Brinker International, Inc Q3 FY2026 Earnings Call

Good day and welcome to the Brinker International's Q3 F26 conference 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 Hockman, Chief Executive Officer and President of Brinker International and President of Chile's, and Micah Ware, Chief Financial Officer. Results for our third quarter were released earlier this morning and are available on our website at brinker.com. As usual, Kevin and Micah 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 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 Thank you, Kim, and good morning, everyone.

Thank you for joining us as we discuss our financial and operating performance for the third quarter, as well as our outlook on the remainder of fiscal 26. Q3 Chili's same-store sales of plus 4% marked our 20th consecutive quarter of same-store sales growth and outpaced the casual dining industry by 420 basis points. This strong result was rolling a plus 31% from last year for a two-year cumulative comp of 37%. A list of the top 500 largest restaurant chains for all of 2025 just came out, And I'm proud to say Chili's is now the number two casual dining brand for sales, in addition to maintaining our status as the number one casual dining traffic brand. To put our sustained growth into perspective, if Chili's nearly $1 billion of sales growth in calendar 25 was its own business, it would be larger than most of the restaurant chains on the list. After delivering a plus 15% in calendar 24, we often were getting asked, what's going to be the next Chili's? With the 21% we posted in calendar 25, the answer was resoundingly Chili's, and in 2026, our sales growth has consistently outpaced the industry, with our outperformance continuing to accelerate from 320 basis points better in February to 550 points in March, and now 560 points month-to-date through April. Chili's momentum is sustaining, driven by quarterly improvements in food, service, and atmosphere, as well as continuing to make Chili's more fun, more easy, and more rewarding for our team members. These experience improvements, coupled with our everyday value leadership, represented by a per-person average guest check that is $3 to $4 below competition, are supporting a powerful flywheel of traffic, sales growth, margin expansion, and reinvestment into our business. Now I'll give some updates on the Chili's business. We spent Q3 continuing to work on the fundamentals, preparing for our new chicken sandwich platform launch, and bringing in new guests with relevant marketing to experience chilies. In Q3, our restaurant teams remained squarely focused on the fundamentals of the guest experience. From a food standpoint, our primary focus was chicken breading and cooking perfection, which involved retraining the teams on perfect execution of hand-breading our chicken crisper and chicken sandwich lineup, which will ensure those items are freshly cooked, hot, and crispy. A key differentiator of our chicken sandwich is that we hand-bread the chicken in a restaurant. We believe a freshly-breaded filet tastes better than chicken that has been breaded and fried by machines in a factory, frozen, shipped hundreds of miles, and then refried in a restaurant. And in anticipation of our Q4 chicken sandwich launch, our teams were busy ensuring restaurants were ready for the guests that will come in, including reinforcing daily procedures for sparkling clean restaurants and emphasizing key areas to double down on chili head hospitality our differentiated customer service that drives memorable experiences to grow sales and traffic over time. While our competitors ramp up limited time offers, we spent the quarter investing time in operations, training, and culinary resources into everyday capability that more closely correlates with long-term sustainable traffic growth. We believe doing fewer things bigger and better is a more sustainable way to build traffic and grow our business over time. The result is continued momentum on the business, attracting new guests in, and retaining the ones we have converted. Dine and GWOP, or guests with a problem, continued its three-year decline, finishing the quarter at 1.9%. Food grade finished at 75%, and Intensive Return was also an all-time best at 79%. Our operational improvements continue to deliver better experiences for our guests, and our tokenized cohort tracking yielded similar results from previous quarters. New guests are coming into the restaurants and following the pattern of existing guests on frequency, which gives us confidence growth will continue to sustain. our chicken sandwich platform launched on april 14th with our new menu drop the lineup features two sandwiches at our 10.99 three for me opening price point the big crispy and the spicy big crispy which includes fries a bottonless coca-cola drink and bottonless chips and salsa given a wide range of guest preferences we also offer three flavored chicken sandwiches national hot signature honey chipotle and buffalo with two sides as well as well as the big crispy deluxe with lettuce tomato and bacon all sandwiches are served with our chili signature house made ranch for dipping and dunking that our guests absolutely love and pour on everything this adds an additional point of differentiation you can only get at chilies the sandwich platform was launched behind our better than fast food campaign this time tapping into an insight we have seen among consumers frustrated with what they call shrinkflation where portion size is reduced to offset rising input costs for example a post went viral a few months ago when someone posted a photo where a famous fast food chain's burger pickle was actually thicker than the burger patty itself. We believe Chili's over-the-top generous portions are a great way to resolve the biggest challenge facing our customers today. In a world of rising inflation, how do I get the best value for my money? Our TV ads both show and tell our chicken sandwich is way bigger than the leading fast food restaurant's most premium chicken sandwich, and at $10.99, this addition to the the 3ForMe platform is the perfect antidote for corporate shrinkflation. The launch campaign zeroed a before-your-eyes demo of a balancing scale holding our Chili's Big Crispy in one pan with its lighter fast food foil in the other. The scale is not in balance, with the new Big Crispy demonstrating it is the exact opposite of shrinkflation, weighing down the scale heavily. In fact, our test conducted in the Dallas-Foot Worth area, weighing a large sample size of sandwiches, the new Big Crispy filet was over 80% bigger than the leading fast food restaurant's premium chicken sandwich filet. I know many of you are interested in specifics of how the launch is performing, and while it's only been two weeks in market with only one week on TV, initial response to the new sandwich platform has been encouraging. So far, the overall platform is selling 161% more sandwiches than pre-launch, and it's significantly outpacing the numbers we saw in the 200 test locations. From a total business standpoint, we have been comping in mid-single-digit sales in April with positive traffic, which is rolling up plus 29% in April, driven by the Big QP launch the prior year. As I said earlier, we have accelerated our sales outperformance versus the industry to 560 basis points in April, which only includes two weeks of chicken sandwiches. So while it's still early, the initial results on both the platform and the total business are both encouraging. I also want to give an update on our North of Six initiative and how it will be a key to continued sustainable comp growth. Our question we get asked a lot is, with all the traffic growth you've had the past few years do you still have capacity for more so let me start with the numbers our average traffic is now back to 2013 traffic levels but that's still about 20 percent less weekly guests from our peak in 2000 to 2005 and our north of six restaurants serve anywhere from 20 percent to 80 percent more guests than our current average restaurant traffic so the first point is we know we have a lot more capacity in the buildings the second question is what are we learning for the north of six restaurants. First of all, the dramatic business simplification has been a huge enabler for our restaurants. And the direction we are getting from the managers of north of six restaurants is we need more simplification. So our teams are going to challenge every requirement that slows down our restaurant teams. We'll continue to remove items and processes that don't help the guests or team members. And the new initiative I'm most bullish about is speeding up cycle time, meaning looking at everything that goes into the total time of kitchen prep and the dining experience and finding ways to simply remove time. for example if one of our restaurants are on a wait on the weekend the average wait time is about 15 to 20 minutes that number is pretty good but remember that's just an average which means there are about half of restaurants with longer waits if we have enterprise we have enterprise project teams studying every bit of that weight to understand what are the bottlenecks we need to remove to reduce that cycle time whether it be at the host stand taking orders kitchen ticket times checking out the zeath payment system and ultimately resetting tables for the next wave of guests. Chief Operating Officer Aaron White and her cross-functional teams are hard at work to reduce cycle times across the entire dining experience. I look forward to sharing new additional initiatives, which should be a continual tailwind for traffic on future earnings calls. On the Maggiano's business, we are continuing to make progress in its turnaround. When you adjust for Christmas Day, falling in Q3 this fiscal, and the January weather, we did see sequential improvement in traffic and comp sales. Customers are noticing more abundant portions, more generous family style, and the return of classic Maggiano's dishes like eggplant parm and Gigi's butter cake. Value scores are improving. We still have a lot more opportunity ahead of us with service and removing non-value added process to improve Maggiano's dining times. But the important thing to know is we are making sequential progress. This turnaround like the Chili's turnaround will take time, but as long as we focus on important areas of food service and atmosphere and make progress every quarter, I'm confident we'll return this business to growth. As a reminder, Maggiano's is only 8% of our company sales and low single-digit percentage of our profit contribution, but it can be a source of growth in the future given the white space opportunities. To close out, I want to do some recognition of our integrated marketing team and our supplier partners on industry recognition. The industry-leading publication Ad Age named Chili's the brand of the year for the second straight year, an award that has never, ever been awarded to the same brand two years in This is an award recognizing the best work in all industries, not just restaurants. In addition to Chief Marketing Officer George Felix and our Marketing Vice Presidents Jesse Johnson and Steve Kelly, we have developed a deep bench of directors, managers, and a collection of world-class agencies in various disciplines who have delivered the results over the past three years to earn this industry recognition. And the last bit of recognition I want to do is to congratulate our driver, Carson Hosovar, and the entire Spire race team for their first-ever NASCAR Cup Series win in Talladega last Sunday driving the number 77 Chili's car. Carson is a servant leader to his team and his fans and always makes those around him feel special. He's a perfect representative of what we like to call Chilihead hospitality that our guests experience in our restaurants. And hats off to our Mooresville, North Carolina Chili's restaurant team and area director Rachel Austin, who stayed open late Sunday night for Carson and the Spire team to celebrate their victory with a lot of triple dippers and a few presidentes. To close, Chili's delivered another strong quarter, rolling big numbers from prior year. The quarter got stronger as we moved out of January, and we accelerated our market share growth as the quarter closed and now into April driven by the chicken sandwich launch. Yes, there are macro headwinds the industry is experiencing, but Chili's is well-positioned to continue winning in this environment given the improvements in food service and atmosphere and our industry-leading everyday value. That formula has proven quartering in driving traffic and outperforming the industry.

Now I'll hand the call over to Micah to walk you through fiscal 26 third quarter numbers go ahead Micah thank you Kevin and good morning everyone this quarter marks our 20th consecutive quarter of same store sales growth and our second year of traffic gains evidence of the durability of our results and the sustainability of our strategy with the end of fiscal 26 in sight we expect average annual unit volumes for the year to approach five million dollars these higher sales levels and strong unit economics continue to support our invest to grow strategy we maintain strong business momentum this quarter achieving positive same store sales despite last year's positive 31 comparison including four percent growth at chilies while winter storm fern affected chile's january sales growth returned to mid-single digits after weather conditions improved. In both February and March, Chile's comparable restaurant sales increased 5.9% with positive traffic, reflecting the underlying strength and momentum in our business, which we expect to continue throughout the rest of fiscal 26. Turning to our financial results, in the third quarter, Brinker reported total revenues of $1.47 billion, dollars, an increase of 3.2 percent over the prior year, with consolidated comp sales of positive 3.3 percent. Our adjusted diluted EPS for the quarter was $2.90, up from $2.66 since last year. Chili's top line sales growth was driven by price of 4.6 percent and positive mix of 0.6 percent, offset by negative traffic of 1.2 percent. Whether in a holiday shift negatively impacted sales and traffic at Chili's by approximately 2.1 percent during the quarter. For Maggiano's, the brand reported comp sales for the quarter of negative 4.6 percent with negative 10.4 percent traffic partially offset by positive mix of 0.6 percent and price of 5.2 percent. Weather and a holiday shift negatively impacted sales and traffic at Maggiano's by approximately 2.1 percent during the quarter. At the brinker level, restaurant operating margins were 18.4 percent for the quarter compared to eighteen point nine percent in the prior year due to higher food and beverage costs and higher restaurant expenses partially offset by sales leverage at chilis we continue to make investments in food by upgrading the quality of ingredient ingredients and making recipe improvements for items such as ribs frozen margaritas queso nachos and our bacon cheeseburger to improve the guest experience and ensure value across our entire menu in addition we prioritize actively repairing and maintaining our facilities to provide a comfortable and fun atmosphere at Maggiano's we continue to execute the back to Maggiano strategy which is designed to improve our value proposition optimize our service model and ensure our atmosphere is clean and well maintained by making the investments needed to improve the business. Food and beverage costs for the quarter were unfavorable by 60 basis points year-over-year due to unfavorable menu mix with 4.6 percent commodity inflation, mainly due to beef offset by price. Labor for the quarter was favorable 60 basis points year-over-year. Top-line sales growth offset wage rate inflation of approximately 3.4 percent, additional investments in labor, and higher health insurance costs. Restaurant expense for the quarter were unfavorable 50 basis points year-over-year due to higher repair and maintenance costs and general inflation impacting expenses such as utilities, rent, to-go supplies and delivery fees partially offset by sales leverage. Advertising expenses for the quarter were lower than expected and flat to the prior year at 2.9% of sales due to a portion of spend that shifted from the third quarter to the fourth quarter of this fiscal year. G&A for the quarter came in at 4.0% of total revenues 10 basis points favorable to prior year due to sales leverage and lower performance bonus accruals partially offset by an increase in restaurant center support resources to support our growth depreciation and amortization for the quarter came in at 3.7 percent of total revenues and decreased 10 basis points year-over-year due to sales leverage and lapping accelerated depreciation from the prior year due to the retirement of the CTX and pin your ovens. This was partially offset by an increase in our asset base from new equipment purchases. Third quarter adjusted EBITDA was 223.7 million, a 1.4 percent increase from the prior year. Our adjusted tax rate declined year-over-year to 18.7 percent compared to 19.3 percent in the prior year, largely due to the impact of a prior year tax catch-up associated with stronger than expected performance. Capital expenditures for the quarter were 51.2 million driven by capital maintenance spend. At the end of the second quarter we completed our first four re-images at Chili's and the learnings were used to inform our long-term re-image and new unit growth strategy. As we shared last quarter we plan to compete complete another 8 to 10 re-images during the remainder of this fiscal year and another 60 to 80 during fiscal 2027 before getting to a planned cadence of 10% of the fleet every year starting in 2028. Regarding new unit growth plans, our goal is to continue to ramp up to a new run rate by fiscal 2029, and we expect to share more details on our strategy and plans at our investor day later this year. At Maggiano's, our main focus areas will continue to be guest-facing repairs and maintenance supplemented by a smaller re-image program. Our strong free cash flow provides sufficient liquidity to maintain our disciplined capital allocation strategy allowing us to invest in restaurants keep debt levels low and return excess cash to shareholders we continue to support this approach by repurchasing 108 million of common stock under our share purchase program in the third quarter in addition we are planning to call our 350 million dollar 8.25 percent bonds early in fiscal 2027 using the liquidity of our $1 billion revolver, which would provide interest expense savings in fiscal 2027 and the flexibility to continue reducing leverage if we choose. In terms of our expectations for the balance of the year, as noted in this morning's press release, we're updating our guidance for fiscal 2026 to include the following. Annual revenues in the range of $5.78 billion to $5.82 billion. Adjusted diluted EPS in the range of $10.60 to $10.85, capital expenditures in the range of $240 million to $250 million, weighted average shares in the range of $44.7 million to $45 million. Our guidance assumes wage and commodity inflation in the low single digits and a tax rate of approximately 19%. April started the quarter on a strong note with continued mid-single-digit sales growth and positive traffic. In addition, our outperformance versus the industry is accelerating, and we remain confident we will last the fourth quarter with mid-single-digit sales and positive traffic at Chili's. Looking ahead, our results show that our strategy is sustainable and that we're positioned for continued growth. At Chili's, we will build on our momentum by continuing to bring in new guests and drive loyalty through relevant and innovative marketing, menu innovation, and strong operations, and our industry-leading everyday value. We're confident these strategies will support our ability to drive growth, invest strategically in the business, and deliver value to shareholders. I look forward to providing further details at our upcoming Investor Day, scheduled in Dallas for Thursday, September 17th. With our comments now complete, I will turn the call back to Holly to moderate questions.

Certainly. At this time, we will be conducting a question-and-answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while closing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions.

Your first question for today is from david palmer with evercore isi uh thanks uh good morning uh uh two two questions if i could just i know you said some stats on the chicken sandwich and you know but if you wouldn't mind and so forgive me if i'm making you repeat yourself but you know any stats on that would be helpful the mix of the product the perceived lift to seam store sales when you exclude any of the noise that might be out there new guests repeat um customer sat scores associated with it you know and then is your experience that that that the lift from that a product like that uh will rise over time with the tv campaign consumer trial for a product like that and then and then just a big picture question um you know as chile's approaches five million auv you know and i'm not asking to front run your your analyst day about in September but how how are you thinking about the big levers from here and how they'll be different to get the next one or two million you know how is how she would be thinking about you know your big hairy goals here from here and how you get there thanks very much okay so two big pack questions I'm gonna start with the chicken sandwich first and then and then I'll and then I'll address the second one about sustainable growth in the second so from a chicken sandwich standpoint you know we don't have really much more to share because it's only been two weeks of launch we've had one

week of merchandising only and then one week of TV and we're seeing a 161% more chicken sandwiches today than we did pre the launch which is significantly higher than what we saw in the merchandising only test markets so and in fact the first week where we were merchandising only we did see higher lifts and we saw in the in the test market so that's all good as far as like what's the feedback video anecdotally we've heard mostly very very positive both in the reviews that we see online as well as in talking to our team members you know the first thing that people tend to say when they see it is oh my goodness this is a really big sandwich which is exactly what we're going to be the exact inflation is how we position the sandwich and the price point and the size especially when we compare to our fast food foil so that's all working you know over time we're going to see whether it continues to maintain so we'll be able to answer your questions about you know repeat rates and we have all that tokenized data but that's going to take you know a few quarters to really understand that but right now we feel very very bullish about it typically when things mix a lot they tend to be generally overall more incremental from a magnitude standpoint so you know the fact that we're beating the test market is very encouraging and then we obviously saw some acceleration and traffic driven by the sandwich over the past two weeks, which feels good too. So, you know, it's too early to declare, hey, this thing's successful by the data that we're seeing. What are the next record on this? There'll be new initiatives behind this, but it's still gonna be focused on food service and atmosphere, so from a food standpoint, we talk about the other menu categories that still need renovation. Plus, we'll have some innovation on the core categories that we've already renovated, so that will continue. From a service standpoint, you know, think the big unlock of north of six that we're understanding over the past three months is this idea of cycle time so the idea of how do we take the throughput that we're seeing in the north of six restaurants expand that throughout the system they do a lot of things differently to get higher throughput so like the example I gave in the prepared script was on that at the host stand right so typically in a north of six restaurants they either have more staffing at the host stand than what the labor card says or and or they have more senior level of staffing either paying a more senior host or sometimes having a manager man the door during busy peak times right in addition to that there's there's software behind that when we use the seating system that we need to make sure the teams are trained on they're using consistently so that when we quote wait times they're more accurate because we need to use that all the time so there's a bunch of work that we need to do for the host rollout that we're learning from the north of six restaurants that will go in q2 of next fiscal but that's like one example of reducing cycle time which I think is going to improve throughput not just for north of six restaurants but more importantly the entire system and then on atmosphere the big thing is the reimage and you're going to be able to see that when you're here for the investor day you can see them for yourselves of what we're doing the next eight to ten that we're doing in these three months is really going to be finalizing one of the things that we want to invest in one of the things that we don't want to invest in so that we start with 60 to 80 next fiscal and obviously get to the 10% run rate in fiscal 28 you know we're off and running with the best possible package with the best possible payback. So we're very bullish about the growth levers in front of us. And obviously, I haven't even talked about our world-class marketing, which continues to get stronger and stronger and bring new guests in. So we're very, very bullish about the continued sustained growth of this business.

Thank you very much.

Your next question is from Chris Ocull with Stiefel.

Thanks. Good morning, guys. Kevin, just given the recent volatility and consumer sentiment, Have you observed any canary in the coal mine type behaviors such as check management or softness in lower income spending?

The answer is we're seeing a little bit of check management. So as we've seen traffic accelerate behind chicken sandal launch, we've seen a little bit of check management in desserts and in alcohol. You know, our alcohol sales are still way up with the growth that we've had with the business. But we are seeing some incidents start to slow. and you know what I here's what I tell the team is let's control what we can control so you know we can continue to win market share with the best food service and atmosphere in the industry with industry leading value and we need to stay focused on that you know whatever happens the gas prices in the macro that that's out of our control but what we can control is staffing our restaurants for peak we can control serving great food and with wonderful service in a clean inviting environment and if we continue to do that we'll continue to grow market share, we'll be able to, you know, hang on to our business, and then obviously if the macro gets any better, we'll be able to grow even faster behind that. So, you know, I'm kind of like a broken record on it. It doesn't matter what happens with the macro. It doesn't matter what happens with external factors. Our indicated action for this team is improve food service and atmosphere, and good things will happen, and we're just going to stay focused on that.

Makes sense. And then, Mike, I know margin flow-through was impacted, I think, by R&M expense this quarter.

Can you help walk us through how to think about flow-through in the fourth quarter and were there any significant headwinds on any line items that we should be aware of and then maybe whether the new sandwiches to the platform are margin accretive or margin neutral any color would be helpful okay great um yes so you know i know the flow through you know we continue to invest back in the business with this invest to grow um strategy so you know that's part of it is that we don't flow it all through and we put it back in um you know we saw that food beverage was up a little bit year over year we continue to invest in labor and then our restaurant expense like i said the r m um you know we caught up with a lot of the deferred maintenance now we're shifting to preventative maintenance which takes a little bit of time for that to start really coming through that you can see some some opportunities or some reduction in future expenses but we we are seeing you know a lot of give and take in there if you look at our r m just over the first three quarters you can really see that we've kind of established a run rate so it's pretty steady I think some of the volatility is really lapping the prior year and we'll continue to look at that and get more efficient in our spend but that's kind of one of one of the drivers there looking forward on margins I think in the fourth quarter you're going to see probably similar margins maybe food and beverage are going to creep up a little bit we have a beef contract that came due a state contract that's going to be a little bit more I think we'll continue to leverage the labor that'll probably offset any of that increase and then you'll see very similar I think to restaurant expense this quarter as a percent of company sells I think you'll see something there so I expect margins to be similar from Q3 to Q4 and I expect margin growth to happen you know return to margin growth in Q4 and I'm very confident and what I stated at the beginning of the year is that you know taking a step back we're gonna grow our margins year-over-year that 30 to 40 basis points i'm very confident about that moving forward okay great thanks guys your next question for today is from dennis geiger with ubs great thanks guys uh with all the focus on the chicken

sandwich um all six varieties are of which are delicious as as you know you put up great results in in april even with just a couple weeks of of the sandwich seemingly even as you talk about that acceleration and traffic with the sandwich but i'm curious if you could talk a little more about sort of x the sandwich some of the key drivers of that momentum that you've been seeing especially as we kind of go into 2027 um or said differently you know even if let's say the sandwich incrementality is is not a significant step change in in trend you know do you think that sort of the the mid single digit type of of comp trajectory is is still within view thank you well the the answer to your last part of the question is yes i don't think that mid single

comp is still within purview uh the you know the recipe for success for us is just to continue to improve the fundamentals so food service and atmosphere that's why every earnings call i talk about the improvement on guests with a problem and gwop and food grade and intensive return because you know what i tell my team is if it's not better than the previous year what you know what belief do we have that we're going to continue to grow so we have to continue to improve those things because we're not going to like ltr our way to growth that we see others do So we want to use those resources on the things that drive long-term traffic and sustainable growth. And if we believe in that, those metrics have to continue to improve. And that's why when we budget the year, you know, we have some food news that has to do with upgrading the permanent menu. But most of our initiatives have to do with improving food service and atmosphere on the kind of the core thing, like the thing like Q2, you know, host stand, what we're going to launch for next fiscal. That's all about throughput and driving traffic. That's not a new piece of food that's, you know, definitely going to drive traffic. it's going to drive traffic through taking the demand that we're already having come to the restaurant to make sure they don't leave, right? So, you know, the recipe for success right now is continue to improve food service atmosphere, continue to improve the fundamental metrics, right? And then let the world-class marketing team create excitement so that people come into the restaurant and try it for the first time. And that's why we also share the token data, because the idea is, hey, we are putting new guests into the funnel every quarter. and then when we look back over the next you know six to twelve months they start looking like existing guests and that's the key if the fundamentals continue to improve then the new guests that come in will start looking like existing guests and we've just got to keep that flywheel going that traffic growth obviously drives sales growth those growth drives revenue growth drives profit growth we're able to reinvest some of that back into the business to continue the flywheel and drive traffic growth right that's the that's the recipe that's worked the last couple of years and that's the plan for the next three years great thanks very much your next question is from Jeff farmer with

Gordon Haskett Thank You Mike I think you just said that there's an expectation that you can grow margins by 30 to 40 basis points sort of on a go forward basis or at least in 27 but beyond continued seems for sales momentum what what dynamics do you see contributing to that level of margin expansion and hopefully I got that 30 to 40 percent or 30 to 40 basis one number correct in the question yes well the 30 to 40 basis points was referencing this fiscal year what we got it very confident in that but I do think that we will be able to to grow margins over time and it will primarily be from sales

leverage because that's our strategy is to grow the top line but we do think there can be opportunities you know now that we have gotten through the turnaround you know we've stabilized the teams we've attracted better talent this does give you an opportunity to just be more efficient in your spin and I think we'll look for ways you know as we move forward to do that as well but even with the sales growth I do think that that we can continue to leverage margins okay and then just one quick follow-up as it relates to menu pricing moving into FY 27 I think you guys have been back-to-back mid 4% 25 and 26 how are you thinking about menu pricing uh as you move into fy 27. yep so um you know the very first thing most important thing for us is to protect our value proposition we're going to protect that 1099 industry-leading value have it there for those that need it and then we also want to make sure we have value across the entire menu for for everyone and with that being said moving forward I do think that we'll continue to invest in food service and atmosphere but we will probably be on the lower end of our stated pricing range so moving forward you know we'll have to we're always going to make sure that we can price for inflation but we're going to make sure we balance that with making sure value is there for our guests okay thank you your next question for today is from

Andrew Strelzik with BMO hey good morning thanks for taking the questions I I know there's a lot of focus on the food initiatives and the menu initiatives that you guys have planned, but I was hoping you could talk a little bit more about the operational and service improvements, you know, and those kind of legs of the stool there. How much more room for improvement is there?

What are kind of some of the bigger opportunities that you see kind of going forward to drive Yeah, you know, it's frustrating, but it's also really exciting how much more opportunity we have. So, like, we didn't even touch on the technology initiatives that are happening from an operational standpoint. You know, we continue to improve our KES system. We have a – we're just kicking off now an entire back office redo, basically taking all these antiquated systems and getting to – it's not an ERP system, but the idea that all the back office systems could be connected. So, it's going to be way more usable for the team members, hopefully, for throughput as well as retention. That's the big one. you know we still are working on we're rolling out right now our team member handheld initiative which is a complete upgrade to the interface that's gone a little slower as we rolled it out just as we've seen some glitches we paused it to get it fixed and rolling back out now which should be done by next quarter which is a huge one so that's all the technology initiatives and a lot more than that we have what we call supermarket simple that's gonna be rolling out in the next quarter which is all about removing the friction that happens at the end payment with the Ziosk where either a discount didn't come up that the guest expected or they accidentally left a different type of tip and we need to get that reversed these are all things that hold up tables you know I give one example there's one one simple example that happens about seven times a day where we've got to reverse something out on the Ziosk we added it up it was like over 20 years where the tables tied up with for the guests waiting for that to get reversed by a manager and that's an example where we We can fix that very quickly with an update from ZIOS. So there's a huge amount of technology initiatives. And then from an operational standpoint, really the big push now has been the north of six. So we're moving from kind of defense of just removing a bunch of stuff and making it much easier for our team members to operate. We're now moving to offense on accelerating cycle time. So whether that's the host stand, whether that's ticket times, you know, a great example we'll see in very busy restaurants is the ticket times will be a little bit inflated. we'll go to the labor card to understand are they are they scheduling enough cooks the answer is no and it's like that's a clear indicated action that we can continue to uh take on more traffic and get those ticket times down so uh ticket times uh even the checkout time that we talked about earlier so there's a ton of initiatives that are coming we'll be giving a lot more detail at investor day on the new things that we haven't talked about before but i remain very very bullish about our ability to improve the operation, continue to get GWOP and attempt to return scores better and better, as well as the most important thing right now is to get throughput going.

And then I wanted to ask also on the remodels, and I know it's very early days, but can you just remind us kind of spend levels? How should we think about the types of lifts that we might be able to inspect there as that continues to build? Or maybe, you know, kind of are there different levels that you're testing? How should we think about that?

Hi, Andrew. Yes, so it's really early with only four restaurants that we've done so far, but we are optimizing the spend. The good news is we did four different levels of spend, and the lowest level of spend is getting the same sales lift. So we are getting a sales lift in these restaurants. We're optimizing the spend. But we'll have more of that to share once we have a bigger test group with the 8 to 10 and then the 60 to 80. So more of that, again, will come in September when we just have a little bit more time to read the test. But very encouraged with the spend and the sales lift that we're getting in the early four.

Great. Thank you.

Thank you. Your next question is from Jeffrey Bernstein with Barclays.

Thank you very much. The first question is just on the new unit opportunity. Clearly, new unit growth is more of a stable driver of top line than pumps. But we talked maybe a little bit about the changes in the new units you anticipate versus existing, maybe the cost to build and return requirements. I know the investor day will offer more color, but just how you think about the U.S.'s total addressable market for a brand that most people view as fairly mature. And then I had one follow-up.

Okay, thank you, Jeff. Yes, no, we're really excited about our new unit growth strategy. So our first step was to really build up the team. We have a great leader with Richard Ingram. We have a lot more insights, a lot more analytics. Just the whole team is phenomenal. So we've really started gearing that up. You know, primarily in the past, we've really stuck to some of the states, our biggest states that we always have done a great job in, California, Texas, Florida. We continue to build there. We've been very successful, and we'll still build there. But there's a lot more opportunity, you know, across the United States for us to build in different markets. So it seems like Chili's is everywhere, but Chili's is not everywhere. So, again, we'll kind of spell that out. and give more detail on how and why we think we have a much larger addressable market, but we are gonna be able to ramp up our unit growth. And so next year, you won't see it next year just because there's usually about an 18 to 24 month cycle, but we can already see the teams are ramping up for F28 and we expect to get to our new growth rate, run rate in F29. As far as the units go, we're making sure, we're using a lot of the fun elements from the re-image and then we're working with the operators and all the insights we have, again, with the North of Six restaurants, just to make sure that we have these restaurants exactly how we want them, especially with the new unit volumes that we're experiencing, to make sure that they are designed for optimal throughput. So a lot of exciting things to come. We have a very strong team. We're ramping up the growth, and that's going to be, you know, a great lever for us as we move forward.

And a follow-up, Kevin, I think you noted that Maggiano's was, I think it was high single-digit percentage of sales, low single-digit percentage of operating profits. I know the turnaround's on track, but seemingly take time. Just wondering whether there's any incremental interest in adding a second brand of greater scale, maybe something more meaningful in terms of sales and profit contribution. Clearly, you have the credibility, you have the playbook to strengthen maybe more of a national brand.

Now that Chili's is seemingly in a much more stable and consistent growth position, just wondering whether there's any incremental interest or what it would take to maybe get you to think about a potential brand of more scale to add to the portfolio thank you good morning jeff we get asked that question a lot you know what you know what i tell my team is we need to be able to turn around a smaller brand first before we take on more risk of a bigger brand so you know it's just because we have the playbook on chili doesn't necessarily mean that the same leadership team can do the same thing on other brands and i'd rather prove it on a pretty risk-free opportunity like Maggiano's versus take the big swing, you know, for the first time on something a lot bigger that could, you know, put more, put undue risk on the business that we don't really need to do right now. I mean, we're very bullish and continue to be able to grow Chili's and do that profitably. And so we can get, prove out our, you know, our beliefs about our ability to turn around other brands with Maggiano's. You know, right now, part of the Maggiano's turnaround is also just unifying the system so that we could be ready for a third brand should we be able to turn around Maggiano so for example you know one of the big issues in Maggiano's is it's kitchen throughput it has a very antiquated kitchen display system we're now in process of putting up putting them on the Chili's kitchen display system if we're able to do that successfully which we should be it's pretty easy then as we do updates as we learn more about the Maggiano's but it's much easier because we can use the same team is much easier than having them to have to learn a completely different system right so part of the Maggiano's turnaround is not just the financial improvements in Maggiano's, which is we all want, right? It's also proving to ourselves that we could have a model like some of our biggest competitor in casual dining does an exceptional job being structured to be able to plug in new brands. And so that's a big part of the Maggiano's turnaround, not just the financials but actually structuring the company to be able to do that. But I will tell you, until we are able to do that...

Understood. Thank you.

Your next question is from John Tower with Citi.

Great. Thanks for taking the question. You know, on this, the North of Six initiative that you're going after, I'm just curious, it sounds like there's a need to invest in some labor. So I'm curious if you could speak to where you see and think labor needs to go over time across the system, and then I've got a follow-up.

Yeah, so right now when we look at the north of six restaurants, they don't all invest labor in the same places. I mean, generally a trend for the extremely high volume restaurants, they do invest more labor than what the model tells them. The typical positions are either in busser or server assistant. Sometimes it's servers and then sometimes it's hosts. Once in a while it's cooks too to get throughput there. So it really depends on the restaurant and what they need and the types of experience of people that are in the restaurant. So it's not a one size fits all. As we think about the budgets that we're setting for our fiscal 27, there are some north of six investments baked into the numbers that we'll be sharing as part of our guidance when we come out with that a quarter from now. So just to be very clear, there will be some investments that they will be baked into the guidance that we provide. and then beyond that there's a lot of other things that we're working on some of them don't really have to do with investors just deploying different types of labor deployment or instruction so we'll make sure that all of that is clear for you guys and that if nothing is surprising so I'd like to add on to that so also remember with our labor model and especially the north of six as we have more guests in the restaurant it naturally scales up so I don't know that it's a true you know a really it's not going to be like I'm not anticipating it to be a really big investment also when Kevin talks about

some people are you know already spending more than our labor card that's not just a north of six we have scaled that back to you know a lot of the restaurants were saying staff for the traffic you want so a lot of that is built in our current run rate we're going to formalize it next year it will be an investment there will be some investment but it's not going to be as material as it has been the last few years when we really had to staff up to just get that base model right I feel now it's more of a lot of fine-tuning on the investment side got it thank you appreciate all that color maybe just flip into the remodels i know it's early in the process um but i'm just curious as you're going through with the first four stores now the planned i believe eight to ten more coming are you seeing opportunity to

maybe do anything different in the back of the house as well with respect to either equipment or any of the processes um that you've got or the build hence the processes get better in the back of the house?

Yes, so it may not necessarily be tied directly to the reimage program, but we're always looking at the heart of house. We have a whole cross-functional team that is dedicated to looking at the equipment. Again, north of six, part of that is to optimize the heart of house equipment packages. You know, do we need to add an extra fryer? Do we, where do we need, you know, at what levels do we add a separate combi oven? So we're looking at all of that. We're also thinking about that as we design the new prototypes on making sure that we have the space laid out just right and that we have, you know, the model built for those higher volumes and the equipment that we'll need moving forward. So, it's absolutely a focus that we continue to look at different pieces of equipment, how do we improve either the quality of the food or the speed of our service, and so we have a whole team just working on that at all times, you know, that we could deploy.

Great. Thanks for taking the questions.

Thanks, John. Your next question for today is from Brian Harbour with Morgan Stanley.

Yeah, thanks. With the re-images, are there elements of that that sort of help with throughput or is that more of just like an aesthetic thing? Could you talk about that a little bit?

Yeah, so right now it's more of, you know, the exterior, you know, the inside is paint and just the look and the feel of the restaurant. But we're always looking at our tables where, for example, in one of the previous re-images, we put in some big community tables in the bar. Well, we realize a lot of people don't like sitting at the community tables. So, you know, as we go through, we make sure that those community tables are gone. Those are separate tables. So anytime we have the opportunity to update the tables or optimize the tables, we're doing that.

And we're making sure we look at that really not necessarily in the re-images, but in the new units as well, that we have the optimized tables and we have you know the most tables to help with throughput yeah but you know it's other than tables it's mostly cosmetic would help the throughput that the you know our 2030 part of house restaurant team is focused on we know what is the equipment that can improve throughput so like you know an example that we're looking at right now is a new type of grill flat top that all the space is usable it's really consistent in terms of heat across the grill so you can put more burgers and they cook more evenly that's an example that would have improved throughput in addition there's they have a manual clamshell attachment that would be able to cook on both sides we tested computer clamshells a few years ago and thought they were not as reliable as they need to be but this one likely would be more reliable so that's an example where the equipment would give us more throughput and lower ticket times on burgers which is obviously a huge part of our business but I would consider that kind of separate from their image program.

Okay, got it. Makes sense. Micah, how are you feeling about food inflation? I guess more as we think about fiscal 27, do you expect that to sort of reset higher? Is it something you'll sort of address with price when the time comes, or could you talk about that?

Yeah, so I mean, I'm going to give you more details in next quarter when we set guidance for next year but um you know there's always puts and takes but there is going to be pressure with beef i mean that's that's clearly out there luckily that's um you know not a not the total basket for us we're a varied menu so we have different opportunities um you know obviously we sell a lot of chicken as well but yeah it we're going to continue to see pressure and commodities as we move forward it'll probably be similar levels that you've seen um us in the past or you know we this this last half of the year we've had that mid single digit inflation so i'm i'm anticipating that will be something similar as we move forward into F-27.

Your next question is from Brian Vaccaro with Raymond James.

Hi, thanks and good morning, and congrats on the continued strong momentum. Micah, just following up on that last question on commodity inflation, did I hear correctly that you do expect low single-digit inflation in the fourth quarter? And maybe just any clarity on what's breaking a little bit more favorably for you even in the near term compared to the mid-fours you did in the last quarter?

No, so it's mid-single digits in the fourth quarter, and that's what I expect to continue into next year, Brian. And so, you know, beef will continue to be a pressure for us. You know, I was just saying there could be some gives and takes out there on different contracts, but in general, we're going to have inflation. It'll probably be in the mid-single digits next year as well as what I'm anticipating now. More specific details to come as I give guidance next year. I'm just kind of giving a guideline now. We'll get more information on that next quarter.

Okay, sorry. I thought I misheard the lows, so that's helpful clarity. Advertising, yeah, that's great. On the advertising front, I think you said it was flattish year-on-year as a percent of sales in Q3. Just ballpark, how much do you expect ad spend to be up uh year on year in the fourth quarter so in the fourth quarter it'll probably be in the you know five to six million dollar range for the fourth quarter okay all right that's uh that's helpful and then just a bookkeeping one for me can can you share the sales mix of three for me kind of how that splits between 1099 and higher tiers and also on triple dipper thanks again absolutely so we continue to have about 20% of our guests eat on the three for me platform you know approximately 40% or a little bit less or eating on

the 1099 you know that converts to you know total three for me is about 12% or almost 13% of our guests but on the 1099 version you know less than 5% are actually eating of our total sales is 1099 so that's being pretty steady for us i would say um as we as we move through what was the second piece of your question brian triple oh triple different triple dipper um yep they're hanging in there so last quarter it was right at 16 and that's where it is now so hanging in there with the triple dipper excellent thank you thank you your next question for today is from nick setyan with mizuho securities

Thank you. I think I heard you guys say ad spending went a little bit into Q4 from Q3. Can you just remind us what the year of growth was in Q3, what it will be in Q4? And then how are you thinking about ad spend in fiscal 27? Can that grow as a percentage of sales? Is it going to be flattish? And in terms of just spending, you know, by quarter, that would be great, or at least directionally, any color there would be very helpful.

All right, sure. So advertising in the third quarter ended up being fairly flat year over year on a dollar basis and a person of sales basis. It will pop up a little bit. We had to move some things into the fourth quarter, just some timing of some things, how they happened. so in the fourth quarter you know I expect that to be a little bit higher as a percent of sales and probably like I said five to six million dollars up year-over-year next year again more quarter more color when I give guidance for next year but I would expect it to be as similar as a percent of sales a similar amount there there's always inflation on ad spend so you know we will be spending some more dollars but probably a similar percent of sales as we move forward I don't have the cadence yet Nick to share on quarter to quarter and F-27. Again, we'll get into more of that at the end of this fiscal year as we kind of guide for next fiscal year.

Thank you very much.

You're welcome. Your next question is from Andrew Charles with TD Cowan.

Great. Micah, you talked about the likely mid-single-digit inflation in 2027 led by BEEF and, you know, plans to roll off price as you're prioritizing value. And so So I know we're going to get the specific guidance, you know, next quarter, but I'm just thinking qualitatively, what are the opportunities to drive margins just beyond sales leverage while you decided that you're not immune from the industry's contracting alcohol mix as well?

Right. So, you know, moving forward again, we feel like our strategy is a top line strategy. So we will get margin leverage from that. But we will look into ways, I think, as the brand, if we've kind of been in this turnaround mode, we're getting more into the stabilized mode where we have again a lot more talent stabilized teams and what we've seen over time is as turnover goes down you have better talent you always get more efficient in whatever you do that could be labor that could be how we spend the dollars for example you know r&m is one that we spent a ton of money in over time we do think like i said we had a lot of deferred maintenance now we're moving into preventative maintenance we also think there's going to be an opportunity now to just find ways to have more efficient spend as we move forward. And we have a lot of initiatives kind of behind the scenes working on that. So there'll be just different areas of the business. Again, labor. I think labor is one that as the teams continue, turnover goes down, productivity goes up. You know, like we said, we may have to invest in some pockets, but at the same time, we're having teams that just get better and better at what they do and you have some natural opportunities there. So we'll continue to look across, you know, whole brand. We've had a lot of growth the last three years. There's probably a lot of opportunity to optimize some of those expenses as we move forward. So that, again, will be more things that we look at in the future, but I think there could be opportunity there. But even excluding any margin initiatives, I still think we can expand margins and grow the top line.

We feel really great about our, you know, mid-single-digit same-store sales and mid-single-digit growth, you know, over time as a move forward that's helpful and then um you know as you think about the ramp and um in new stores you know and you talked about how you know 2029 more of a steady rate and again we'll hear more about this investor down the specifics but just kind of curious i mean are you piloting um opportunities to lower the cost of the box you know as we get ahead of this to better understand kind of what the you know choice of the future really looks like yes i mean absolutely we always look at, you know, how can we optimize costs in the box?

I mean, I will say just over time, especially post-COVID, there has been inflation in how you build the restaurants. You know, the great news is we took our AUVs from around $3 million to we talked about approaching $5 million. So that gives us a lot more opportunity. You know, with our improving AUVs, that doesn't give us a lot of opportunity to necessarily shrink the box because we're trying to accommodate more guest um but we are always looking at that but what i will tell you is the returns we've seen even on the restaurants we've been growing over the last few years have been great we feel really confident in that and we're really set up you know to build some restaurants with some great returns as we move forward but we're always looking to see if there's opportunities you know to optimize the box and our spend that's great thank you very helpful thank you your next question for today is from Chris Carril with KeyBank Capital Markets.

Hi, good morning. Thanks for the question. So I guess just following up on earlier questions about the check, can you update us more specifically on how you're thinking about the mix component of check moving forward here over the near to medium term?

And Kevin, I believe you mentioned the $3 to $4 check gap to the competition so any additional thoughts on the long-term check opportunity would be helpful so Chris do you mean on the check just we're always looking for opportunities to grow mix you know but right now like Kevin said just recently we've seen some softness at mix though it was very interesting that as soon as we saw softness and mix we saw our traffic start to accelerate so again that's why we feel very confident about mid single digits and positive traffic you know as we finish up this fiscal year now moving forward we're always looking for opportunities to grow check we've done a great job of it over the last three years we'll look to continue to optimize but you know if I'm thinking

longer term you know we know what that that pricing strategy is with it with the same store cells and we talked about that range and then I think we're you know we're really going to be focused on growing traffic on top of that yeah as far as like the you know what guidance we give the teams on three to four dollars below category but we don't think about it that way that's more of an output that we report out to everybody about you know it's a very um four rise demo that you know we're lower priced than our competitors the way we think about value is and we need this across the entire menu is how do we create abundant value everywhere in our menu so that when people leave chilies they're like wow that was an incredible value and you know we've been slowly renovating our menu to get to that value across the entire menu you know we started with you know burgers and fries and fajitas and you know we have it in margaritas and now we're you know we obviously didn't chicken crispers now we're doing chicken sandwiches you know the next to go will be salads and steaks and we did it with ribs actually last year where it's a much more abundant value even if the price is a little higher you get 50% more ribs and they're meatier and it's a bigger plate so that's the way we think about it it's like when we're in the test kitchen with our operators we're like hey is this something that's going to be wow value and if it's not we got to continue to work on it and then the outcome is you know the things that we report to you on price on price and how we're lower than the competitor but the important thing is when I get a plate of Chili's do I feel like that was wow

value that I want to come back for that's helpful um and then just uh turning to Maggiano's uh now that George is overseeing marketing for Maggiano's in addition to Chili's um can you maybe speak to at how you're thinking about marketing for the brand and what that could look like, you know, when you do begin to see signs of traffic stability and growth?

Yeah, you know, it's, you know, we're less than 50 restaurants, so it's never going to be this, you know, big national TV thing that, like, Chili's has. So, you know, what George, the lens that George is bringing to the business right now is empathy for the guest experience, because at the end of the day, we've got to improve food service and atmosphere at Maggiano's if we want to go traffic over time. So, you know, he's looking at things like menu presentation, family style, the entire guest experience from the time you get into the lobby to when you sit down to when you check out. These are all things that we need to bring a guest empathy lens to, and that's primarily what he's focused on right now. You know, should we get that into a place that we're really excited about? You know, will we do some demand creation? Probably, but given that it's, you know, we're not a national brand, we don't have Maggianos everywhere, it's never going to be like what you see at Chili's. Got it. Thank you.

Your next question for today is from Christine Cho with Goldman Sachs. Thank you for taking the question.

Could you give us a quick update on the off-premise trends and whether that channel has proven more resilient in the increased kind of check management standpoint? And I know there has been a clearly a stronger emphasis on elevating the in-restaurant experience, But do you see an opportunity to lean further into the off-premise channel going forward? Thank you.

Yeah, so our off-premise, you know, it's been hanging in there. It's usually been about, what, 23, 24% of, you know, total sales.

So it's been pretty steady.

You know, it did have the same negative traffic that the dine-in did or the overall brand did this last period. But with that being said, we do think there's opportunity. We've really been focused on the dine-in experience and we think there is opportunity to again take friction out of that whole guest experience with off-premise. You know, we think that we can improve that experience, get better throughput, so it will be a focus as we move forward.

Yeah, I mean the big opportunity is just the overall experience of picking up. It's not, you know, the improvement that we've made from the dine-in, we still have opportunity to do on-to-go. you know our quote time calculator hasn't been updated in a while and since our ticket times are so much faster a lot of times we quote times that are way longer than that then they get them when the food is actually made so we've got to get that thing updated we've got to make the experience for pick up a lot more smooth seamless you know ideally with some order board so you would know you know whether where your order is and whether it's ready to be picked up and then we just we just made some investments in packaging that are already in all the numbers that you guys have to make the actual experience getting the food home a whole lot better. So to me, you know, the important thing is let's get the fundamentals right before we go try to put any kind of gas on it and we've got some work to do there.

Thank you. We have reached the end of the question and answer session and I will now turn the floor back over 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 fourth quarter and fiscal year 2026 results in August. Have a wonderful day.

Thank you.

Thanks everyone.