%. Most of the variance to prior year is the result of the lower than normal contribution from Maggiano’s, which impacted the consolidated margin by 130 basis points. The leverage due to top-line softening in November and December was the secondary influence. Our food and beverage expense was unfavorable year-over-year by 40 basis points, primarily a result of menu mix and some higher costs from items such as cheese and produce. Labor costs were favorable 10 basis points with savings in hourly expenses offset by the leverage, included in this performance is a consistent level of manager bonus compared to last year’s second quarter. We remained committed to retaining our restaurant leadership teams, as they are critical to our success both in the short-term and as the operating environment returns to more normal conditions. Restaurant expense was unfavorable year-over-year by 170 basis points, driven by top-line leverage increased delivery and packaging, partially offset by lower advertising and restaurant maintenance expenses. Even with the volatile operating environment Brinker has delivered solid cash flow generating $130 million of operating cash flow year-to-date. After capital expenditures of $37 million, our free cash flow for the first six months totaled nearly $93 million. As I mentioned last quarter, we first use our cash to invest in the business. Unit expansion is progressing with six new or relocated restaurants opened year-to-date. We also continued to invest in restaurant reimages, technology, and equipment to further enhance our guest experience, and allow for better execution as our sales volumes both on and off premise grow. Our second priority is to pay down debt. So far during this fiscal year, we have retired over $66 million of revolving credit borrowings and plan for further meaningful reductions as we progress through the second half of the year. As I have indicated during prior earnings calls, we are strengthening our balance sheet by deleveraging to below 3.5 times lease adjusted debt, which we anticipate achieving next fiscal year. From a total liquidity perspective, we ended the quarter with $64 million of cash and total liquidity of just under $658 million. Though we are not providing specific guidance for the third quarter due to the ongoing operational environment, I do want to offer some perspective on January. While the first week of January was negatively impacted by the holiday flip of Christmas moving to our third quarter top-line results for Chili’s strengthened as we moved through the remaining four weeks of the period. Underlying this performance is improvement in the net comp sales to a range of negative 5% to negative 6% for the last four weeks combined. These results obviously include the impact of ongoing COVID-related restrictions, particularly dining room closures in our number three and four markets of California and Illinois. Factoring out these two markets, the reps of the brand during the last four weeks of the January period should record net comp sales of approximately positive 2%. Again, clearly indicating the brand’s ability to perform in a strong positive sales manner with dining rooms open. Also supporting the January results is the performance of It’s Just Wings. As you might expect, the brand does well in conjunction with sports, and our ability to market on the delivery platform around major events allowed highly incremental sales and set a number of sales records during the period. Overall, we are hopeful for an improved operating environment as we move through the quarter, with the opportunity to return to recovery-level performance we delivered in the early fall. In March, we start to lap the initial pandemic outbreak, which we anticipate will create meaningful year-over-year positive net comp sales comparisons. Looking beyond the short-term volatility caused by the waves of COVID restrictions to the solid long-term strategy being executed by our operators. I’m confident as to what this Company can deliver for our shareholders. Our focus and execution will enable our continued performance as a leader for the casual dining sector for the rest of this fiscal year in the years ahead. Now with our prepared comments complete, let’s move to your questions. Kate, I will turn it back over to you to moderate.

Thank you. Our first question today is from David Palmer. Please state your affiliation before asking your question.

Thanks Evercore ISI. Just a question on marketing to start. How do you think you will end up spending money, gross spending broadly, it can be advertising, whether that is digital or TV or your email promotions. How do you think that will settle out for you, both as a percent of sales, but also the breakup between these? And then I have a quick follow-up.

Hey David, it is Wyman. I don’t know if I can give you the percent of sales number right now. And again, with higher sales that we anticipate, those numbers are going to move around. But I will tell you, just as we think about marketing, we are just thinking about it differently and not in the traditional sense as much. And so when you think about the significant reduction we have had in traditional media spending, but we have offset that with significant increases in digital direct and the support of our takeout and virtual brands through third-party partnerships and promotions as well as fees. So we kind of look at that whole bucket. And in some cases, if we are going to leverage our database more, a lot of that shows up as comp expense, which doesn’t really net out of sales. So you wouldn’t even see it in the P&L as you are looking at net sales. But we are committed to much more what we think is a forward-looking approach to marketing, much more direct and much more digital.

Thanks. And I have another sort of forward-looking one, hopefully you can give us some texture on that around your third-party brands or your virtual brands. You were testing a few. There was a thought that perhaps one of those tests stopped happening. I think it was on flatters and pies. But perhaps you can talk about the pipeline of your virtual brand and what the stages are. And how you think you roll those out? Sounds like you are now going to maybe be unmasking. It’s Just Wings by having it go out of the Chili’s itself as a growth thing, but I wonder also those other brands in terms of the delivery side. Thanks.

Well, first, David, let’s just talk about the unmasking comment because we have never thought it was important, and this is through the whole testing process to keep these brands secretive, if you will, that we want to be upfront with consumers about who these brands are sponsored by and who actually is producing this product, because we think that transparency is important. And so the process that we are going through is as we introduce a virtual brand in tests, first understand how viable it is. Form two primary aspects, right. How big is the potential from a sales and a consumer perspective? And then how operationally executable is it in our restaurants? So when we stop a test, it doesn’t necessarily mean that test was unsuccessful. It just means we are done testing. We could very well have everything we need to know to go. But what we are doing is we are taking - It’s Just Wings, and we are going to develop it further. Again, we have got it into one channel. We have been learning every day really how to maximize that channel. Joe mentioned, we are in our first sports season really. And obviously, that brand resonates well during sports. So we are pushing the marketing in and outside the channel, and then we are pushing to take out. And that takes an infrastructure build, that requires technology and support and then a marketing effort behind that. But we want to build that brand out. And then at the same time, get our operations lined up for full restaurant capabilities as well as full takeout, both Chili’s and virtual brands. And that is all happening now. And as soon as we get that brand kind of further built out, we will go and look at the next brand and determine when to bring that into the mix. And that is the process we are going through.

Great. Thank you.

Yes, thanks David. Good talking to you.

Thank you. Our next question today is coming from James Rutherford. Please pronounce your affiliation, then pose your question.

Yes, it is Stephen Inc and thanks for taking the question. I wanted to follow-up on a comment that was made about the fully digital experience and test, I think it was at Chili’s. Can you talk a bit more about how that would look in the restaurant and whether this is a direct response to the potential pressures on minimum wage and kind of finally on that topic, the potential impact to margins if this rolls out to the system at the store level. Thank you.

So well, just to address the first question or the second question first, it is not a direct response to minimum wage. It is a direct response to what we talked about that consumers have been looking for, and we have been embracing, and that is convenience and control over their experience more. And so what we have done is we have taken a lot of the technology that we already had in place, like our tabletop technology. And we have incorporated some of the new technology or the technology that we have kind of built through the COVID experience, which has a lot more to do with how you talk to consumers in that third - at their home and in other places, and we have kind of linked that more together. So basically, you are able to - if you are a family, and you know, if you have small juvenile or if you have small children or not, James, but you know there is a window, right. You don’t have 1.5 hour. You have a limited time. And sometimes, when you go to a casual dining restaurant, it is that front end that can take a little longer than you’d necessarily like. Well, if you have got your order ready on your tablet or on your phone and you walk into our restaurant, when you sit at the table, our tabletop device will allow you to interact with it before the server even gets there as soon as you are sat and your order then immediately goes into the kitchen, and then your server sees that, brings out the food, starts the experience and then you are off and running significantly faster. You can close out at the same time on that device, and you eliminate some of the kind of stretch points, if you will, that can come into an occasion, if you are in a hurry. If you are not, we have got servers there, they’ll take your order and bring your experience to you at whatever pace you want, it allows you to control that more. So we are very excited about the opportunity to offer this to guests. We think it will pick up. We think the table turns will be there. It will allow service to be a little more efficient. All those things are side benefits, but they actually have implications to the restaurant especially, on a busy Friday or Saturday night.

Yes. James, one of the things I would add just to the second part of that, while the specific digital connectivity we are talking about here isn’t designed from a labor model standpoint. But what we found is we deal in a lot of higher labor states is technology does matter and technology will be helpful. So this and the other investments we have made in technology probably will have a role to play as you kind of work your way through a higher wage environment. So I think we are well positioned and understand how that can be a piece of the equation.

And I will just say that technology - it is one thing to map it out. It is another thing to make sure it is stable and running well and that everything is working because, again, on a busy Friday or Saturday in the restaurant. If you are relying on that technology to be the backbone of your operations, it can’t go down, because you don’t have a backup. And so that is why some of these things that sound fairly simple or easy. At the end of the day, you have got to make sure your technology and your infrastructure is solid because you are going to bank on it and the guest experience is really determined by how good you are delivering. And that is what we are excited about kind of locking that down.

Sounds very interesting. Thanks for the help.

Thank you.

Our next question today is coming from Brett Levy. Please announce your affiliation, then pose your question.

Great, thank you. MKM partners. I appreciate the call. We are in a time where, obviously, sales are going to be volatile, and there is quite a shift in what is going on with the input costs. How are you thinking about, not just the traditional, but also the newer prototypical units? What kind of margin potential there is either where you can see savings on the labor front, where the incremental costs can get pushed aside or they are just going to become overbearing? And do you think your new experience-type units have the potential to actually expand margins and how greatly? Thank you.

Yes. Brett, let me make a few comments, and we will take it from there. Again, everything we are seeing today despite the volatility, it is not changing our view of how we can grow margins and that is through top-line. Our new restaurants are well received as we open them. We are really pleased about the outperformance we have seen from the group that has come in so far this year. So again, it is a prototype that plays well in a variety of markets. I think it is going to work well to increase top-line. It is all about really, how do you take that average AUV up from that $3 million-ish range into the mid threes. So we target and think about $3.5 million AUV, that is where the big opportunity lies to be a more efficient operation at the restaurant level as we get towards that. So as we grow the base business as we connect digitally as we layer in virtual brands, those are all going to be key pieces of the equation. Yes, there are places that we will be more efficient and how we use technology to offset headwinds, how we make sure that our supply chain is effectively dealing with those markets. All comes into bear. But it is a growth strategy to manage margins as opposed to how do I cut to the bare bones. I mean, one of the things we saw in the second quarter as we went into a little bit more volatile environment was obviously a deleveraging impact, but we also don’t want to overreact. We wanted to maintain levels of spend that we thought were appropriate for what we thought was going to be a relatively short period of volatility. We are not through the woods yet, but we are back into recovery. But I think the comments I made about manager bonus are probably indicative of that and how we worked on making sure we were still while being judicious, right levels of R&M spend and other spends that you could have quickly need jerked back very dramatically just to gain a couple of tenths of margin. So we are trying to take a longer view.

Yes. The only thing I would add, Brett, is it really is about systems, right. And what we are doing and what we have taken the opportunity to do. In a lot of restaurants where the capacity is down is put in systems that will allow us - well, in all our restaurants, but in places where we are down, it is a little easier to put in these systems, especially around takeout and delivery that will allow the restaurants when we are back up and running and growing the volumes that Joe talked about to execute at a high level. And that is how we are going to grow the business and with that will come leverage and better margins.

Thanks Brett.

Thank you. Our next question today is coming from Chris O’Cull. Please announce your affiliation, then pose your question.

Stifel. Yes. Good morning guys. I had just a follow-up question on the margin response you just gave. I’m trying to understand how Chili’s segment restaurant margin moved quarter-over-quarter. I think it was up 50 basis points to the prior year in the first quarter, but fell 80 basis points to the prior year on higher sales this quarter. And so I was hoping you could just explain what drove that sequential change in performance and how we should be thinking about recovery and especially the labor dynamics as sales start to recover?

Yes. Chris, good to talk to. Again, we are real comfortable with the way Chili’s is going to be managing margins going forward. Chili's actually continued early on in the quarter. So when I look in the October timeframe was expanding its margins. I think the delta that took place was simply the COVID restrictions and the volatility of this top-line sales that came into play as you saw that those reductions in that deleverage. I think you have seen the weeklies we gave you back in December and kind of moving from pretty much a flat to slightly positive comp into a - down in the teens. It was just the quickness of the deleverage and our choice, again, to maintain some of the cost dynamics that we thought were important to the business for it coming out of recovery and again, manage our bonus.

Yes. I think, Chris, if you just think about - let’s just say California. The magnitude of the hit there has been significant as everybody is well documented, right. And so we are paying those managers really solid bonuses. Even though their performance level in a typical environment, wouldn’t - that wouldn’t happen, right. I mean if we were doing this off our typical, hey, sales and profit drive your bonus payment, they probably wouldn’t be getting any bonus. But we are recognizing the need to keep these operators motivated to keep them in the shop with us because we know it is going to turn around. It is already starting to turn around, and we need them there. And so there is a little bit of that in the mix. So again, we are confident about where margins are going to play out. We have seen it as the business gets stronger. I think if you just look at Chili’s in the quarter, even with all that volatility, the margins are relatively flat. So it is not something we are overly concerned with at all. We are actually very excited about the growth potential and how margins will then react.

Excellent, thank you. And then just one follow-up. How should we be thinking about the flow-through? I mean, the flow-through is obviously very high with these virtual brands. How should we be thinking about changes to the potential flow-through with these initiatives like takeout and some other things that you are introducing for It’s Just Wings?

Yes. Again, one of the things we like about the virtual brands is the flow-through and the ability to leverage the existing structures and operations and management teams we have in place. We are learning how to invest in those brands. So that is going to be a big piece of the equation. But as we make those decisions as to right level of brand building spend, and again, these are younger brands, and they will need nurturing and investment, and we want to expand and build those brands in a number of different platforms and consumer access channels. We are going to start from a pretty high level of flow through. So we are very comfortable with the ability to invest back into those brands. When I just look at the base level of flow through that they develop.

Yes. So a little heavier on the front end and especially with to go, very profitable on the back end as the brand gets established, and we build that - we are just in that process to understand, okay, what is it going to take to get a little bit more brand awareness out there direct.

And I think that is a great point as we move from one channel right now into some other channels, there are opportunities there because you don’t have some of the delivery fees associated with it to go. That is why we are very excited not only about the growth potential of - It’s Just Wings to go, but the flow-through potential, too.

Great. Thanks guys.

Thank you. Our next question today is coming from Andrew Strelzik. Please announce your affiliation, then pose your question.

Hi, BMO. I actually wanted to follow-up on some comments you just made. Can you share with us where the awareness is right now for It’s Just Wings and how that has been trending? And then when you think about brand building in virtual brands, I mean, just kind of holistically, you have talked a little bit about marketing and some of the channels that you might move into. But just holistically, how do you think about building those virtual brands into brands with recognition and sustainability in the context of a category that obviously is getting more competitive, not less competitive over time and so just how you think about standing out in that context?

All the data we have, again, we are primarily a one channel brand right now, right. So we are a DoorDash brand. And so everything that is been - primarily. I mean there is some PR and some other things that have been out there. But most of it, it is either order mouth or you are learning from it on DoorDash. And the growth and all the acceptance and the repeat numbers are all really positive. We are excited about how the brand is building. It is a limited channel. It is a big channel in one aspect, but it is just one channel. So as we look to grow this brand more broadly, we will use the traditional marketing approaches that you used to build any brand. So obviously, as we have talked about, it would be a more digital and more social approach. But we will start to move people directly to It’s Just Wings website and get overall awareness and how we get them there will be typical marketing activity that we already have a lot of history with in terms of how to do that effectively. You have to have the infrastructure in place first, though. So you have to have the technology and all of the ability for people to map and get to that location and understand what It’s Just Wings is and how to get there. And that is all kind of being built and has been built now. And so now we can start to push that channel, and we will see how quickly we can build the brand and where it goes.

And just on - some of the investments that you are talking about, more capital being put behind kind of the systems and some of those things on the digital side, are you assuming that you can do that in a way that is not going to impact the margin progression or should we expect a little bit more choppiness or kind of taking aside the sales volatility?

Well, from a capital standpoint, these investments are very small. I mean relative to building restaurants and staffing them. We are talking about very small investments in technology and sometimes it is in materials like shelving. And so it is important, but it is not expensive relative. And so again, on the flip side, the expense necessary to build the brand, as Joe talked about. We are just going to have to see how that works and how quickly and how effectively we can do that. We are confident that we have a lot of history and a lot of experience and some great marketers that can help grow this brand quickly and effectively. But we will have more on that probably next quarter.

Okay. Thank you very much.

Thanks Andrew.

Thank you. Our next question today is coming from Greg Francfort. Please announce your affiliation, then pose your question.

Hey, it is Bank of America. Wyman and Joe, my question is on the news recently around minimum wages and tip credits for minimum wages. And you guys are in a lot of states where the wages are already at $12, $13 now or headed to $15. Can you talk maybe about some of the experiences that you have had operating in those markets either around price elasticity or kind of what you have done around labor controls or new equipment that may be an indication of how you would handle sort of a broader national minimum wage going up?

Yes, Greg, I think it is a combination of all of those things, right. So we are definitely leveraging technology, and we put it in states that we are experiencing higher labor costs that allow us to be more efficient, also allow our servers and our team members to make more money because, again, the tip pool and the amount is then spread over fewer team members, so they make a lot of money, and that is great. We also then are looking at ways to be more efficient and effective around tip pooling sometimes. And that opens up sometimes as you get into some of these higher cost situations that allow us to mitigate some of the costs that we may have to pay by letting the tip will help bring up the heart of the house wage rate, if you will. And then from a pricing standpoint, we do see that competitively, especially folks that can’t do the things I have just talked about, they basically deal with this from a pricing perspective. So competitively, you have a little bit more room to price interestingly enough though, in California. We have three for 10 out there, and it works fine. And we have just built a model that is that efficient, not effective, and it drives that much traffic that the leverage helps us become competitive now. How long we can afford that price point in that market, I don’t know. But it is out there and it is been out there for a couple of years even as the price and the wage rates have gone up. So I think our scale really helps us in this environment. And at the end of the day, these things across the industry are going to be much more difficult for restaurant operators. And again, in our case, that is half the category that don’t have scale. The way you deal with this most effectively is through technology and through systems, and we have the ability to do that and have been doing that. And we are excited about rolling some of this technology to other markets fairly soon.

That is great perspective. And then I had one other question. Just on your thoughts on Chili’s as potentially being - Chili’s hasn’t been a very strong unit growth chain for a little bit of time. Are you seeing that pandemic as an opportunity to accelerate that? And are you seeing the real estate market free up to kind of make that happen? And that is it. Thank you.

Yes, Greg, I think, again, we do think we are reaching a point in the brand’s evolution that we can increase our unit development. You have got to remember, we have also done a couple of acquisitions of franchises that have brought units back into the corporate ownership side. So we have grown the base. Again, I think we have indicated we want to get up into that 1% to 2% net growth on an annual basis. I would like it to be, over time, towards the higher end of that. There is a pipeline in a process, and we have got great folks and our development teams already working that. We are seeing some changes in the real estate market. I think we are seeing conversion opportunities at a much higher level, which are interesting because I’m seeing our ability to access certain markets now that you probably wouldn’t have had the same level of access to pre-pandemic. I’m excited about that opportunity. We are positioned the company so we can grow at that level from both a capital perspective and a team perspective. Again, keeping and developing our leadership is a critical part of that equation. So yes, I think as we move really into 2023 and 2024, you will start to see that higher level of new restaurant development work its way into the system.

And that is one of the benefits of these acquisitions - we have brought back territories that haven’t been built out as well or as effectively as Texas. And we are now opening restaurants in these markets and having a really great reception. So we are confident that there is probably more green space out there than we had before for that reason as well.

And the strategy has also played - again, the ability to open $3.5 million or $4 million restaurant gives you a lot more access to markets you want to be in. It is just a better model to have than if you are trying to open something at a significantly lower AUV.

Thank you.

Thanks Greg.

Thank you. Our next question today is coming from Robert Derrington. Please announce your affiliation, then pose your question.

Thank you. Telsey Advisory. Joe and Wyman, I’m trying to think about It’s Just Wings and kind of a transition from being just a brand that is available through the DoorDash app to being possibly available in other ways. One thing that certainly has benefited Chili’s in many ways has been the leverage that you have on the information that is received if I place an order through the My Chili’s app. You control that, you can use that within your rewards and your loyalty program. Is there some thought of as you add to go with It’s Just Wings, does that give you more leverage, does it get you better access to information by which you can communicate with your consumer?

Absolutely, Bob. I mean, again, it fits the model we have, as you just spelled out. We have these infrastructures in place to do direct marketing very well. We will deploy that against the It’s Just Wings brand and create that. The beauty of the brand so far is it is a fairly incremental guest to us in terms of it doesn’t just overlay with the Chili’s guests. So it is a different occasion, it is a different user base and so it helps us broaden our base of users, and again, leverage all the infrastructure and capital that we have already put in place including leveraging our marketing capabilities and with regard to direct. So it is absolutely a key to the strategy going forward.

A quick follow-up, sorry. Is there the potential that you could add possibly a loyalty or rewards program to It’s Just Wings? And what access do you have now of that consumer data that, I guess, goes through DoorDash first?

DoorDash is a great partner. They share a lot of information in broad terms. They don’t share individual guests' contact information. We are working with them to be more aggressive and to partner at a higher level with regard to trading loyalty data or at least giving guests the opportunity to become Chili’s loyalty guests through the DoorDash app. And so we are working that opportunity. But right now, it is more just general market information. So how do I know that the DoorDash - It’s Just Wings guest isn’t the same as the Chili’s guest because DoorDash helps us understand the broader characteristics of those two segments. Terrific. Thanks so much. Thanks Rob.

Thank you. Our next question today is coming from Jeff Farmer. Please announce your affiliation, then pose your question.

Thank you. Gordon Haskett. You touched on a couple of questions I wanted to dive into, but I did want to approach it from a little bit of a different angle, if I could. So with the potential minimum wage increase clearly in investor focus, I am curious what is the hourly labor expense for, let’s say, Chili’s or just Brinker in its entirety as a percent of total labor expense? And then as a follow-up to that, what is the average hourly range when including front of house workers that are potentially receiving tipped minimum wage in the states that allow them to do so?

They are looking, Jeff, to see we can give you a number on the first question. On the second question, the average tip server is in the $20 range, again, it varies in California, it is significantly higher because there is no tip credit, and they are at $15. So you can imagine in California, they are closer to $30, maybe a little bit lower than that in the two and 13 states, but not too far below 20, and we average well into that low to mid-20s.

Jeff, when you look at labor expense, roughly two-thirds of it is going to be on the hourly side of the equation.

Okay. So again, in terms of - this is almost sort of your editorial thinking about this. So the conversations with peers have been that $15 looks like a long shot, somewhat increasingly looking like a potential that it could happen, but the tipped minimum wage was always sort of a bridge too far to the extent that the casual dining sector, in particular, is under a lot of pressure right now. And then that is probably something that is unlikely to happen, that is my comment. But how are you guys thinking about it?

Yes. Again, Jeff, this will be a debate. I think it is going to be front and center for an extended period of time this year. I have been involved in a couple of minimum wage debates over the years, and they do tend to be intense discussions. There is passion on both sides of the equation. They tend to extend over periods of time. I’m not going to get into the various sausage making of budget reconciliation versus regular order versus things like that and how Congress works its magic. But I think there is probably a decent down the road possibility of a wage increase. I think we have to be realistic in our thinking to that. I don’t see that happening in the short run, and we are going to focus our time and attention on the specifics underlying that because, again, there is a complexity of the way minimum wage works at the federal level, and we are going to focus very heavily from our sector perspective, on the tip side of the equation. It has been an effective methodology on how that legislation has worked in the past, and we are going to continue to advocate strongly that methodology be maintained in some form or fashion as we go forward. That being said, we operate in a number of higher wage rate states that have their own approach to things. I think there are 20 or so that have opted outside, including our number two, three and four markets. So we are used to having large numbers of restaurants in higher wage states. But it will be a debate. And I think we can’t just assume things are not going to change, and we will engage and we will be prepared as we kind of move forward that. But I don’t see it impacting this fiscal year and, frankly, maybe not even in the first part of next fiscal year.

Okay. That is very helpful. And just a separate follow-up on California. So obviously, the mitigation efforts in that state have been one of the headwinds you face from a consolidated same-store sales standpoint for the Chili’s concept. But what I’m looking for is sort of an understanding or better understanding of the case study. So obviously, California, in July, went ahead and reinstituted indoor, some dining suspensions. And then remove those, I think, late August, September, depending on what part of the state was. My question is, how quickly did that California consumer respond to the reopening of indoor dining?

Very quickly.

Yes. It is an immediate response. And again, California is a very - I mean when COVID’s over and you do the case studies of why a state that closed restaurants still has some of the worst results. It is just interesting, right. So it comes back to - it doesn’t look like if you are running restaurants the right way, it is not the driver of COVID. And I think California has felt that that is some editorial from my perspective. But that said, when we open up parking lots and put tents in them, people line up. I mean they are just dying to come to a restaurant and eat and get out of their house. And so you can do that safely in California, they have, I think, overreacted. Listen, they have got a COVID problem. So I’m not dismissing that. I just think their solution, which is really heavy on the restaurant business has been not as effective, obviously, because it has really dealt with the COVID crisis that they needed to. So when they - we will start to see - we have already started to see it. As soon as they start to lighten up and open up even outdoor dining, which is, I think, is usually the first step, and then they will go to some indoor, we see the immediate response. But California has been the biggest negative drag throughout the whole pandemic because it has never consistently up and down the state had a policy that has had dining rooms open at the same time throughout the state at any capacity level.

Right. I appreciate that. Thank you.

And we are excited when they do because I’m going to see you, there is some pent-up demand in California.

Thank you. Our next question today is coming from Brian Vaccaro. Please announce your affiliation, then pose your question.

Thanks. Raymond James. Good morning, good to hear from you guys. I wanted to circle back on It’s Just Wings. In prior calls, you obviously mentioned the sales of around $3 million a week or an annual run rate of over $150 million. Could you provide a tighter update on the brand’s more recent sales performance, either dollars or contribution to Chili’s combs? And then what is the timeline on when you expect the takeout channel to be rolled for the brand?

Yes, Brian, let me talk to the first part of that. Again, the $150 million annualized sales, we are extremely comfortable with and confident with that. There has been no deviation from the way the brand has been performing, it gives us any doubt there and that is a number talking to the corporate side of the equation. The franchisees have now embraced it and are starting to perform nicely also in their own regard as it relates to wings. And as I mentioned in my commentary, what we are seeing as we learn how to promote, particularly around sporting events, some nice incrementality off of that. So again, there are a number of ways we are now learning how to grow the brand, how you market it, how you tie it to different sporting events and now how we take it to other channels. I think, from a timing standpoint on -.

Well, I mean, if you are in DoorDash today, in some markets, it is already turned on, and you can have that option. Now, most people that go to the DoorDash app, obviously, are looking for delivery. But we are experiencing - we have some guests today who are in the DoorDash world that choose to pick it up. And so we are already out there with a system, really testing the system, both external and internal that allows us to deal with pickup, It’s Just Wings guests. We are in test markets, some significant test markets with the infrastructure in place to allow the website to direct people to the right restaurant to pick it up, and that test is now technologically in place, and now we will start the marketing aspect of it. And I would think by the end of this year, we will have this thing rolled out and moving is our goal.

All right. That is helpful color. And one quick follow-up, sorry if I missed it. But what was Chili’s off-premise sales mix in the fiscal Q2 and the split between delivery and takeout?

The split between delivery and takeout has remained relatively consistent, kind of at a two-thirds, one-third split. It has been interesting as the whole off-premise channel grew throughout the pandemic in the ups and downs that has stayed relatively consistent. And I want to say the overall mix continues to be in the high 40s, yes, that 45% to 47-ish percent bouncing around. I would expect, as you get some of these larger markets opening, you will probably start to see that, again, start to come back down again like we saw during the last wave.

Kind of accelerated.

Yes.

All right. That is all for me. I will pass it along. Thanks again.

Thank you. Our next question today is coming from John Ivankoe. Please announce your affiliation, then pose your question.

Hi, thank you. I’m with JPMorgan. A couple of questions, if I may. First, can we talk about the 2% comp, excluding California and Illinois? How I guess, widely distributed is that number? In other words, can we talk about comp performance in kind of some of the key southern markets like Florida, for example, maybe Texas and as some of these markets have added 100% of seating capacity, more or less, back for customer usage and customers, in fact, are, in many cases, using that capacity. How are trends in those kind of markets? And as you have reopened the dine-in have been opened the longest of markets like that, what has been the overall trend in sales dollars of your off-premise business? And I have some follow-ups, too.

Hey John, first, there are very few - I mean, to my knowledge, states of any or geographical areas that are 100% dining room capacity. There may be some folks who are pushing that, but we are not. We are continuing to abide by the restrictions and the guidelines. And so first off, all these numbers are still, for the most part, a large part, we are probably closer to 50% capacity. And the breadth of that sales result is broad. It is across our regions, both Southern and Midwest, New England and New England. So yes, it is not like Florida is up 20 and everyone else is down five. Now it is a fairly consistent pattern with the typical geographical variances, but nothing dramatic, which has got us feeling pretty comfortable about, as Joe said, our ability to deliver positive comp sales. We are doing that with 50% dining room capacities. And what we also see, John, just to add a little more color is it is why do we feel comfortable? Well, we are definitely stretched on the weekends. Weekends or where we struggle the most from a sales perspective because we just don’t have the capacity. And so our comp numbers on the weekends are more challenged early week where your capacity isn’t as big an issue, very strong.

Yes. And the interesting thing about that, I do think there is some stimulus there. But again, one of the things co be constrained pretty much across the sector, well, gift card sales, so you probably don’t have quite as much of a gift card impact that you would normally see January. So they are kind of offsetting factors that are sitting outside of the whole COVID impact.

Understood. As you consider the casual dining segment from a promotional perspective, it seems there is less discounting, as you mentioned. Everyone has limited capacity to satisfy customers, so why would you offer deep discounts? I'm curious about how you see this playing out as we progress through and beyond COVID. It seems likely that there are more peers since you've talked about reducing your limited time offers in recent quarters and years. But I'm just wondering.

Yes, for us, it is - we just kind of got out of that game really under our third year now, Jeff, chasing promotions at a casual dining level, our belief is it is kind of a lot more wasted energy, and it is not very efficient. You are going to get pops. You are going to hit something every once in a while, but all the energy and effort and the brand, what I will call, degradation to going through those cycles isn’t worthy yet but it is kind of where we are at. And so it is always a competitive category. It is always going to be. We just talked about the landscape will look different post-COVID, so we will see how that plays into the mix. But we are going to go after with the strategy we have been employing, especially the last few years, which is a strong base value proposition, talking to consumers more directly and incenting them that way versus some broad thrown out message that doesn’t necessarily work very well.

Understood. And lastly, Joe, you mentioned that you didn’t want to necessarily give fiscal third quarter guidance. I know during the second quarter, you were more comfortable to do so. I’m just wondering, directionally, whether you could offer any color on margin or earnings, if the comps were to stay at this down mid-single digit level or is it just not worth even attempting?

Yes. Jeff, I’m not going to go there. Again, as I indicated in my script, we do have some beliefs around recovery as we kind of move through. And as we demonstrated in the fall with some of the numbers you saw, and we have talked about that level of recovery has those positive directional impacts on things like margin. So I’m looking forward to some near-time ability to talk about that kind of activity.

Thank you. Our final question today is coming from Jon Tower. Please announce your affiliation, then pose your question.

Awesome. Great, thanks for taking the call. Wells Fargo. Just a couple of questions. First, on the It’s Just Wings and moving to a potential physical presence, is this a push or pull? Meaning are consumers asking for this today or are you essentially getting ahead of any potential demand in the pickup channel and especially with the knowledge that the economics are more favorable to you versus, say, traditional delivery transaction? And then my follow-up question is just I know there are a lot of moving pieces in the business right now. But I was hoping maybe you could help frame the long-term margin and profit opportunity for Brinker as a whole. Perhaps even referencing the margins relative to fiscal 2019 levels, like where do you think this business can move from where it has been in the past? Thank you.

Let me take the back end of that first, again, from a margin perspective. Again, we are still very firmly of the belief, as we have talked about this in the past, that we can grow margins and grow them from that 2019 level over the course of the next couple of years, that is the opportunity of getting - taking a three million AUV to 3.5 million AUV in that dynamic. That will grow margins. We are not pinpointing down a specific level, but it is definitely at a higher mid-teens kind of thought process is what we have talked about. And again, as we move further down this path and get better insights, we will start to give you that down the road, but it is definitely a nice upside opportunity at those level of AUV to leverage the system very nicely. I mean, as far as...

Yes. I think the push-pull, it is interesting. We are in a channel that doesn’t really - I mean, consumers don’t expect when they are in the delivery channel to pick up. So really that is the only segment that knows of It’s Just Wings per se. But we know based on the strength of the product and the acceptance in that channel that there are broader possibilities and greater consumer acceptance of the product. So I can’t tell you that the people that are on DoorDash today are saying, 'Oh, why can’t I pick it up?' Because they don’t want to pick it up. They are on DoorDash because they want someone to deliver it primarily. But we know that the brand itself, and we know based on our history, I mean, if you look at the mix within Chili’s world, takeout to delivery, takeout two to one right. So the takeout guest is a broader category than the delivery guest in our broader world. So we know that there is a segment out there that has no problem picking up.

Yes. I just want to be clear too, John, because you made a comment in there about as you move to physical locations. So I just want to make sure there is no misrepresentation. We are talking about pickup at a Chili’s. So not putting a separate physical location out there.

Correct. Got it. And just a follow-up on that. The magnitude of the difference between a delivery transaction and the to-go transaction. Is there any way you could help frame it? I think today, the incremental margins on, and It’s Just Wings transaction is somewhere in the mid - in the 40s, say, that was to flip to a physical pickup transaction, how much better can that be?

Well, again, I think you benefit from - if I break it into specific channels, as you are talking about there, you are going to benefit from not having to pay the delivery costs. And those are inconsequential. They are, obviously what we think are very well negotiated rates, but those don’t exist. Now how you market into that channel and the cost if you put to make sure that there is awareness and understanding, building out a website, marketing through Google, doing things of that nature is another cost. So all in, it is definitely going to be a more favorable flow through for that particular channel.

And it is a lower cost to the consumer as well, right, because they are not paying for those fees. So those things are all kind of - they are all positive price - total price for the consumer and margin for us. The magnitude will kind of TBD.

Got it. Thank you and good luck.

All right. Thanks Jon.

Thanks Jon.

All right. Well, thank you, everyone. We appreciate you joining us on the call today. We look forward to updating you on our third quarter results in April. Have a wonderful day. Bye-bye.

Thank you, ladies and gentlemen, this does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.