Brinker International, Inc Q4 FY2023 Earnings Call

Good day, and welcome to the Q4 F '23 Earnings Call. At this time, all participants have been placed on a listen-only mode. The floor will be opened for questions 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, Holly, and good morning everyone. Thank you for participating in today's call. Joining me 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 at brinker.com. 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 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. With that said, I will turn the call over to Kevin.

Thanks, Mika, and good morning everyone. Thank you for joining us as we recap the progress made during fiscal '23 and highlight our plans to build on this momentum and drive traffic in fiscal '24. During fiscal '23, we made significant shifts to our strategy to drive our core dine-in channel business and help us drive margin improvement over time. We pulled back on deep discounting, we reduced our focus on investing in virtual brands, and we started to price to recover inflation while still maintaining best-in-class value. We acted on our restaurant teams' ideas to simplify operations, we invested in our labor model to improve our food grade scores and service, and we returned to national advertising for the first time in more than three years. We saw very good progress in our results; we are now significantly outpacing industry sales growth since the middle of February, which is being driven by improved food scores, improved service scores, and have returned to traffic-driving advertising. Our traffic gap versus the industry is also beginning to narrow, even though we continue to strategically shed the unprofitable Maggiano's virtual brands sales and some Chili's sales that were driven by deep discounting, as we continue to reduce our reliance on coupons. From a retention standpoint, we significantly improved managerial turnover and we are now better than pre-pandemic levels. A year ago we challenged our Vice Presidents of Operations to get after one obsession metric; they chose manager turnover, and the results have been exceptional. We are now beating the industry. This year, they've chosen the obsession goal of hourly team member turnover, and I'm confident the team will deliver improvements there too. All in all, good progress in one year that has set the business up for a longer run of sustainable profitable growth. Before we shift our focus to fiscal '24, I'd like to share an update on the relaunch of our Chicken Crispers, the first of our Core Four improvements, as an example of how our strategy is creating value. Our goal is to make it easier for operators to execute higher volumes, improve their recipes on chicken and fries, bring in new Mac and Cheese and new dipping sauces, and lastly merchandise Crispers in a more relevant way that would drive bigger piece counts. We launched this platform at the end of May, and we've already seen some very positive results, including over 40% more Crisper volume. The best part is these results came before we turned on advertising next month, in conjunction with the start of football season. We'll also be featuring this improved platform more prominently on our new bar menu rolling out in September, and we will also introduce a new incredibly delicious flavor that uses the existing operational procedures and adds no new complexity to the kitchen. Guest feedback on the new Crispers, Fries and Mac and Cheese has been phenomenal and has confirmed that moving to one type of breading to improve the recipe and allow teams to produce much higher quantities consistently has been the right choice. The end results: a much bigger and margin accretive Crisper business driven by both higher pricing, higher piece counts, and better taste, with less complexity because we eliminated the low mixing original Crisper. Our restaurant teams loved the changes. More sales with less complexity is a big win. In fiscal 2024, our goal is to accelerate this momentum by focusing on two key areas: Number one, we'll continue to improve the team member and the guest experience through service levels and atmosphere while driving the Core Four through improved operations and innovation. The Core Four now represents 43% of our sales. We took many of you through those plans on improving guest and team member experiences when you attended the Investor Day here in Dallas last quarter. Number two, we're laying several strategic initiatives to drive incremental traffic and accelerate our sales even more versus the industry, and I will detail them here. Starting with our advertising strategy. Last quarter, I shared the encouraging results of our 3 for Me TV campaign. This was our first national advertising window in more than three years, which helped narrow our traffic gap and accelerate Chili's market share growth. This year, we will follow the same strategy, but increase from four weeks on TV to 21 weeks. That advertising will focus on value and Core Four menu items. We will use offers and innovation to bring guests in, and then use menu merchandising to drive check. We'll supplement these ad windows with a social media and digital strategy to drive awareness and continue to increase the brand's relevance. The marketing team is doing a great job getting Chili's back in the cultural conversation and engaging with customers through these channels. For example, over the past six months, we’ve been a top trending topic on the platform formerly known as Twitter four times. Finally, we're building a more sophisticated CRM program to drive frequency. I'm excited to announce our partnership with GALE, the award-winning digital and CRM agency known as best-in-class in the restaurant industry. We'll continue reducing CRM discounts and redeploy those dollars to more effective and sustainable communication that delivers relevant targeted messaging to reduce the time between visits. I'm so pleased to have the caliber of the GALE team working on our business and look forward to bringing you more updates on this program throughout the year. The other area of the business we're leaning to drive incremental traffic is the bar. With last year's Raise the Bar initiative, we are now selling more premium margaritas and our bars are more profitable. Building on that success, we're launching an updated bar menu later this month, in conjunction with football, that includes compelling happy hour specials, premium drinks like our Casamigos Rita and our new Teremana tropical Rita, as well as a completely new food lineup with an emphasis on Crispers and Wings. In addition to featuring our premium burgers and Chicken Crispers on that new bar menu, I'm pleased to share we'll be graduating the virtual brand It's Just Wings to the real world, where they will now have the marketing power and distribution of Chili's Grill and Bar. It's Just Wings is one of the largest, if not the largest virtual brand in the world, and it's likely to get a lot bigger in the traditional restaurant world. We see an opportunity to leverage It's Just Wings brand as a trip driver for bar visits and to provide credibility to Chili's as a wing player. We'll start with football season and drive the Wings business throughout the year, leveraging relevant sports viewing occasions to drive traffic. It's Just Wings will also appear on the everyday dining room menu, and we expect it to drive add-ons and trade up in the appetizer section. In summary, we expect these multiple traffic-driving initiatives to improve traffic trends. We also expect a negative traffic impact of our CRM deep discounts reduction and Maggiano's virtual brand removal to have less of a drag on traffic as we move through this fiscal year and cycle those impacts out. We're excited about our plans to continue growing the Chili's business in fiscal '24, and we expect to continue to significantly outpace the industry on sales. We expect our traffic-driving initiatives to improve traffic trends versus the industry, which will continue to accelerate market share growth throughout fiscal '24. Now let's move on to Maggiano's. The Maggiano's team has delivered impressive results during fiscal '23, as the recovery from the pandemic is now complete, finishing the year with an impressive $9.5 million AUV. I'm encouraged by the progress the Maggiano's leadership team is making in clarifying their brand positioning. The team is currently working on plans based on this positioning to modernize this iconic brand and accelerate growth on top of this past year of impressive results. I did want to take a moment to recognize Maggiano's President, Steve Provost, who is retiring at the end of this month. Steve has made many contributions to our business during his 14 years at Brinker. He started at the Maggiano's brand and served as the President for many years. When the company needed him to jump into Chili's, he did so, acting as the Chief Marketing and Innovation Officer. In that role, Steve created and launched It's Just Wings brand during the pandemic, which was a big help to the business during a very tough time. Now, Steve has finished his career leading Maggiano's for the second time. Steve has done a great job leading the brand through the pandemic, thoughtfully supporting managers and teammates, and ultimately creating a stronger Maggiano's post-pandemic. We're grateful for the many hats Steve has worn here at Brinker, and we'll miss his infectious energy and passion for the business and the people. Chief Concept Officer, Larry Konecny and I are co-leading the brand as we search for the right leader to grow the business in the long term. I wanted to close with a brief update on what we experienced at our Annual Manager Conference here last week in Chili's - in Dallas. Our Chief People Officer, Aaron White, and Chief Operating Officer, Doug Comings hosted all of our Chili's restaurant general managers at our Annual Conference. There we shared our fiscal '24 plans. It was incredibly encouraging to hear the managers' alignment and see their energy about the new Chili's direction. The job continues to get easier, the job continues to be more fun and more rewarding for them and their teams. They feel like they're being heard and a big part of shaping the future of Chili's. And they love winning again and growing faster than the industry. So the teams are really fired up and they're ready to deliver another year with accelerated growth and profitability. Net, we have confidence in the plans we have, the enthusiasm of our field restaurant teams, and we have the alignment to what's important across our entire organization that will allow us to deliver strong results this fiscal year. Now, I’ll hand it over to Joe, and he’ll walk you through the numbers and share guidance for fiscal '24. Go ahead, Joe.

Well, thank you, Kevin and good morning everyone. The results reported in this morning's press release represent the completion of a successful fiscal year, in which we turned the overall direction of our brands, created a stronger foundation for growth, and built operational momentum heading into the current fiscal year. For fiscal '23, Brinker's annual revenue was $4,133 million and our adjusted EPS was $2.83. Let me start my comments with several financial highlights for the fiscal year, followed by an overview of the fourth quarter performance, before ending with comments and specific guidance for fiscal '24. During the recently completed fiscal year, we initiated investments into the Chili's brand through greater labor and maintenance spend that are bearing fruit by supporting an improved guest experience. While incorporating these necessary costs into the Chili's business model, we still realized improved restaurant-level economics as we moved through the year. Operational simplification, more aggressive and appropriate use of price mix and cost of sales improvement were the primary contributors to the change. Maggiano's moved fully out of its post-pandemic recovery mode and delivered record pre-tax profits for the brand, with particular success in solidifying their off-premise channel. Brinker delivered top and bottom line results that strengthened through the year and finished well within the guidance range as updated at midyear. Overall, we are proud of the work our team members delivered and the progress made through the year, particularly around initiatives to improve team member and guest experiences, efforts that will lead to greater guest engagement as we move into a more robust traffic driving phase of our strategy. Moving to an overview of fourth quarter financial highlights: For the fourth quarter of fiscal 2023, Brinker reported total revenues of $1,075 million, with consolidated comp sales of positive 6.6%. Our adjusted diluted EPS for the quarter was $1.39, an increase of 21% from the fourth quarter last fiscal year. Both brands reported meaningful top-line sales growth with Chili's coming in at a positive 6.3% for the quarter, driven by price of 9.4% and a positive mix of 4.6%, partially offset by negative traffic of 7.7%. Comp sales and traffic improved as we moved through the quarter, and the brand's positive gap to the industry widened. Importantly, dining room traffic for the quarter was positive when compared to the fourth quarter of fiscal '22. I would note Chili's is maintaining strong sales momentum in the beginning of this fiscal year, as well as further widening their comp sales gap to this sector. Maggiano's also recorded a solid fourth quarter, with comp sales up 9.1%, driven by positive price of 9.5%, partially offset by a slightly negative mix in traffic. As mentioned earlier, we improved our restaurant operating margin with a fourth quarter consolidated ROM of 13.4%, up 90 basis points from the comparable quarter of the prior fiscal year. The improvement was primarily driven by sales leverage from greater price mix in the quarter, and year-over-year improvement in cost of sales. Commodity markets moved in the right direction with inflation just over 4% for the quarter. Our investment into incremental labor hours to improve operational performance and wage rate inflation firmly in the 5% range were the primary drivers of increased labor expense for the quarter. The third component of ROM, restaurant expense, was impacted year-over-year by our strategy to increase both advertising and repair and maintenance spend, both of which we believe will positively impact our brand awareness and guest engagement. Additionally, we recorded a year-end adjustment to increase our reserve for workers' compensation and GL insurance liabilities that reduced adjusted EPS by approximately $0.05. Our adjusted EBITDA for the fourth quarter and fiscal year was $114 million and $345 million, respectively. This level of performance allowed us to reinvest in our restaurants while also paying down $87 million of debt over the course of the year. At year-end, our funded debt leverage ratio declined to 2.6 times and our lease adjusted leverage declined to 3.8 times. We will continue to utilize free cash flow to reduce outstanding debt with a target of reducing our funded debt leverage ratio to two times, a target we believe achievable before the end of calendar '24. During the quarter, we opened seven new Chili's restaurants, bringing our fiscal year openings to 14. Our recent openings continue to be a source of strength for Chili's, with three of the openings this quarter setting back-to-back opening sales records, showing the continued relevancy of the Chili's brand. Now, to fiscal 2024. Company sales for the current fiscal year will continue to benefit from favorable price mix dynamics, although at a reduced level from the low teens combination of fiscal '23. For the current fiscal year, we expect consolidated comp sales growth in the mid-single digit range. As it relates to labor costs, we expect wage rate inflation to remain sticky in the mid-single-digit range. The first half of the year will also be impacted by the incremental labor hours we built into our model during the middle of last fiscal year. As indicated at our recent Investor Day, we expect this to be approximately $20 million of incremental spend during the first half of the fiscal year. One of the more meaningful changes when compared to fiscal '23 should be food and beverage inflation. In the category of what a difference a year makes, we expect commodity inflation for fiscal '24 to be approximately 1%. Compared to the respective quarters of last year, we expect commodity price to be deflationary for the first two quarters, with low single-digit inflation in the last two quarters. Enhanced marketing will be a key driver for Chili's in this fiscal year. We expect to spend approximately $55 million to $60 million more in marketing expense during fiscal '24 compared to fiscal '23. Finally, restaurant development has 12 new openings scheduled in the fiscal year. In this morning's press release, we included some specific guidance for certain reportable items. This incorporates our existing view of the macro casual dining industry, our strategy to drive positive performance at both brands and our capital allocation priorities. For the fiscal year, we are currently forecasting total revenues between $4.27 billion and $4.35 billion; adjusted earnings per share in a range of $3.15 to $3.55; capital expenditures between $175 million and $195 million; and weighted average shares in a range of 45 million to 46 million shares. In closing, we are proud of the progress we've made and are continuing to make in building a solid foundation for future growth. We owe many thanks to our team members, both in the field and at our restaurant support center, who are hard at work improving the business on a day-to-day basis. Their efforts have created strong momentum that we are confident will drive the business forward as we move through the fiscal year. With my comments now complete, I'm going to turn the call back over to Holly to moderate questions.

Your first question for today is coming from Dennis Geiger at UBS.

Great, thank you and thanks for all the color on the market share. Maybe we could start there as it relates to market share through the quarter, any comments on how that traffic market share trended through the quarter? And then, Joe, I wasn't sure if you made a comment on starting the new fiscal year or not, but any comments on how that has looked into the beginning of the year?

Yes, sure, Dennis, and good morning. Yes. Traffic dynamics—comps and traffic dynamics improved as we moved throughout the quarter, which I think you heard some of the similar commentary from others in the sector. It was a little bit below expectations in that April, early May timeframe, but definitely improved with both traffic getting better, the gap getting better, and overall comps getting better as we moved. So, some nice momentum coming out of the quarter, which we have definitely maintained. Very excited about what we're seeing in the first, really seven weeks of the current fiscal year, maintaining that momentum both on comp sales and traffic, and continuing to widen our gap to the industry.

That's great, Joe, thank you. And then just one more, a lot of initiatives clearly in progress and resonating. Just curious on customer behavior that you're able to kind of parse out? Any changes, behavior-wise, purchase intent-wise, that you're seeing within different customer cohorts, or anything notable from that perspective, as you move through the quarter? Thank you, guys.

Yes. From a macro standpoint, our internal metrics continued to improve. When I say internal metrics, I’m talking about server attentiveness, intent to return, food grade scores—they are all headed in the right direction. From a cohort standpoint, the low-end customer is hanging in there; we haven't seen any change in frequency, quarter to quarter. The high-end customers, or the higher income customers, are actually coming more often, and then that middle ground has seen a little bit of fall off. But all three of those cohorts are actually spending more than they were a year ago. So the net of it is, it’s a little bit mixed, right? You've got a higher income customer that is actually coming more often; the lowest income customer is about the same, and that middle ground has seen a little bit of drop-off, but yet all three cohorts are spending more.

Great, thank you guys. I appreciate it.

Thanks, good morning. I'm just wondering how you're thinking about—I think I know the answer to this, but the thing is about how you're sort of targeting key metrics. Your guidance implies a 100 to 150-ish restaurant margin basis point expansion in '24. I mean, you can correct me if I'm wrong on that rough math, but that's both good and a fairly tight window. In other words, you get a lot of leverage on your business model. Are you targeting price according to really target the right margin? And I wonder when and how you think about, when you start targeting traffic as a key metric? And I guess maybe related to all this is—should we assume that you're not going to be taking more price than the carryover of four points of price into fiscal '24? Thanks.

David, this is Joe. Let me deal with the price piece of the equation, then we will segue into traffic. We're going to be targeting both, the year on the pricing in particular. The year is going to benefit obviously from pricing actions we took throughout this year. We’re comfortable with where we stand relative to the industry from a pricing standpoint. I do think that there is some more price available to us. We're actually also in the early stages of working with a third-party consultant on becoming more sophisticated in our ability to apply price throughout our various markets. I think we'll take a little bit of incremental price, probably mid-single digits here in the first half of the year later on in this quarter, and then move into a lower level of pricing impact in the back half of the year. We’ll maintain that optionality if prices are available at that time, but we're not embedding the plan to have a lot of incremental price in the second half of the year. You'll see the impact of price on a quarterly basis kind of decrease as we move through the fiscal year starting most of this from carryover and a little bit of incremental price we're taking in our next menu. You're going to see that move from kind of high single digits down to mid-single digits as you work your way through the year on a quarterly basis.

And then from a traffic standpoint, David, here's how we're thinking about it. So if fiscal year '23 was kind of a reset year, where we're investing in the right places and taking some pricing to build up some dollars to reinvest back into the business, getting out of unprofitable sales. I would characterize fiscal year '24 as, now we're reinvesting in the business to grow traffic. The biggest change—we talked about several of the traffic initiatives that we're driving in '24. The biggest one I think that would be important for all of you to know is going into the deep end on how much money we're going to invest in advertising. We’re going to move from four weeks of advertising last fiscal to 21 weeks, right? That’s 17 more weeks. Joe articulated in terms of dollar amount of $55 million to $60 million incremental. Why we feel very confident about that is the first four-week blast we did back in March; we saw the first compression of traffic versus the industry trends, even though we're cycling through getting out of those unprofitable sales and traffic. So we saw sequential improvement versus the industry. I think you’re going to see a sequential acceleration both in market share and in traffic trends.

That's great. Thank you.

Hi, thank you. A question on advertising, especially as you bring it up. For you to be doing 21 weeks of advertising, obviously that's not 40 or 52, and you are competing, especially on the QSR side, with brands that really do dominate the airways in some cases with burgers and chicken. Is there any sense or worry—listen, I understand '24 is a different environment than what we had in '19, but is there any fear or worry that advertising is just going to be a cost of business going forward? In other words, as opposed to actually driving you a positive ROI, kind of prevents you from sales declining. How do we see that it's positive as opposed to just avoiding a negative at this point?

I have zero worry about that. The way I think about advertising, and I’ve thought about this throughout my career, there are three things that determine whether your advertising is going to be impactful or not. First one is, what are you advertising? If you're advertising something that's poor, it doesn't matter how good the ad is; it's not going to drive your business. We've got unbeatable value with 3 for Me and some awesome innovation coming in our Core Four that I'm very confident about, both the quality of those products and how they will look on screen and drive traffic inside our restaurants. The second piece of it is, is the advertising any good? We've built a world-class team with George Felix and Jesse Johnson, we just hired a new VP that I don't want to release right now, but that's exciting too. We’re bringing these world-class agencies into our business. They know how to do advertising and how to do food advertising and drive people into the restaurants. The third is, do you have enough money set aside to get to the weights, to get to the TRPs that are required to move the needle on the business? We saw that with the first slug of advertising that we did last fiscal; we were very encouraged by what we saw based on the level of spend and the quality of advertising. The reality is, we're going to do that another four times this year. I'm very confident that that's going to continue to close the traffic gap. That's what we've seen in the numbers. So, there’s nothing that we haven't seen based on what we put in the market that would say that strategy is not working, and we'll continue to do that and continue to build on it, because right now it is closing the traffic gap versus the industry and accelerating our market share.

It's a perfect answer. Thank you so much for that. And secondly, one of the challenges in this model is, these mix gains that you really don't normally see in casual dining and especially bar and grill, offset by negative traffic in at least - in this most recent quarter and several of the quarters in 2023, that was actually a greater negative than the mix was a positive. So, kind of balancing out those two numbers is an essential part of the model in '24. Do you have a quarter kind of in mind or do you think, is there a quarter where we will see mix being greater than traffic in some capacity? Where is that inflection point where the net negative becomes a positive in your mind?

I think you'll get them closer together as you move towards the second half of the year. I'm not going to commit one way or the other on mix relative to traffic. Again, we see mix as a continued opportunity in the component of what we’re trying to do, and when Kevin is talking about the work around the Core Four and the ability to market against things like the new Crisper platforms, that will generate some mix opportunities. So again, not going to give you kind of mix versus traffic specifics, but I definitely see those two getting closer together as we move through the year.

That's perfect. Thank you, Joe.

Thanks and good morning. I just wanted to circle back on the market share discussion. Just so we're on the same page, Joe, would you be willing to provide any quantification of Chili's relative traffic performance moving through fiscal fourth quarter and what you've seen quarter-to-date?

Again, what our readout is, we saw improvements in traffic as we move through the fourth quarter, and that momentum is continuing as we move into the first seven weeks here—the end of the seventh week of our fiscal year. During that time, we've also seen a reduction in the negative traffic gap to the industry, which has also continued into - so the overall comp positive gap to the industry continues to widen, much of that driven by a shrinkage of the negative gap to the industry on traffic.

Okay, great, thank you for that. Just a couple questions on the guidance, if I could? I think, Joe, I think you said 12 openings, gross openings for the year. Should we expect relatively flat on a net basis, given kind of continued modest closures and relocations and that sort of thing?

Yes, that's a good way to think about it.

Okay. And then I guess on the EPS guidance, could you level set us on what tax rate is embedded in your guidance and any directional guide on what you expect on general and administrative costs?

Yes, on both of those two, we're expecting a mid-single digit, 5% to 6% kind of tax rate at this point. Obviously, you look at that and it’s adjusted based on the flow of your credits. We had some really strong FICA and WOTC credit activity this last year, driven a lot by dining room traffic coming back in and increased overall check, which actually drives up tips. We think we'll be in that mid-single-digit range for the fiscal year. That's what is implied currently in our guidance. From a G&A perspective, I expect G&A to be up year-over-year, probably in the $10 million to $11 million range. Most of that is driven by various adjustments on comp-related items, from stock comp to payroll to 401(k) participation. There’s also $2 million to $3 million of incremental spend from an IT perspective that makes up that differential.

All right, thanks very much. I'll pass it along.

Thanks, Brian.

Yes, thank you. Good morning. Maybe just kind of a bigger picture question on sales. You've seen kind of this improving trend more recently, and I think some of your peers have as well. Are you assuming in your guidance that that holds up? Do you think there is anything that's helped here kind of at the end of the summer, just as we start to think about the next couple of quarters? I realize that maybe there is a tougher lap in the calendar first quarter as well. Could you talk about how you think about that?

Yes. Again, the momentum we're seeing in the business, we think is sustainable. It's being driven by the initiatives and the strategies. I’m not going to suggest that July or August performance is going to be the exact performance as you go forward. You do get in—the first quarter will have the largest and easiest lap year-over-year, which we will be very happy to see the anniversary of last year's first quarter. As you move into the second half of the year, you do have a little bit higher hurdles and laps to get over, but we're very comfortable that we have the strategies and initiatives in place to get over those hurdles as we move forward and very comfortable and confident in the guidance we provided you today.

Okay, thanks. Joe, could you maybe also just talk about labor costs? I know we still have kind of the investment coming in the first half. Do you think that some of the initiatives you're doing on retention could be somewhat of an offset to that? Or on the flip side, do you think there are still other investments that need to be made?

I'm going to take those in reverse. I think we're very comfortable that we've made the investments that need to be made. As I mentioned, that incremental $20 million of spend is the impact of the first two quarters based on those investments that have already been put into the labor model. So, a good line of sight as to that. Again, I do think the initiatives on turnover are helpful. They do reduce a lot of costs related to overtime and training and things of that nature, and major shout-out to our operators who are doing a great job in moving those specific numbers where we want to see them move. I see some nice upside opportunities if we can continue to work that middle of the P&L as they are working in the middle of the P&L right now. The wage rate embedded in our thought process is in that mid-single digit range. That will be the interesting one to watch as you continue to see year-over-year wage rates, if they stay in that mid-single digit range or if you start to see any kind of benefit coming out of that.

Thank you.

Thanks, good morning guys. Kevin, I was curious to get your thoughts on re-imaging existing assets. I'm just curious what can be done at existing units to create a more modern environment that kind of matches up to the look and feel you've created with the new menu and marketing campaign?

So good morning, Chris. Currently, we're still focused primarily on repairs and maintenance of the existing fleet. So, making sure that the equipment is in good working order and that the facilities are clean and well maintained. We're spending the majority of those dollars on that. We are doing some re-imaging of older assets where we tend to get a better return. These are ones that have been touched for a long time, but right now, I’ll be candid, it’s not as big a priority as making sure the equipment is in good working order and the facility from a dining room standpoint looks where it needs to be for guests. I think over time, as we continue to deliver results and accelerate progress, I think we're going to look at that, but I don't view that as the biggest pressing opportunity right now based on where we could be putting our investments in terms of driving traffic. The labor investments will complete by the end of this year, the ones we talked about last year. Repairs and maintenance are just not as high a priority at this stage, but I would anticipate revisiting that discussion probably a year from now assuming we have the results that we expect to have.

Okay, that's helpful. And then, Joe, I had a question on the guidance. The revenue growth guidance was roughly in line with the multi-year targets you guys provided at Investor Day, but the per-share range implied growth that was much wider than that 13% to 17% range. Can you give us a little detail as to what's causing the range to be wider from a bottom line standpoint, and maybe what assumptions gets you to the low and the high end?

Yes, again, we did widen the range a little bit relative to the targets that are longer-term. We'll be able to give you more perspective on this as we move through the year. Macro is probably the biggest issue related to the lower end of the guidance as we kind of work our way through what the economic realities will be. We expect relatively stable, but you still have a sector that is functioning from a negative traffic standpoint. So, we want to be respectful of that on the low-end for this initial guidance range. The high end is going to be incremental success related to some of our initiatives, particularly the traffic driving initiatives from an advertising standpoint, coupled with the ability for the management operators to manage the P&L a little bit tighter as they can get more muscle memory into the system as we move forward. Those are really the two biggest things that will drive those two ends of the spectrum.

Okay, great. Thanks, guys.

Hi, good morning. Thanks for taking the questions. My first one, kind of revisiting a topic that was brought up earlier, as you're rapidly ramping the advertising spending with a focus on the value messaging, what gives you the confidence that you'll be able to use the in-store merchandising to drive the check and not lean too much into the value side of the equation? Is there any texture or incident metrics you can share so far, what you have seen on that front?

Yes, that's been a real positive. The way we've structured menu merchandising and PLP inside the restaurants since we started the new strategy. It's about making sure that the customers that come in for 3 for Me or whatever that value message is, can find it on the menu. But we don't want to make it so obvious that the guests that didn't come in for that trade down from a Fajita or any of our other items that would drive more check and provide a better experience for that guest at a higher price. The results of what we've seen on that is that the 3 for Me mix has come down pretty significantly. Even as we've taken pricing, typically when you take pricing and do couple waves of it, you would expect to see more mix start to shift into the value parts of the menu. We haven't seen that; in fact, we've seen just the opposite where 3 for Me over time has actually gone down from when we started this journey. It looks like it's about flattened out now. So, it's not like we're seeing a bunch of folks now, as we've seen the macro change a little bit, we don't see customers trading into the 3 for Me, and I think it's part of it is because of the way we are orchestrating the menu merchandising. The one area we think we can do a little bit better is providing more presence on value inside the restaurant, especially around our Margarita of the Month, where we do—we've seen overall Margarita sales increase because of the premium margaritas, but we think we can get better incidents by driving a little bit more menu merchandising of Margarita of the month at the point of purchase to maximize that. Overall, when looking at the mix of 3 for Me, which is the primary value message, the direction it has gone in the last 12 months has been positive. And I think this is a page out of the QSR playbook, where you use great value to drive traffic and then execute menu merchandising for guests that didn't see that ad. I think this has been successful in closing traffic gaps versus the industry while continuing to drive menu mix in our business.

Okay, that's great. Thank you. And then just a quick one on lowering the hourly turnover. What do you think is really the key of the unlock there? I mean you've talked about the progress you've made on the manager side, but from an ROE perspective with increasingly engaging some of the folks in the restaurant, what changed in terms of that focus? How do you think about that?

Yes, we're working on that right now. I'd say the managerial side was a lot clearer, as the restaurants are just so significantly easier to work in now. I just had our manager conference last week. I was blown away by how many managers personally gave me feedback that it's like night and day different, and that's helping with team member turnover. We’ve seen team member turnover start to come down, but it’s not where we need it to be. We want to be ahead of the industry, not average or slightly behind. That's why we're putting together our best Vice Presidents of Operations' minds to come up with, what are some disparate solutions that would allow us to make better—more progress faster on that? Andrew, I wish I knew the exact answer; we would have employed it this past year. While we've seen improvement, it's just not where we want it to be. I'm confident that with the Vice Presidents making that their obsession metric in '24, we're going to make progress on it. I'm excited to share with you what that plan is at the next quarterly update, but that team is working on it right now.

Great, I look forward to that. Thank you very much.

Good morning and thank you. We know you're planning on advertising, but can you share your thoughts on what you're seeing from the promotional and advertising environment from your casual dining peers? Are they kind of following suit with you guys in terms of getting a little bit more aggressive as it relates to a return to TV advertising or advertising in general?

Yes. We saw a little bit of activity that we typically don't see in July, but nothing has really seemed out of place. The usual characters are doing their usual messaging. I think our move in fiscal '24 will be significantly different from what we’ve done in previous years. The discounts aren't any deeper, but the shouting of them will be obviously a lot more when you move from four weeks to 21 weeks. We'll continue to monitor that very closely. When I look at the offers from the competition and compare them to ours, I’m really confident about ours. Guests are cash-strapped to get a complete meal and an abundant complete meal that's very high quality at a price point that you know you can get when you come into the restaurant. I think it's very competitive versus doing an offer on part of a meal or something you'd have to buy other full-price items to complete. I don’t anticipate needing to change that offer, and I’m excited to see what 21 weeks will do for our business versus four, based on what we've learned from the four weeks that we ran last year. So, I’m very confident that plan is going to work, and we’ll continue to monitor. We don’t want to be naive about what competitors do, but I do feel we're in a very good place to continue to close the traffic gap.

Okay, that's very helpful. And just one quick follow-up. You shared a bunch of information in terms of your pricing expectations for 2024, in terms of maybe some early incremental pricing in the year and then some rollover pricing, but if you put all the pieces together based on what you know right now, what would you expect your FY '24 menu pricing number to be?

Jeff, for the year we’ll be in that mid-single-digit range. Again, starting, you'd expect to see the first quarter will be higher, in that upper single-digit range, just thinking about price, working its way down into the mid-single digits as you go through the quarters and exiting the year at that level too.

Okay, thank you guys.

Great, thank you. Two questions. The first one: if I just think about this past quarter, following up on that pricing comment, you were running nine points of price and traffic was down 8 points. Looking ahead, it sounds like you said the comp for the full year is expected to be mid-single-digit positive, with pricing mid-single digits. So that's assuming—again unless there's big moves in mix—relatively flat to positive traffic. Relative to the current down 8%, it seems like a major move, and the industry we know hasn't seen flat to positive traffic in 15 years. So I'm just wondering, Kevin, I know you mentioned the three drivers as to what effective advertising does, but any concern or anything that would derail that where the traffic could fall short of that—return to flat again? It just seems like a big move from traffic down 8% with the current macro uncertainty so large.

Hi, Jeff, it's Mika. So there are some nuances in those numbers when we're speaking in ranges. I don't think we're planning to go flat on traffic. We still know that the industry has been negative, and we have that factored into our expectations for fiscal '24. There's really some movement, or there’s latitude in your price and mix assumptions to make all that work.

Okay. And then, I think last quarter, you mentioned that the consumer was maybe more discerning and skittish, and they were, I think you said episodic pullback. I'm just wondering, has that changed over the past three months? Do you think maybe that's eased a little bit? I mean, I assume that your response would be your value offer. I'm just wondering what is the current mix—however you define value—that Chili's is at today versus maybe where it was a year or two ago? Thanks.

When we look at value in totality, it’s been relatively stable the last couple of quarters; it's up a little bit relative to a couple of years ago, but we’re still in that 30% range that we've talked about in the past. I think as for relative to your comments on consumer behavior, we've talked about it before. There have been some episodic times where you see some skittishness driven by things like gas prices last year obviously had a period of time. The general macroeconomic commentary that goes on. I think we saw a little bit of that in the beginning of the quarter, when you think about the commentary in the April, May timeframe, which other folks have talked to. But the resiliency of the consumer is definitely still there. Whenever we've seen these short periods of possible skittishness, we see it come back. We’ve definitely seen that happen as we move through this last fourth quarter and into the current fiscal year. So again, generally speaking, the consumer seems to be hanging in there. We’re seeing continued traffic from the different cohorts we look at. We are seeing increased spend from a number of those cohorts, and it’s interesting to see the upper-income visits start to head up. So clearly, whether that’s trading into the brand or not—it's just, or just reaction to the marketing we're doing. I think that’s a real positive to see, but right now the consumer environment is there.

Hi, thanks for the question. I’m curious about one of the drivers you mentioned in the prepared remarks. Can you give us some more detail on how you're going to bring It's Just Wings into the real world? I'm wondering if you see that as a traffic driver or more of a check driver? And then, do you have the sufficient brand awareness? Would it draw customers into the restaurants, or is it something you might put advertising resources behind?

The way to think about it, just from a customer-facing perspective, it will show up in two areas. One will be the new bar menus that will be placed on the bars and in the bar area. There will be a prominent page on that menu that simply talks about It's Just Wings and Chili's collaborating on a lineup featuring It's Just Wings. That will include Boneless and Bone-In Wings, various piece counts, and all the sauces available in It's Just Wings. This will be very prominent in the bar because we know that Wings and Boneless Wings are popular options people eat while at the bar, especially during sports occasions. We'll also have a smaller section on the dining room menu in the appetizers category, as that would either be an add-on to an existing meal or a trade-up from appetizers given the pricing of wings. Outside the restaurant, when talking about driving traffic, it's really about how we are communicating with guests to get them to come in for these Wings. Primarily, it will start with our CRM program. I mentioned we have this new CRM agency coming online. If you look at some of the wing competitors, a significant part of their traffic-driving program ensures that they are the top-of-mind choice during key sports viewing occasions when you're ready for wings—whether for takeout or dining in. We will have a heavy focus on that to start. Eventually, because it's now part of Chili's, we could put that in the TV advertising. We have no current plans to feature it in TV advertising, as we want to see what happens when we put It's Just Wings into the business, gauge its impact, and potentially leverage it further if necessary. However, we do believe it will drive the business at a minimum—not much, but it will certainly contribute, especially during the sports viewing season which really ramps up with football.

One of the things I really like about the change is the awareness of It's Just Wings that it will bring to the table. From a virtual brand standpoint, it did well, but its awareness existed mainly on third-party platforms. Now, you’re going to have brand awareness front and center for the Chili's population as we move forward. It's a nice way to expand that awareness without the costs of marketing a third-party platform.

Okay, great, thank you very much. That concludes our call, and we look forward to our next one in early November. Bye.

Thank you, everybody. Have a good day.

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.