Earnings Call Transcript - EAT Q1 2026

Operator, Operator

Good day, and welcome to the Brinker International Earnings Call for the first quarter of the 2026 financial year. It is now my pleasure to turn the floor over to your host, Kim Sanders, Vice President of Investor Relations. Kim, the floor is yours.

Kim Sanders, Vice President of Investor Relations

Thank you, Paul, and good morning, everyone, and thank you for joining us on today's call. Here with me today are Kevin Hochman, President and Chief Executive Officer and President of Chili's; and Mika Ware, Chief Financial Officer. Results for our first quarter were released earlier this morning and are available on our website at brinker.com. As usual, Kevin and Mika will first make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions. Before beginning our comments, I would like to remind everyone of our safe harbor regarding forward-looking statements. During our call, management may discuss certain items, which are not 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.

Kevin Hochman, CEO

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 '26. Q1 Chili's same-store sales were plus 21.4%, outperforming the casual dining industry by 1,650 basis points. This strong result was lapping a plus 14% in Q1 last year for a 2-year compounded comp of plus 39%. Our Q1 sales result was driven by traffic increases of 13% versus a year ago, and Chili's has now beat the industry the past 8 quarters on traffic as well as completed our 18th consecutive quarter of positive same-store sales growth. I'm so proud of our Chili's team rolling industry-leading comps from Q1 last year with even more industry-leading comps in Q1 this year. World-class marketing and brand building is bringing guests in and continued improvements in food service and atmosphere are bringing guests back, and that momentum feels great. Our food and hospitality initiatives in Q1 continue to deliver momentum for the business. The ribs upgrade has been a success with the ribs business now running 35% up in sales and significantly improved profitability, which is also up 29%. Food grade scores on tickets with ribs are up and guest feedback has been very positive on the taste. On the beverage innovation front, the frozen Patrón Margaritas platform is now selling 2x the units of the old platform despite a higher price point for the more premium ingredients. Q1 new items are winning and helping progress our food grade scores in addition to growing sales. On the hospitality side, ongoing simplification, removing friction from our team members and managers and the North of 6 initiatives are continuing to improve guest experience scores. Our main metric for experience guests with a problem is again at an all-time low at 2.1% versus 2.7% last year in Q1, with food grade and intensity return scores also at all-time highs. And on atmosphere, our first 4 remodel pilot restaurants should be completed by the end of this quarter, and we will start getting a read on how they are performing. The modern Greenville prototype is about making Chili's as Chili's a Chili's can be by going back to the first Chili's ever built on Greenville Avenue and getting back to what makes Chili's like no place else. Given what everyone is seeing in the industry right now, I thought it would be helpful to talk a little bit more insight on what we're seeing at Chili's with the consumer. I'm going to share what we are seeing with the consumer household income levels and some new token data on Chili's guest behavior. Chili's continues to grow sales across all households of all income levels. And while others in the restaurant industry are seeing households with lower income pull back, we are seeing just the opposite. Our customer base is very representative of the U.S. consumer across all income cohorts, but our cohort growing the fastest is actually now households with income under $60,000. It's clear that the better-than-fast-food campaign we've been hammering over the past 2 years has positioned Chili's as an important value leader in the industry, and we are gaining market share with low-income households while others are reporting softness with that group. I also wanted to share some new capability mined from our tokenized data. We now have sufficient data to understand as more and more new guests come into Chili's, what is happening to the guest frequency over time. The intent is to have a better understanding of the sustainability of guest traffic we are bringing into the business via TV and social advertising. We track each group of monthly customers separately and what their visitation and purchase behavior is over time. For example, we have a July 2024 cohort who represents all of the guests that came into Chili's during the month of July 2024, whether they are new to Chili's or regular guests, and we can track how often they have come back over time. We can do the same analysis with the guests who came in, in August 2024 and get the same data about that group. We then look at frequency of those groups over time to understand how well we are retaining them, which also tells us how sustainable Chili's traffic trends are. So here's what we learned tracking monthly cohorts. For both new and regular guests, trip frequency is staying very stable regardless of the cohort. What this means is our restaurant experience is bringing guests back and retaining the traffic over time versus bringing them in once and having them not come back to Chili's. This data, along with our quarter-to-date sales and traffic trends, give us confidence we'll be able to roll over the Q2 plus 31.4% sales growth and the plus 19.9% traffic growth from prior year. Now I want to give an update on Maggiano's. Chief Operating Officer, Rich Kissel, and I have had the opportunity to go deeper into the business, and we have a better understanding of the opportunity to get Maggiano's stabilized and growing again. The turnaround starts with a better understanding of Maggiano's positioning, which when it was growing at its best, was about abundant and scratch-made Italian-American favorites with warm and attentive service and then putting those pieces in place to deliver on that positioning consistently. The back to Maggiano's plan has 4 pillars: getting back to classic recipes and scratch-made Maggiano's guest favorites with the abundance that differentiates Maggiano's; improving service levels and speed of service through new labor deployment and simplification as well as the elimination of tests that don't benefit the teammate or the guest; three, focusing repairs and maintenance on guest-facing areas while reimaging the balance of the estate; and four, getting pride in ownership back with our Maggiano's management teams. We recently concluded the annual Maggiano's Conference in Orlando with the brand's top 150 leaders, and the response to the new strategy and the green shoots of the execution plan was very encouraging. The Maggiano's leadership response was that they need to get back to Maggiano's, and many specifically gave me feedback and felt like they are now being listened to. I look forward to providing updates on how the Maggiano's turnaround plan is progressing on future calls. Our continued momentum at Chili's is proof our strategy is working and gives us confidence in our ability to lap our high sales comparisons this fiscal. I especially want to thank our Chili's heads for their hard work and commitment to what sets Chili's apart, providing great hospitality and delicious food and drinks in a fun and friendly atmosphere. I also want to recognize our Maggiano's teammates for their engagement in our Back to Maggiano's turnaround plan and their understanding of the changing strategy and plans. Their leadership and positive attitude and passion for returning the brand to its roots is exciting to see, and I know will lead to better results in the long term. Now I'll hand the call over to Mika to walk you through fiscal '26 first-quarter numbers. Go ahead, Mika.

Mika Ware, CFO

Thank you, Kevin, and good morning, everyone. Brinker delivered another outstanding quarter led by Chili's, which marks our sixth consecutive quarter of double-digit sales and positive traffic growth, sustaining the strong momentum we built last year. Our investor growth strategy and everyday industry-leading value continue to position us well in a competitive and challenging environment, enabling our delivery of consistent positive results by focusing on the fundamentals of food, service, and atmosphere. For the first quarter, Brinker reported total revenues of $1.35 billion, an increase of 18.5% over the prior year, with consolidated comp sales of positive 18.8%. Our adjusted diluted EPS for the quarter was $1.93, up from $0.95 last year. Chili's reported top line sales growth with comps coming in at positive 21.4% driven by positive traffic of 13.1%, positive mix of 4.3% and price of 4%. We continue to see strong year-over-year top line growth, same-store sales, and traffic well above industry averages and significant restaurant margin expansion at Chili's. Our improved operations, menu innovation, and effective marketing have brought more guests to Chili's and in a crowded environment full of limited-time-only promotions, our consistent everyday value sets us apart. Turning to Maggiano's, the brand reported comp sales for the quarter of negative 6.4%. As Kevin mentioned, we are focused on stabilizing and improving the business utilizing our new back to Maggiano's strategy, which is designed to improve our value proposition, optimize our service model and ensure our atmosphere is clean and well maintained. At the Brinker level, we saw continued strong flow-through this quarter with restaurant operating margin coming in at 16.2%, a 270 basis points improvement year-over-year, primarily driven by sales leverage, partially offset by unfavorable food and beverage costs. Food and beverage costs for the quarter were unfavorable 60 basis points year-over-year due to unfavorable menu mix with 2.6% commodity inflation offset by price. We remain pleased with the stable mix and profitability of our $10.99 3 for Me value platform. It offers a compelling price point for guests seeking value while still allowing us to maintain margin profitability. Labor for the quarter was favorable 120 basis points year-over-year. Top line sales growth offset additional investments in labor and wage rate inflation of approximately 3.8%. Advertising expense for the first quarter was 2.5% of sales and decreased 10 basis points on a year-over-year due to sales leverage. G&A for the quarter came in at 4.2% of total revenues, 30 basis points lower than the prior year due to sales leverage, partially offset by increases in ERP system and support costs. Depreciation and amortization for the quarter came in at 4% of total revenues and decreased 10 basis points year-over-year due to sales leverage offset by an increase in our asset base from equipment purchases. Our first quarter adjusted EBITDA was approximately $172.4 million, a 54.4% increase from prior year. The adjusted tax rate for the quarter increased to 18.5%, mainly driven by the increase in sales, which accelerated at a greater rate than the offset generated by the FICA tax tip credit. Capital expenditures for the quarter were approximately $58.6 million, driven by capital maintenance spend. As discussed, in 2026, we are ramping up our reimage program for Chili's and expect to have 4 completed by the end of this calendar year for evaluation, while also working on our long-term new unit growth strategy with the goal of fully rolling out both programs during fiscal 2027 helping us return to positive net new unit growth. And for Maggiano's, as Kevin said, our main focus will be on guest-facing repairs and maintenance and a smaller reimage program before shifting gears to new unit growth. Our strong free cash flow provides sufficient liquidity to maintain our disciplined capital allocation strategy, allowing us to invest in our restaurants and return excess cash to shareholders. We supported this approach by repurchasing $92 million of common stock under our share repurchase program. With regard to fiscal 2026 guidance, we are reiterating the targets provided on our last earnings call. Chili's is on track to beat our original goals for the year, but those gains will likely be offset by softer results at Maggiano's, along with the investments needed to stabilize that brand's performance. We are also currently expecting higher tariffs on commodities, along with higher inflation in workers' comp and health insurance claims. With all these factors and the current economic uncertainty, our overall guidance for the company stays the same. The assumptions underlying our guidance largely remain unchanged, except we now anticipate commodity inflation, inclusive of tariffs, in the mid-single digits rather than the low-single digits as projected last quarter. Despite these headwinds, we remain confident our plans will enable us to lap fiscal 2025 and continue to outperform the industry on sales and traffic at Chili's. We still anticipate that the first quarter will be our strongest on a year-over-year basis with more moderate gains in subsequent quarters due to last year's high comparison base. Despite challenging comparisons and a weaker macroeconomic environment, Q2 is off to a great start. Given the high comp numbers we are rolling this quarter, we thought it would be helpful to share quarter-to-date sales with expectations for the balance of the year. Chili's quarter-to-date sales are in the high single digits, and our expectations are Chili's same-store sales will normalize on average in the mid-single-digit range for the balance of the fiscal year. We will continue to manage the business for the long term and make investments strategically, so the timing of expense impacts may not be spread evenly across all quarters. In summary, our first quarter results reflect the continued strength of our strategy and the disciplined execution focusing on the fundamentals of food, service, and atmosphere. Chili's continues to lead the way with exceptional performance, driven by industry-leading value platforms and guest favorites such as the Triple Dipper and our frozen Patrón Margaritas. As we execute the Back to Maggiano's plan, I am excited to partner with Kevin, Rich, and the Maggiano's team as they return the brand to its full potential. As we look ahead, we remain focused on delivering sustainable long-term growth by sticking to our investor growth strategy, and our continued momentum gives me confidence in our ability to deliver positive results this fiscal year. With our comments now complete, I will turn the call back over to Paul to moderate questions.

Operator, Operator

And the first question today will be from Chris O'Cull from Stifel.

Christopher O'Cull, Analyst

Kevin, thanks for the segmented consumer information. I was just hoping maybe you could elaborate on how Chili's plans to yet leverage tokenized consumer data now to enhance consumer engagement or drive growth.

Kevin Hochman, CEO

Well, the biggest thing is we're starting to learn how to use it. So obviously, this is new capability, what I shared on my prepared comments on the cohorts by month. So that's the first thing we're going to start doing, is just tracking each of these monthly cohorts separately to understand our new guests repeating as often as the previous cohorts, what is happening over time, as well as understanding when we look at guest metrics like GWAP or food grade, how is that impacting the frequency over time. So we're going to have a better understanding of the impact of some of the investments that otherwise were much more difficult to quantify in the past. Separately, I think we're going to start understanding the impact of initiatives on our menu, right? So whether it's the ribs upgrade or the frozen upgrade or whatever it is, we can start understanding for the guests that have that on a transaction level data, are they coming back more frequently, and then we can start linking food grade scores to how frequently guests come. So I think I've always said, I think the big upside is going to be better understanding the big investments that we make in the business and how they're performing versus necessarily marketing to guests using CRM. I don't love that type of discounting from a long-term standpoint of the business versus using our money to advertise how great the brand is. But I think this was a really great quarter, and the strides that we've made in being able to leverage the token data.

Christopher O'Cull, Analyst

That's great. And then we've seen several restaurant chains struggle to get a lift from recent value promotions, even some with much more marketing support. I know Chili's recently launched or returned with the big QP value message. I'm just wondering, and obviously, the comp trends sound great, but I'm just wondering how it is performing against your expectations? And if there's any color you can maybe provide around second half innovation for that platform?

Kevin Hochman, CEO

We are pleased with the value platform. To provide some background, many are curious about the Triple Dipper advertising we launched at the end of Q1. In recent years, our $10.99 message has been successful in gaining market share for Chili's. About six months ago, we considered the possibility of airing the Triple Dipper on TV. At that time, the market environment was different, but we proceeded with the advertising to see if it could help drive traffic. We started that advertising in September and observed an increase in business, with a significant number of new guests responding to the Triple Dipper campaign, although it didn't achieve the overall lift seen from our big QP promotions. Given the market conditions and the results, we decided to focus back on value, which led to further improvements in our performance. The $10.99 burger deal remains relevant, and we plan to refresh that message in the second half of the year. We have some exciting innovations lined up for Q3, set to launch in Q4, which we believe will enhance our value platform and keep the momentum going.

Christopher O'Cull, Analyst

Congratulations on another great quarter.

Operator, Operator

The next question is coming from David Palmer from Evercore ISI.

David Palmer, Analyst

I have two questions, Kevin, and I appreciate the details you've provided. First, I'd like to get your insights on young consumers, particularly Gen Z. There's a concern about this demographic due to recent economic challenges like higher unemployment and the perception that there was a significant spike in interest around the cheese pull and the Triple Dipper last year. It seems that you may be experiencing a decline in this group, which could impact your traffic in the second quarter. Can you share what you're observing with young consumers? Secondly, regarding the menu renovation, you seem to be making good progress. Could you summarize your current status, what remains to be done, and how you plan to advance this throughout the fiscal year?

Kevin Hochman, CEO

Thank you, David. Let me begin by addressing the younger consumer question. We focus on two aspects regarding this demographic. First, for the younger consumers we've attracted, they are returning as frequently as all new guests, which is encouraging. There's no noticeable difference in the frequency of visits based on age among new customers. Second, we are still successfully attracting new young consumers. Our TikTok trends have remained consistent since the original cheese pull went viral over a year ago, contrary to expectations that interest would fade. Monthly views have stayed high. Our marketing department plays a crucial role in keeping our brand appealing to young people, as they do not stick with the same trends indefinitely. I'm proud of our marketing team for continuously strategizing each quarter to maintain relevance with all guests, particularly Gen Z. I believe that, as our marketing budgets increase alongside business growth, we will see even more engagement in this area. Our main focuses regarding young consumers are ensuring they have a positive experience and attracting new young guests through advertising, social media, and various marketing initiatives.

David Palmer, Analyst

And then separately on the food renovation journey?

Kevin Hochman, CEO

Yes, thank you for the reminder on that. We are continuing to make progress. Next on our agenda for the upcoming fiscal year is the chicken sandwich platform that we discussed in previous calls. For the following year, our current plan includes steaks and salads, along with a few other items. We've gained valuable insights from the queso upgrade, which has been performing well in sales. However, we have learned that it cannot replace the old queso, as many of our fans have expressed their desire for it to return. As a result, we recently announced that we will bring back the old Skillet Queso. We are confident that having both types of queso will create a significantly larger business than when we had the two old ones. Ultimately, this will positively impact our sales, and we aim to retain the traffic from the Skillet Queso lovers. Consequently, we may need to reconsider our plans for renovating some of our favorites to ensure we don't lose our existing guests while also bringing them along. This is an important lesson learned from the queso. I don't see it as a major concern at all; rather, it’s beneficial that we identified this issue with a smaller item. As we look to renovate larger items like pasta, we are fully aware of what we need to address. Ultimately, we must continue to improve our venue if we want to achieve great results at Chili's.

Operator, Operator

The next question will be from John Ivankoe from JPMorgan.

John Ivankoe, Analyst

The question is I'm getting back to the original Chili's. And I wanted just to understand better what that might mean. And Kevin, the question is on cooking platforms and even staffing around cooking platforms. Conveyors are one thing you guys did, Merrychef, TurboChef's style ovens, another. But do we have an opportunity to maybe focus more on the grill, focus more on the broilers? So talk about the possible complexity or maybe need of putting back in some of this equipment and whether such a change would benefit the customers and your products and whether that would actually require additional labor or just a reallocation from labor that you currently have?

Kevin Hochman, CEO

Thank you for the questions, John. Let me begin with your first question about the reimaging program. The aim of the program, which we'll showcase in four restaurants in Dallas by the end of this quarter, is to revisit the original concept of Greenville Chili's. We want to understand what made Chili's unique and incorporate that into a modernized version of our prototype for 2025. This includes features like a true margarita bar and emphasizing our standout offerings such as the Presidente, ribs, and fajitas. Historically, when you visited a Chili's, it had a distinct ambiance compared to other casual dining spots, and that's the vibe we want to revive. With our recent renovations, we noticed that some of the previous reimaging stripped away some of the cool characteristics and personality that made us special. We’ve been proactive in our advertising and messaging about the brand, so there’s no reason we shouldn’t translate that energy into our restaurants as well. I’m truly excited about the new designs; if the renderings translate well into reality, I believe guests will feel a stronger connection to Chili's in a fresh, enjoyable way. As for your other question regarding kitchen equipment, we have a cross-functional team dedicated to our 2030 Heart of House strategy. They’re examining our current volumes and future growth to determine what type of equipment will enhance our food experience. We’re particularly focused on fryer capacity and reintroducing flame cooking, which is related to your question about char broilers. We don’t have any announcements yet, as we haven’t begun testing char broilers in our restaurants to understand their impact on labor deployment and costs. However, once we start that testing phase, we’ll keep everyone informed about its implications for our business, operating costs, and depreciation. The good news is that char broilers are not a significant investment, so they won’t pose a huge financial burden. However, they could significantly affect our kitchen operations, which is why thorough testing is necessary. While there will be some investment involved, our primary goal is to ensure that our operations continue to run smoothly in the future with the addition of char broilers. Once we have more information to share, we’ll be sure to communicate it with all of you.

Operator, Operator

The next question will be from Jeff Farmer from Gordon Haskett.

Jeffrey Farmer, Analyst

You noted that you expect same-store sales to normalize. I think you said in the mid-single-digit range for the balance of the fiscal year. So from your perspective, does that mean across Q2, Q3, Q4 with all 3 quarters holding on to that mid-single-digit number or sort of an average where maybe some quarters higher or lower than mid-single digit?

Mika Ware, CFO

Jeff, it's Mika. Yes. So it's just really once we start lapping that peak in November on that mid-single digit on average. And it is for the latter half of the year for Q3 and Q4. Q2 could be a little bit different where, obviously, I just talked about how October is starting. November is going to be the peak gap or the peak lap for the full year. So that could be a little lower. And then December actually has a holiday flip in it too, where we have Christmas moving into Q3. So we have about 100 basis points of traffic that could flip-flop positive to Q2. It will reverse in Q3 negative. So Q2 could be a little bit higher than that, but that's what we wanted to communicate once we have these laps and it kind of normalizes, that's where we think Chili's will land.

Jeffrey Farmer, Analyst

Okay. On the August call, you mentioned expecting 30 to 40 basis points of margin expansion at the restaurant level. With your updated views on commodity inflation, how does that affect your expectations for restaurant-level margin expansion for fiscal year 2026?

Mika Ware, CFO

Yes. So with the softness at Maggiano's and some of the investments we need to make there, coupled with the tariffs, the margins could be more flat to slightly positive than positive 30% to 40% for Brinker. So we'll be watching that closely. I know that last time we talked about the tariffs, they were a little bit more fluid. Now they're starting to materialize. We took a little bit of price in October. We planned for a little bit more price in January to offset those tariffs. Now how we're thinking about it is we're offsetting the tariffs with dollars in profit, not necessarily offsetting the margin impact. So again, those 2 things are impacting what we think Brinker margins will do for the full year right now.

Operator, Operator

The next question is coming from Dennis Geiger from UBS.

Dennis Geiger, Analyst

Congrats on the results. Mika, I wanted to follow up maybe on that question as it relates to traffic. I mean you gave us the comp from a mid-single-digit perspective. Just within that, is that sort of still assuming positive traffic? Is that the assumption as we look at the quarters from here? I guess the other piece of that would just be maybe thinking about where price shakes out for the year after your comments there. And just mix, I think, was flat was the expectation previously over the balance of the year. Is that still similar? Or there's some moving pieces there?

Mika Ware, CFO

It's pretty similar. So price now, like I said, was at the lower end of the range. If we implement the price that I talked about in January, it will probably be about that 4% all year long for Chili's. And then we're going to lap some significant mix and traffic numbers. And so those could be negative to flat to positive, kind of in there more in a neutral-ish zone, I would say. So we'll see how well we lap those numbers.

Operator, Operator

The next question is coming from Christine Cho from Goldman Sachs.

Hyun Jin Cho, Analyst

Congrats on another strong quarter. I just wanted to elaborate on your recent experience with the new queso. So firstly, how did the post-launch feedback compare to the feedback that you received during the testing and trial process? And if there were some discrepancies, are there kind of ways to improve the process to narrow the gap going forward? And secondly, could you just talk about the feedback mechanisms you have in place to quickly kind of reverse the changes or respond to customer feedback in a timely manner as you did this time?

Kevin Hochman, CEO

Thank you for the question. I'll begin by saying that we have a solid process in place for evaluating all the initiatives we've launched. Over the past three and a half years, we've made numerous changes to the business. While one particular initiative didn't meet our expectations during testing in the market, we generally have a good track record with these launches. We quickly recognized that we needed to reintroduce the Skillet Queso after realizing its positive reception in the test market. Unlike some previous tests, such as the ribs upgrade or chicken tenders, the queso requires minimal additional equipment, making it a lower-risk relaunch. The feedback from our restaurants during a trial period was quite favorable, with guests enjoying the new queso. However, we found that long-time guests were hesitant to try it. To encourage them, we implemented a program through My Chili's Rewards, offering the new queso for free so they could sample it without spending their own money. This approach stemmed from our insights gained in the test market. Ultimately, while the new queso received positive feedback from new guests, those who preferred the Skillet Queso were less enthusiastic. Some either chose not to try it with the coupon or tried it and didn't enjoy it. That's why we're bringing back the Skillet Queso. Looking ahead, I’m not sure we would alter our strategy significantly. We introduced products into the market and assessed the associated risks. Although we thought our plan would help transition existing guests, it didn't turn out as expected, prompting us to make changes. A key aspect of our turnaround has been actively listening to both team members and guests about their experiences in casual dining, including food quality and atmosphere. We have made many good decisions based on both tested and untested ideas. In this instance, despite our testing, the market response was different, leading us to make adjustments. Ultimately, we anticipate a larger queso business that excites guests. The social media reactions to our announcement of bringing back the queso have been overwhelmingly positive, and we believe this will benefit everyone. New guests will enjoy the Southwestern quesos they've come to love, while loyal fans of the Skillet Queso will also get their favorite back.

Hyun Jin Cho, Analyst

Great. Appreciate the color. Just quickly, any update on how the North of 6 initiative is progressing?

Kevin Hochman, CEO

Yes, we are making progress on the North of 6 initiative. Last quarter, we focused on introducing more tankless water heaters in busy restaurants. We discovered that many of the top-performing restaurants have upgraded to tankless water heaters, which are more reliable. This upgrade isn't a significant investment, and we're starting with high-volume restaurants. Another key update is the installation of community tables in our recent remodels. These larger tables have been replaced with smaller ones at many high-volume restaurants that have successfully increased traffic. We believe this will improve the customer experience, especially on busy days like Fridays and Saturdays. We plan to continue with these replacements, along with a few other minor updates that we hope to implement this quarter. Overall, the North of 6 initiative is progressing well, and we're learning valuable insights from the high-volume restaurants that we can apply across the system over time.

Mika Ware, CFO

So Christine, I want to add one thing to that. Something that we really learned from the North of 6 group is how they schedule their team members, and we've been able to utilize that information and really rebuild our labor model. So as traffic scales up at those other restaurants, that we're able to be really efficient with our labor and make sure we keep that throughput going, too. So a lot of learnings there really help to inform us in that labor model as we build it for the balance of the system.

Operator, Operator

The next question will be from Sara Senatore from Bank of America.

Sara Senatore, Analyst

I have a follow-up to an earlier question and then a question about Maggiano's. So the follow-up was just, I think, Kevin, you mentioned chicken is perhaps a fairly small mix. As you think about the products still to be renovated, how should I think about the mix compared to maybe what you've already done? I think there may be some sense that the biggest impact will already have been had because you've looked at, like you said, some of the core 5 menu items. Are these renovations that you're thinking about, are they still big enough to, I guess, move the needle on traffic? Or is this more just kind of a holistic people's perception about the menu quality just continues to ratchet up? And then a question about Maggiano's.

Kevin Hochman, CEO

So I don't know if we're mixing some of the different items. So I said the queso is relatively low mixing. The chicken sandwich platform, so chicken sandwiches are not a big mixer for Chili's. They're a humongous mixer for restaurants. And so that's why we think renovating the chicken sandwich platform could be a huge opportunity for us. It should be a much bigger percentage of our business because boneless fried chicken is one of the top 5 things that Americans eat, and it's been growing every year for several decades now. So that's why we're very bullish about the chicken sandwich platform. And it's less of a renovation because we already have a very, very good chicken sandwich, and it's more about adding some flavors to the lineup and then advertising it on TV and making a big deal about it because a lot of folks don't even know we have this great fried chicken sandwich. And then, Sarah, what was your second question in addition to that?

Sara Senatore, Analyst

Yes. No, that's very helpful. So the opportunity is much bigger than what you're currently mixing. Okay. And then the second question was on Maggiano's. I know it's smaller than Chili's, but obviously, the turnaround is big enough to sort of move the needle on the outlook for earnings. Could you maybe talk about whether there's any difference as you see the turnaround versus what happened when you came to Chili's? Would you say the demand environment is presumably may be a little softer? I guess there you're competing in an industry where there's maybe more fragmentation; are there large competitors? I guess anything that would argue for why this might be a little bit slower going than Chili's?

Kevin Hochman, CEO

Yes, we are facing many of the same challenges. Currently, this segment accounts for less than 10% of our sales, and since it lacks a national presence, there aren't significant TV advertising budgets. This limits both the potential for growth and the associated risks, given we only have around 50 restaurants. We're encountering similar issues with our facilities and deferred maintenance, and we need to improve them to a level where we can proudly welcome our guests and employees. Additionally, we seem to have deviated from the core experience that Maggiano's once provided, which included generous portions and shareable plates served with consistency and warmth, avoiding the feel of a typical chain restaurant. I am confident we can return to that standard fairly easily. These challenges aren't unique to our restaurants; we simply need to refocus our efforts and empower our team members to deliver consistently. Fortunately, the necessary investments will mainly be in pasta and appetizers, which shouldn’t greatly impact our cost of goods sold. While the turnaround might not be as quick or dramatic as what we experienced at Chili's, mainly due to the lack of an immediate increase in guest traffic, I believe that over time, we will achieve stability and growth.

Operator, Operator

The next question will come from Andrew Strelzik from BMO.

Andrew Strelzik, Analyst

I wanted to ask about your pricing strategy and how you plan to implement it moving forward, especially with the adjustments starting in January. Are you applying this change across the entire menu, or is it focused more on the higher-end items that you're renovating? How are you handling this in what appears to be a more challenging environment?

Mika Ware, CFO

Yes, Andrew. We actually have a revenue growth team that collaborates with Deloitte, allowing us to gain valuable insights into our pricing strategy execution. We employ various tactics, including tiered pricing across the country, which varies depending on the specific locations of our restaurants. This involves adjusting prices across the menu. Additionally, we analyze specific items, looking at their price elasticity and identifying areas where we can increase prices based on customers' willingness to pay in different regions and in relation to our competitors. Overall, we have implemented a multilayered pricing strategy.

Andrew Strelzik, Analyst

That's helpful. I know you mentioned plans for store growth moving forward. Can you share any updates on your progress, what you've learned during the process, and your expectations for long-term unit growth?

Mika Ware, CFO

Yes. So like we said, we really have been spending our time now building up that team. We hired a new leader with Richard Ingram. He's now built his team up so that we can really evaluate the opportunity across the United States for Chili's and Maggiano's. And we're really excited about the prospects we know. What I can tell you is I don't have the exact number yet that we're prepared to share. But we do know that we can build a lot more Chili's, and we think we can build more Maggiano's. So that team is really ramping up to do the 2 things that we want them to do. One is to get both reimage programs rolling and working very smoothly across both brands and then to ramp up that new unit growth. So more to come, but we do know the opportunity is there and that we can ramp up new unit growth, specifically at Chili's.

Operator, Operator

The next question will be from Brian Vaccaro from Raymond James.

Brian Vaccaro, Analyst

Just on the updated guidance, Mika, could you give us a little more context on how much your expectations changed at Maggiano's versus the original guidance? And then I just had a follow-up.

Mika Ware, CFO

Yes. So when we think of the original guidance, I think that the Maggiano's impact, it's actually going to be more pronounced most likely in the second quarter. So there's 2 things in the second quarter. Maggiano's typically, that is the quarter that they outperform. They earn almost half of their profits in the second quarter. So with them being a little bit softer right now, that will probably have a little bit more of an impact in Q2. The other thing is, like I said, Chili's is doing great and exceeding our expectations. We do have some more tariffs that I talked about that we've factored in and some investments. Chili's the other call out, which we've talked about is Q2 is the quarter that Chili's sales originally accelerated. And then a lot of those expenses that were related to more guests and more team members in the building and some incremental investments, those materialized in Q3 and Q4. So you just want to make sure that we have all those run rates into the Q2 as we look at Chili's and Maggiano's. But again, so as I think about the guidance, I think Maggiano's, it's going to be a little outsized in Q2. It could be a 6% to 8% impact on our EPS. And then moving forward, I think it will have a lesser impact but still weighing down a little bit of Chili's gains, but not all of Chili's gains.

Brian Vaccaro, Analyst

Okay. And just to clarify that last comment, so 6% to 8% impact on your fiscal second quarter EPS. And it sounds like you're expecting maybe your second quarter margins to be down year-on-year after such an outsized margin performance in Q2. Am I interpreting that correctly?

Mika Ware, CFO

Yes, you are. Actually just the timing.

Brian Vaccaro, Analyst

Okay. All right. Great, right, right. Some of the timing on bringing in labor, I think, last year, if I remember correctly, kind of lagging the traffic growth essentially to say it plainly. Okay. And then I was going to ask on margins also. The press release noted that repair and maintenance costs were lower. Could you just ballpark sort of how much that might have been year-on-year in the quarter? And I know it can change, but just your latest thinking on how much that cost line could be down as you continue to normalize the R&M spend?

Mika Ware, CFO

Yes. So for Chili's repair and maintenance, there are various categories involved, which is why I hesitate to provide precise figures. Generally speaking, it was down by approximately $3 million to $4 million in the first quarter. While I don't anticipate a significant decline, it is on a favorable trajectory year-over-year. I think we can expect a year-over-year improvement of around $10 million to $15 million for Chili's repair and maintenance. However, some of that will be balanced out by additional investments in Maggiano's repair and maintenance, but those are rough estimates for you.

Brian Vaccaro, Analyst

That's great. And then one last one, if I could just squeeze it in, bookkeeping. Could you share what the 3 for Me sales mix overall was and the tiers, the $10.99 versus the higher tiers? And then anything on Triple Dipper sales mix?

Mika Ware, CFO

The overall mix for the 3 for Me was very steady at around 18%, similar to Q4. We also introduced a new tier last quarter. The $10.99 tier is now about 40% compared to the previous range of 50% to 55%. The new $12.99 tier accounts for some of the changes. Combined, the $10.99 and $12.99 tiers represent roughly 50% to 55% of the mix, with the remainder in higher tiers. Performance has been steady with little change from Q4. Additionally, Triple Dipper sales continue to make up about 15% of total sales, maintaining their position without significant movement.

Operator, Operator

The next question will be from Jon Tower from Citi.

Jon Tower, Analyst

I appreciate all the color on the guest cohorts and their journeys after they've come to the company or come to the brand. I'm just curious, looking at the data, as these guests have come in, how are they drawn to the brand? Are they coming in initially and using 3 for Me out of the gates and then next visit moving along to something else on the platform? Or are they sticking with the 3 for Me when they come for the next visit? Any color you can provide on that would be great.

Kevin Hochman, CEO

Yes. We don't have the transaction level data on what's that first basket of a new guest. What I can share with you is we've learned the 3 for Me guest they come more frequently and they're more valuable, even though their basket is a little bit lower each time they come, they're more valuable because they come more often. So 3 for Me and the Triple Dipper guests are more valuable than the average guest. So we understand at least if they bought into that franchise, we know how often they come. But we haven't looked yet at what is in the basket for new guests other than we know young guests are the ones that are coming in through the Triple Dipper. So I mean, I think we're going to learn more over time. And I think that's a good question that you're asking. We probably should look into what is the entry point. Obviously, it probably is 3 for Me and Triple Dipper just based on what we've been putting heat on, but it would be helpful to understand that a little bit more depth. So thank you for the question.

Jon Tower, Analyst

Okay. And then, Mika, just curious in terms of your advertising spend. I know I think you said this quarter, you're about 2.5% of sales. Looking forward, any shifts? I know you noted that the second quarter, you're going to ramp that relative to what you had spent last year. But for the balance of '26, do you anticipate any other shifts relative to what you were thinking back in August?

Mika Ware, CFO

No, we haven't changed what our expectations are, but I can reiterate that Q2 is the biggest increase year-over-year for Chili's advertising. I said that would be up probably $9 million or $10 million. Q3 has some incremental spend there and then Q4 is closer to flattish.

Operator, Operator

The next question will be from Brian Harbour from Morgan Stanley.

Brian Harbour, Analyst

On the margin side, you're mostly clear about that. But are there any other expense lines you expect to be inconsistent? You mentioned some additional labor investment, particularly at Chili's. Can you elaborate on that?

Mika Ware, CFO

Yes, I don't believe that's the case. The labor costs were accounted for, but the real concern lies within the restaurant expense category. It's important to ensure that all associated expenses, such as workers' compensation and employee health, are accurately reflected in that category since they represent the additional costs and inflation related to an increase in guests and team members. Labor did contribute slightly as well, but I believe it's already factored into the current run rate. Therefore, Q1 serves as a good example of these trends, and I wanted to highlight that some of these will change in Q2.

Brian Harbour, Analyst

Yes, that was affected last year. When you mention the tariff impact, are you specifically talking about beef? Can you provide a quantification of the pricing adjustments made in October and those planned for January in relation to that?

Mika Ware, CFO

Yes. So it is primarily beef and ground beef is being impacted by the tariffs. So that is what's driving the majority of it, a little bit in shrimp. And then we took about 40 basis points of price in October. January is still fluid, but we're going to have to take more because a lot of these tariffs are impacting the back half of the year. So that could be up to 1% or so. Still flexibility there on the final decisions.

Operator, Operator

The next question will be from Jeffrey Bernstein from Barclays.

Jeffrey Bernstein, Analyst

Kevin, my first question is just on the broader consumer that you talked about earlier. There's obviously lots of talk of a slowdown in discretionary spending across lots of categories, but especially at restaurants. Just wondering, do you see any evidence of such at Chili's? I mean, it's hard to tell with such a strong 21% Chili's comp that could mask lots of things and even the high single-digit running in October. But any change you're seeing that would demonstrate or substantiate what people have been talking about in terms of a change or a slowdown in consumer spending, whether it's frequency or mix shift or anything along those lines that would give you an indication?

Kevin Hochman, CEO

No. We see it at Maggiano's, but not at Chili's. That's why I shared the income cohort data showing that households earning under $60,000 are growing faster than others. We are positioned as a great value and provide a consistent experience for our guests, which strengthens us compared to competitors due to the investments we've made in recent years. Another important point is that while some may think others can easily undercut us with better values, we've been delivering our message for a few years now. Our guests aren't just waiting for a Chili's ad. We've consistently communicated this message and successfully delivered a reliable experience, placing us in a strong position in a challenging market to offer a complete meal at an excellent value. Consistently providing this across all locations is tough, and many may overlook this aspect. People assume guests are aware of all value offerings and their quality, but we've maintained a strong focus and delivered consistently, setting us apart from those with various offerings who may lack the same investment and results. This consistency helps explain our success, and while I'd prefer a better overall environment, I believe we are well-positioned to continue growing our market share.

Jeffrey Bernstein, Analyst

Got it. That makes total sense, and it's encouraging. My follow-up was, I guess, for Mika. As you think about the restaurant margin, I think you said now we should assume relatively flat for fiscal '26 versus the prior 30 to 40 basis points of expansion. The first quarter was 270 basis points of expansion. I think you kind of implied that the second quarter is maybe the toughest. But it seems fair to assume compression in the remaining quarters rather than just the fiscal second quarter to get to that flat. And being that, that's, again, compression despite a mid-single-digit or greater comp for the rest of the year, I'm just wondering how you think about that or what that suggests on the future kind of restaurant margin opportunity, your ability to expand them in future years, considering how strong the comps are still even with the easing right now?

Mika Ware, CFO

Yes, that's a good question, Jeff. I believe that the second quarter will experience the most pressure due to the timing of Chili's expenses and the impact of Maggiano's in that quarter. The speed of Maggiano's recovery could create additional pressure in the third and fourth quarters. While I’m not indicating that we will lose margin in those quarters, it could be challenging. The timing of expenses might contribute to that as well. Overall, I think we could see margins remain flat to slightly positive, or face some pressure depending on Maggiano's recovery from the second to the third quarter.

Operator, Operator

The next question will be from Alex Slagle from Jefferies.

Alexander Slagle, Analyst

And following up on your commentary about delivering on the experience, a question on the people pipeline and your ability to hire experienced operators across the business. I mean, obviously, folks are seeing everyone at Chili's kind of getting paid well, probably having more fun. Imagine the quality stepped up significantly here, and that comes a competitive advantage for you. Where are we on the path to step up the quality of your teams and the restaurants at both brands?

Kevin Hochman, CEO

Thank you for the question. Firstly, we are indeed attracting more candidates of higher quality based on our recent results. When I started about three and a half years ago, I was told that we were essentially providing talent to our competitors. However, that is no longer the case due to the strength of our brand and the talent we are bringing in. We now have a larger and more capable talent pool at both the hourly and managerial levels. Secondly, our primary focus in the coming years will be to enhance the talent managing our restaurants and to provide them with substantial ownership training. We believe it is essential to empower our restaurant teams with greater ownership and decision-making responsibilities, allowing them to manage their operations as if they were their own businesses. This requires thorough training on what extreme ownership means, and we are starting our first round of that training this year with positive initial feedback. I am optimistic about the potential long-term impact on our business. Eventually, we will explore incentives related to long-term ownership for our managers, enabling them to benefit from the anticipated growth of the business in the upcoming years. In summary, we are currently attracting better talent, and our focus is on investing in making our team members more invested in the business, ultimately leading to changes in our incentive structures.

Operator, Operator

The next question will be from Margaret May Binstock from Wolfe Research.

Margaret-May Binshtok, Analyst

I know you mentioned earlier about last quarter and your focus on value messaging. Is bringing in the Triple Dipper advertising what you were referring to? Also, with your shift back to value advertising, does it still align with the value messaging highlighted last quarter?

Kevin Hochman, CEO

Yes. That was part of probably why we didn't get as quite a high volume response on the Triple Dipper messaging as we've had on $10.99 messaging is that doesn't have a price point at a time when customers are looking for what's the great value that's out there. So that's exactly what we're referencing.

Margaret-May Binshtok, Analyst

So going forward, we should expect kind of leaning back into price point-centric value on television going forward?

Kevin Hochman, CEO

Yes. Just to level set, I mean, the last 3 years, all we've had on TV has been $10.99 value messaging, and we spent 2.5 weeks on a non-value message. We learned a lot about it, brought new guests in, more new guests than the price point in advertising, but overall volume response was not as great. And so that's why we went back to $10.99.

Operator, Operator

And the last question today will be from Jim Sanderson from Northcoast Research.

James Sanderson, Analyst

Just wanted to talk a little bit more about your thinking regarding your new unit growth plan. Just wondering if multiple store formats are part of the narrative in that discussion, if you could potentially see a Chili's Express or maybe a reduction in square footage to allow you to enter a broader array of trade areas. Anything you'd be willing to offer on how you're looking at that opportunity ahead?

Mika Ware, CFO

Jim, it's Mika. Yes, right now, we're looking just at the normal full street side footprint for Chili's. We're having great success with that. That's our bread and butter is the dine-in. And so we're going to continue with that format for the foreseeable future.

James Sanderson, Analyst

All right. And a quick follow-up question. I think you called out the ribs are doing pretty well. Could you provide us an update on how that mixed in the quarter and how you expect that to evolve going forward?

Mika Ware, CFO

So really, what we were saying is, I mean, mix is probably about a $150 million business, and it was up 35% in the first quarter with the new ribs. So we think that we'll continue to sell more ribs, and we're excited about those investments and being able to offer that quality play to our guests.

Kevin Hochman, CEO

So it's about a point incremental mix way to think about it.

Operator, Operator

That's all the time we have for questions today. I will now hand the call back to Kim Sanders for closing remarks.

Kim Sanders, Vice President of Investor Relations

Thank you, Paul. That concludes our call for today. We appreciate everyone joining us and look forward to updating you on our second quarter fiscal 2026 results in January. Have a wonderful day.

Operator, Operator

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