Brinker International, Inc Q2 FY2025 Earnings Call

Good day, and welcome to Brinker International's Q2 FY '25 Earnings Call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Kim Sanders, Vice President of Investor Relations. Ma'am, the floor is yours.

Thank you, Holly, and good morning, everyone, and thank you for joining us on today's call. Here with me today are Kevin Hochman, President and Chief Executive Officer and President of Chili's; and Mika Ware, Chief Financial Officer. Results for our second quarter were released earlier this morning and are available on our website at brinker.com. As usual, Kevin and Mika 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 entirely based 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 materially 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 Kevin.

Thank you, Kim, and good morning, everyone. Thank you for joining us as we discuss our financial and operating performance for the second quarter as well as our outlook on the remainder of fiscal '25. Before I start, I want to share that our thoughts are with those impacted by the Los Angeles area wildfires, and I want to thank the first responders on the ground there. I also want to recognize our Chili's VP of Operations, Dale Bullotta, and his restaurant teams in California who are working hard to support the first responders with meals, as well as taking care of our team members impacted by the wildfires. I'm proud of how our Chili's has shown up for each other and our communities during times like these. Now let's give an update on the business. Chili's delivered another positive quarter in our turnaround and significantly outperformed the industry with same-restaurant sales up 31% versus a year ago. We're pleased with our sustained momentum, the strength of the operational muscle we've built, and our significantly improved Chili's guest experience. Throughout Q2, increased competitive promotional activity pressure tested our guest experience improvements, and the results are clear. Chili's turnaround has taken hold, and it is sustainable. Our growth continues to be well-balanced, driven by the introduction of a new generation to the Chili's brand and by existing guests coming more often. The investments we've been making over the last 3 years are working. Marketing is doing a great job of bringing guests in and putting Chili's back in culture again. Operational simplification, investments in labor and facility improvements are working to get guests to return. In short, Chili's is broadly relevant again and delivering a guest experience that has restored its leadership position in casual dining. The most recent Circana Crest traffic share data shows Chili's is now the number one casual dining chain in the industry for 2024, and we don't plan to give that title up. Congratulations to Doug Cummings, Vice President of Operations, and their restaurant teams who selected traffic as their obsession metric for this fiscal year and to George Felix's marketing team who has supported them with literally world-class marketing. These sustained results have been driven by continued operational improvements that have guests coming back. So I'd like to start with an update on operations. We are encouraged by our ability to accelerate sales results while we also continue to trim the menu. Fiscal year-to-date, we've been able to remove 13 menu items, 12 pantry SKUs, and several prep sets, and we've reinvested time in doing fewer things a whole lot better. From a food standpoint, we've successfully moved to a higher-quality chicken breast on every entrée, as well as guacamole made fresh in-house every day. We also upgraded our recipes for bone-in chicken wings and bacon to make them crispier. These recipe improvements continue to make a positive impact on guest satisfaction scores. Fewer things to prepare, more care in executing our core menu, and continually upgrading ingredients are resulting in better tasting food, which is a key piece in accelerating our results. Next on the upgrade list are fajitas in Q4 and ribs in Q1. We also continue to challenge our processes to simplify and make the job easier for our team members. The installation of our new kitchen display systems is now complete, which has not only eliminated hundreds of pages of reference finders in the kitchen and made it easier to find recipes, but it has also enabled slightly faster ticket times even with the dramatic increases in traffic. We have just completed the KDS's first upgrade, adding all-day counters across all three cook zones, which will be a game-changer for cooks to get better visibility on what they need to prepare during the busiest of shifts. Three other impactful operational changes we've made recently include the use of steak weight to trim cook time by up to 40%, the elimination of chicken portioning, and the removal of the It's Just Wings station tower in the fry area Zone 1, which frees up space and time cleaning for the Zone 1 cooks. While we still offer the It's Just Wings virtual brand, we have removed enough complexity to dismantle the specific station that was simply too much space allocated for what is now just 1% of the business. Removing the wing station may seem small, but it has a significant positive impact on our operation, with fewer items to prep, less equipment to clean, and more free space in Zone 1, where a lot of the incremental volume driving our business is being prepared, particularly with high-growth items like Triple Dippers and Crispers. To wrap up our operations update, I wanted to share news of an investment we have decided to accelerate to convert the balance of our restaurants to TurboChefs, which are ovens that use a combination of modern cooking methods to rapidly accelerate cooking versus conventional ovens. Today, the majority of our system uses conveyor belt ovens to cook a variety of menu items like ribs, chicken, and quesadillas. We've been testing TurboChefs in restaurants and slowly expanding them for the past 3 years with very positive feedback from the operators. They cook food much faster and more evenly. They put out less heat, making the kitchen more comfortable for our team members. They create superior tasting products like crispier quesadillas and ribs with a delicious crust. They save a lot of kitchen space, which helps with kitchen capacity in the future. They are much easier to clean, and they are much more reliable than the current conveyor belt ovens. We've been slowly replacing end-of-life conveyor belt ovens when they need repairs, and now with the sustained traffic increases, the time is right to upgrade the balance of our system to equipment that can properly handle our new increased volumes. Now let's switch gears and talk about marketing and menu innovation. We saw traffic and guest counts accelerate behind the continuation of our better than fast food TV campaign and the Triple Dipper social media campaign. As the operation gets stronger and stronger, it amplifies the return on our marketing investments through more frequent guest visitation. While competitors can certainly price below our 3 For Me offer, it is very difficult for them to replicate the total value proposition given the time and investment we've put into improving the experience. We have a multiyear head start on the industry. Our accelerated Q2 results in the face of tougher competitive offers are a solid proof point that replicating our Chili's success will be difficult for competitors in the near term. We also have big food innovation news coming in Q4 to bring excitement to the new 3 For Me platform within our better than fast food campaign, like the tremendously successful Big Smasher. The Q4 launch will feature a famous, very familiar taste profile, but with the high-quality, great taste and hot price point you can only get from Chili's. I can't wait to be able to talk about it at our next earnings call, as we expect the new menu item to help us grow traffic versus a year ago as we lap the Big Smasher launch from Q4 last year. In addition to our industry-leading 3 For Me value platform, the marketing team has done an excellent job driving the Triple Dipper social media campaign that started in April 2024. In Q2, they brought news to the campaign by partnering with social media personalities Dude Perfect, who challenged fans to create the perfect Triple Dipper trick shot. Later in Q2, the marketing team launched a Triple Dipper themed holiday bedspread collection that sold out in less than a week. Through YouGov data, we can now see how these efforts positively impact buzz with younger guests and are introducing the next generations to Chili's. We also brought food innovation to Triple Dipper in Q2 to keep the momentum going as a follow-up to the wildly successful natural hot version of our famous mozzarella sticks. The food team launched Honey Chipotle Mozz sticks, which may have helped drive social media excitement around the Triple Dipper. The results behind the campaign are exceptional, with Triple Dipper now representing 14% of total sales in Q2, a 3-point acceleration versus Q1 and an important driver of total business results. The campaign is bringing in a younger guest, it's driving a higher check average, and guests who purchase a Triple Dipper are coming back more frequently than those who don't. New guests, higher ticket, and more frequency; I'd call that a Triple Dipper win for the business. Now I'd like to give an update on Maggiano's. We've got an established playbook with the successful Chili's turnaround and we started deploying elements to Maggiano's with the Bring the Magic Back plan. This plan focuses on simplifying operations while accelerating improvements to the guest and team member experience. Maggiano's President, Dominique Bertolone, has built a strong leadership team to lead the transformation. We previously announced Anthony Amoroso as Vice President of Innovation and Growth, a Michelin-star chef and Iron Chef winner who knows food and knows how to elevate experiences. Now I'm pleased to announce two additional strong leaders to round out the Maggiano's leadership team. Ernest Perez is our new Vice President of Maggiano's Operations. Ernest was a Chili's operations leader for 13 years before transitioning to Maggiano's in 2020, and I couldn't be more pleased to announce his promotion. He's a true servant leader who is working closely with the team to simplify operations and drive business growth. I'm also pleased to announce Mike Westley has joined the team as Vice President of Maggiano's Marketing. Mike spent the last 14 years as a marketing executive at Yum! Brands, and I had the pleasure of working with him the entire time I spent at Yum!. Before that, Mike learned leadership and brand management at the Procter & Gamble Company. He has a strong track record delivering on the fundamentals of restaurant marketing and innovation, as well as bringing big teams along for the journey. He loves the Maggiano's brand, and he's excited to partner with Dom to bring his vision to life. The Maggiano's team has started the journey of simplification. We eliminated $6 take-home pasta and 7 other menu items, which was 13% of the menu. We've also eliminated 17 prep steps that don't improve the guest experience, such as pounding chicken and pre-portioned pasta. This has enabled us to reallocate around 80 hours of labor every week from the heart of house, so our executive chefs and their team can focus on executing the core menu with excellence. Chef Amoroso is beginning to put a stamp on elevating the menu, starting with core items that represent over a third of the business to make the biggest impact. Two recent upgrades are our Maggiano Caesar Salad that now features scratch-made dressing, fresh baked croutons, and freshly cut romaine, as well as our meat sauce, which has been upgraded to a far more delicious beef and sausage Bolognese served with a superior pasta noodle. Next on our upgrade list is what we think is the most delicious Fettuccine Alfredo our guests will have ever tasted, an elevated crisper chicken parmesan topped with fresh mozzarella, a 30-layer meat and sausage lasagna, and our new meatball recipe that is made with American Wagyu beef to elevate spaghetti and meatballs, as well as other dishes. In addition to operations and food innovation, the new Maggiano leadership team is working on big initiatives to improve speed of service and reimaging their estate, both of which I look forward to updating you on in the future. I do want to remind everyone that while we started growing sales immediately during the Chili's turnaround, it did take five quarters to start turning traffic trends, and it took seven quarters to turn positive on traffic. So that should give you some guidance on what we're expecting from Maggiano's. In closing, I continue to be encouraged by our business momentum. Our Q2 results demonstrate we're working on the right things the right way to drive long-term growth. What's even more encouraging about our turnaround is there's still so much more runway ahead of us for improvements and growth. My executive leadership team just finished our annual strategy planning meetings, and we have a clear line of sight into our future growth plans. While we've made great strides in areas such as food grade scores and service, we still have a lot more opportunity. Our ultimate goal is best-in-class casual dining guest experience. We see a lot more upside by staying focused on improving the business fundamentals, which includes continued upgrades to menu service and atmosphere, while also continuing to make our team members' jobs easier, more fun, and more rewarding. I look forward to sharing even bigger initiatives anchored on improving the fundamentals in quarters to come. Now I'll hand the call over to Mika to walk you through our second quarter numbers and our updated guidance. Go ahead, Mika.

Thank you, Kevin, and good morning, everyone. We're pleased with Brinker's second quarter results as we delivered record same-store sales and 600 basis points of margin expansion. Our strong performance is a direct result of staying focused on the fundamentals of food, service, and atmosphere. Our investor growth strategy, combined with our industry-leading value proposition, continues to drive sustained growth in our business. It's exciting to see our cross-functional efforts deliver results in such a big way, and I'm encouraged that we have more opportunity for growth ahead of us than behind us. For the second quarter, Brinker reported total revenues of $1.358 billion with consolidated comp sales of positive 27.4%. Our adjusted diluted EPS for the quarter was $2.80, up from $0.99 last year. Both brands reported top-line sales growth with Chili's comps coming in at positive 31.4%, driven by positive traffic of 19.9%, positive mix of 6.6%, and price of 4.9%. Chili's sales are a direct result of the investments we've made into marketing to drive the guest in and operations to bring guests back. We are back at the top of the consideration set, and we're committed to continuing to improve both the guest and team member experience. Turning to Maggiano's, the brand reported comp sales for the quarter of positive 1.8%, driven by 6.4% price, positive 0.3% mix, partially offset by negative 4.9% traffic. As Kevin mentioned, Maggiano's has started to implement its turnaround strategy. Dom and the team are closely following the Chili's playbook by eliminating discounting and improving the core menu and the service model. I'm excited about the brand's plans and the progress the team is already making. At the Brinker level, we made considerable progress on flow-through this quarter, with restaurant operating margin coming in at 19.1%, a 600 basis points improvement year-over-year, primarily driven by sales leverage from top line growth. This resulted in favorability in all categories of food and beverage costs, labor, and restaurant expense. Food and beverage cost for the quarter was favorable 20 basis points year-over-year, with price offsetting 1.5% commodity inflation. Labor for the quarter was favorable 220 basis points year-over-year. Top-line sales growth and favorable productivity offset wage rate inflation of approximately 3.5%. Advertising spend for the second quarter was flat year-over-year as we moved some of our incremental spend into the back half of the year. Our marketing team continues to do an excellent job bringing Chili's back into the cultural conversation and making the brand relevant again. G&A for the quarter came in at 3.9% of total revenues, with the year-over-year decrease due to sales leverage, partially offset by increases in performance-based compensation and ERP system costs. Q2 is our first quarter to report from our new ERP platform. So far, while we have experienced the normal bumps expected from an implementation of this scale, operations are running smoothly, and we haven't had any material disruptions to the business. Second-quarter adjusted EBITDA was approximately $216 million, a 102% increase from prior year. Capital expenditures for the quarter were approximately $49 million, driven by capital maintenance spend. During the quarter, we repaid approximately $164 million in debt, almost half the amount we put on the revolver when our $350 million notes matured in October, bringing our overall lease-adjusted leverage ratio to 2.3 times. We will continue to execute our capital allocation strategy, which is to invest in the business, pay down our debt, and return excess cash to shareholders. While it's still early in the quarter, we're excited to see our strong sales momentum continue as we finish our first month of Q3. In terms of our expectations for the balance of the year, as noted in this morning's press release, we're raising our fiscal 2025 full-year guidance to include the following: annual revenues in the range of $5.15 billion to $5.25 billion, adjusted diluted EPS in the range of $7.50 to $8, capital expenditures in the range of $240 million to $260 million. Our existing guidance for weighted average shares was also reiterated. Assumptions underlying this guidance include planned commodity inflation in the low single digits, wage rate inflation in the mid-single digits, and a tax rate in the mid-double digits. Sustaining this level of performance requires continued focus and discipline, and we remain committed to the fundamentals, continuing to improve our food, service, and atmosphere. We're proud of how far we've come. We know there's more work to do, and that's what excites us. By sticking to our strategy and making smart investments, we're confident in our ability to drive long-term success. And with our comments now complete, I will turn the call back over to Holly to moderate questions.

Certainly. At this time, we will be conducting a question-and-answer session. Your first question for today is from David Palmer with Evercore ISI.

First of all, just a wow and congratulations to you guys on this brand turnaround, which probably is the best one of all time in the space. And that would be true if the comps were 15%, but they were over 30%. I know there's a lot of wonder about this level of same-store sales and the reasons for it as you sort of separate the different levers. One of those levers, I think people wonder about is just the magical social media buzz lift that you've had, particularly with Triple Dipper, and people wonder and worry about that being lightning in a bottle that's difficult to replicate or repeat as you have to lap these. So could you talk about that and how you sort of try to sustain the lift that you're getting with some of this effective social media marketing and other? Thanks.

Hey, David. Thanks for the kind comments. It's Kevin. We ask ourselves the same question. We obviously go deep on our analytics to understand the drivers of the business. And I know last quarter we talked about a pretty precise measurement of what was Triple Dipper social media versus what was 3 For Me. In Q2, we saw everything continue to accelerate. It's kind of hard to tease apart what was social media versus what was 3 For Me. What I will say is, to help dimensionalize it, is if you look at the comp, which is over 30, and then you look at the sales of Triple Dipper versus a year ago, we basically doubled that business, so it's about 7 points. So you can start dimensionalizing what the percentage of the total is. It probably leads you to the same numbers that we gave you last quarter. Quite frankly, it's harder for us to make a more finite comment about that. So that's point one. And then point two is, what we believe is going on in the business is that without the operational improvements that Doug and his team have led and the simplification efforts we've made, we don't think the virality and the impact on the business would have lasted as long. When you see something go viral, especially in food, it's no more than two to four weeks before you see it snap back. What's happening is young people are coming in, and they see this on TikTok and they're like, 'Wow, this experience is really good,' and it becomes part of the rotation. That's why you've seen the longevity of the results; an acceleration of the results, not just kind of a boom splat that you typically would see without the operational investments that we've made. So I wish I could give you a more finite answer on that because I think that's what everybody's yearning for, including us. But we do believe that our strategy is working and that the frequency and the repeat rates are in a place where this is a sustainable long-term business for us.

Thanks. I'll pass it on.

Your next question is from Dennis Geiger with UBS.

Great. Thanks, guys, and congratulations to the team. I wanted to ask on value and kind of the latest maybe - I'm not sure if I missed it, but as far as that 3 For Me mix goes, if maybe the 10.99 within that, if there's anything to share. And specifically sort of those value scores, it sounds like everything is trending in the right direction. And Kevin, just kind of curious if those value scores are sort of trending as strong as the sales results? And maybe if there's anything additional on your thoughts on value and opportunities from here from a value perspective.

So I'll start with just the trends on 3 For Me. So the 10.99 bucket, it's up a little bit. Our overall 3 For Me was about 19% last quarter, and it's just a little bit above 19% this quarter. So it's pretty similar. We still feel really great about just the menu management and the ability for that platform to drive traffic into our restaurants. Kevin, if you want to talk a little bit more about just the whole value proposition, I think our value is definitely hanging in there.

Yes. From a value score standpoint, we are very, very strong. And it's very clear that it's not about the lowest price point because we actually had a lower price point three years ago. We used to have 3 for 10, not 3 for 10.99 with the trade-up. The difference in the business today versus three years ago is that you're getting a much more consistent experience, much more delicious food, and you're getting it in a much better atmosphere with friendlier service. That's a huge part of the value equation that people underestimate. We got a lot of questions about this when a competitor came out with a lower price point. We had a meeting with the VP of Operations, and I asked if they were worried about the number at 9.99, and they just started laughing. They were like, 'We know how strong we've been - we have been in the gym, we've been working out, and we are not afraid of competitors undercutting us.' So that's what you're seeing in these results. We were asking questions about the sustainability; why can't someone go beneath you on price? They can, but can they deliver the overall value equation that we're delivering right now? That’s going to be difficult to do in the short term.

Got it. Great. I appreciate that. One quick follow-up, if I could. Just on the traffic success, it sounds like it's new customers as well as increased frequency from the existing. Is there any more color you can give on that? Maybe how that's changed over the last several quarters you've had this level of success where it's more of the increased frequency versus the newer customers? Any sense on a breakdown or any kind of other positive behavior shifts from your customer that you've observed over these last several quarters? Thanks very much.

The only thing we can share with you in the last couple of quarters is that the frequency is getting better, and there's more new guests coming into the business. We can't give you any other granularity on it. It’s just a new discipline for us, and we're using tokenized data, and we just want to be careful about giving anything that's exact without fully understanding how all the data works. We’re hesitant to give any detail on this point. But we can say directionally, frequency is up, new guests are up. To give you that kind of detail, it's just going to be difficult to do right now.

Makes sense. Thanks, guys. Congrats.

Your next question for today is from Chris O'Cull with Stifel.

Thanks. Congratulations, guys. Kevin, you mentioned a couple of product innovations coming in the fourth quarter, one being a big 3 For Me innovation. Just given the results you're seeing, why is the fourth quarter the right time to bring a new product to the platform? And then what gives you the confidence you can maximize the impact of really two new items, right, the 3 For Me innovation and then the Fajita upgrade in the same quarter?

Yes. Hey, Chris. Thanks for the question. From a 3 For Me standpoint, we'll have been running the advertising for a full year, and we feel like the time is right to bring some fresh news to 3 For Me. If we see a change in business trend, we can turn on advertising to go back to the prior advertising. It will be in a similar vein of better than fast food campaign, familiar taste profile that people know and love, but with the great taste and the hot price point of Chili's. So we're confident that it's sufficient to roll over the results. But obviously, we're not going to be myopic about that. We're going to watch the results closely, and we can always flip back if we need to. The Fajitas launch is focused on operational and food improvements through menu merchandising only. If the business takes off on Fajitas, we can potentially advertise it in the long term. We don’t think our advertising budgets are big enough to have two mouths to feed. We know that value is working, so we are not willing to move off of that right now, even if we are refreshing the message. So think about Fajitas as kind of a ground war with menu merchandising, operational improvements and food improvements, while our new 3 For Me innovation will be the air war where we use advertising to drive traffic inside the building.

That's great. That's very helpful. And then just one other one. I wanted to ask about Chili's longer-term margin potential. I'm curious if you know what a sustainable store level margin could be once the chain gets to, let's say, above $4 million in AUVs.

Hi, Chris. It's Mika. Really good question about margins. I want to take the opportunity to talk a little bit about Q2 expectations for this year and then the longer-term expectations. The 19.1 for Brinker margins was excellent in Q2. I think it is a little bit of an outsized earnings just for this quarter. I wanted to point out that we had a significant change in our sales from Q1 to Q2 in the trajectory. It took us a bit of time to ramp up our labor spend in that quarter, so we were a little light in the beginning but exited where we wanted to be. The second thing is that our advertising spend was flat year-over-year. We reallocated some of those dollars to the back half of the year. I do think, again, that the 19 will be the peak. I think we will moderate a little bit on ROM in the last two quarters, probably coming in for the year at the mid-teens to even upper teens ROM for full-year expectations. A few years ago, AUVs were at $2.9 million. Last year, they were at $3.6 million. Now we are over $4 million at $4.2 million. We think we can continue to grow these AUVs, and we know we still have a lot of upside there to continue to grow margins.

Great. Thanks, guys.

Your next question is from Jeff Farmer with Gordon Haskett.

Thank you. Incredible quarter to say the least. I want to focus a little bit on the free cash flow. Obviously, you guys paid down some debt. CapEx is going up a little bit. But assuming that your operating cash flow run rate is at a higher level moving forward, how are you thinking about using cash moving forward?

You know, Jeff, that's a great question. We're going to do more of the same because for us, the most important thing is we continue to invest in the business and have the base business grow. We're not going to take our eye off the ball there. We're going to continue to pay down our debt, especially into the third quarter. I think we're going to continue to do that. Any excess cash will be used to return to shareholders. We did some share repurchase to offset dilution, and we'll continue to evaluate that. The priorities haven't changed. It's going to be invest in the business, continue to pay down that debt, and then we'll return some cash to shareholders after that.

Okay. That's helpful. And then on the follow-up, you touched on it earlier, but as it relates to the increase in new guests that you're seeing in Chili's. I'm curious how you monitor that and sort of what are some of the data points that you've seen over the last nine months with - or from new guests, I should say?

Yes. The way we monitor is through the tokenized data. We know for a given period how many guests are new and how many guests have come back within the last 12 months. It's just a math equation. We can tell you what the number of guests is, at least for the ones we've tokenized, which is a good representation of the total population. That gives us confidence that we know we're bringing in more new guests, and existing guests are coming back more frequently. That’s the extent of detail I can give you, but that's how we know it's both drivers, not one or the other.

Okay. Thank you.

Your next question is from Jeffrey Bernstein with Barclays.

Great. Thank you very much. Two questions. The first one, just following up on the very strong comps. It seems like your revenue guidance for the full year assumes a sustained elevated level of comp with the recent trend. I know last quarter, when you gave guidance, it seemed like you took perhaps a more conservative view on the forward comps. I wouldn't think you could imagine sustaining a 30%-plus comp. But just trying to get a sense for what your assumption is for comp through the back half of the year? Can you share the monthly comp trend for October, November, December, and now January, especially with the weather impact? And then I had one follow-up.

I can share this. We had a big step change in the business. We've had it, but starting in October and the second quarter, obviously, we had a large increase. That happened, and it is sustained. There was a little noise in the quarter just because of holiday clips, but our sales have increased and have stayed at those levels, and that momentum has continued into the third quarter. None of the assumptions have changed. Our price assumptions are in line, mix has been elevated with the Triple Dipper and the mozzarella sticks. We've added those to the appetizer menu, and we're selling more of those. We believe the business has moved and is sustaining. We see that consistently every day and as we move through.

Great. And then, Kevin, just following up, you mentioned the TurboChef. It sounds like you've already had it in some units. I'm just wondering how many more units are in need of the conversion? And any color you can provide in terms of how you would quantify the potential benefits? I know you gave a lot of soft metrics around better quality and consistency and whatnot. But anything else you can share, maybe the cost to convert or any other quantifiable benefits you anticipate from that full rollout? Thank you.

It's really about a quarter to a third. We can certainly follow up after the call with an exact number. The majority of the system still needs to be converted. I'm not going to share any specific details on speed and satisfaction and food grade scores because there are a lot of items that go through it and it would be complex. But generally speaking, we've been very pleased with all metrics. When you talk to the directors of operations, they have anywhere from like 8 to 12 restaurants among them. Whenever you ask them what the next big investment is needed to improve capacity and the team member and guest experience, they all say, 'Can you just convert the rest of my restaurants to TurboChef?' We're confident in this investment and we’ve been testing this for 3 years. Now with the increased traffic, the time is right to upgrade the rest of our system. There are other things we’re doing beyond TurboChef, but we know the time is right.

And Jeff, we factored that into all of the current guidance, including our depreciation and our EPS and our CapEx forecast as well.

Thank you.

Your next question is from Brian Harbour with Morgan Stanley.

Yeah. Thank you. Morning. Congratulations, guys. Kevin, I guess just the mix piece, was that mostly driven by Triple Dipper? Or maybe just comment on some of the other things that you see driving that, whether it's alcohol mix or you think anything that sort of adds to that as we go through the balance of the year?

Yeah, Brian, it's Mika. As Kevin mentioned, our Triple Dipper sales year-over-year have doubled, and when we sell more Triple Dippers, it definitely drives our mix. I'd say that is the bulk of what's driving the mix year-over-year. We do have, like I mentioned, the mozzarella sticks, which are incremental in the appetizer category. So we are seeing some mix from appetizers. That's positive. There's a small amount that could come from desserts or other items, but those are the two big drivers year-over-year. Our alcohol sales are pretty flat, or that per hundreds are up slightly. So everything is pretty solid on the mix, but those are the two main drivers.

Okay. Got it. Thanks. Maybe just to push a bit on that sort of uses of capital question, too. Mika, would you think that you'll just pay off the revolver? And then longer term, do you want to sort of go back to growing units? Are there places where you think you could build new stores? Do you think you could accelerate some relocations? Are there stores that you'd want to expand? Are there a cohort of stores that need full remodels? How would you think about that?

Yeah. So Brian, good question. Absolutely focusing again on the base business. We want to invest back in the business where we think it's smart. Right now, we've been growing new units at Chili's. When the brand continues to improve, that opens up more opportunities for that. We’ll evaluate those opportunities. You mentioned reimage, and that's something we're excited about. Again, with our pillars of food, service, and atmosphere, we think atmosphere is crucial. We are ramping up the new prototype design, which will lead to our new reimage design. More to come on that. But that is something we think we can put our cash against as we move forward with our CapEx plans to keep Chili's and Maggiano's relevant. So that will be a big play there. So again, it's going to be focus on the business because if we don't have the business growing, the rest of the strategy isn't meaningful. That's still the number one priority and what we'll do with the cash moving forward.

Thanks.

Your next question for today is from John Ivankoe with JPMorgan.

Hi. Thank you. I wanted to - firstly, congratulations on everything. Kevin, you're going to write a great book on this someday, and we all look forward to reading it. Congratulations. And congratulations to the entire team. The question is on CapEx, $240 to $260 million, I think, is the number this year. If we think about the casual dining landscape, many brands have been through remodels that didn't pencil out at the point, or the rebuilds because the financial returns didn't make sense. Talk about the opportunity for Chili's to be a brand of the future from a physical asset standpoint. Where does that number go? How much of an opportunity do you want to take forward with the money that you now have to perhaps spend considerably more on the existing asset base?

Thanks for the question, John. Right now, we really haven't done anything on reimaging yet. Most of the atmosphere work has been repairs and maintenance like fixing leaky roofs and bathrooms needing assistance. We've replaced 1,000 sticky tables that were damaged during COVID cleaning, making sure everything is clean. So we're sprucing up the existing estate, but not necessarily reimaging to what the new Chili's will look like. That is going to be a focus for us starting next fiscal year. Jesse Johnson and Jim Fay are working closely together to define what's the next-generation reimage prototype. Our expectation is to have this done early next fiscal, and then begin to roll out reimaging of roughly 100 buildings a year. There are 200 that we consider prioritization assets that we want to get quickly because they're much older generation. They may not have been reimaged in 20 or 30 years and are most in need of a reimage program. We’re going to focus on this first. Once we get that done, we plan to have a normal cadence. The rest of the estate may not follow the new construction standards, but it looks pretty good. I don’t go into restaurants and think it’s damaging our brand. Over time, we need to make sure we update these things so we don't get behind again.

Yeah, John. We will consider it all. We have one of our first scrap and rebuilds happening right now. We’re open to all options, and that’s what we're looking at.

Well, you're in a great position to consider all this. So congratulations on everything. Thank you.

Thanks, John.

Your next question is from Brian Vaccaro with Raymond James.

Hi. Thanks and good morning. Kevin, you noted the continued strength in guest experience you're seeing. Could you update us on some metrics that you've given in the past, GWAP percentage, or anything else you have handy on that topic? Related to that, on the labor side, Mika, you mentioned adding some labor hours through the second quarter to catch up to the traffic surge you've seen. Is there any way to frame or quantify that catch-up investment or the relationship between hours and traffic going forward?

Yeah. Let me start with the first question, Brian, and then I'll leave it to Mika to talk about the tactical on labor. We got behind on staffing in October for a variety of reasons, mainly that the volume quickly increased. By the end of the quarter, we had caught up. We ended the quarter - last year on GWAP; we were at 3.5%, which is lower is better. This year in Q2, we were at 2.9%. That’s a significant drop. We feel good about the direction we’re heading. Our marketing has brought guests in, but we’re keeping them because the experience is excellent and is part of the rotation. We’ll continue to ruthlessly simplify operations and ensure our technology is working for our teams. That’ll be our hallmark.

So Brian, as far as specifics on the investments, it’s hard because labor has ramped up significantly. We continue to add people where it makes sense and watch guest scores. High level, we leverage over 200 basis points of labor in Q2, and I think you’d see about half that in the last two quarters of year-over-year improvement. We’ll still invest in labor and ensure guests are taken care of as we ramp up.

All right. That’s super helpful. Thank you. If I could squeeze one more in on advertising spend, Mika, I think you said the dollars were flat. I wanted to make sure you were referencing dollars there and not as a percent of sales. Am I interpreting that right?

You are. The dollar spend was flat year-over-year, which helped with our restaurant expense in Q2. We moved our incremental spend to the back half of the year planned for about 60% to 70% of that in Q4.

Okay. And the dollar increase, I think originally, you thought that would be up some right, $15 million to $18 million coming into the year, still in that ballpark?

Still in that ballpark.

Your next question for today is from Christine Cho with Goldman Sachs.

Hi. Thank you for taking my question. And really a big congrats for the great quarter. You've had big progress in gaining tokenized data. But what are some of the next steps or major areas of additional investments required as you further progress in the digital journey and deepen your consumer insight? Thank you.

Thanks for the question, Christine. We're working on two major areas. We've been using a third party to help us mine the data, which is expensive and slow, so we're building out in-house capability to mine the tokenized data. This is going well. I anticipate each quarter we’ll strengthen our in-house capability. The second area is we've charged the team with not expanding our loyalty program until we take the friction out of it. Right now, redeeming offers is cumbersome, creating a negative experience for guests and team members. The mantra is that it must be as easy as a supermarket checkout experience. Until then, we're less interested in driving loyalty through the program.

Your next question is from Katherine Griffin with Bank of America.

Hi. Thanks for the question. First, I wanted to ask if some of the commentary you gave on month-to-month comp trends, quarter-to-date trends, does that apply to Maggiano's as well? Did you see a similar cadence? And then where does Maggiano's fit in terms of the full year expectations you talked about in terms of sustaining a level of comp growth?

Maggiano's is in a different spot than Chili's, but their same-store sales were pretty similar month-to-month. There were some holiday flips in there, but their trajectory is they're working on improving. Like Kevin said, that's going to - they're kind of earlier in the turnaround until we have more specifics on them. But there were no wild fluctuations in the results.

Okay. Thank you. And then just with the TikTok and social media virality having continued for a couple of quarters, without giving away trade secrets, I'm just curious if there's a way you can contextualize the conversion rate of TikTok impressions into traffic? Is it something that happens immediately? Is there a lag effect? Just want to understand to what extent you can forecast the impact of social media marketing and virality may be a little bit in your control more than I might assume.

We don't really have any kind of 'X amount of social media impressions equals Y amount of sales' metric. If someone has that, we'd be interested in finding that capability. We do know we have positive buzz, and we've seen traffic go up with positive buzz, but it's very consistent without ups and downs. It’s not peaks and valleys; it’s a consistent change in the business across all dayparts. So that’s why we’re confident this is sustainable.

Thank you.

Your next question is from Andrew Strelzik with BMO.

Hey, thanks for taking the question. I wanted to go back to the conversation around operations. Now you have the TurboChef that's in the numbers, you're making some incremental investments in food quality. It sounds like labor exited the quarter where you wanted. Is there anything larger scale that you're considering given the strength of the traffic trends, even if it's beyond 2025 into '26 that whether from a proactive perspective or just to improve operations?

We talk about investments as a leadership team, balancing what's going to have the biggest impact and what operations can handle with changes. We've evaluated all our opportunities, and we think TurboChef was an important investment to improve food quality and make team members' jobs easier. There's nothing that we’re considering right now, but things can change. If something great comes up, Kevin and I will evaluate that along with the team.

The challenge is that we’re learning about the business along with you guys. With the traffic increase, we’re out in the restaurants trying to understand what more we need to keep up. TurboChef is an example of that—if you’d asked me six months ago, I would have said let’s just keep updating it as conveyor belts die and not accelerate. Now, having seen the increased traffic, we're investing in TurboChef. There’s no line of sight right now to say if we see more growth, something will come up. But we will continue to learn about the business, and we’ll deploy capital accordingly.

Great. Thank you very much.

Your next question for today is from Jon Tower with Citi.

Great. Thanks for taking the question. Good morning. I guess I never heard of a cheese pull until my daughter showed me some of your customers doing it on social media. But it kind of goes back to the question earlier related to your social media presence and just marketing in general, obviously, you guys have had something dramatic on social media platforms. How do you think about advertising dollar spend between traditional media? Have you reached a saturation point on linear TV or connected TV, or a level of efficiency in other mediums that just makes sense to hold the line from this point forward versus continuing to add dollars to it?

The marketing team is setting the media mix based on the brand priorities. We feel like the current mix is appropriate. There’s no need to change the percentage of dollars spent on TV versus social because our results are good. What we’re really considering is whether we should invest more dollars in marketing, given the return on investment from it. As long as our sales grow and we’re confident in our paybacks, we’ll continue to invest the advertising dollars earned through growth of the business. Perhaps the marketing team will put a little more against social, but there won't be major media mix changes in '26 as what they're doing now is working well.

Okay. Makes sense. And perhaps we could pivot to customer usage as everything you've provided is excellent. I'm curious if you could speak more about performance across dayparts or weekends versus weekdays. Any relative standout?

When I look at all the pieces, all are growing. Every income level is growing, every demographic is growing, all dayparts are growing, off-premise, on-premise, all of it. There's no standout of a particular region or daypart. This gets back to the fundamentals of food, service, and atmosphere working together and improving overall business. That’s why we’re confident this is sustainable.

Got it. Thanks for taking the questions.

Thank you.

Your next question is from Jim Sanderson with Northcoast Research.

Hey, thanks for the question, and congratulations on a great quarter. I wanted to go back to some of the comments you made on operational improvements, notably adding the TurboChef and removing the wing tower. How do these changes solve problems at the operator level? Does this improve throughput, reduce wait times during peak periods, or accelerate throttling for digital orders? Any feedback on how this translates into improved operations, given the visibility you have from store level feedback?

It depends on the items. For instance, the It's Just Wings station in Zone 1 was a significant structure that took up space and required extensive cleaning. Dismantling that freed up space to add another body in Zone 1, improving throughput, particularly during busy times. The steak weight example allows for faster cooking without impacting the taste. We're learning from store leaders what they need to keep up with traffic, and that's how we prioritize operational improvements.

Understood. Thank you for that. Just a quick follow-up question. Looking at your promotional plan, adding Fajitas, should we expect to leverage social media influencers to support that launch in tandem with the TV advertising for the 3 For Me? Is that the way to look at the marketing plan?

I don’t have the marketing plan for Fajitas yet. There’ll be some type of work that they do. It's not going to be on TV. When we have the plans, we'll share them out.

Understood. Thank you very much.

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back to Kim Sanders for closing remarks.

Thank you, Holly. That concludes our call for today. We appreciate everyone joining us and look forward to updating you on our third quarter results in April. Have a wonderful day. Bye-bye, everyone. Thank you.

Thank you.

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