Brinker International, Inc Q3 FY2023 Earnings Call

Good day and welcome to the Brinker International Q3 FY 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode. The floor will be opened for question and comments following the presentation. It is now my pleasure to turn the floor over to your host Mika Ware, Vice President of Finance and Investor Relations. Ma'am, the floor is yours.

Thank you, and good morning everyone, and thank you for participating on today's call. Joining me today on the call are Kevin Hochman, our 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. As usual, Kevin and Joe will first make prepared comments related to our strategic initiatives and operating performance, then we will open the call for your questions. Before beginning our comments, I would like 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 filing 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 Kevin.

Thanks, Mika, and good morning everyone. Thank you for joining us as we share insights into our third quarter results and the continued progress we're making on our strategy. In the third quarter, we continued to improve our operational, financial, and guest metrics. And then in the last month of the quarter, we turned on our first national advertising campaign in over three years that both significantly narrowed our traffic gap versus the industry, as well as accelerated market share growth versus the industry. Operationally, we continue to make improvements through ongoing simplification, as well as reinvesting into our labor model. The key guest metrics we look at to understand whether these changes are working, such as intent to return, food grade, server attentiveness and guests experiencing a problem, have all made significant improvements. This is good progress toward our longer-term vision of improved sustainable performance through a better guest experience. We've also made some improvements in driving traffic. The past six months of promotional and merchandising strategy shifts have funded the start of return to national advertising. As a result, we're seeing incremental improvements in traffic trends versus the industry, as well as margin improvement from the reduction of discounting and promotionally comping food. While we all know we have lots more work ahead of us, the progress we are seeing so far is encouraging and shows that we're on the right track. In addition to the progress in these key financial metrics, we are also encouraged by the positive momentum we are seeing with our restaurant teams. We are wrapping up a season of town halls with Chili's operators across the country, and I thought it'd be helpful to share what we did and what we're hearing from the teams in the field. At these meetings, our executive leadership team and company officers spend time introducing managers to our Chili's NorthStar and hosting listening sessions with our restaurant team leaders. Our senior officers asked how the past year of changes have improved the efficiency of our restaurant operations and what else we can do to continue making it easier, more fun and rewarding for their teams to better serve our guests. We're hearing very encouraging stories; our heart-of-house team members are consistently telling us the job is easier than it was a year ago. We're also hearing appreciation for listening to our operators' ideas and quickly enacting them. They're seeing their ideas show up in restaurants, they're seeing the improvements and they are excited about being more in control of their future and the outcomes. I've had several managers at these town halls tell me they feel heard; they see the change, and they now intend to stay with Chili's because they believe in the direction of the brand. This culture shift is translating into improvements in our managerial turnover levels, which are now lower than pre-pandemic, trending better than the industry. Hourly team member turnover is also trending in the right direction. The progress we're seeing today reassures us that our strategy is effective. We believe that the hard work and investments we are making to improve the team member and guest experience will ultimately deliver higher traffic and frequency over time. As I mentioned last quarter, we're also working to optimize our labor model to further improve the guest and team member experience. In December, we layered in some investments that have been well received by both team members and guests, like additional cook hours and a quality assurance role to ensure the food is hot, fresh, and accurate. While we still have work to do, particularly in the front of the house, these changes have delivered significant improvements in guest and team member scores. In addition to the progress on guest experience, I know everyone is eager to hear about our first TV advertising results since the pandemic started over three years ago. We launched a new campaign at the end of February and continued through March. The strategy for advertising was simple: with more and more guests looking for great value, given the macro environment, we believed we could drive traffic through impactful food spots showcasing our leadership value. We highlighted our Chili's Three for Me Oldtimer with Cheese $10.99 meal, which includes a nearly half-pound premium cheeseburger with all the fixings, endless chips and salsa, and a bottomless soft drink. This offers superior value, not just in full-service restaurants but also versus fast casual and fast food. The abundance and quality of that meal are unbeatable, but it had been a while since we communicated this to customers. During the campaign, we aired high-impact ads in prime time during March Madness and on major streaming sites like Hulu and Paramount Plus; basically, if you watched a screen, it would be hard to miss us. The results are very encouraging; our data shows the campaign drove more frequency with existing guests, as well as brought in guests who hadn't visited Chili's in a while. This resulted in a significant narrowing of the traffic gap and a significant acceleration in Chili's market share growth versus casual dining. Our team members love the ad too, and we frequently heard from guests that the food we're serving looks just like it does in the commercial. We're executing better than we have in a long time, delivering abundant value with high quality at sharp price points, which should resonate with guests every time. It's also important to note that we made significant changes to our in-restaurant merchandising strategy compared to the last time we ran national TV ads, aiming to minimize trade down, and those results are encouraging as well. While we did grow the $10.99 Three For Me meal mix, we also drove trade up in $13.99 and $15.99 value bundles. In simpler terms, we attracted more traffic than we anticipated and encountered less trade down than we had planned for; this means more sales and more profits from advertising versus if we had only used different marketing methods. Again, this is very good progress. Based on those results, we plan to leverage this model going forward, and next fiscal year, I expect to see more regular bursts of national advertising to accelerate traffic growth. However, TV advertising isn't our only tool to drive traffic. We know that the most powerful traffic-driving tools must work together to supplement our national ad strategies. For us, that includes an effective CRM program and digital advertising that drives frequency through targeted, relevant messaging. We need more out of our CRM program to accelerate our progress; during the quarter, I made structural changes to consolidate our marketing teams. Our social media, digital, and national marketing teams are now working together under the leadership of Chief Marketing Officer George Felix to drive traffic and frequency. We'll have more to share about George and the team's initial thoughts on CRM and direct marketing channels at our Investor Day next month. Now I'd like to spend a few minutes on our food and drink pillar progress. One of the main reasons we're committed to ongoing simplification of our operations and menu is so we can reinvest our energy and resources in what we call our Core Four. These are the products that differentiate Chili's in the market: Burgers, Fajitas, Chicken Crispers, and Margaritas. We execute these products exceptionally well, and no one can do them better than Chili's. Each quarter, we plan to share the progress we're making on our Core Four segments. On margaritas, during the third quarter, we soft-launched the Sangria Swirl Margarita on our bar happy hour menu; it's performed well enough to earn a spot on the Margarita lineup with our new menu drop at the end of this month. We also introduced a premium Hennessy Margarita, which quickly became a top seller, earning the number five spot in March. From a food standpoint, the third quarter was our first full quarter after eliminating the lower-performing original tempura batter from our Crisper menu. We've historically had two breading recipes for our chicken tenders: the original Crisper, which is a tempura batter, and our Crispy Crispers, which outsells the tempura batter by four to one. We eliminated tempura batter in October to free up operational capacity in preparation for our re-launch with the updated Crisper menu in May. While there were concerns we might lose business from eliminating the tempura Crisper, I'm pleased to share the opposite has happened. The Crisper mix is now 3% higher than when we had two different types of breading, suggesting that eliminating the original Crisper has been a non-event. Simplifying down to one Crisper batter enables us to move to a bulk breading process in preparation for launching our new menu later this month. This new menu will feature Crispers with additional sauces, a new Mac and Cheese, and new merchandising with four, five, and six count Crisper platters, which in testing drove significant profit dollars. We're excited for you to taste these products in person for those attending our Investor Day next month. Fewer SKUs mean less training and maintenance, more business, and we're now set up to relaunch this crucial menu category. Again, we're seeing continued progress. The key takeaway for all of you is that, while we have much to do, our strategy is working. I'm excited to see our metrics moving in the right direction and there's a lot more upside potential for the long-term growth of the business. We're looking forward to hosting many of you next month at our Investor Day at our Restaurant Support Center here in Dallas, where the leadership team will provide a deeper dive into how we're accelerating improvements to the guest experience, our plans to drive traffic and trial, and updates on how we expect that to impact the business over time. Now, I'll hand the call over to Joe, who will walk you through the numbers. Go ahead Joe.

Hey, thank you, Kevin, and good morning to everyone joining us. The results reported in this morning's press release represent another step in the right direction for Brinker and better define our ability to implement the strategies and initiatives we have previously reviewed. The results reflect the impact of our ongoing attempt to move away from aggressive promotion, our ability to price appropriately, and provide premium trade-up opportunities in order to create powerful price mix support for overall sales growth. It also marks the beginning of much-needed investment back into our restaurant operations to meaningfully improve our guest experience, as well as our initial foray back into our broad-based marketing campaign to generate trials and improve brand awareness over time. More specifically, for the third quarter of fiscal 2023, Brinker reported total revenues of $1.083 billion with consolidated comp sales up 10.8%. Our adjusted diluted EPS for the quarter was $1.23, up 34% from last year. Both brands reported meaningful top-line sales growth, with Chili's coming in at positive 9.6% for the quarter driven by a price increase of 9.8% and positive mix of 5.6%. This powerful combination significantly outweighs the lost traffic from discontinued promotional activity and reduced reliance on our virtual brands. As part of simplifying our restaurant operations and in recognition of the reduced demand for virtual brands in the post-COVID environment, we are systematically phasing out the Maggiano's Italian Classics brand, a process we will complete by the fiscal year-end. In the third quarter, this removal negatively impacted year-over-year traffic by approximately 60 basis points. On the positive side of traffic, Chili's dining room traffic was positive year-over-year throughout the quarter. This also represents a good opportunity to drive top-line growth through effective menu strategy, additional check add-ons, and an improved guest experience. Maggiano's also reported a solid quarter, with comp sales up 21.6%, driven by the positive trifecta of price of 8.3%, mix of 3.8%, and traffic of 9.5%. Now turning to margins. Improvement is evident in the middle of our P&L with our consolidated restaurant operating margin growing both sequentially from the second quarter and importantly year-over-year. The third quarter consolidated operating margin was 13.4% versus 13.1% a year ago. Our food and beverage expense was favorable by 100 basis points compared to last year's third quarter and was the largest factor positively impacting restaurant margin, driven by higher prices and a favorable menu mix, offset by higher commodity costs. We experienced approximately 9% commodity inflation led by year-over-year increases in poultry, beef, and produce. Labor expense as a percent of the company's sales was favorable by 30 basis points compared to the prior year. Top-line growth offset wage rate inflation of approximately 5%. One important note: the additional hours we invested into the Chili's labor model to improve guest and team member experiences impacted our overall labor expense by approximately 65 basis points for the quarter. The incremental hours are making a difference. Our new labor model combined with operational simplification efforts are helping improve turnover in both the manager and hourly ranks, and supporting guest metrics in the dining room now exceeding pre-pandemic levels. Restaurant expense in the quarter was unfavorable year-over-year by 100 basis points due to our return to broad-based advertising and incremental repair and maintenance investment. Inflation was also impactful, as costs rose across multiple restaurant expense lines such as utilities, credit card fees, property tax, and rent. Overall, the inflationary environment, particularly in food and beverage, has and should continue to improve moving forward through the remainder of our fiscal year. That said, it still remains present in the system and will create a level of expense we need to cover with our ongoing price mix construct. From a cash flow perspective, the quarter saw a return to a more normalized level of cash generation. Consolidated operating cash flow totaled $133 million and EBITDA totaled $113 million, bringing our year-to-date totals to $201 million of operating cash flow and $231 million of EBITDA. As of the end of the third quarter, our capital expenditures totaled $137 million. Overall capital spend is proceeding at a somewhat higher pace, as we are using improved supply chains to address outstanding equipment needs and increase necessary restaurant-level improvements. We expect our full-year CapEx spend to reach the high end of our previously guided range, which is $180 million. Another crucial component of our capital spend is new restaurant development, which continues to be a bright spot for the Chili's brand. We opened three new Chili's this past quarter, all performing strongly with sales above our brand's average weekly sales. In the fourth quarter, our plan is to open an additional six to seven Chili's, which will bring us to 14 new restaurant openings for the fiscal year. The response to these new locations is great and is a clear testament to the relevancy and drawing power of our iconic brand. Regarding our previously provided annual financial guidance, we are affirming all aspects as we head into our final quarter. In conclusion, our third quarter was successful from not just a financial perspective but also strengthened our business, providing sustained growth for the future. I am confident we are investing in the right things to improve the guest and team member experience over time to earn improved pricing and mix power to help drive topline results and create a dining experience that allows meaningful development for both our brands in the years ahead. While this morning provides a snapshot of how that is coming together, we look forward to a more comprehensive discussion around our strategic initiatives next month during our Investor Day. With my comments now complete, I will turn the call back over to the operator to moderate questions.

Certainly. At this time, we will be conducting a question-and-answer session. Please hold while we poll for questions. Your first question for today is coming from David Palmer at Evercore ISI.

Thanks. A question on the labor front; how much were labor hours up in Chili's restaurants year-over-year?

David, I think what we provided was an impacted improvement of about 65 basis points within that labor line item. So I don't have the specific number of hours in front of me, but it was about a 65 basis points impact.

I'm curious about how you plan to reinvest as your prices potentially exceed wage and food inflation, especially in terms of food. What does your reinvestment strategy look like? What would be your top priorities going forward, whether that involves marketing or increasing labor hours? Thank you.

Yes. So this is kind of our prioritization on how we're thinking about it and then I'll defer to Joe if he wants to provide any more context on actual numbers. So number one, we are very focused on repairs and maintenance and accelerating some improvements there based on deferred maintenance we had over the last three years during COVID. Incremental investments are going into that. Number two is labor, although I don't anticipate spending significantly more in labor based on some of the changes we made in Q1. So those investments are in place, and now we will see how they play out over the full year. Thirdly, advertising is a big focus for us. We did our first significant national TV advertising in March, with incredible success, and we are very excited about it. We plan to do this more often next year, which will be baked into our fiscal year 2024 plan. So that's the order of prioritization for our investments.

Thank you very much.

Your next question is coming from John Ivankoe at JP Morgan.

Hi, thank you. The question is about how you are performing with the generation and the advertised promotion of the $10.99 Oldtimer burger and other products. Is this appealing to younger consumers? Many younger consumers have come to expect high-quality products at quick service restaurants and fast casual dining. In the three segments you operate in—Mexican, burgers, chicken crispers—do you believe there is an opportunity to connect and gain market share with that younger demographic? Is it primarily a price issue, a quality issue, or a variety issue? How do you think we can effectively engage the customer base that you aim to expand? Thanks.

Yeah. Thank you, John for the question. I think what you're seeing is that customers are really willing to pay for high-quality products, right? And you get what you pay for, and what you get at Chili's on the core items is an incredible value. What we offer is a nearly half-pound burger, and I'd encourage you to try it yourself. It is unbeatable in all the different restaurant categories, but you also get great fries, and bottomless chips and salsa that are freshly made daily. I think that's why we saw significant market share acceleration when we turned that advertising on in late February and throughout March and then even in April after we turned off the advertising. Our team members reported that they were seeing new guests and those returning had a strong reaction: the food we serve looks just like it does in the advertising. We are executing better than we have in a long time, delivering abundant value with high quality at sharp price points, which can win with guests every time. Some of these investments we're making in labor and simplifying our heart of house operations are starting to pay off. We see a significant acceleration in market share both in March and into April.

Yeah, and John, I would just add that, again, we're operating in the right spaces. When you look across any demographic, our major core products are where folks are dining. That allows us the breadth of opportunity. I think it also speaks to the need for a broader marketing campaign that can target demographics differently, as they absorb media. Whether it’s a very effective on-air campaign, which we saw in March-April, or the relevance of our social and digital strategies, that broad-based campaign is designed to not only touch on what people want to be communicated, but also to reach them in the channels they are consuming media. Those elements work well together.

I mean, a good example is our initial ad that we launched on social media, which had 15 million views on TikTok. It clearly resonated with people of all ages. But ultimately, are we growing market share? Are we driving sales? Are we driving traffic? The answer is yes.

Okay, all right. I got it. Thank you.

Your next question is coming from Chris O'Cull at Stifel.

Thanks, good morning guys. Kevin, many restaurant companies are planning to take less pricing, or they said they're not going to take any additional pricing later this year. I know Chili's started raising menu prices later in the cycle than many of its competitors, so I'm curious how this shapes your thinking about additional price increases or even maybe the need to be more promotional to address traffic challenges.

Yes, so let me share our thinking on that right now, and then Joe can add anything else. We got ahead of the pricing, which I think was a good move. It allowed us to make needed investments back into the business while protecting core price points, like $10.99 mentioned earlier. We have a barbell strategy for customers with limited budgets who can come into our restaurants and enjoy that pricing. We've also implemented some pricing, based on missing many opportunities over the last three years. Going forward, I think we're closely monitoring it. Most of the pricing we can see is based on innovation right now, as we have a whole new Crispers lineup coming out later this month with new menu options. Our focus is to continuously enhance value, and our market share data, improved traffic, and metrics like value ratings and food grades signal that our pricing strategy is effective.

Yes. And Chris, I would just add that as we move forward, we will definitely moderate incremental pricing flowing through new menus. Expect those increments to be in the low single-digit range. We will be more surgical in identifying pricing points on the menu with greater optionality. Although we will carry a higher level of price, we will aim to similarly moderate as we move through the fiscal year into early next year.

Okay, that's helpful. And then, Joe, I know the company has been de-emphasizing virtual brands. I was just wondering if you could quantify the impact this has had on comp sales from focusing more on the core business.

Yes, I would put it in the range of 1% to 2% on the traffic side. The mix impact was more pronounced earlier in the quarter, but you’ll see that grow as we complete the removal in the next quarter. However, our focus on promoting Chili's has offset that trade.

Yes, it's important to note, for example, that the Chili's average ticket is a little over $40. Looking at Maggiano's Italian Classics, that offering is $28, and the margins are incomparable. Therefore, shifting our marketing focus and dollars from virtual brands to Chili's not only increases sales but also aids margins because it is the more profitable brand.

That's helpful. Thanks guys.

Thanks, Chris.

Your next question is coming from Andrew Strelzik at BMO.

Hey, good morning. Thanks for taking the questions. My first one is around your comments on labor; there was an understanding that there would be a second round of labor investments at some point and I think in a previous answer, you mentioned thinking you were kind of done there. Is that a change you’re not expecting to make, or are those different types of labor investments?

I think what Kevin was referring to was that we made labor investments in the recent quarter. There will be further investments on a quarterly basis going forward. I think we are pretty comprehensive with the current investments in place and now we'll just adjust them as we go forward.

Okay, great. And then my other question is about the progress you're seeing on labor side in terms of metrics and performance. Can you share anything on labor, looking back at last quarter you mentioned improvements in managerial turnover and wanted to see progress in the hourly segment as well?

Hourly turnover has continued to improve. However, we are still not all the way to where we want it to be compared to pre-pandemic levels. We’re continuing to work on this. Part of our restaurant simplification is helping; there are other challenges we need to navigate as we hire more labor and consider server earnings. I wouldn't say we're fully satisfied with our hourly turnover yet; however, it continues to trend positively. Additionally, from a guest metric perspective, our key performance indicators have dramatically improved compared to Q2 and last year. Metrics like food grade, intent to return, server attentiveness, and guests experiencing issues have improved significantly. This is encouraging and tells us we are moving in the right direction. Keep in mind that Q3 is usually a high-traffic season for us. We typically face headwinds, but we haven't seen that. There’s clearly a change in the culture inside our restaurants, leading to an enhanced guest experience. I believe this improvement will serve as a nice tailwind for our business over time.

That's great to hear. Thank you very much.

Your next question is coming from Dennis Geiger at UBS.

Great, thank you and thanks for the color on a lot of the traffic drivers and share improvement commentary. Wondering if you could share more on what you view, Kevin, as the most impactful drivers over the coming quarters related to traffic. Recognizing that many of these elements work in tandem, could you remind us on the timing of benefits and any other operational aspects affecting traffic going forward?

Yeah, thanks for the question, Dennis. There are two ways to think about traffic drivers. One is acute traffic drivers where we make a significant investment and see immediate movement in business. That's precisely what we experienced with our advertising campaign. The week we began digital promotion, we noticed movement, and once we added TV advertising, the response was significant. This trend has continued beyond those initial weeks, particularly in March and April, as we saw a narrowing of the traffic gap versus the industry. The way to think about next fiscal year is that we had one media campaign this quarter; we plan to run three or four next year. The exact timing remains competitive information, but we'll provide more updates during our Investor Day. Secondly, beyond advertising, we expect improvements from fixing our CRM program more efficiently focused on profitable traffic growth; these adjustments should yield immediate results. Over time, we anticipate metrics such as food grade, intent to return, server attentiveness, and guests' problem experiences will all be incremental tailwinds to traffic growth. Though predicting precise impacts from these enhancements can be difficult, greater guest experiences ideally lead to long-term brand building and traffic growth.

That's very helpful, Kevin. And just one more, I know you mentioned seeing increased frequency in some cases and new customers from the various platforms. Any additional insights on customer behavior, specifically regarding lower-income customers, have you noted any changes in their engagements with your brands?

Yes. There hasn’t been a notable change in customer segments, but we have observed trends over the past year, particularly since gas prices surged in Q4 of last year. We have not seen the lower-income segment return yet, but we are observing an industry-wide pullback that, while not affecting our sales numbers, is notable. The positive guest experience and our effective advertising contributed to significant market share growth and subsequent sales increases, particularly during March.

Very helpful. Thanks, Kevin.

Your next question is coming from John Tower at Citi.

Hi, this is Karen Holthouse on for John Tower. Just digging a little bit more into some of the off-premise stuff. Could you, maybe I missed this in the prepared comments, but just what the overall off-premise mix for the quarter was? And then regarding virtual brands, just qualitatively, how do you view delivery versus order ahead and pickup channels? And if there's any macro weakness impacting the delivery channel?

So Karen, the off-premise for Chili's was around 29%, and off-premise for Maggiano's was 25%, so both maintaining steady figures with the channels still about 50:50 between delivery and to-go.

And then one last question on some labor changes. Do you think you’re at a point where you've developed your tables per server dynamics, and do you feel you need to adjust them? Is this strategy evolving?

I'd say there's going to be changes, but they'll be self-funded changes. When we look at the simplification in our operations, we’re reallocating hours to reinvest into the business. However, I'm not anticipating needing additional financial contributions at this stage. There are still adjustments needed in the front of the house to enhance our operations to align with the improvements seen in the back of the house. If you enter the restaurants, you'll feel a palpable difference in the kitchens, which is reflected in improvements in our speed and food quality scores. In the front of the house, we need to ensure that our team can function just as effectively as in the back, but this will rely on clearer roles and responsibilities rather than additional financial input.

Optimizing.

Great, thank you.

Your next question is coming from Brian Vaccaro at Raymond James.

Hi, thanks, good morning. I wanted to circle back on Chili's traffic performance. I know you said it improved through the quarter. But just so we're all on the same page, would you be willing to provide quantifications here, like Chili's monthly traffic reflecting a downtrend or the magnitude of inversion you're observing relative to industry trends in recent months?

While I can't provide exact figures, I can share that relative to the industry, in January we were slightly over 7 points lagging the industry, in February it was 6, and in March it narrowed to 2. We have continued to see improvements in April. There's been a significant shift in the gap versus industry trends on traffic. Combining improvements in pricing and mix, you can infer the movement in market share. In March and April, we experienced significant traffic upticks driven by our advertising campaign.

Yes. Those numbers are indeed based on Blackbox comparisons, as Kevin mentioned.

That's very helpful. And is that versus Blackbox you're comparing to?

Yes, I'm sharing Blackbox numbers.

Okay, great. On margins, Joe, you provided helpful guideposts regarding store margin dynamics in your second-half guidance. Could you walk us through a couple of key dynamics in Q4, such as expected commodity inflation and overall OpEx guidance for labor moving forward?

As we progress through this quarter, I anticipate continued improvement relative to the company's sales percentage on the food and beverage side of the equation. Expect commodity inflation in the lower single-digit range, approximately 3% to 5%. This continued improvement will positively impact margins in food and beverages. For the other two categories, I expect them to remain stable with minimal fluctuations of 10 to 20 basis points, maintaining their performance as a percent of company sales.

Yes, that's quite helpful, thank you for that. Kevin, could you update us on your value platforms? I recall we discussed these constituting around 37% of sales. Where does that percentage stand now?

It was about 30% last quarter, and now we're under 30%, currently at mid-29%. Given we started advertising with a fresh promotional value in March, which has positively influenced the numbers. Additionally, regarding the mix within pricing tiers, we initially had one-third at the $10.99 level, two-thirds at the $13.99 and $15.99 tiers, but a shift has occurred due to our TV advertising. We received a significant uptick from 33% to about 38% in the $10.99 range, while around 62% remains in the higher tiers. This positive outcome stems from an upgraded merchandising strategy compared to when we last advertised.

That's great context. Thank you; I will pass it along.

Your next question is coming from Chris Carrel at RBC Capital Markets.

Hi, thanks, good morning. Kevin, could you elaborate on what you're witnessing in your bar business? I know that this has been a focus area for you; I'm curious about the mix contributing from this part of the business and how any changes have influenced margins.

Certainly, we've observed an incremental mix from the bar business, impacting both PPA and overall sales percentage. Increased dine-in traffic is assisting with alcohol mix since dine-in generally incorporates more alcohol sales than our to-go or virtual brands. There are several exciting innovations coming to our drink offerings, including a new premium Margarita lineup. The front page of the menu will spotlight premium margaritas, and we continue to innovate on promotions—such as our recent Patron Margarita for $7. We're also introducing the Casamigos brand, along with a 100-calorie skinny margarita made with The Rock's Teremana Blanco tequila. We've added multiple exciting changes to our bar, and we’re seeing positive outcomes regarding alcohol mix and PPA, with innovation likely to drive further growth.

Great. Thanks. And then Joe, could you expand on your labor margin perspective and the outlook for wage inflation, particularly in Q4?

Yes, I foresee labor inflation remaining steady in the 5% range, give or take. In the coming quarters, I anticipate a continuation of slight improvements regarding lower wage rate inflation, making its way into the restaurant systems.

Great. Thanks so much for that.

Your next question is coming from Fred Wightman at Wolfe Research.

Hey guys, good morning, thanks for the question. I wanted to follow-up on the Chili's dine-in commentary. I think you said that was positive throughout the quarter; I’m curious if that followed a similar pattern or cadence to the market share stats you shared? Was there a notable inflection in March as well?

That pattern was pretty consistent throughout the quarter. We saw improvements in dining room numbers beginning early in the quarter, with slight progress through March. The campaign undoubtedly influenced multiple channels, but the improvement began prior to the start of the campaign, which is promising. Ultimately, our focus is on bringing guests back to the dining room.

Makes sense. Lastly, last quarter you mentioned you expected year-end price to be around 8%. Is that still a reasonable estimate, or has it changed?

I anticipate it will be a little closer to 9% as we approach the end of the year, looking at current data.

All right, and that concludes our call for today. We appreciate everyone joining us and look forward to seeing many of you at our Investor Day on June 7th.

Great. Thanks, everybody.

Thank you.

Thank you. This concludes today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.