Brinker International, Inc (EAT) Q1 2027 Earnings Call Transcript

Good morning, and welcome to the Brinker International First Quarter Fiscal 2027 Conference Call. At this time, all participants are in a listen-only mode, and we will open the floor for your questions after the presentation. If you wish to join the queue to ask a question at any time, you can press star 1. Should you wish to remove yourself from the queue, press star 2. It has now been my pleasure to turn the floor over to your host, Kim Sanders, Vice President of Investor Relations. The floor is yours.

Thank you, Joanna, and good morning, everyone, and thank you for joining us on today's call. Here with me today are Kevin Hoffman, Chief Executive Officer and President of Brinker International and President of Chili's, and Micah Ware, Chief Financial Officer. Results for our first 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 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 to Kevin.

Thank you, Kim, and good morning, everyone. Thank you for joining us as we share insights from our first quarter and our outlook for the remainder of fiscal 27. Q1 Chili same-store sales were plus 10%, outperforming the casual dining industry by 720 basis points. This strong result was lapping A plus 21 in Q1 fiscal 26 and a plus 14 in Q1 fiscal 25 for a three-year cumulative comp of plus 52%. Our Q1 sales result was driven by traffic increases of 6% versus a year ago. Chili's traffic has now beat the industry the past 12 quarters. I'm proud of our Chili's team rolling industry-leading comps from Q1 last year and two years ago with even more very strong comps in Q1 this year. Our guest experience improvements and our everyday value leadership continue to support a powerful flywheel of traffic, sales growth, margin expansion, and reinvestment in our business. And this study approach is why the business will continue to win. Some have repeatedly said we cannot possibly continue to comp on top of big comp numbers. Our Q1 result, putting three consecutive years of double-digit comp growth driven by traffic gains, provides ample support that our strategy is sustainable, even with a difficult macro. And in Q2, we feel good about our ability to not only comp positive, but deliver a mid-single-digit comp for two reasons. We continue to convert new guests into regular guests, which means sustainable growth regardless of the prior year comp, and we have very strong commercial and operational plans to keep the flywheel going. While it's clear the consumer is challenged, we feel we are positioned to continue to win in this environment through market share growth. Our experience improvements, combined with our everyday value leadership, position us to win trips. A sustainable traffic-led strategy based on the fundamentals of why a consumer goes out to eat will continue to win the day. Now let's talk about the specific food and hospitality initiatives in Q1 that helped keep the momentum going. We continued our advertising and operations focus on the Big Crispy Chicken Sandwich, and it was a key driver of incremental traffic throughout the quarter. Customers are responding to the size and quality of the sandwich versus fast food, as well as the price certainty of $10.99 for a large and abundant complete meal. Customer reception at the Big Crispy has been very positive, and our traffic momentum is proving the sandwich reception has been great. In Q1, we maintained the 55 sandwiches sold per restaurant per day we saw in Q4. Customer social media comments tell the story. Quotes include, those commercials weren't lying. This thing is the bomb. And, quote, Chili's is making it affordable to go out to eat again. In addition to continued focus on the Big Crispy, we also completed the upgrade of several lower mixing menu items during the quarter. During our investor day, we outlined plans to renovate most of the remaining 40% of the menu that has not been touched over the next few years. Recent menu changes included upgraded ice cream to the famous Blue Bell Premium brand, the addition of sausage as a new protein to our high-mixing pasta menu, The return of cheesecake, a highly requested non-chocolate dessert, and a newly renovated Kids Pepper Pals menu with the addition of ice cream floats, Shirley Temples, as well as the return of grilled chicken bites, cheese quesadillas, and mini-moulton. On the hospitality side, ongoing simplification, removing friction for our team members and managers, and North of Six initiatives are continuing to improve the guest experience. Q1 was the first quarter we removed GWAP from our general manager bonus, but as planned, this does not stop our customer experience improvements. Chili's Google ratings hit an all-time best in Q1 of 4.3. Key operational initiatives this quarter focused on the fundamentals of making our existing menu items more consistently. We had another full-court press on Big Crispy execution, focusing on scratch-made batter and hand-breading perfection, as well as ensuring fillets go out freshly cooked, hot and fresh every time. With the sausage addition to our pasta menu, we took the opportunity to retrain teams on pasta perfection, Which includes how to cook the pasta for optimal taste and texture, as well as retraining on all pasta menu item recipes. And our last big off swing for the quarter was the initiative called Staff to Grow Your Business. With all the incremental traffic coming in, we believed it was the perfect time to roll out North's Six best practices on staffing so restaurants can continue to take on more guests without sacrificing the customer experience. As part of this big swing, we also retrained all-above restaurant leaders and managers on how to write perfect labor schedules based on North of Six learnings, which is one of the most difficult tasks for our restaurant managers. So while our competitors were hard at work launching new items and new offers, we continue to keep operations focused on the fundamentals of delivering a great restaurant experience. We believe this focus will allow us to spend more time on what is important versus free-limited-time offers that will not have a lasting impact on the business. Marketing continues to bring guests in, and our restaurant operations continues to bring them back. Now I want to give an update on Maggiana's. I'm pleased to report the successful rollout of our new banquet operations program in Q1, where we have, one, restaffed our banquet sales managers, removed during COVID, two, streamlined banquet execution, and three, created single-point ownership of the entire process to ensure guests receive great service through the entire banquet planning and event day experience. This cross-functional banquet team was formed back in January, and we are now seeing great results from these efforts. Banquet sales were up 11% for the quarter versus a year ago. Now, while banquets are only 15% of the Maggiano's business, this initiative is important for two key reasons. One, it shows that we can turn around Maggiano's results with focus and deploying cross-functional resource at a single-minded goal. And two, banquets are Maggiano's number one marketing vehicle to introduce guests to the brand, as the vast majority of banquet guests have never eaten at a Maggiano's. Big congratulations to the Maggiano's team for rebuilding our banquet capability, an important part of the brand's DNA. Before I close out my prepared remarks, I also want to provide an update on the industry check averages we shared at Investor Day. We were recently informed by our third-party data aggregator, Blackbox Intelligence, that there were errors in the industry benchmarks for casual dining per person average. Importantly, they confirmed our PPA remains below the competition, so the differential is now narrower than what we previously have quoted. The new data is expected to be included in the November update. We are confident our overall experience and price point provide the best value to guests. One last piece of quick recognition before I close out, a big thank you to our Bedford Chili's GM, Nicky Castro, and our Pinnacle Park Chili's GM, Cara Miller, and their restaurant on Teams for allowing me to work hourly team member roles for a week in October. I learned some really important things, including while it's easier to work at a Chili's today than it was five years ago, there's still lots of opportunity to make it a whole lot easier. So thank you, Nikki, and thank you, Kara, and thank you to your team. As we discussed during our September Investor Day, the Chili's business has been rebuilt for the long-term sustainable growth, and our focus is on playing offense to keep this exceptional performance going. The powerful flywheel of traffic, sales growth, margin expansion, and reinvestment in our business supports all of the investment needed to maintain the momentum, create a new layer of growth through new restaurant development and re-images, as well as return significant capital to shareholders. And this quarter of comping double-digit sales over the past two years with double-digit growth this year is proof positive this sustainable strategy is working. Now I'll hand the call over to Micah to walk you through fiscal 27 first quarter numbers. Go ahead, Micah.

Thank you, Kevin. Good morning. Brinker started the year strong with its 22nd consecutive quarter of same-store sales growth. Our momentum and consistent focus on the fundamentals continue to support sustainable, long-term growth. This momentum drove strong year-over-year revenue growth, positive traffic at Chili's that meaningfully outpaced the industry, and restaurant margin expansion. Brinker reported total revenues of $1,476,000,000 with consolidated comp sales of positive 9.1%. Our adjusted diluted EPS for the quarter was $2.77, up from $1.93 last year, a 44% increase. Chili's comps were positive 10.1% in the quarter, building on double-digit comp growth in both fiscal 26 and 2025. This was driven by traffic of 6.4% and price of 3.7%, with mix coming in flat. This represents cumulative traffic growth of over 28% over the last three years, demonstrating our ability to build on the increasingly strong foundation of our business, bringing in new guests and keeping existing ones coming back. Chili's strong, everyday value platform continues to resonate with guests, led by the success of the Big Smasher, Big QP, and now the Big Crispy Chicken Sandwich. We are also focused on increasing throughput in our restaurants, allowing us to bring more guests through our doors as we reduce bottlenecks and streamline operations. We continue to have confidence in sustaining positive growth as we move through the year with our Marketing Brings Guests In and Operations Brings Them Back approach. For Maggianos, the brand reported comp sales for the quarter of negative 3.4 percent with 5.1 percent traffic, negative 0.3 percent of mix, partially offset by price of 2 percent. At the brinker level, restaurant operating margins were 17.7%, a 150 basis points improvement year-over-year, primarily driven by sales leverage, partially offset by unfavorable commodity costs, as well as higher hourly labor costs. Food and beverage costs for the quarter were unfavorable by 10 basis points year-over-year, due to 3.3% of commodity inflation and unfavorable menu mix, partially offset by price. Labor for the quarter was favorable 90 basis points year-over-year. Top-line sales growth and productivity offset wage rate inflation of approximately 2.6% and additional investments in labor. Restaurant expenses were favorable by 70 basis points compared with last year. Sales leverage offset higher costs for repairs and maintenance, advertising, insurance, rent, and other inflation-related expenses. Advertising expenses for the first quarter were flat to the prior year at 2.5% of sales due to sales leverage offsetting slightly higher spend. G&A for the quarter came in at 4.3% of total revenues, 10 basis points higher than prior year due to higher performance-based compensation and additional restaurant support center resources partially offset by sales leverage. Depreciation and amortization for the quarter came in at 3.8% of total revenues and decreased 20 basis points year-over-year due to sales leverage offset by increased depreciation on capital spent. First quarter adjusted EBITDA was approximately $209.1 million, a 21.3% increase from prior year. The adjusted tax rate for the quarter increased to 19%, mainly driven by the increase in income, which was partially offset by a higher FICA tax tip credit. Capital expenditures for the quarter were approximately $63.4 million, driven primarily by capital maintenance spend. Regarding our Chile's reimage program, we have completed a total of 20 reimages to date. We have another 13 currently under construction and expect to complete a total of 60 to 80 during fiscal 2027. In fiscal 28, we will start a planned cadence of 10% of the fleet annually. While it is still early in the program, and we will continue to evaluate and read the results We are pleased with these early results as we know it's important to preserve the fun, welcoming, and relevant atmosphere that we're known for. As we continue to refine the program, we will look for additional opportunities for cost efficiencies while retaining the quality of the re-image package. Turning to new unit growth plans, as we announced at our recent investor day, we'll be targeting 2-3% annual unit growth by fiscal 2029. Supported by AUV growth from $3 million to $5 million and improved four-wall unit economics, we have visibility into a decade of new development with over 300 potential trade areas identified. The growth opportunities include capturing Thank you. Maintain our disciplined capital allocation strategy, allowing us to invest in our restaurants, keep debt levels low, and return excess cash to shareholders. We continue to support this approach by repurchasing $125 million of common stock under our share purchase program during the quarter. In this morning's press release, we shared that we are updating the fiscal 27 targets provided on our last earnings call due to our first quarter outperformance and continued business momentum. We expect to significantly outperform the industry in sales and traffic while delivering another year of same-store sales growth in Fiscal 27. Regarding the updated targets, we expect F-27 annual revenues in the range of $6.23 billion to $6.33 billion, adjusted diluted EPS in the range of $13.30 to $13.90, Weighted average shares in the range of $42 million to $43 million, and capital expenditures in the range of $265 million to $285 million. The assumptions underlying our targets remained unchanged, including the expected impact of the 53rd operating week in the fourth quarter of approximately 2% increase in total revenues and $0.70 in incremental earnings per share. We anticipate the first quarter will be our strongest on a year-over-year same-store sales basis, with more moderate gains in subsequent quarters as we lap higher prior comparisons. Despite these tougher comparisons, Q2 is also off to a strong start with high mid-single-digit same-store sales growth, primarily led by positive traffic that continues to meaningfully outpace the industry. While consumer sentiment is creating some pressure on check and mix, the underlying strength of the business gives us confidence in our outlook. We are optimistic about our ability to continue growing sales and traffic while maintaining a disciplined approach to our full-year expectations. As we look to the rest of the year, I am confident in the direction of the business and our ability to drive consistent long-term growth. We are executing on the fundamentals of operational improvements, marketing, and value across the menu, while adding incremental growth through re-images and new units. These initiatives will continue to generate new and repeat visits and deliver solid traffic and sales growth. With our comments now complete, I will turn the call back to Joanna to moderate questions.

Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1. We do ask if you're listening on speakerphone today, please pick up your handset while asking your question to provide optimal sound quality. Once again, please press star 1 on your phone at this time to join the queue to ask a question. Please hold a moment while we pull for questions. First question comes from David Palmer with Evercore ISI. Please go ahead.

Great. Thank you. And thanks for your comments on the quarter today, because I know people are going to be focused on any changes that you're seeing in the industry. Maybe I could ask you a question about it, since you talked about your sales in particular. What insights can you give us about what's going on out there with the consumer? You know, we've heard that perhaps there was a little bit of wobbliness with the $100,000 and over consumer, and, you know, maybe you could speak to what you've seen even on a weekly basis and looking into your demographics and any other insights. We'd love to hear from you on that. And then I know that also, if I threw in another one, it would be on inflation, a lot of focus on freight and other costs, kind of getting into the cost picture by what would be the end of your fiscal year, and I'll pass it on. Thank you.

Great.

So let me handle the consumer question, David. Good morning, and then I'll have Micah do the inflation question. And so we're seeing what most of you guys are all seeing, which is a consumer that is under pressure with what's happening with gas prices and the interest rates. And so what we've seen, and we talked about this on the prepared comments, is we still see very strong same-store sales, primarily driven by traffic. We have seen a little bit of mixed slippage, which we think is the consumer being under pressure. So it's very similar to what we've talked about in the past, which is, you know, if trips do pull back because of the macro, that consumer is going to pick places they trust, and the stronger are going to get stronger, and the weaker are going to get weaker. And I think that's what you're seeing with us growing market share and driven by traffic. So we launched the chicken sandwich at 1099 as a traffic driving strategy for just this. This is exactly how it's playing out in the way we had hoped in terms of growing market share. So we believe as long as we continue to improve food service and atmosphere and make us an obvious choice for consumers that may be going out a little bit less, but they know they're going to get a great value and a consistent experience, we believe we're going to continue to grow enough market share to continue to win, and that's what's reflected in our guidance.

Yeah, and David, on your inflation question, specifically around the oil prices and freight, yeah, no, we've had that pressure. The good news is all of that is built into the guidance that I gave. So we probably have about $7 million built into our numbers and our expectations. Most of that for us is going to hit in restaurant expense. So that's where that lies. It's not necessarily in food and beverage costs. But yeah, we are feeling those pressures. And the inflation kind of I spoke about in the prepared comments, that is built through. Luckily, our sales are helping us to still have great margins and flow through.

And that's kind of been job one from this whole – from the start of the turnaround has been we are going to grow faster and grow enough volume to improve our margins and to overcome any inflationary pressures, and that's exactly what's happening in the business right now. Thank you.

Thank you. Next question comes from John Ivanco with J.P. Morgan. Please go ahead.

Hi. I'm going to ask a tactical question if I can. In terms of the promotion, awareness, trial, repeat of the Chicken Parm Big Crispy, hopefully I'm getting that right, do you expect to kind of go back to kind of traditional media and really drive awareness of it? Do you think enough people know what the product is, appreciate how it's differentiated, and just talk about, at least from your perspective, how you think that product could or should build as we move throughout the second quarter?

Yeah, so, hey, John, good morning. So, let me just give you a little context of, like, what we're trying to accomplish with that, and then I'll give you a status update of where we think it is right now versus where it could be. So, this is what we call a big swing. So, this is swings that we take in marketing. Some of them hit, some of them don't hit. You know, in Q1, I think the swings that we took, they all pretty much landed. That's, I think, why we were a plus 10 and more. This one is a big swing, similar to the one that we had done when we launched Nashville Hot Mocs. So this was a, quote-unquote, secret menu item. We had trained our teams on how to make Nashville Hot Mocs, and we released that via social media. And we had no POP, and we had no menu presence until a few months later, and it obviously worked incredibly well. On this one, we're applying that same playbook, but the one thing I think we're learning in the first week of it being available nationwide is it's much easier to order that Nashville Hot Mots, even if it's not on the menu, because you order like the triple dipper or you order mozzarella sticks, so you can just ask for it in this other flavor, versus this is an entirely new sandwich. And so some guests are more forceful and say, hey, do you have the sandwich I saw on social media? And other guests are kind of like, hey, I don't see it on POP or on the menu. I'm not going to order it. Now, that's all going to change the first of the year. Our table tents for the next three months will all have – I'm sorry, first of the month.

Yeah, not here. November 1st.

1st of November. Sorry. Thank you. With the Tabletet merch. So I think we're going to learn a lot more in the next coming week or two about how much it takes off because they're going to be something that people can point to and say, I want to order that. So right now it's doing a little over two a day, which is a little short of what we expected it to do. But I think the difference on this one that we're learning is it's not an easy thing to order. And so once we have that merchandising in the restaurant, we would expect it to pick up again. So, you know, let me answer that in a few weeks when we see what's going on once we have some merchandising in the restaurant.

That's what I was looking for. Thank you.

Thank you. Next question comes from Dennis Geiger with UBS. Please go ahead.

Great. Thanks, guys, and congrats on the strong results. I wanted to ask a little more on the 27 guidance. I know we can back into some of the items, but after the strong 1Q same-store sales, very good momentum still into 2Q. Anything more specific on your assumption for Chili's same-store sales for the year, I guess, really for the back half of the year in particular?

Yes. So, Dennis, what I would say is for the back half of the year, two, three, and four, we're back to the mid-single-digit same-store sales expectation with positive traffic. October, again, we're thrilled with the start to October. Remember, we do have, we're just aware of, and you guys remember, we had a huge November last year, so we do have a big lap right in the middle of the quarter. We feel very confident in our ability to lap that with positive sales and traffic. But right now, we're in that same mid-single-digit, same-store sales. We have a lot of momentum, and we're really excited about it.

Awesome. Thanks, Micah. And then just as far as value goes, can you just give us the latest update, considering the backdrop in particular on where the three for me mix is, where that 1099 is, and if anything incremental on the check management maybe that you're suggesting? I think we heard a QSR a couple weeks ago talk about number of items per order, so it sounds like you're not the only one that's seeing that, but just if anything incremental as we think about value and where the consumer is. Thanks, guys.

So, for Q1, when we think about the 3ForMe platform and specifically the 1099, the 3ForMe platform, it's pretty similar to what it has been. It ticked up a little bit, maybe 50 basis points. So, I always say we're in that, you know, 20, 21 percent range. So, we're a little over 21 percent. So, really, you know, right where we expect it to be. So, a little bit of an uptick. As far as the check management goes, in Q1, like we said, our mix was flat. You know, Kevin alluded to this. We did see in October our mix has gone a little bit negative, but our traffic has more than made up for that. Our traffic is, you know, two-thirds of our same-store sales right now, so our traffic is accelerating. So we're seeing those guests maybe do a little check management in alcohol and dessert, but they're seeing more guests come to Chili's. That's where they think the affordable choice is, so that's really working out for us.

Awesome. Thanks, Micah.

Thank you. Next question from Chris O'Call with Baird. Please go ahead.

Thanks. Congrats on the great results, guys. Kevin, I'm just curious what you believe is driving the quarter-to-date strength, because I think – I believe that's happening during a period where you weren't particularly heavy on national advertising, at least until very recently. And if that's correct, what potential is there maybe for further acceleration as you do get back into some more Well,

I don't think it's anything different than what we've been doing year after year now. So, you know, this idea of marketing brings them in and then offs brings them back. You know, we shared an investor day, Chris, the token data where we said, hey, we have anywhere from three to three and a half million new tokens come in, and then we track their frequency as a monthly cohort to see, do we maintain that frequency as we continue to fill the bucket with new guests? And we don't have the data for this past quarter yet in terms of repeat from new guests, but there's no reason to believe that's changing based on the guest metrics that we have. So I don't think it's anything new or different. I think we have great marketing. So we had some big swings. We had a really good July margarita of the month. We had the big crispy advertising, you know, going with that direct comparison to a large QSR's chicken sandwich, which is, you know, really before your eyes, how much value you get with 1099 in Chili's. And then we had a great rollback Chili's golf merch thing, which is another big swing just to get into the zeitgeist and be relevant with our guests. And so, and then we've continued to have operational improvements. And we talked about the Google scores, which is an external measure. That's not something we even measure. That's just what we get from Google, being an all-time high of 4.3. So it's just kind of more of the same. I know that sounds a little boring. I wish I had, you know, it was more of a Merlin act where we pulled out some LTO and it did it. It's really just about the fundamentals of casual dining, delivering great everyday value for our guests, and then executing like crazy. And the guest is seeing that and they're coming more often. I think that's why we're seeing traffic accelerate as the consumer is becoming under more pressure.

Okay, fair enough. And, Micah, can you provide some additional color on the returns you're seeing on the remodels as you ramp them up? I mean, just in terms of flow-through, I understand you've given the comp lift. I'm curious what the flow-through looks like, especially as a relative to the investment.

Yeah, so, Chris, really what they're doing now is covering the cost of capital. Early on, you know, right now we're at the $600,000 investment. We talked about that about 20% of the fleet is going to need that higher investment. The other 80%, it'll probably get closer to $500,000. And again, we're so early in this program, we think we can continue to get some costs out of those re-images while just maintaining the quality of the re-image. So, I think we're going to see some efficiency there. Also, remember, you know, these are fairly new. We need to read them over time. Again, we're getting that 3% to 5% list, even as we continue to add on new restaurants. And again, that is above and beyond all the incredible momentum that we're seeing in the business. You know, so we're still really pleased with this because we know the re-images need to be – they need to happen. They need to keep – it's part of our pillars on the atmosphere. We've got to stay relevant, and we think it's part of the overall program. But more to come on specifics on returns as we continue to refine it over time. But it's just really early right now.

Okay. Thanks, guys.

Thank you. Next question comes from Jeff Farmer with Gordon Heskett. Please go ahead.

Thanks. Micah, can you update us on the restaurant-level margin expectation for the year and the backdrop of sort of the stronger central sales numbers you're seeing?

Sure. Absolutely. I'm happy to. So, taking a step back, so if we look at the full year, What I'm expecting in restaurant-level margin improvements is about 70 to 90 basis points improvement year-over-year now, especially with the strong first quarter that we've had. Now, I do want to say I need to maybe smooth out the quarters a little bit, just thinking about some of the laps that we had in prior year. So what I would expect in the second quarter, I would expect restaurant-level margins to be roughly flattish year-over-year, year-over-year, with maybe a little pressure on labor, Because as Kevin said, we're really leaning into labor. We kind of do opposite what everybody else does. Labor is one of our secret sauces where when those guests comes in, we want to make sure that we're taking care of them and capturing all those guests. So we, you know, we don't shy away from that. Quarter three, I think you're going to see a return to the 20 to 40 basis points that I always talk about with mid-single digits, same-store sales. And in quarter four, there's more upside there, particularly in the food and beverage line, because we're going to be lapping from a year ago. The tomatoes and the lettuce, we talked about that last year, so we have a little bit more upside there. So again, full year, and that does include the 53rd week, that's 70 to 90. The 53rd week is worth about 30 basis points, so hopefully that helps everyone to kind of get those quarters in line and a little more visibility on how we expect restaurant level margins to progress throughout the year.

Very helpful, and just same sort of topic area, at least on the margin front. Updated G&A guidance, I think it stood at approximately 4% of sales on the last call. Where does G&A stand right now?

Yeah, so it's going to hover around that for the full year. It may be 4, 4.1. You know, we do have some incremental, you know, performance-based compensation there, especially after the first quarter. You know, it'll smooth out over time, but it's going to still be in that 4 to 4.1% range for the full year. Thank you.

Thank you. Next question comes from Andrew Strelzik with BMO. Please go ahead.

Hey, thanks for taking the questions. My first one is about the throughput initiatives, and I'm curious, as you talk to the traffic strength, if you're seeing any measurable benefit from those throughput initiatives in the first quarter or even the quarter-to-date period, and maybe just looking for an update on where the rollout of some of those drivers stand today.

Yeah, so, you know, we've seen a slight decrease in ticket time, but it's not worth – it wasn't worth – it wasn't significant enough to worth reporting. You know, I think if we see it over a few quarters and it continues to track, then we'd probably share that. But we feel very good about what's happening. So, you know, number one, you know, as I talked about our prepared comments, we rolled out really the best practices on how the north of six restaurants manage labor, labor cards and labor productivity at peak. And so we've retrained all of our above-restaurant leaders on how to write proper labor schedules and have incorporated all the best thinking and best practices in the North of Six restaurants into the business. So that's kind of point one. Point two, we have a quarterly rollout going on right now on HostStand, and that's a pretty big initiative for us because just one missed four-top per day is almost a point in sales. So, it's a pretty big opportunity for us, you know, and we have nothing based in the, you know, in the guidance. So, anything that we can get out of here is upside. We did four things this quarter. One, we reestablished talent standards for the host position, as well as staffing appropriately for the volume. So, you know, five years ago, you know, there were a lot of restaurants that even have a host. Now, we're talking about three, four hosts in some of the restaurants. Number two, we trained on what we call aces and places. So defining multiple host stand roles. We call it meter, seater, and greeter. And then making sure that managers are at the floor for large parties. That tends to be a bottleneck when a party of like eight or 12 come in and they all want to sit together. And so making sure managers get involved there. Three was retraining on our iPad training for host stand. So this is all about how to properly use the software with the end goal of making sure that we, quote, zero false waits. False waits, I think I talked about this in an earlier earnings call. False waits are a very common thing in casual dining where through improper preparation or lack of labor scheduling, the restaurant gets backed up. And so the servers are kind of pushed to put people on false waits. We want zero false weights in our restaurants, meaning we want them quoting the exact quote time that the system is quoting. And so, all these things are rolling out right now. So, I would expect for, you know, by November, December to start seeing some progress on host stand. And then we are currently rolling out. We've talked about this for a while. It should be done by the end of the calendar year of rolling out the new team member handheld interface, which eliminates over half of the taps that are required in order to ingest an order from a table, which would help with ordering time. So we have a lot going on in terms of throughput. There's a whole host of another initiatives on to-go that we have yet to share that is just getting started now. And as we get updates, we'll share them. But I feel very, very good about what we're attacking. And, you know, I hope in future calls to be able to share metrics like what we talked about in investor day, like dine-in times and ticket times and things that would give you some sense of in-process Those metrics that would let you know that productivity is happening. I will say when we look at North of Six restaurants who have nailed throughput, everything's better. Food grade scores are better. GWOP is better. Productivity is better. They save on the labor line. And ticket times are lower despite having way more volume. So certainly if we can crack the net on this productivity thing, I would expect there to be upsides from it.

And I'd like to note on North of Six, they also continue to comp at the same rate or higher than the brands. So, their ability to get even more traffic in continues to amaze us.

Okay. All right. That was super helpful. And I just wanted to quickly ask, with the change to the manager bonus structure going into place, have you seen any changes in behaviors? I know you're leaning into labor more, certainly, but I guess I'm just curious if you're seeing any changes to maximize throughput or anything like that since that's gone into place. Thanks.

Yeah, there's a couple things that are going on. One is there's just a lot less, like, distraction about the guest score. So we don't see as much, like, you know, for lack of a better term, obsession about the ZIOS scoring and the scores going up, and it's no longer a demotivator for our hourlies when folks are posting these scores. So I think the biggest thing that I've seen so far is just a lack of a distraction or wasted time on worrying about a score versus worrying about the behaviors. So that's kind of point one. The second thing that I think has come out of this is we rolled out a vastly simpler reporting structure in terms of, like, the key operational metrics that we look at on a daily basis to focus on a few ones that are incredibly important. So, I feel like when I go to restaurants and we have discussions with the general managers and the above restaurant leaders, I feel like they're more focused on the more important things, and we get to the fewer, bigger things faster. So, I think over time, I would hope to see just continued operational improvement because of the simplification. But those are the two big areas that I've seen is a focus on what's important and then the elimination of distraction of looking at these metrics on a daily basis by an individual basis and really just focusing on the behaviors that are going to be required to deliver improved operations over time.

Great. Thank you very much.

Thank you. Next question comes from Andrew Charles with TD Cowan. Please go ahead.

Great, thank you. Kevin, I wanted to ask on the marketing side, you know, we've seen you guys partner with celebrity brand fans, including Snooki most recently, and then Lizzo about five months ago. You know, should we think about this as a pattern, the opportunity to run these collaborations every six months or so, or do you expect future collabs to be further apart?

Well, I can just share with you how the marketers think about this. So, you know, typically we sit down with a calendar, or they sit down with a calendar, and they look at, okay, when are we launching things? Where are consumers seasonality-wise? You know, what's happening in the restaurants? And they typically make the plan to try to always be on with some type of interesting thing happening in the business. So if the food is leading the way because we're launching the Big Crispy, they let that sing. But if we have times where, you know, it's been three or four months into the Big Crispy launch and we feel like we got to get new news to make sure that we continue to build relevancy for this brand, they'll come up with ideas based on some specific strategy, right? So the example of the Lizzo example that you gave was, hey, we have these new improved ribs. There's 50% more bones from the portion size. They're fattier and meatier than the old rib that we had, so they're much better value. How do we create excitement to get people to come in the ribs, given it's not a biggest segment that we're going to go put on TV, and that's where the team came up with, like, hey, let's reboot the ribs jingle. That's something that's really part of our history, and let's get a big performer to sing that, so that's where Lizzo came in. On the sticky one that you're referring to that's most recently, that was in the innovation kitchen, we tasted a lot of different chicken sandwiches to see which ones could really stand out, given how big that filet is. You know, we talk about it's over 80% bigger than the, you know, the leading QSR's chicken sandwich, and it's, you know, handmade, the batters, you know, from scratch. So this is a vastly superior chicken sandwich, and so we're looking for ways to create some excitement by it. The team saw Chili's way of doing chicken parm with the cheese pull, so that's where that piece of sandwich was, that sandwich was invented, right? And then we said, how do we create excitement in social media, and that's where Nookie came from. So it's not necessarily like on a cadence of every six months. It has to do with what is the priority for the quarter that we want to drive? And in this case, how do we continue to launch and sustain our chicken sandwich launch? And so how do we create new news virally? And so that was the idea behind it. So, you know, it really just starts with what's the priority of what we want to drive with the guests, and then the marketers then use their creatives to figure out what are we going to apply to that.

That's very helpful. And then, Micah, I know you gave the commodity inflation by quarter for the year, the expect for food inflation. Can you get that for labor inflation as well?

Yeah, labor's just going to be in that 3% to 5%. It was a little bit less than 3% this quarter, so close to 3% all year.

Got it. Thank you, guys.

Thank you. Next question comes from Sarah Senator with Bank of America. Please go ahead.

Oh, thank you very much. I guess I wanted to ask just broadly about the casual dining segment. I know it's something we've talked about before, in particular, younger users. I think when you and I chatted, you suggested that maybe having more casual dining brands on social media gives younger consumers maybe permission to go. So could you just talk about that cohort in particular? And, you know, I'm trying to, I guess, figure out why it seems like just casual dining, you know, the contrast between the comps and the casual diners we're seeing, you know, you're obviously leading, but just broadly speaking, much greater than QSR or, you know, or others. I know you talked about the relative value, but maybe you could just talk about that, you know, younger cohort in particular as a potential longer term, you know, maybe structural driver.

Yeah, I mean, I think we see that in our business. I think you're probably referring to, you know, one of our competitors that have done this successfully, too. You know, what I would tell you is, you know, I think maybe we brought some of the more, you know, modern marketing techniques to casual dining, but they're not, I mean, I think within restaurants, they're pretty well known. I came from QSR, and if you actually look at the reports that come out about social media impressions, QSR tends to have more social media impressions than casual dining. I think the difference is what's happening is, one, it's new to casual dining. So as George and team have brought social media to our business and people see the success that we've had, they're saying, hey, I could probably apply this to my casual dining concept. But I think the second thing, which I think is different than QSR, is there are several casual diners that operate very, very well. And when you have a good product and it shows up in social media and then people go to replicate it, if you have that experience, that's what grows and that's what grows your business, right? Like, I always talk about, you know, when we had the first kind of spark in social media, this was April of 24, so about two and a half years ago, if people came in for the cheese pull and the cheese didn't pull and the restaurant wasn't clean and the experience wasn't good, I don't think that would have lasted more than two or three weeks and we wouldn't be talking about this, you know, 30 months later, you know, copying a 10 on top of a 22 on top of a 14, right? So I think that's the other thing that I think, Sarah, I'm not sure everybody quite understands is like, it's not just about going viral. I think lots of brands go viral. But like what you saw with us, I think what you're seeing with one of our competitors in casual dining that's having some really good success with it is you go into their restaurant, you go into our restaurant, you have a pretty good experience. Like, it feels like that social media experience that you saw online, and that causes you then to repost and share your experience, and then that's when it has that morality. So, you know, I would anticipate the – everybody trying to do this, I think the better operators are the ones that are going to really win out in this environment because you can't fake a social media post, right? That person's going to post whatever they see and experience. If it's great, you're going to feel really good about that post, and if it's not great, you're going to feel the exact opposite. As long as the brands that do this are operating well, like Chili's, I think they're going to also win, too.

Yeah, thank you very much for that. And then just quickly on Maggiano's, you know, the banquet business, that's encouraging, and to your point, that's the real opportunity to market. Anything else that maybe has changed in the operating environment, you know, whether in the Italian segment or, you know, anything that you've seen that might also be contributing, or this is really very specific to Maggiano's?

Well, I mean, there's macro factors. You know, I always tell our team we've got to just focus on what we can control, and what we can control is speeding up service and making it more consistent. And so, you know, Banquet is a great example, and the reason why I shared it, even though it's only 15% of the business, it's up double digits, and it was a very – it was like kind of a big swing that we started nine months ago, and now we're seeing the fruits of our labor, and, you know, our banquet bookings are ahead of a year ago now when we look heading into the holiday season. And so to me, it was two things. One, it's a marketing tool because that's the way a lot of people are introduced to the brand. But two, I think it showed, hey, if this cross-functional team gets together, they focus on something that's important, they work together, they're going to have big results, right? And so the next big thing that we're working on right now, we have it now live in one restaurant, is taking the Chili's KDS technology, Which is the back of house system that tells cooks what to cook and QA what to send out to tables. And we're taking that state-of-the-art system and putting it into Maggiano's. The current system they have today, it's just not doing Maggiano's a service in terms of temperature of food and how fast food goes out and how it coordinates across stations. So, that's an example where I think if we get that done, it's probably going to take at least another quarter to get all the kinks out. If we get that done successfully, I would expect to see ticket times come down, total diamond times come down, improved productivity on the weekends, which is where we need it. So, you know, that's the next big swing, I think, cross-functional project that we're working on. And I hope, you know, by next earnings call to be able to update that it's either been rolled out or is in process of in the majority of the system and soon to be fully rolled out, because I think that's going to be the next big push in improving throughput at that concept.

Thank you.

Thank you. Next question comes from Brian Harbour with Morgan Stanley. Please go ahead.

Thanks for the morning, guys. Could you just talk about both pieces of the off-premise business, maybe? And, you know, I know you talked a little bit about kind of leveling that up at your investor day. When, you know, when do you expect that would happen?

So, delivery and carryout are each about 12.5% of the business, roughly. So, about a quarter of our business is off-premise. We are in process of a major cross-functional effort that's going to take several years to, we think, strengthen our off-premise business. And we're not really focused on delivery, per se. We're just focused on all of the things that impact carryout and delivery. So even though delivery, obviously, has been growing from an industry standpoint, we're more focused on how do we make it easier for customers to order? How do we make it easier for both customers and drivers to pick up the food, and then how do we ensure that the food arrives as accurate or the food is as accurate to the order as possible and arrives in the best possible condition given it's got to travel for a period of time? So, the first thing that we're working on this year are our Promise Time Calculator. So, essentially, as we've sped up our operations, the Promise Time Calculator is a bit antiquated. So, it quotes longer times than actually the food would be prepared. So, you'd get a text that, hey, your food's going to be ready in 25 minutes, and then 10 minutes later, you get a text that your food is ready. We think we've got that solved with an interim solution now that's in restaurant. We're working on a longer-term solution that's going to be more reflective of ticket times and how faster food can be ready to be ordered. The second thing that we're working on right now is improving the ease of ordering. So the first project that's on the docket that hopefully will roll out soon is just making the reorder button a whole lot easier to use. So there's a decent percentage of people that just want to be able to either reorder or reorder with minor modifications on their order. And the bold goal for that team is to get people's order time to less than a minute. In order to make it kind of a routine, when you look at the better players in off-premise, they have apps that are very easy to reorder food from and make any small edits to. So we're trying to copy that. And then longer term, we're looking at things like the pickup experience with order boards, additional packaging upgrades to make the food present better and hold better, as well as some improvements in terms of accuracy. So, but it's going to be a multiple year initiative. You know, we spent, we're still working on dining and we're in year five. So, you know, I wouldn't expect, you know, some magic wand and in Q3 all of a sudden to go is fixed. It's, you know, I think it's going to be a long slug of looking at things at a very deep, in a very deep way and then improving things over time so that when you add it all up a couple years later, you know, we can be the leaders in casual dining to go. But I will tell you, it's a big opportunity for us because, you know, we think about the Better Than Fast Food campaign, and that food tends to travel better. So, you know, the bold goal is we want to be as easy as fast food but have a better value than fast food. And if we can do that, I think you'd see our off-premise business start growing a little bit faster than our dine-in business.

Kevin, I guess since you teased it, based on your time working in a restaurant, what do you think can still get better on the back of the house?

Oh, everything. So it's encouraging. I know that sounded like it was, but it's encouraging. So one of the biggest things, I spent about an hour and a half debriefing our leadership team, kind of my experience there. And the big umbrella aha was, even though I think everybody and all the managers told me and all of the hourlies told me, it's so much easier to work here, Kevin. Thanks for your continued partnership on this. My observation was it's still not easy to run at Chili's. I don't think that's unique to Chili's in casual dining. I think it's probably hard to run complex menus with table service pretty much anywhere, especially when you have a giant concept with over 1,000 restaurants. So I had two main observations on that. One was we have to be continuously improving and making this restaurant easier to run. And so when we think about things like the Heart of House project, which is going to be fueled by AI, so we think about almost like a completely new system that's an integrated, kind of like an ERP system, but for the Heart of House, that is going to make forecasting, ordering, inventory, prep, labor service, It's going to make everything easier. Now, that is a two- to three-year project, so it's not like it's going to come this fiscal, but, like, that example, there's so much institutional knowledge that you need to have to run a Chili's because none of the systems are naturally connected. You know, we've created some integrations, but most of them are manual integrations that the managers have to do, and it requires a lot of institutional knowledge. So, point one, there's still a lot of upside to make it a whole lot easier, especially with technology. The second thing is, even when we get all this stuff installed, it's still not going to be the easiest thing to run. And so it instilled in me the importance of retention in this ownership model. Because when you look at like North of Six restaurants, they have longer tenured managers. It's such a clear like data point. And then having like done it firsthand, I can see why. Because regardless of how much automation we can put in the business with technology, it's still going to be a difficult job. And so, the longer we can retain our managers and have them have big careers at Brinker and at Chili's, I think the better they operate, which is why the majority of North to Six restaurants have long-tenured general managers. So, I mean, I have like 60 slides of all the improvements that we can make. So, Brian, a lot came out of that. But the two big ahas were, we still have so much low-hanging fruit that we can focus on to make this operation more seamless and a better guest experience. And then, two, how do we really take this ownership and retention and take it to a whole other level? And, you know, probably the guys that everybody's chasing in casual dining, that second part, they know, like, the back of their hand. And I think now I see firsthand why that is so valuable to our business.

Thank you. Next question comes from Margaret May Bunchdock with Wolf Research. Please go ahead.

Hey, guys. Thanks for taking the question. I just wanted to follow up. I know you mentioned that there is some check management that's impacting desserts. The last quarter, you guys did talk a little bit about the dessert innovation that's coming and also moving up desserts in that kitchen screen to help servers sell more. I guess, how do you think about leaning into desserts while seeing the check management that's going on right now?

Yeah, so we saw some virality with the molten being served on top of a cookie. I think that's what drove incidents that quarter. You know, the mix decline has really been more recent. So this dessert incidence is more of a recent trend post the virality of that molten cookie. I will say, you know, we're in test right now with bumping the desserts to the top of the screen. We want to make sure that we're not inadvertently slowing down other dishes. I mean, it's more important to turn tables than to create dessert add-ons, so that's why we're testing it versus just doing it. I will say from my last three restaurant visits, floating the idea that we're testing it, that everybody got really excited by it. So my guess is it's probably going to work, but we don't really have any updates on that because it's still being tested right now. Yeah, still early.

Got it. And then just to follow up on the Big Crispy, I know we mentioned marketing earlier, you know, and the pace of it. But just on the Big Crispy, I know you have the chicken parm one coming up, but should we think about more innovation opportunity on the Big Crispy platform, and is there a cadence we should be thinking about from here? Thank you.

Well, so right now we're focused on just advertising the Big Crispy on 1099. The majority of our marketing dollars are spent on whether a linear TV or connected TV and then digital. So, the majority of our marketing spend is on this value message, buying the Big Crispy. The Big Crispy chicken parm sandwich is mostly a PR and digital social media play, which is – it's not that it's not important. It's just that investments are a lot less than when we talk about a broad-based message about value. We are continuing to look at different innovations on the Big Crispy. We have seven variants right now that we haven't talked about them all, so that's the other opportunity is we have some very unique things like the Honey Chipotle sandwich and the Nashville Hot Sandwich. These are all very unique sandwiches within casual dining, so we're going to evaluate whether we think we need to update the Big Crispy message next May, like do we need to bring new product news, or do we continue to see more traffic being built with just the 1099 message. You know, what we talk about here is if it's not broken, we don't fix it. So, if we see that the traffic lifts are the same, call it in Q3, as they were in Q1 and Q2 from the Big Crispy advertising, I don't anticipate us moving off that message. If we see that starting to wane in terms of the traffic response to the advertising, then I think we'd likely see some type of new product news either on chicken or on hamburger, depending on, you know, what we think is more topical for the moment. So, but it's more the business results are going to drive whether we bring additional innovation. We're going to be preparing for innovation, but we're not going to, like, be hard and fast that we are absolutely going to have to have a new chicken sandwich next May, because if the business continues to rock and roll, we would not move off that myth.

Thank you.

Thank you. Next question comes from Chris Corral with KeyBank Capital Market. Please go ahead.

Hi. Good morning. Thanks for the question. So, Kevin, you mentioned big swings a few times on this call. Can you maybe talk a little bit more about the efficiency of these big swings, maybe why you think they're landing more frequently? Is this a function of the overall momentum the business is seeing, or is something changed in the process to ensure the success here?

Yeah, so just to be clear, we use big swings in two ways. Maybe it's because I always talk about fewer or bigger with our teams, so everybody gets out to the word big swing. So I think you're referring to big swings in marketing. We use big swings for two things. Big swings in marketing, meaning pick a couple of big swings every quarter to see what we can take off into the culture and drive relevance to the brand. And then we also talk about big swings in operations. We pick about three big swings every quarter that we do a rollout on. They're typically based on the fundamentals of casual dining and typically tied to something commercially that we're driving so that the business is hearing one message from us. So I think your question is about marketing. And, you know, we are constantly learning about what works and what doesn't work, and we're adjusting our plans based on that. So, like, the best example I can give you – so it's not really formulaic. It's more we think about it as on a value offer, we have large amounts of out-of-store advertising to drive the value message because that's broadly appealing. And then we use social and digital and PR to kind of try to go after specific groups of people that we think would have interest in learning more about Chili's and about whatever that item is. And then based on what we see in market, we adjust. So if things hit, we try to understand what are the things that made it sticky and go. And when things don't hit, we try to learn from them and say, what did we miss out on that we could have improved more? Like, for example, on the chicken parlor that we just launched, realizing not having something to point to in the restaurant maybe limits the amount of business that we can have on that, but we're going to find out very quickly on November 1st when we have merchandising in the restaurant. But the best example I can share with you so you can understand at least how we approach it is when we launched the Big Smasher in May of 24, we primarily did that with TV advertising. The next year, we layered on a bunch of social advertising behind it because we had all this great success from the social and the triple dipper, and that social advertising was squarely on having people compare our burger versus a fast food burger, Which is way more compelling when it's coming from a third party than it is from a, you know, from a company that's advertising on TV. And then in year three, when we launched the Big Crispy, we had all of the PR we had in year two and the social, but then we had three bouts of social. So we didn't just stop with the launch in social. We had a second hit with new messaging that was briefed to the influencers a few months later. And now we have the Big Crispy Parm, which is our third hit of social. So I would tell you it's just every year we're learning how to be more effective. And that's one of the things I really appreciate about our marketing team. So like, you know, George Phillips and Jesse Johnson, they're very hungry to like, just how do we get better? So even though I would say they're probably the best in advertising in restaurants right now, like every year they're doing a debrief on like, what could we have done better? And so I just feel like every year they just get stronger, right? And that's why we're able to continue to bring new guests in. And then operations does their amazing job, and that's why we have the sustainable flywheel going. So that's the best way I can describe it is they're constantly looking at how they can make these things better. But, like, there's no formula of, like, add another 30 percent and get another three big swings. That's just not the way they look at it.

Got it. Thanks so much for all the detail there.

Thank you. At this time, I will turn the call back over to Kim Sanders for closing comments.

And that concludes our call for today. We appreciate everyone joining us and look forward to presenting our update on our second quarter fiscal year 2027 results in January. Have a wonderful day.

Thanks, everyone.

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