Good day, ladies and gentlemen, welcome to the Brinker International Q4 2021 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mika Ware. Ma'am, the floor is yours.
Thank you, Kate. Good morning, everyone. Welcome to the earnings call for Brinker International's fourth quarter of FY 2021. With me on today's call are Wyman Roberts, Chief Executive Officer and President, and Joe Taylor, our Chief Financial Officer. Results for the quarter were released earlier this morning and are available on our website at brinker.com. As usual, Wyman and Joe will first make prepared comments related to our operating performance and strategic initiatives. We will open the call for your questions. Before beginning our comments, please let me 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 risk and uncertainties, which could cause actual results to differ from those anticipated. Such risk and uncertainties include factors more completely described in this morning's press release in the company's filings with the SEC. 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. With that said, I will turn the call over to Wyman.
Thanks, Mika. Thanks, everyone, for joining us this morning. Brinker's fourth quarter was one of our more profitable quarters in recent history, marking a solid finish to a successful, albeit unusual year. Underpinning our fiscal 2021 results is a consistent strategy that differentiates us in the marketplace and an exceptional team that executes every day in our restaurants. We were already growing sales and taking share before the pandemic hit, and we made the decision to lean further into our strategy of providing convenience, value, and a great guest experience by doubling down on third-party delivery and improving our takeout systems. In a year of social distancing, our teams came together safely to lead the industry on traffic and regain positive sales momentum. In a year of closures and shutdowns, we opened our first virtual brand in over 1,000 restaurants by leveraging our technological infrastructure.
It's Just Wings surpassed our $150 million target in our company-owned restaurants, and along with the support of our franchise partners, It's Just Wings became more than a $170 million business in the U.S., with many of our international franchisees also now operating the brand. In a year that started with unemployment near record highs, we kept all our management teams employed and paid them solid bonuses. We put a retention plan in place for our strongest team members to encourage them to stay with us as the staffing environment continued to change through the spring and summer. In a year where gatherings and special occasions at Maggiano's were restricted, Steve and the team restructured the value proposition, the takeout proposition, and reengineered the heart of house. The brand is already delivering much more profitable sales as volumes come back, and guests have responded very positively to the changes.
In a year we thought we might have to borrow money more to survive the pandemic, we paid down our debt by over $300 million, and we're committed to continuing that trend this year. In a year where we worried we wouldn't be able to support our charitable partners at levels we're used to, our team set a record, raising more than $10 million for St. Jude during an exceptionally critical time for their patients and families. Our teams have raised nearly $90 million for St. Jude's patients during our partnership. Thanks to the strength of our operations team, we've emerged an even stronger business than before. In fact, we're positioned ourselves to invest aggressively to grow this business during fiscal 2022 and beyond, and to keep our balance sheet strong.
The ability to make these kinds of investments starts with owning our restaurants, having the opportunity to leverage our fleet and realize the full profitability of our efforts. The pandemic solidified our commitment to corporate ownership. Despite the challenges of owning restaurants, like dealing with labor issues and commodity cycles, because ownership gives us the scale to effectively manage the issues. It allows us to steward our brands consistently and have control over the investments we make to grow the business. This year, our investments will target more ways to offer convenience, value, and a great guest experience by doubling our pipeline of new restaurant openings, renovating to keep our assets strong and vibrant, accelerating our technology advantages, and expanding our portfolio of brands. Currently, we're in the middle of rolling out our second virtual brand, Maggiano's Italian Classics. It's now in over 250 restaurants today and doing very well.
This one will be a slower roll for a couple of reasons. It's a little more complex, and since we're back to fully operational dining rooms, we're being very intentional about the experience for our operators and our guests. We're excited about it. We're getting great guest feedback, and we're anticipating being in 900 restaurants by the end of the fiscal year. We're also investing in both takeout and delivery by pursuing opportunities to increase visibility and drive awareness of these channels across all four of our brands. We recently implemented technology enhancements to our curbside takeout system, which is already simplifying the operational side of the business and improving guest metrics. It's Just Wings has gone live with a website that offers online ordering for takeout as well as delivery, and we're excited about the growth potential for the brand.
These technology investments are helping us do a better job handling the increased mix of off-premise business from pre-pandemic mid-teens to what's now more than 30%, as well as leveraging the full capacity of our assets with very little incremental capital. It isn't every day you more than double your off-premise business and add two brands to your base. It only happens well with best-in-class systems to enable it and a strong team to execute it. Our team is critical to our success, and we take the current staffing environment very seriously. We've executed a full court press to hire, train, and retain our talent. While the challenges came fast and furious for all of us in March, I'm pleased with the progress we've made. There are still opportunities, but isolated to specific trade areas, and we're confident we'll get these staffing challenges resolved in the near future.
To further support our operators, we're rolling out a new service system with handheld devices that we've worked on for three years to perfect. It isn't as easy as some might claim. To implement a system that operators can execute during high volume, that saves labor, and still delivers a great guest experience. Ours is also putting more money in our team members' pockets, so they're staying with us longer, which is crucial in this environment. It's in more than 250 restaurants now. We chose not to take price at Chili's during fiscal 2021. We have room to take some price this year as consumers return to work and income levels return to normal. We're evaluating how we'll address those opportunities, especially in channels like delivery, all while protecting our industry-leading value proposition.
We spent last year learning to run a much more efficient and robust revenue-generating model. We're spending this year and beyond capitalizing on the opportunities for growth that are not just available but achievable for Brinker. There's nobody who's doing this better than this team, and I'm honored to be part of their story. Now, I'll turn the call over to Joe. Joe?
Hey, thanks, Wyman. Good morning, everyone. Let me continue our prepared comments by providing some additional insight to the fourth quarter results released this morning, and then share some limited thoughts on our current expectations of certain aspects of the overall fiscal year plan. As Wyman indicated, the fourth quarter was a strong finish to our fiscal year 2021. For the fourth quarter, Brinker reported total revenues of $1,009,000,000 , with a consolidated comp sales of 65%. In keeping with our ongoing strategy, the majority of these sales were driven by traffic, up 53% for the quarter, a 10% beat versus the industry on a two-year basis. These sales translated into solid EPS, with fourth quarter adjusted earnings of $1.68.
As noted in this morning's press release, the fourth quarter included an extra operating week, our 53rd week, which contributed approximately $70 million to total revenues, 90 basis points to restaurant operating margin, and $0.34 to earnings per share. At the brand level, Chili's comparable restaurant sales were + 8.5% versus the fourth quarter of fiscal year 2019, which we believe is the more appropriate comparison for the quarter. Additionally, on an absolute dollar basis, the fourth quarter was Chili's largest sales quarter on record, topping $900 million in total revenue. Maggiano's, while down 18% compared to fourth quarter of fiscal 2019, made very solid progress with its recovery curve and built positive momentum to carry into the current fiscal year. Moving down the P&L, our fourth quarter restaurant operating margin was 16.9%.
Adjusting this performance for the impact of the 53rd week, the resulting 16% operating margin still represents a material year-over-year improvement, and more importantly, was a 110 basis point margin improvement versus the pre-COVID fourth quarter of fiscal 2019. Food and beverage expense for the fourth quarter as a percent of company sales, was 20 basis points unfavorable as compared to prior year. This variance was primarily driven by increased commodity costs, particularly for chicken and pork products. Labor expense for the quarter, again as a percent of company sales, was favorable at 240 basis points versus prior year, primarily driven by the extra week sales leverage versus fixed labor expenses and the slower reopening pace in a couple of high-wage states, such as California. During the quarter, our managers focused considerable efforts towards staffing our restaurants to support the solid demand for our brands.
Scale clearly matters in this area, as they were effectively supported by our experienced HR teams who helped deploy hiring tools and events to assist in the process. Given the more challenging hiring environment, the dynamic of hiring, training, and retaining team members resulted in an increase in labor inflation in the mid-single digit range, a dynamic we expect to continue in the near term. To reward our operators' strong performance throughout the fiscal year, we also chose to further invest in our hourly team members and managers through a variety of incremental bonus structures totaling approximately $4 million for the quarter beyond our normal payout formulas. This incremental investment impacted quarterly EPS by approximately $0.06 and increased labor expense margin by roughly 40 basis points. Well worth the benefits it will accrue.
Restaurant expense was 830 basis points favorable year-over-year as we fully leveraged many of our fixed costs, particularly from the benefit of the additional week in the quarter. The continued positive operating performance did result in a meaningful increase in our quarterly tax rate, 15% for the quarter, which includes a catch-up adjustment to increase the annual income tax accrual. This increase negatively impacted fourth quarter EPS approximately $0.06. Our operating cash flow for the fourth quarter and fiscal year remains strong, with $101 million and $370 million for those time frames respectively. EBITDA for the quarter totaled $144 million, bringing the fiscal year EBITDA total to $368 million. During the fourth quarter, we continued to use a significant portion of our cash flow to further reduce revolver borrowings. By year-end, our revolver balance was reduced to $171 million.
This decreased our total funded debt leverage to 2.x and our lease-adjusted leverage to 3.6 x at year-end. Speaking of the revolver, we have reached agreement on terms and conditions for a new revolving credit facility with our bank group. The new $800 million, five-year revolver includes improved pricing, allows the return of restricted payments, and provides ample liquidity and flexibility to support our growth strategies. Our board of directors has also reinstated the share repurchase authorization that was suspended in the early days of the pandemic, with an authorization amount of $300 million. Now turning to our outlook for fiscal year 2022. At this point, with the volatility and unknowns of the current operating environment, we can only share some high-level thoughts for certain annual metrics.
For example, we expect commodity and labor inflation percentages each in the mid-single digits, with commodity inflation towards the lower end of the range. CapEx of $155 million-$165 million, an annual effective tax rate of 14%-15%, weighted annual share count of 45 million-47 million shares. As we now move ahead with fiscal 2022, the reality is the pandemic, with all its uncertainties, is still part of our everyday operations. That being said, all now four of our brands are well prepared and positioned to perform in whatever environment they face throughout the year. We are very proud of their efforts during the past fiscal year and are confident the experiences, the growth, and the strength of their business models will continue to deliver quality results as we move forward from here.
With my comments now complete, let's turn it back to Kate and move on to questions. Kate?
Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. If your question has been answered and you no longer wish to ask it, please press star two to leave the queue. We do ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please while we poll for questions. Once again, if you have any questions or comments, please press star one at this time. Our first question today is coming from David Palmer at Evercore ISI. Your line is live. You may begin.
Thanks. I guess I'll get one out of the way. Your quarter to date sales looks pretty good, and I would think that would give you confidence. I'm wondering if you're seeing some weekly sales data or perhaps some regions that are giving you more pause with regard to the Delta variant. I have a quick follow-up on the labor line.
Oh, hey, David. Wyman. Yeah, obviously, you saw the numbers. We had a really good quarter, especially at Maggiano's, and we started the fiscal year in July. Really pleased with how Maggiano's is kind of moving forward and starting to see some of those pieces of the business come back that were most impacted by the pandemic, banquets and catering. Some good progress through. As the Delta variant has kind of picked up some steam here in the last few weeks, we have seen some softening. We're still above the FY 2019 kind of base. With the uncertainty of the pandemic, we're just unsure, right? I guess from my perspective, I was probably a little optimistic last fall and was surprised by what happened in November and December.
While I don't think that's where we're headed, we're just going to be a little more cautious as we work through this variant with Delta and see where it's at. It tends to be a little more regional. The overall numbers are still positive, and we're comfortable our strategies are all working. It's just these external factors, primarily, I mean, the pandemic, that we're just still not quite sure what the timeline's going to be before this thing gets put back into a place where we're not seeing consumers having to react, and potentially more regulation put on restaurants. Right now, there's no distancing, but we're backing masks in some towns. We're just being cautious.
Makes sense. I just wanted to ask on labor costs, you have two parts. You have hours and wage inflation on any modeling. I am trying to think about a way that we can perhaps model this for fiscal 2022 based on how you gave a mid-single digit type inflation. Your labor costs were up mid-single digits in the quarter. You say that that is going to be roughly the case in fiscal 2022. That is from just a wage inflation standpoint. The labor cost per restaurant was up 3% versus the pre-pandemic fiscal Q4 2019 per restaurant on a week adjusted basis. I am wondering, can we think about that?
Can we think about how much your labor cost per restaurant would be versus pre-pandemic as a way to perhaps model this into 2022, assuming that sales are roughly equal on a multi-year basis to the type of momentum you had in that quarter? Any help on that would be great.
Yeah, David, I think that is a decent proxy. Again, the top line piece of the equation does matter when we look at the overall labor. As you commented, keeping that consistent, I think I would expect the labor dynamics to remain relatively consistent as we move forward from here. You could get some variance if you get a top line change that's not quite expected in the numbers, depending on where the consumer goes. We're seeing a little bit of what I would consider to be transitory costs in that, too. I mentioned we made a decision in the fourth quarter, which I think was well deserved, to create some incremental bonus structures. That was about a 40 basis points increase to that labor margin expense, as I mentioned in my script.
If I also look at some of what I consider to be a little more transitory costs, like there is some incremental overhead that's being used in the system over time. There is some incremental training. One of the things that goes with the cycle we're in right now is a lot of new team members, and with that goes some training costs. You want to have that to improve your productivity as you move forward. Both of those two incremental pieces are roughly about a combined 60 basis points to that margin, too. I think those probably remain in place for some period of time.
I think as we get more balance back into the labor system, as you improve the productivity through the training, you'll start to see some of those incremental pieces come out of the system, I would expect in the second half of the year. With that additional detail, I think fourth quarter is not a bad proxy for the environment that we're going to be in here for the short run.
Thank you.
Thanks, Dave.
Thank you. Our next question today is coming from Chris O'Cull at Stifel. Your line is live. You may begin.
Thanks. Good morning. Wyman, can you give some more details about what you've seen in the stores with the Maggiano's Italian Classics? I'm just curious if you've seen maybe sales less similar to It's Just Wings, or is the margin structure similar? Maybe what makes it more complex for the restaurants to execute?
Sure, Chris, I'll give you some. I'm going to be a little bit guarded just for competitive reasons. What's got us excited about Maggiano's Classics is first the quality of the product. Before we put the Maggiano's brand on a virtual brand, we wanted to make sure that we could deliver against the standards. We've done that. The team's done a great job developing a really great lineup. It is a little bit more complicated than just a wings product because it's got a little more breadth to the offering. We're making sure that as we bring it to the restaurants, we're training, we're setting up that part of the line, if you will, to support this business and not be detrimental to what we're doing in our dining rooms in Chili's every day. That's what's got us excited.
It's a higher check average product. We love the fact that It's Just Wings, it's more of a value brand. "Killer wings at stupid prices" is our tagline. With Maggiano's, we get a much bigger check average. That's encouraging to us. We like the way the consumers are accepting the product. The demand looks good, and we're executing at a high level. All those things are positive for us. The thing that we love about these two virtual brands in conjunction is that they do work against different targets. The wings guest is not the same as the Maggiano's Italian Classics guest, for the most part. That allows us also to see when the push comes for wings, it comes at a different day part. It tends to come on the weekends. It tends to come with game nights.
Maggiano's Italian Classics, one of its busiest day parts is Sunday. It's more of a family offering. Those are the things that have us excited about rolling this second virtual brand. We're not looking to have a huge portfolio of virtual brands. We're very limited. These two are probably going to be focused for a while. We always said we weren't going to put a brand out there that didn't have at least $100 million worth of sales potential, and we'll build from there. We think both of these brands, obviously It's Just Wings has proven that, and we think Maggiano's Classics will build through the year as we roll this thing out over the next few quarters.
Okay, that's helpful. Joe, just one other question. Could you give a little bit more color on what's driving the higher CapEx next year? Is that range a good run rate going forward, or are there some non-recurring investments planned for 2022?
Actually, kind of going in reverse order. That is a good proxy, I think, for how we will look at CapEx going forward. We're first and foremost, again, from that strong cash generation, going to invest aggressively back into the business. I think we've talked on previous calls where what we really like about the transformation of the strategy is the organic growth story that is starting to develop as we move forward. One of the bigger deltas you see going into this next year is that pipeline of new restaurant development that is starting to take place. We obviously had a pause during the pandemic from a real estate standpoint. That's now back online very fully and very aggressively. In fact, we're moving a pipeline now north of 20 restaurants. That's not for fiscal year 2022.
Those will start to really fall into place back half of this year and into the next year. We're going to continue to reimage. There's a little bit more spend on the reimage side of the equation. Some of this is pause versus run rate. You're really getting that back to a level that we had seen pre-pandemic. You also have the typical investment back into the R&M side of the equation and technology. We talked about the benefits we're going to continue to accrue from technology, TSE, which Wyman Roberts talked about. We're going to be pretty robust in continuing to invest at those levels. Those are the primary areas. I think it is going to accrue to the organic growth story quite well as we move farther into this year and clearly as we move into 2023.
Thanks, guys.
Thanks, Chris.
Thank you. Our next question today is coming from Josh Long at Piper Sandler. Your line is live. You may begin. Mr. Long, your line is live.
Want to handle that one?
No Nicole, no Josh, no love from Piper Sandler, all right? Moving on. Kate.
Kate, let's go to the next.
Your next question is coming from Jon Tower at Wells Fargo. Your line is live.
Great. Thanks for taking the question. Just curious.
Thanks for having me, Jon.
Yeah. First on the pricing side of the equation, Wyman, it did sound like earlier in the call you were alluding to more pricing at Chili's in 2022. Any chance you can give us some sort of degree of magnitude, perhaps across the different channels? It sounded as if you were leaning a little bit more on the delivery side, taking a bit of pricing there. A question for Joe, specifically on the labor side or how we should think about these handhelds that I believe, Wyman, you mentioned were going to be in stores fully by November. How that's going to impact the P&L in terms of perhaps seeing better productivity, and therefore labor hours moving a bit lower per store or perhaps an improvement in food waste. I'm just curious to hear your thoughts on how those handhelds might impact in-store ops.
Sure. I'll hit them a little bit, probably at a higher level, and Joe can give you more of the detail with regard to P&L impact. I think from a pricing standpoint, obviously, we chose to take a different tact than many during the pandemic. We held prices, and we wanted to just make sure that we were supporting consumers fully. That contributed greatly to our traffic improvement relative to the category of double digits throughout the whole pandemic. We're maintaining that solid traffic position as we sit today, and that's important to us. We also realize with what we're seeing, obviously with the inflation numbers that Joe shared with you, that we're going to need to take some price, and we're probably going to have to price a little more than historically we've said 1%-2%.
We're going to probably go over that number this year. We're currently sitting, what, Joe, at 1.5%?
Right.
We're targeting probably to be over 2% before the second quarter. I don't know how much more we'll need in the back half, but we do feel comfortable that we've got room to take it to that mid to low 2% range in the near term, and then we'll evaluate how these again, it's a question everybody's got, right? Is it structural or is it transitory? We just want to be cautious about how we deal with transitory costs, both with labor and with the commodities in building in pricing and wage, making pricing and wage decisions that you can't really back off. That's how we're doing it. Some of that shows up in some of these programs Joe talked about where we're more open to running maybe higher overtime or offering incentives to stay versus jumping on wage rates. Those are just some examples.
With regard to the handheld devices, TSE, as we call it, I'll just say what it does is it allows the front of the house servers to be more efficient, and then we run a server runner model. Right now we don't. We just run a straight server model. This allows us to get servers to be more efficient. They can take more tables, and then they use the technology to bring food out of the back and run the drinks with the runners. That just is a more efficient model. It's also a better model from a guest perspective. We get better guest satisfaction scores. That's why we've been working on it so diligently for three years.
It's technology, though, so it has to be working on a Friday night under high volumes, when you're counting on Wi-Fi and all this technology to interface, and that's what we've just perfected really over the last year, and we're excited to finally get this thing rolled out company-wide by November.
Jon, I'll just add to that yes, there are benefits that will accrue from a productivity, from a labor management side of the equation. I do think you may see some other things. Again, we expect to see benefits to GWOP. I think you mentioned ABT, some things of that nature. You can see that accrue at different points. Now, what we haven't done in any of the limited thoughts that I provided you at this point on 2022, is I'm not assuming a big delta based on TSE. As we get that out there by November timeframe and start to utilize it and develop it, I think we'll give you more insight at that point as to how we're seeing those numbers. I'm not making the upfront assumption that I'm going to get X amount of great benefit in my current environment from a labor perspective.
Great. Thank you for the time.
Yep.
Thank you. Our next question today is coming from Brett Levy at MKM Partners. Is live, you may begin.
Great. Thanks for taking the question. I guess just continuing on the labor side. One of the strengths you've had has been your refined operations over the last few years and the implementation of technology, but it sounds like you're reintroducing more items, whether it's the four brands across the system now, bringing this technology on board, just the on and the off-premise balance. How should we think about where you are in terms of your staffing levels, what you still need to do to be able to add back either the labor hours or reacquire additional bodies? What do you think all of this could translate into from a longer term on your overall restaurant level margin? Thanks.
Well, let me just talk a little bit about staffing, Brett. The staffing issue, it's a serious issue. It's an issue that we're all over because at the end of the day, it's about getting our teams the resources they need to deliver great sales and a great guest experience without putting too much pressure on them. The current environment, while things have gotten much better from where they were in March, there are still pockets out there where we don't have restaurants fully staffed. What that means is it puts a lot of pressure on the management. It also is limiting some of our sales potential. Our first priority right now is to just get everybody staffed up, get our management team stabilized and staffed, and get that foundation strong. It's kind of a unique situation.
I've been in the business for a long time, haven't ever quite experienced a situation where we've got so many people unemployed and still such a challenge to find people to come and take really good jobs that we provide for the industry. We're seeing progress though, and we're making headway, but we still have some pockets where that's a challenge. With that, I leave it to Joe to answer the details.
Brett, I think again, I'm not seeing anything that is changing any of our thought processes around the long-term strategies and long-term opportunities from a margin standpoint. Those are all very much still intact. Again, as we've talked in the past and will continue to talk going forward, we think margin opportunity first and foremost is going to emanate from our ability to drive top-line sales. In the very short-term, we're just trying to get a better feel for what that short-term dynamic is before I talk more specifically about things. I still am very comfortable and confident in our ability to move margins wider as we move forward with the strategy.
The virtual brands obviously contribute meaningfully to that. We are going to continue to grow the base of Chili's, and then we've already talked about the great improvements that Maggiano's is making in their business model. That will accrete to the benefit of margins as we go forward. Again, I think the short-term dynamics of what the labor and the commodity markets are ones we can deal with on an ongoing basis. We did not price last year. We're now bringing that level back into play. When I think about the typical 1.5%- 2% pricing dynamic that we've talked about as kind of our strategic benchmarks, I think that is at a level that allows us to manage both of those issues as we move forward.
At any given period of time, you may see a delta off of this too, but clearly price will be a big piece of the equation as we move back into, I think, that more normalized post-pandemic operations.
Just one quick follow-up on the pricing. How are you thinking about that from a qualitative and a quantitative basis? How much of that is going to be internal just based on what you see in your model and what you need versus analytics across the landscape and what you're seeing from the competitive set? Thank you.
I think first and foremost, we look at on the need state side of the equation. The value positioning of both of our brands is an important dynamic, and we want to continue to maintain that. We're very aware of what's going on in the industry, and you're seeing some fairly aggressive moves on pricing. I always go back to the strategy drives traffic, and this is particularly a sector that has seen negative traffic trends really for a long period of time now. That's not something that we want to fall into. We're going to be very focused on our ability to continue to drive traffic and how price may or may not intersect with that thought process. We've kept pricing power intact, and we will use pricing power particularly as we go through this fiscal year.
I think there is an ability to price and a permission in the short run to price, you got to be careful about over time, getting out ahead of the consumer and changing the value dynamics of your brand. We lean very heavily in that equation you described to the internal value perception and how we think about the need state of the longer-term strategy.
Thanks, Brett. Kate?
Thank you. Our next question today is coming from Brian Mullan at Deutsche Bank. Your line is live. You may begin.
Hey, thank you. Just a question on It's Just Wings. You've spoken before about the takeout opportunity related to that. You've spoken about the need to generate awareness outside of delivery channels. Can you just talk about how you plan to do that going forward? Specifically, should we be thinking about any increased advertising budget here? Is this an initiative you plan to lean into in fiscal 2022, or is it a little bit further out on that front?
Hey, Brian. Wyman. Yeah. No, it's taken us frankly, a little longer than I would've thought to just get the infrastructure up and running to support this aspect of that virtual brand. It's up now. It's just recently been put up. As I mentioned, the website's up. You can go to itsjustwings.com and you can order wings to go, or you can order them through delivery, a delivery also on our website. Now it's just about how do we get some awareness of that brand, and so we will spend behind it, but again, it's a very efficient spend, a very targeted spend. We know who this target is. There's a lot of online opportunities. It's not like you're going to see national television advertising around the IJW brand.
We will spend some time and energy here in the next quarter or two, really seeing how much awareness we can create and how much business we can drive. You've got two ways now between Google and the website to find the brand for a takeout opportunity. Now we're going to continue to build that. More on that probably in the next couple of calls. We'll keep you posted on how we're seeing that initiative build.
Thanks. Just as a follow-up, I saw that the board reinstated the share repurchase program. It's encouraging to see. Joe, could you just speak to your philosophy there, opportunistic repurchase versus perhaps more programmatic repurchase and the share count range you provided with the guidance is somewhat wide. Can you just confirm, does that just have to do with the pace of buybacks, which is maybe unknown at this point?
Yeah, I think that's an accurate way to think about it. We appreciate the support and the bullish statement I think that the board is making on how they're viewing the business with the reinstatement of that program. We're going to first and foremost use our cash to invest in the business. You're seeing that heightened level of CapEx, which I think will be maintained. We're going to continue to delever on a metric basis. I would anticipate getting down into the lower threes. We finished at 3.6. We're going to continue to pay debt down and grow the business. It will allow that metric to continue to move lower as we go forward. We generate a lot of cash, and at that point, there's still cash that we now have the ability to return to shareholders.
I like to be both opportunistic and programmatic at the same time. We do generate cash on an ongoing basis, and depending on where we are in any of those other given programs, we'll deploy it. I would expect that to be over the course of the fiscal year. We have not been into the market obviously yet, but that will be coming down the road. That WASO guidance does incorporate some thinking about what might go on in this fiscal year.
Great. Thank you.
Thanks, Brian.
Thank you. Our next question today is coming from Nicole Miller Regan at Piper Sandler. Your line is live. You may begin.
Thank you. We're here, I promise. Sorry about that.
Hey, Nicole.
Welcome back.
Great update. Two quick ones on our side from us. The first is on the store level margin, where the commentary so far is very helpful. Always very curious on It's Just Wings impact on the P&L, specifically, obviously, store level margin. I'm thinking there is contribution there. Is it something you can call out? Wing prices have been sky high, I think moderating a bit. Maybe you could net out the transitory nature of that too, and we could start to understand that for modeling purposes for next year as well. Thanks.
Yeah, Nicole, I'm going to defer on several of those. We haven't broken out a lot of the dynamics in a specific level. It is definitely a positive contribution to that store-level margin. We look at an allocated P&L for the virtual brands, and I think we've talked about before that it generally is north of 30%. A lot depends on what you're doing in any given time period from a marketing standpoint. I want to fully allocate the cost as we can, but they do lever the store P&L, which is again, that nice piece of the volume increases that you see coming out of the virtual side of the equation. We've noticed a little elevated price on the It's Just Wings side of the equation. We've had to make some adjustments in our cost dynamics on wings.
We've obviously maintained supply and ability to keep that product in front of the consumer. Just a great job by our supply chain team in a very unique and, at times, trying environment for them. They are elevated. I think at some point you will see that dynamic shift, and that will accrue to the benefit of that brand. I would anticipate, Nicole, a fairly robust discussion around virtual brands at the Analyst Day in a nutshell. Hopefully, I'm going to defer some of those specifics to then, but more insights to come.
The only thing I'd add, Nicole, is obviously because of the incrementality, the high incrementality of those sales to our business, the flow-through and the profitability are impressive and important.
Just on Maggiano's, you kind of clued us in to be realistic, if not cautious, but I would be curious just what kind of behavior you expect for the upcoming holiday season, and do you have any indications yet of requests for private dining or parties or catering or anything of that nature? Thanks.
As you can see in the information we shared in the release, the movement from just fourth quarter to July was impressive at Maggiano's. As we were working as a country out of COVID, and people were starting to feel comfortable again about socializing, we saw the part of the business that was really being curtailed the most, which was their banquet business and their catering business, start to come back, and it's ahead of schedule from our perspective. It's mostly social. The business side of the equation hasn't come back as much yet. Obviously, you can see they're running again above the 2019 numbers in July. Those are all very positive things. What that portends for the holiday season, I wish I could tell you, Nicole.
We're optimistic, but we're also being cautious, both because, again, the pandemic isn't quite totally put to bed with this whole Delta variant, and we're not exactly sure what the status will be. I think if we get some clear road prior to the holiday season from a pandemic standpoint, we'll see a pretty robust banquet business in the holiday season. We know consumers want to gather. We know they're ready to celebrate together and eat together, and if there's permission to do that and a level of comfort around that, then I think we're going to see a good season. We're all just kind of waiting to see.
Thank you.
Yep. Thanks.
Thank you. Our next question today is coming from Andrew Strelzik at BMO. Your line is live. You may begin.
Hey, good morning. Thanks for taking the questions. I was hoping first you could do a little bit more comparing and contrasting between what you're seeing or expecting at Maggiano's Italian Classics and It's Just Wings. You mentioned the check, the occasion. Anything else that we should be mindful of as we think about that rollout? If you could comment on the margins of the flow-through compared to It's Just Wings, that'd be helpful as well.
We're not going to get too specific, Andrew. I think I've given you most of the color I'll probably give you on how the brand plays. The biggest difference, I think, is just what we've talked about in terms of rollout. We were comfortable enough to roll because of what was happening primarily in the dining rooms with a lot of constraints. We felt we could focus on rolling out the Wings brand overnight to 1,000 restaurants. Well, obviously, our dining rooms are busy again, and we've got a lot of things going on in the restaurants with some initiatives like TSE that we've talked about that are requiring us to support our restaurants on a more kind of moderated basis as we roll this brand. So it's not going to hit like Wings hit. It's going to be rolled out throughout the year.
Our energy and our excitement about the brand are comparable, I would say. We like both of these brands a lot. We think it's manageable, first of all, within our system to really leverage these assets and drive continued growth within the assets that we have, and it delivers a great guest experience. The return rate on It's Just Wings is exceptional based on the information we get from DoorDash. Once we get trial, we get really good repeat, and I think we'll see the same thing with Maggiano's Italian Classics. Again, we're just focused on getting it into the restaurants in a way that our operators can execute it, and then building these brands over the next really years to come.
Okay. That's helpful. I wanted to also ask on the food cost side, and I apologize if I missed this, but how much visibility do you have from contracting to the inflation outlook that you gave on the food cost side? Is there anything that we should be mindful of from a cadence perspective? Just from suppliers, your conversations with suppliers, what's kind of the tone and kind of the expectation about sustainability. I know it's a tough one to call, but just any insights you could provide there would be really helpful. Thank you.
Yeah. Again, we have a good contract positioning. Really, most of the contracting running the rest of this calendar year, some of it runs into the first quarter of next calendar year, so the back half of our fiscal year. We see a higher level, and actually a significantly higher level of our inflation beliefs is built into the back half of our fiscal year due to that contracting. Again, good contracts in place. We've had, at times during the last quarter, discussions with some of our partners on where contract levels are and volumes, price, and things of that nature. We've adjusted a couple in conjunction with them. On the chicken side of the equation, I think that's gotten the highest level of dialogue around the industry, and those issues have been real. We've managed through them, through those kinds of adjustments.
Again, we're comfortable with the inflation that we have built into our thought process here that I talked about. It is a more back half of the year thought process.
Great. Thank you very much.
Thanks, Andrew.
Thank you. Our next question today is coming from Jeff Farmer at Gordon Haskett. Your line is live. You may begin.
Thank you. We've discussed a lot of P&L lines this morning, and I was just hoping to get a little bit more context color on the G&A line. Specifically, will 2022 be an incentive compensation reset year? Will there be any other factors that could potentially push that G&A number well above or just above the 2021 number?
No, Jeff. I think it's going to be a relatively consistent year in that regard. Again, we build our beliefs around G&A based on hitting targets and things of that nature. I think we accommodate the incentive compensation pretty well. I always like to have an upside to G&A from an incentive standpoint, if that works. I think you'll see from a dollar basis, you're probably up in the $8 million-$12 million range, I think, in that range. As a percent of sales, I would assume you could model relatively close to 4%, the low 4%s, let's say 4%- 4.2%, and be right in line with our thinking on that specific line item.
Most of that, Jeff.
We'll continue to work our way down the P&L as we go on our.
On the G&A front, some of that, the bulk of that is really instituting some programs that we had to restrict as we got into COVID, right? It's getting a little more travel now as people are getting back out and moving around. Pretty much in line with our history in terms of how we run a very efficient restaurant company.
That's helpful. Just one more unrelated on the off-premise mix. I believe you said Chili's was, I think the quote was more than 30%. The question is what the more precise percentage is for Chili's off-premise, and then your updated thoughts on where you think that Chili's off-premise mix will settle as we get further sort of past COVID, or we move past COVID.
Yeah, Jeff, it is staying very consistently in, let's say, that 33%-35% range throughout the quarter. We've seen more and more evidence as we've kind of gone through the last year, based on recovery curves, that, let's say, the 32%-35% range is going to be the sweet spot going forward.
Yeah. The only thing that's still out there, Jeff, and we'll keep you posted as we learn, but there's still a lot of concern about COVID with consumers, and I think there are still some consumers that are preferring takeout to dine in still. As we go, our takeout business is really the thing that surprised us. The strength of takeout has been the biggest surprise. As dining rooms have opened, we thought maybe more people would move back into the dining room, and we haven't seen quite as much. That could take a little while for everybody to get back to, "Hey, I'm not going to restrict my preferred choice by an outside influence like a COVID.
All right. Thank you.
Yep.
Thank you. Our next question today is coming from Brian Vaccaro at Raymond James. Your line is live. You may begin.
Thanks, good morning. I just wanted to start with clarifying two items on your comments during the Q&A. First on commodities, just to make sure I heard correctly, you expect the second half to be significantly higher than the first half? We might be only talking about slightly inflationary in the first half and then maybe high singles in the second half. Did I hear that correctly, Joe?
I didn't give you specific high singles or that. I think we have more inflation built in to the second half of the year. That's based on the contract structures we have out there. There's obviously some inflation that will work its way into the first half of the year. A lot of those are spot market driven items. You think about produce, avocados, things of that nature. You'll probably see some inflation in that regard. You may see some inflation on the ground beef side of the equation. Our beliefs around inflation based on current markets that we're looking at and the timing of contracts lead us down a path of more inflation in the second half of the year.
More price.
Yeah.
Markets can change, and we'll update you as we kind of move through and get closer to some of those time frames.
Okay, that's helpful. On the off-premise sales mix, you were talking about that 33%-35% range. Do you have the tight number for the fiscal fourth quarter? Where was quarter to date? Is it also in that 32%-33% range at Chili's?
At Chili's, for the fourth quarter, you were 36%-37% range, a little bit above that fourth quarter. I don't have a quarter to date. I'm pretty confident it's going to be consistent with that. You're not going to have maybe a slight downward variance from that.
Okay. Within that, thinking about third-party delivery versus takeout, what kind of changes are you seeing within the mix of your off-premise mix as you've moved through? Has it shifted? I think it was 60/40 prior. Have you seen much shift in the two channels?
No. Again, I think we're seeing a pretty consistent flow of those channels in the business right now.
Okay, great. I guess my question, I wanted to circle back on labor, if we could. Could you just give a little more color on the restaffing progress that you've made in recent months? Perhaps you could level set where, I know it's isolated, but maybe level set just where current staffing levels are on average versus 2019 or perhaps versus some targeted level at recent sales volumes that you're working towards.
Yeah. In general, when you look at the overall number of team members we have, Brian, we're at staffing levels that are equivalent to pre-pandemic. Every restaurant probably could use another body or two, but that's not unusual for the restaurant industry. You could always use another cook or another server in most restaurants on any given day. That's not a real issue. The real issue is more where you're down several, especially in the heart of the house. The one thing we have seen as some of the stimulus has kind of abated, we've seen front of the house, so servers become more available, not as big an issue for us with front of the house. Heart of the house is still a little bit more challenged in those areas.
This isn't a nationwide issue, but in those pockets where we're more challenged with staffing, those are the bigger issues. It's getting the kitchen staffed is the biggest challenge. We're making good progress, but we've still got a little ways to go.
Again, I would add to that, Brian, I think it's important from our perspective is that's opportunity for us.
Yeah.
Again, as we bring more stability to those pocketed areas, you're going to see some capacity opportunities, too.
we look at it as upside from where we go from here.
Yeah. Our sales were absolutely impacted in the quarter because we weren't at full staffing capacity or capabilities. As we get fully staffed, which we anticipate doing soon, that's opportunity, as Joe said.
Good. Kate? Thanks, Brian. Kate?
Thank you. Our next question today is coming from John Glass at Morgan Stanley. Your line is live. You may begin.
Thanks, and good morning. Wyman, can you just talk a little bit about where you stand on the re-imaging for Chili's? I know probably last year, this past fiscal year, it slowed down. Where are you in the estate? As you think about remodeling going forward, have the plans changed? You've got virtual brands now, versus two years ago, you didn't. You've got a bigger off-premise business. Are you thinking about how and how much and how you spend on remodeling differently now?
Good morning, John. We're back full bore on the re-image side of the equation. Right now, we're actually focused very heavily in the Midwest, which was the acquisition we did two years. Those probably are, in most cases, getting fuller re-images because they had not necessarily been re-imaged at the same level and pace that we had done the brand. A little more higher spend and intensity there on those re-images. You get a nice incremental lift out of that, too, when you do a full re-image. We probably still have a couple years to go, 2. 5 y ears or so, on the re-image program. Over time, when I think about the base re-images, so outside of those acquired restaurants, that spend has come down as we've kind of perfected our thinking and understood where the bang for the buck really was.
You've seen a decrease in the individual spend on any given restaurant. We're also looking very specifically a lot of opportunities within the restaurant base. Where can I do a more fulsome bar re-image, for instance, and things of that nature that can really help increase volumes with any one given restaurant, so that we have the general program and approach, but we're also trying to be very systematic in looking at great opportunities on individual restaurant bases, too. That's a program that's going to continue for the next couple of years as we kind of move through that process.
One thing we have done, John, this is Wyman. I think we've gotten really good at, as we remodel, thinking about future R&M expense, and how do we take these re-image investment dollars and help offset future R&M costs that we experience? Two examples. One is the new awnings that we're putting on at Chili's. They're metal. We're not going to be dealing with faded painted awnings that become a challenge on a cycle and show up in your R&M expense. We are also excited about Maggiano's re-image program that we'll kick off here pretty soon. A lot of the dollars that go into that re-image are going to make the building and the experience much better. They're also going to take out some of the things that really drive up the cost to maintain that restaurant.
Changing finishes out, changing some of the products out that need to be changed out, but changing them out with a product that's a lot easier to maintain. Those are some of the things we're doing as we keep moving through and refreshing and keeping the brands relevant through time.
John, from an off-premise standpoint, we haven't had to change our thinking too much within the re-image process based on that dynamic. We have brought, as we've talked in previous calls before, a new off-premise system on how we move actually the food from line out to the cars into play. Its production capabilities and shelving and the technology that we're now using to manage the parking lot that helps in that. We haven't had to make a lot of structural, physical changes to make that happen. Our new restaurant design we have adjusted very slightly to increase the size and the ability to flow food through that side door. As we just opened a brand new restaurant here in Dallas just a week or so ago. I was in there last week, and that dynamic really works well and looks great in how you help off-premise.
We're incorporating it where we can, but the systems we're putting in place to support that line of business are probably more important than the physical space changes.
Chili's, obviously, there was a different lap than in prior quarters. Dining rooms were open, so you probably got some higher alcohol sales. Is there anything else in mix that's notable? Consumers are buying premium products, for example. Should we think about this kind of mix dynamic playing out similarly over the next couple of quarters as you cycle the negative mix from a year ago?
Yeah, I think the biggest one, John, is just alcohol sales. As dining rooms open, the biggest thing we've seen is just alcohol sales. That's always been the case, right? First, you can't sell it in a lot of places. Secondly, beverage sales, in general, is what you pick up the biggest incremental mix benefit of getting dining rooms up and running. That's what helps the check average the most.
Got it. Thank you.
Thanks, John.
Thank you. Our next question today is coming from John Ivankoe at JP Morgan. Your line is live. You may begin.
Hey, guys. How are you? Happy National Fajita Day. I just got a notification from you.
Happy National Fajita Day. There you go.
Thank you. Literally, it came during the conference call. The question is on other OpEx. Normally, that's a line item that has a lot of fixed costs including marketing, which is, I know it's a percent of sales, which is normally relatively steady. Fiscal 2021 presumably was not a run rate year, things like advertising, repair and maintenance, maybe insurance, and some other cost items that came out throughout, at least the first half of the year. The question is, how do you think about that cost category as a percent of sales, especially as your comps improve? Obviously, I understand there's probably a lot of benefit in the fourth quarter from the 14th week in that line as well. I just want to make sure that we're all on the same page for that cost category.
John. I think we'll continue to maintain the marketing strategy that we deployed really going on 2.5 years now. We're comfortable that we have enough marketing firepower built into the other OpEx. As I think you know, we really think about marketing in a different mindset now where a lot of both your marketing expense is going to show up in your net comp line as we use that digital capability and that one-to-one contact with our loyalty guests to drive traffic also. There's a leveragability opportunity. When we think about margins and think about top line growth, that restaurant expense, other OpEx as you've referred to it, is going to be a point of leverage because it does contain a lot of fixed costs within it.
I think there is a year-over-year opportunity to expand margins generally, but specifically in that category too.
That's great. Thank you.
Thanks, John.
Have some fajitas, John.
Thank you. Our final question today is coming from Jeffrey Bernstein at Barclays. Your line is live. You may begin.
Great. Thank you very much. Just two questions. The first one on the unit growth, following up from the comments earlier. Joe, I think you mentioned opening 20+ per year. I think you said starting in the back half of this coming year. Just want to make sure I understand that correctly, that is your run rate assumption for the next few years would be 20 units+, and maybe if you can share any color in terms of whether by brand or U.S. versus international, how we should think about this acceleration in unit growth to the north of 20 that you mentioned earlier.
Yeah. Again, the comments there relate to the Chili's domestic side of the equation. We have a pipeline already that's starting to continue to push north of 20. I would expect based on timing of construction and actual opening that you'll probably see somewhere in the six- eight, maybe push towards nine in this fiscal year because of the pause in real estate and construction. That's also probably going to be more of those in the back half of the year. Not as big of an impact in 2022, the pipeline then moves very quickly up towards that high teens, 20, low 20s. You'll start to see that in 2023 really come to realization. Our intent is to continue to maintain and build that pipeline in that, let's say 20 - 25 range as we go forward from here.
Again, some nice organic growth that will start flowing back into the system.
It really was made possible, Jeff, as we made the acquisition of the Midwest restaurants, as we look at opportunities in these areas where franchisees just haven't developed as rapidly as we have. It just opens up additional real estate opportunities for us that we're excited about getting into. As we've now started to open some of those restaurants in these markets, we're really pleasantly surprised by the reception the brand is getting. We're excited about getting more restaurants open, not only in Texas where we have quite a few, but in other parts of the country.
Wyman, that's a great segue. I felt like you were baiting all of us in your prepared remarks when you talked a couple of times about being much more convinced and sold on the company-operated model. Just wondering whether you could provide any color behind that. I know you mentioned there are some scale benefits when you go through issues like we've gone through. Is there any thought in terms of whether it's maybe buying in existing U.S. franchisees? I'm wondering whether there's right of first refusal opportunities. I know you currently have a 15%+ mix of franchising, but that coupled with your commentary around maybe wanting to accelerate growth where franchisees might not want to, just wondering what your thoughts are in terms of that franchise mix, U.S., I guess, or international. Thank you.
Well, Jeff, I think, just looking at our history, you can see obviously we believe in the company-owned model. We've got the majority of our U.S. restaurants are company-owned. We have a couple of good franchise partners still out there, we're obviously having conversations with them about what's their future look like? How excited are they about growing the brand and staying connected with all of the things we're doing? That's my commentary on ownership, really has to do with these investments we make and getting the scale leverage beyond just supply chain, because obviously you can do that in a franchise system, but really across everything, across technology, across the position of the brand, across the operating systems. We're moving at a rapid pace. You start to do virtual brands, and keeping everything in sync in a restaurant is hard to do, even with good franchise partners.
There's just a lot of moving parts to a casual dining restaurant. We do believe in that. We're going to continue to look for opportunities, and we'll have these conversations, and we're excited about the potential.
Understood. Thank you very much.
All right. Thanks, Jeff. Good talking to you.
Kate, I think we're all wrapped up. Mika?
Yep. Thank you everyone for joining us on the call. Have a wonderful day.
Thanks, everyone.
Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.