BRINKER INTERNATIONAL, INC Q3 FY2025 earnings call

Menu Simplification

• Removed 3 menu items and 4 lower mixing wing sauces, simplifying the fry station and freeing up space for cooks.

Operational Improvements

• Focus on burger mastery for QP launch in Q4, including training on proper burger preparation.
• Added an all-day button to kitchen display systems to reduce response and ticket times.
• Made improvements for dishwashers based on listening sessions to ease their jobs.

Marketing and Menu Innovation

• Launched Big QP burger, Chili's Scranton Branch paying homage to TV show, and margarita initiatives including partnerships and themed months.

Maggiano's Turnaround

• Followed Chili's playbook by simplifying menu, removing discounting, and launching upgraded core dishes, with 50% of entree mix now from new/renovated items.

Chili's delivered strong results with same-store sales up 31.6% and traffic up 21%, achieving an 18.9% restaurant operating margin. Revenue contribution from Chili's was significant. Maggiano's reported comp sales of positive 0.4%, driven by 7.3% price and 1.3% mix, but offset by negative 8.2% traffic (1.2% weather related).

Fiscal 2025 Guidance

• Raised annual revenue to $5.33 billion to $5.35 billion.
• Adjusted diluted EPS expected to be $8.50 to $8.75.
• Capital expenditures projected to be $265 million to $275 million.
• Weighted average shares in range of 46 million to 46.5 million.

Risks

• Macro economic uncertainties impacting consumer spending.
• Tariff impacts on cost of sales for items like tequila and avocado, though over 80% of supply chain is domestic.
• Intense competitive promotional pressures.

Q: People are concerned about sustainability of same-store sales growth, especially with tougher comparisons ahead. How confident are you in sustaining positive comps?

A: Kevin Hochman stated they focus on fundamentals of food, service, and atmosphere, and believe they'll continue to comp if they maintain those, with trends showing continued momentum into April.

Q: Any notable shifts in contributors to momentum?

A: Mika Ware noted Chili's maintained momentum in April, with traffic strong year-over-year, though will roll off some mix from lapping Triple Dipper ramp-up.

Q: Clarification on CapEx guidance step-up?

A: Mika Ware explained it included one-time write-off for new TurboChef ovens and general equipment maintenance as sales remain elevated.

Q: Tariff impact on cost of sales?

A: Mika Ware said over 80% of supply chain is domestic, with flexibility in supply chain to offset tariffs, and pricing strategy can absorb any incremental pressure.

Q: Upgrades in pipeline for Chili's?

A: Kevin Hochman mentioned rib and Smokehouse platform launch in Q1, upgraded sides, appetizer upgrades, and steak/salad program improvements ahead.

Q: Investment in labor and operator conversation?

A: Mika Ware and Kevin Hochman discussed operators stepping up to staff for traffic growth, with focus on strategic investments to improve guest and team member experience.

Q: Modeling for G&A and D&A in Q4, and traffic breakdown?

A: Mika Ware said G&A and D&A will be similar to Q3, and traffic growth comes from new guests, returning guests, and increased frequency.

Q: Chili's year-on-year pricing and mix?

A: Mika Ware said price expected to moderate to 2%-3% in Q4, with mix rolling off a point as lapping higher mix numbers from last year.

Q: Step-up in April traffic and Big QP performance?

A: Kevin Hochman said momentum is from multiple factors including Big QP promotion, improved service levels, and food grade scores, with Big QP performing well and driving value.

Q: Operating leverage shift quarter-over-quarter?

A: Mika Ware said it was due to labor normalization after staffing up in prior quarters.

Q: Capacity improvement and constraints at Chili's?

A: Kevin Hochman discussed the north of six team and learning from high-performing restaurants to improve capacity handling.

Q: CapEx, free cash flow, and M&A?

A: Mika Ware said CapEx will ramp with reimages, focus on investing in business, paying down debt, and M&A not currently on radar, focusing on Maggiano's turnaround.