Brinker International, Inc Q3 FY2022 Earnings Call

Good day, ladies and gentlemen, and welcome to the Brinker International Q3 F’22 Earnings Conference. 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, VP of Finance and Investor Relations. Ma’am, the floor is yours.

Thank you, Paul, and good morning everyone. 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. Wyman and Joe will 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’s 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 items 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.

All right. Thanks, Mika, and thank you all for joining us this morning. Last time we talked with you at the beginning of February, we were just emerging from the Omicron wave, which, while thankfully with a short lifespan, had a whipsaw effect on January staffing and sales. We got back on track quickly and generated positive progression in February and March. Brinker ended the third quarter in a good position with an adjusted EPS of $0.92, which is up significantly from last year’s $0.78. Considering all the noise in the results and comparisons, we believe average weekly sales may be a clear guide to the growth of the business. Chili’s average weekly sales accelerated throughout the quarter, with February and March reaching record highs. Now as consumers navigate the economic challenges that are starting to play out, we’re cautious but optimistic about where our top line sits. At Chili's, we’re encouraged by the shift we’re seeing back into the dining rooms, which is driving higher check averages. Off-premise remains at more than 200% over pre-pandemic levels as we continue to grow the delivery business. The same is true for Maggiano's; we feel really good about the changes we’ve made to the business model, specifically the restructured value proposition for both dine-in and off-premise. The brand’s off-premise business is up 180% versus pre-pandemic. Data shows the brand’s delivery business is attracting a highly incremental guest, so as banquets come back, Maggiano’s is poised for some really good growth. On the cost side, we’re seeing labor pressure start to stabilize now that we’ve addressed our most critical staffing needs. We don’t foresee as much inflationary pressure on wages going forward like we experienced in the last year. Now we’re focused on managing that piece of the business as effectively as we can as we work through training our new team members to run our operational systems and deliver a great guest experience. It will come as no surprise that looking ahead, our biggest challenge is commodity inflation. We do believe the elevated costs we’re dealing with today won’t stay at these levels permanently. We’ll continue to leverage a pricing strategy that isn’t passive, but isn’t reckless either. We’ve taken six pricing actions already this year to ensure consumer acceptance and protect our long-term traffic growth. We’ve put a stake in the ground as an industry leader in value, which has been key to driving our averages and our guests' frequency. As we move into a slower economic cycle, this becomes an increasingly important competitive advantage for us. To further mitigate the inflationary pressure, we’re also actively pursuing ways to run a more efficient operation. In a few weeks we’ll roll out a new menu that reduces operational complexity, restructures our value proposition for better margins as well as future pricing flexibility, and takes us close to a 6% increase. We’re achieving efficiency gains with our now fully implemented service model that leverages both handhelds and food runners. With this model, we’re already seeing front of the house labor hours at near record lows, and servers are making more money than they’ve ever made, which reduces turnover and the associated pressures on the profit and loss statement, and those tenured team members deliver a better, more consistent guest experience. As we continue to manage these near-term headwinds, we’re also playing offense on many fronts. I’m really excited about how we’re investing in the business and accelerating our timelines to grow the business long term. We’re investing in our restaurant pipeline. All the hard work we’ve done to build the pipeline has come to fruition, and now we are starting to open new Chili’s on a consistent basis. The response to the brand has been tremendous. For example, our most recent opening just outside San Antonio did more than $100,000 in sales during the first week, beating expectations, as all our most recent new locations have. Our operators are doing a great job creating loyal guests in these communities by delivering great experiences from the very first visit. As we move into next fiscal year, we have plans to open two to three new restaurants on average every month. We’re investing in our virtual brand business on two fronts. First, we’re expanding our delivery business in existing markets with additional third-party partners, which drives business across the whole portfolio. Second, we’re taking our brands to previously untapped markets and expanding points of distribution around the country through ghost kitchens and smaller footprint locations. We think our global partners embrace this as well, so we’re optimistic about the potential both domestically and internationally. Now that we’ve fully implemented our new technology-based front of the house service model and takeout systems, we’re pivoting our innovation efforts to upgrade our kitchens for the first time in close to 10 years. We’re testing some exciting new equipment that makes our out-of-house team members' jobs easier, delivers a better product, is more efficient, and more effectively supports high volumes. We’re moving quickly down that path, so more on that to come. Finally, we’re taking the robotics technology we’ve been experimenting with at the host stand for nearly three years now and incorporated it into our new service model. Our robot, Rita, has been promoted to food runner. She does a fantastic job, and our guests love her. We’ve expanded to an additional 50 restaurants, which is yet another example of how we’re bringing our technology expertise to scale. It’s been nearly 40 years since Norman Recker founded this company, and it remains today a strong innovative organization with exciting growth potential and competitive advantages from our leading-edge technology stack and the systems that enable us to run higher-volume restaurants. The exceptional quality of our team—our operators are doing a great job managing through headwinds and our leadership team continues to navigate the most challenging business cycles many of us have ever seen. We have a clear grasp on what will grow this business in the near and longer term, and I couldn’t be prouder of the work this team is doing. I’ll turn the call over to Joe to give you details on the quarter and update guidance for the year. Joe?

Thank you, Wyman, and good morning everyone. The results reported this morning represented another quarter of top line progress for Brinker, but also one that reflects the challenges still facing our industry. For the third quarter of fiscal 2022, Brinker reported total revenues of $980 million with consolidated one-year comp sales of positive 13.5%. Our adjusted diluted EPS for the quarter was $0.92. As mentioned during our last analyst call, January was a particularly difficult month due to the Omicron spike and meaningful weather events. Both brands experienced a short-term pullback in guest demand during the spike, as well as staffing challenges during the month. We estimate our consolidated EPS for the quarter was negatively impacted from these January issues by approximately $0.35. Guest traffic and labor availability bounced back nicely with positive progression in our performance as we move through the rest of the quarter. For the quarter, Chili’s recorded positive one-year comp sales of 10.3%, which included 2.1% of positive traffic. Maggiano's one-year comp sales were positive 50.5% with 28.9% positive traffic. As we move through the two-year lap at the beginning of the pandemic, average weekly sales provide a useful lens on the growth of the business. Average weekly sales per restaurant at the consolidated Brinker level were $63,000 for the third quarter. Both brands' average weekly sales accelerated throughout the quarter, with Chili’s averaging $63,000 in March. Maggiano's has also gained strength throughout the quarter as dining rooms further recovered and off-premise sales remained strong. The brand reached average weekly sales of $157,000 for March. For the third quarter, Brinker recorded a year-over-year price increase of 4.3%. Both brands took pricing actions during the quarter, with Chili’s exiting the quarter carrying 4.6% of increased menu price. Maggiano's exited with 5.1% of additional menu price. We anticipate further pricing actions in the fourth quarter, with Chili’s approaching 6% year-over-year pricing in June. Our price actions continue to be determined in the context of maintaining our sector leadership and guest value perception along with our traffic-focused strategy. Now turning to margins. The third quarter consolidated restaurant operating margin was 12.2%, and adjusted operating margin was 5.7%. Inflationary pressures throughout the P&L continued in the third quarter, with incremental impact beyond our original expectations in numerous areas. In the quarter, food and beverage costs were 180 basis points higher year-over-year, driven by commodity inflation of 11%, partially offset by menu pricing. As you have heard throughout this earnings season, commodity markets are experiencing incremental impacts from world events, a situation that will maintain inflationary pressures longer than originally expected. We continue to believe that commodity markets will eventually moderate as the environment changes, likely as we move into calendar 2023. Labor expense, again as a percent of company sales, was unfavorable by 100 basis points compared to the prior year, primarily driven by wage rate increases of 10% and the lapping of one-time favorability in the prior year due to closed dining rooms and high wage rate states. We also incurred elevated training and overtime costs of 60 to 70 basis points, which we expect to normalize as turnover stabilizes. Restaurant expenses were favorable year-over-year by 110 basis points as we continue to leverage our fixed costs with an improved top line. That said, this area was also impacted by inflationary pressures, particularly in utilities and maintenance, reducing year-over-year favorability by approximately 90 basis points. Our cash flow for the third quarter remains strong. Brinker has generated year-to-date operating cash flow of $212 million and year-to-date EBITDA of $255 million. As Wyman mentioned, we continue to invest in the growth of our brands at an increasing level. Capital expenditures year-to-date totaled $109 million driven by investments in new restaurant development, technology, and remodeling. We expect our pace of investment to increase as we move more fully into the construction phase of our expanding development pipeline. From a balance sheet perspective, our quarter-ending total funded debt leverage was 2.41 times, and our lease-adjusted leverage was 3.48 times. Additionally, we repurchased $26 million worth of shares during the quarter. This morning’s press release also updated certain aspects of our fiscal year guidance. We expect both Chili’s and Maggiano's to continue their solid top line performance, assuming no further COVID spikes or softening of consumer demand due to macroeconomic pressures. Some specific updates: we continue to expect annual total revenues to be in our previously guided range of $3.75 billion to $3.85 billion. Due to the Omicron spike and continued elevated inflationary pressures, our annual adjusted EPS is now expected to be in the range of $3.05 to $3.30. Fiscal 2022 CapEx should be in the $160 million to $165 million range. We welcome the prospect that most of the U.S. is moving beyond the last two years of pandemic-driven challenges. This next phase of recovery still has inflationary pressures to work through in the short run, but we remain confident that our strength with our guests, the perception of good value from our brands, and our ability to invest actively in improving operations will see us through strongly. With our prepared comments complete, let’s open the call for questions until just about the top of the hour. Paul, I’m going to turn it back over to you to moderate.

Thank you. Ladies and gentlemen, the floor is now open for questions. We have received a few inquiries. The first question is from Alex Slagle. Alex, your line is live. Please state your affiliation and ask your question.

Thank you. Good morning. Jeffries. Just wanted to start on costing goods, obviously lots of inflation, and I want to be smart on pricing. Curious if you could discuss the opportunity to drive the dine-in volumes back towards the 2019 levels and what impact that has on costs of goods just with the improved profitability dynamics and additional beverages and food attach. I'm kind of wondering how curious that is. And then I guess, if you could expand on the other opportunities with the menu that you brought up in the prepared remarks.

Yes. I’ll talk a little bit about the opportunity, Alex, and then Joe can fill in on some of the details on commodities. I think, well, first off, the margin differential between the various channels, both dine-in and takeout, from a margin perspective, are pretty similar. So we’ve made sure that, in pricing, for takeout and delivery, we maintain solid margins. You’re absolutely right, though, when we get guests in the dining room. Things like alcoholic check averages really help build a stronger check, and we’re seeing that business come back. It’ll come back organically as more people feel comfortable with the COVID situation really behind us, and we continue to see that. We see opportunities, from our perspective, through some efficiency plays that we mentioned, to help the throughput to create more opportunities to bring people in faster, more efficiently, both through our new service model and some of the things we’re excited about testing in the kitchen side of the equation. So we’re going to see both just the natural move back into the dining room, and then we’re going to continue to incentivize and change the business to encourage people to come in at a greater rate. That’s an important part of the model, but we’re comfortable with how it’s moving right now. Joe, you got anything to add to that?

Yes. And Alex, I just say, right now we’re getting our dining rooms back into that mid-80% capacity. Obviously, they moved down significantly in January, so for the quarter, the impact of January can’t be overstated. There is significant upside as the country moves farther past the pandemic. There’s about an $8 difference in your incremental guests in the dining room as opposed to the takeout side of the equation. So the leverage ability of that guest is pretty important. It’s not just about the cost of goods. There can be some variance between the channels and what that mix looks like, but the ability to leverage that incremental check and as you said, build that check from add-ons, alcohol sales, and things of that nature that I think everybody’s pretty familiar with.

Got it. On the average weekly sales metrics that you provide, how much are those impacted by the recent franchise acquisitions? I’m not sure there’s much of a difference.

Well, it makes a little difference, Alex, that’s a good question. Just basically the nature of the restaurants in some of the markets that we’re in, things of that nature, they come in at a slightly lower average volume. So I think roughly there’s probably about a $1,000 impact between those restaurants and the current fleet. We view that from a rational standpoint, the acquisition is a great opportunity because the closer we can bring those restaurants to averages, the better it is for performance.

The margins too, I guess.

Yes, without a doubt.

Got it. Thank you.

Thank you. And the next question is coming from Jared Garber. Jared, your line is live. Please announce your affiliation and pose your question.

Hi, thanks for the question. Goldman Sachs. Joe, if I could just dig into the full year guidance and what’s implied for the fourth quarter. Obviously, the top line seems to remain pretty healthy, and that’s kind of in line with what we’ve heard from others. But obviously, the margins are being pressured by some cost increases. Can you just frame how you’re thinking about that 6% price? Is that the guide for the fourth quarter here? How are we thinking about the inflation metrics? I think last time we spoke, it was a high single-digit number in the second half, but the third quarter actualized above that. Are you thinking that we’re seeing that commodity inflation will be greater than that high single digit in the fourth quarter? Just trying to figure out kind of the puts and takes on the EPS line?

Yes. If you think about the construct of the guidance, obviously, you have the impact of January embedded in that, and then frankly, the rest of the delta is related to the inflationary pressures, so you’re right; the top line is really performing pretty much at the levels we anticipated. We expect inflation, and I think you were referencing the cost of goods inflation in particular. We do expect that to continue in the low to mid-double digit range. The 11% figure we provided is very operative for the foreseeable future, and that’s definitely a factor in the equation.

Great, thanks. That’s helpful. And then just one follow up on the pricing. The 6% that you mentioned.

Yes, that’s the exit pricing. Again, that move takes place in a couple of weeks. So it’ll have some impact going forward; it’s really going to be more indicative of the price that will be carried heading into next fiscal year.

Okay, great. That’s really helpful. Thanks so much.

Thank you. And the next question is coming from Joshua Long. Joshua, your line is live. Please announce your affiliation and pose your question.

Great. Thank you. Piper Sandler. I wanted to follow up on the new price piece as well. I think you mentioned taking six incremental pricing actions thus far. Just curious what you’ve learned in terms of the guests and where they’re at. I mean, the narrative we’re hearing is that, similar to what you’re seeing too, people are more receptive to more frequent but smaller price increases, and there doesn’t seem to be too much pushback. Just curious what you’ve experienced and how you think about reworking that value proposition as you mentioned in some of your prepared comments. Obviously, you want to keep things balanced and provide some optionality for the guest. But just curious what you can share there that doesn’t tip your hand too much before those new menu items come out.

Sure. Well Josh, like we said, we understand the challenges with the inflationary pressure we’re seeing. We also understand the importance of getting your pricing strategy right. We’ve chosen to be more thoughtful in terms of timing our price actions this year and we’ve tested them all before implementing them across the system to ensure that we understand the guests' reaction. We’ve taken them across different channels, whether they be base business, virtual brands, or delivery, to understand their impacts on demand, ensuring we’re not scaring away too many guests with these price increases. As you said, the consumer has been fairly receptive to these pricing actions. We do see in the broader industry data some concerns about consumers’ value ratings, so we want to remain cautious and always monitor their expectations and perceptions of value. As we think about our value propositions, we are restructuring those as well. The new menu will be rolling out soon. It’s currently in testing, and we feel good about the changes we’ve made to deliver better margins and greater pricing flexibility across different geographies and various menu items. We’ve historically been able to manage cost issues more effectively because of the varied nature of our menu. The combination of rising commodity prices impacting many categories has made it a bit harder to be flexible. We anticipate moving forward with our typical strategies of adjusting the menu mix to encourage guests to make more favorable choices from a cost perspective within our menu. We’re excited about this approach, but we remain cautious in our pricing strategies to ensure we maintain a strong long-term value proposition for our consumers.

That’s very helpful. Thank you. When we think about trends by day part or geography, anything worth calling out there? I know you mentioned dining room traffic is rebounding, and off-premise has remained strong, but just curious if we could expand that conversation out to day of the week, day part, or regional differences worth focusing on or anything interesting you’ve found.

There’s a lot going on that is very interesting, Josh. Without giving too much away, I will say there are some geographical insights where not everyone is reacting the same way as we come out of a post-COVID environment. We are still seeing more regional variability than we typically saw before; in the past, we might see a two to three point difference in sales trends, but now we’re observing high single, low double-digit variances across geographical areas and their responses. We anticipate those trends will stabilize, and we see upside because we have a solid presence in many of those areas. This diversity in presence is beneficial for us. Beyond that, I think I’ve mentioned this previously; we’re seeing a trend approaching more like we have seen pre-COVID regarding day parts, with dinner still leading significantly. We’re noting a bit more favorability on the weekend lunch side, which we suspect reflects a return to normalcy.

Yes, Josh, from a day part standpoint, we’re still seeing a typical split—it's about a 2 to 1 ratio of dinner to lunch. However, we are seeing a slight increase in favorability on the weekend lunch side, which, again, reflects more normal activity levels compared to what we’ve observed recently.

Very helpful. If I can squeeze in one more on the cost of goods visibility that you mentioned at 11% for the basket now. Just curious, Wyman, is that everything going up higher, primarily protein-driven? Any insights there? And what type of visibility do you currently have? Are we still in a situation where locking in pieces of the basket doesn’t necessarily make sense given the premiums you have to pay?

Yes, I mean, Josh, again, the big drivers of our basket are primarily proteins, such as chicken, beef, and we’re seeing some broad movements in the whole chicken complex as well. What has historically been a volatile wings market has now leaned more towards the more stable chicken products like breast meat, which is reflecting across the board currently. When we analyze the commodities environment, doing the math on the costs tied to inputs, it doesn’t quite align with current prices. There appears to be some inefficiencies in distribution and the supply chain that are generally leading to higher prices than what we’re used to seeing. And there’s definitely some opportunism occurring. We think both factors will balance out, and prices will revert to a more reasonable level in the not-too-distant future, although it’s hard to know exactly what that looks like. The breadth of increasing prices across proteins makes it harder to adjust the mix. We are being cautious with pricing strategies because we anticipate that these commodity prices will normalize.

Thank you, and the next question is coming from John Ivankoe. John, your line is live, please announce your affiliation and pose your question.

Hey John, are you there?

John, your line is live. Please go ahead.

Sorry about that, guys. The question is on CapEx and new store development, I guess overall capital returning. Obviously, this is in the context of the stock price and its decline today. I guess, how much does senior management and the board think about previous periods where Brinker has added a lot of value to shareholders? I go back to 2008 and 2009 when there was a significant reduction in CapEx or CapEx was less than depreciation. We saw this enormous free cash flow yield return capital to shareholders. What do you think about improving returns at existing units while not growing new units? So it’s a philosophical question, but you know how I think and I know how you've responded in the past. How do we consider this corporate environment, especially with the stock being an indication of what returns you can get by buying back equity? Why not significantly slow down that CapEx and new unit construction in a strategy that appears to be working?

Sure. John, I think it has more to do with your timelines. If we were talking about investing back in our stock at these prices, we think it’s a great investment because we believe that these prices are too low and we understand the market's reaction to this inflationary environment. But when you think back to around 2008, we were opening 125 restaurants a year at that time. When we talk about growing the portfolio from a traditional standpoint, to 20 to 30, it’s a significantly lower capital spend than what was going on prior to the time you referenced. We’re doing a balanced approach now, talking about the opportunity we had in 2010 to 2012, when our operational prowess truly improved—it’s the same within our current context with the new handhelds and our new service model up front. We aim to optimize both our efficiency and sales. We believe investors should realize gains through both organic growth and capital return. Our organic growth model is critical to this story. I want to emphasize that we find the right balance between generating returns for our shareholders while ensuring growth.

Yes, John, one piece I would add is that during the referenced period, we did it at a more leveraged basis. Balancing is important as we think about this going forward. We want to invest in the business, grow organically, and return capital to shareholders, but at a lower leverage position. This was impacted by COVID, which slowed this down. When we rebalance back to our target debt levels, we can redirect those dollars towards shareholder returns while still focusing on growth.

Yes, certainly. So I guess my question is how much is the fiscal ‘23 CapEx guided? How much of that CapEx would you consider discretionary or non-discretionary? What is necessary to maintain or grow the cash flow in the business? How much flexibility do you have if that conversation were to happen in the future?

We maintain a lot of good flexibility there, John, because when I think about capital expenditures, ongoing IT investment will place us in that $70 million to $80 million range, and there’s some variability in those numbers. That’s considered keeping the engines running and moving forward kind of capital spend.

Thank you. And the next question is coming from David Palmer. David, your line is live. Please announce your affiliation and pose your question.

Thanks. Evercore ISI. I would imagine it might be too early to talk about fiscal ‘23 restaurant margins in total, but you’re going to be making some changes in the near term related to the menu simplification, price increases, and I would imagine also you have pretty good visibility on your costs through the rest of this calendar year. I’m wondering if you could talk about how you’re thinking about restaurant margins as we exit fiscal ‘22 into the first half of ‘23. I guess I’m specifically thinking you might be on path to doing 12% plus restaurant margins in the first half, which might set the stage for something closer to 13 for that next year, but I don’t want to put numbers in your mouth here. How are you thinking about margins?

Yes. David, I don’t want to get into a fiscal ‘23 discussion or forecast at this point. We’ll have a very robust discussion about that on the next call. But as you heard, there are drivers impacting current margins and potential enhancements moving forward. The moderation of commodity prices will certainly impact margins and we anticipate seeing that starting in calendar ‘23, which aligns with the second half of our next fiscal year. We also believe improvements in turnover and enhanced training will help us recover from those transitional costs, which I mentioned at 60 to 70 basis points. We think we can gradually eliminate those costs. There are opportunities to continue improving margins over time, but I'm not willing to put any specific number on the table today. I do expect a continued top line growth for the brand as we transition into the next year, which helps us with deliverability opportunities.

Yes, I hear that. I’m also curious about the two things that service the customer experience today and service levels. You talked about labor hours in the front of the house being near all-time lows, but we’ve all heard stories about not just Chili’s, but everybody in this industry having poor service scores due to various reasons. I wonder how you’re thinking about that and where you stand compared to pre-COVID levels. I’m also curious about the 13.7 to 14.2 margin target you referenced. Is that still a viable intermediate target for margins? I’ll pass it on.

Yes, let me address the service piece, David. We have two components here. Firstly, staffing levels have been restored; we have more team members in our restaurants today than we had pre-pandemic. However, they are newer and not as well-trained yet. We’ve changed our service model, so therefore, we need to ensure our training aligns our workforce with the new model. We know that when this model is running smoothly, the service scores are outstanding. Team members earn more than they did pre-pandemic, leading to faster and more personable services. Our main goal is to get the system operating effectively as soon as we can. Furthermore, we can enhance our kitchen processes to achieve quicker service, reducing wait times. This will improve the experience both for our team members and our guests. Overall, we’re optimistic about the future ahead concerning our team and guest experience.

David, regarding the second half of your question about margins, I’m not going to put specific figures out there. However, I remain optimistic about our ability to improve margins over time. We anticipate positive changes within our business operations, and as we move out of this inflationary cycle concerning costs, we expect to see continued margin enhancements. We’re focused on continuing to leverage our top-line growth.

Thank you. The next question is from Brett Levy. Brett, your line is live. Please announce your affiliation and ask your question.

Thank you. Brett Levy, MKM Partners. Just building a little bit more off of that question regarding labor expectations. I know you said you don’t expect much pressure on wages, and you previously referenced 50 to 75 basis points of transitory costs. Can you parse out a bit more about everything that’s happening in the competitive labor space? How do you view the cost perspective? You mentioned you have stable headcount, but how will you supplement that? What are your broader strategies to drive operational gains? Secondly, you discussed a $0.35 hit from January estimates. Was that included in last quarter’s guidance or is that new to this morning’s guidance?

I will address the first question. No, the $0.35 impact was not included in any previous guidance, as we didn’t identify the January issue at that time. So it is entirely new to this guidance level.

Without getting overly detailed, we are observing a lot of movement in the industry, particularly with the supply of workers increasing and demand stabilizing. Last summer, the industry faced significant pressure while restaffing, but we’ve seen marked improvements over the last several months. The latest employment numbers indicate almost 500,000 jobs added in March, with around 100,000 in the hospitality sector. The industry is staffing up, leading to a balance in the supply and demand dynamics. We don’t expect substantial wage increases moving forward, but we will always have legislative pressures. Overall, we expect staffing to remain stable.

Thank you. And the next question is coming from Dennis Geiger. Dennis, your line is live. Please announce your affiliation and pose your question.

Thank you, it’s UBS. Just wondering if you could speak a bit more to what you’re seeing recently from a sales perspective, maybe in the quarter-to-date period at a high level given the currently dynamic environment we’re in. Additionally, Wyman, you provided some helpful comments on the consumer perspective, but I’m curious if you’ve observed anything recently from your customers that indicate changes in their menu usage, especially if there is any weakness in the lower-income consumers relevant to your brands. Anything pertaining to the virtual brands where behaviors are shifting? Any insights would be greatly appreciated.

Hey, Dennis, without getting too granular into the quarter, I’d say generally we are seeing stability in sales through the third quarter. We discussed the impacts from January; moving past that, February and March have sustained solid sales levels above pre-pandemic figures. The virtual brands are currently comping positively. We’re optimistic about our sales trend, especially since we’ve recently taken significant price rises that exceed what we have in the last two decades. We’re monitoring performance closely given the shifts in consumer behavior as the economy tightens, but we believe consumers’ strong balance sheets and a good labor market will help them get through these pressures. Additionally, we see opportunities for pricing as commodities begin to moderate. Regarding menu usage, we’ve seen more shifts driven by our strategic decisions than consumer choice. We’ve actively managed the menu and offerings to optimize where we believe is most effective for our guests.

Thanks for that. Lastly, how well do you perceive the resilience of your brand to withstand pressures if the consumer faces additional challenges? You haven’t taken much price in recent years, and you have compelling promotional offers along with your menu staples. How do you forecast that will hold up relative to your category? Where might you potentially see market share take from consumer pressure?

I appreciate you asking. I don’t think this topic gets enough attention; market share of traffic is the most critical measure of brand strength and success. Our firm belief is we’ve continued to capture market share in casual dining. We’ve consistently gained traffic share even in challenging environments over the last four years. The opinion of our brand, especially Chili's, positions us advantageously; we’re widely recognized. A successful operation necessitates lively restaurants. To achieve this, we may trade off some sales potential by holding back on pricing to ensure we maintain our traffic rates. Alternatively, our brand proposition holds strong during consumer hardships, leading us to feel optimistic about our positioning in such an economic environment.

Thanks, Wyman.

Thank you.

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

Thank you, everybody.