Good morning, and welcome to the Brinker International first quarter fiscal 2027 conference call. At this time, all participants are in a listen-only mode, and we will open the floor for your questions after the presentation. If you wish to join the queue to ask a question at any time, you can press star one. Should you wish to remove yourself from the queue, press star two. It is now my pleasure to turn the floor over to your host, Kim Sanders, Vice President of Investor Relations. The floor is yours.
Thank you, Joanna, and good morning, everyone, and thank you for joining us on today's call. Here with me today are Kevin Hochman, Chief Executive Officer and President of Brinker International 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. 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. 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 Kevin.
Thank you, Kim, and good morning, everyone. Thank you for joining us as we share insights from our first quarter and our outlook for the remainder of fiscal 2027. Q1 Chili's same-store sales were +10%, outperforming the casual dining industry by 720 basis points. This strong result was lapping a +21% in Q1 fiscal 2026 and a +14% in Q1 fiscal 2025 for a three-year cumulative comp of +52%. Our Q1 sales result was driven by traffic increases of 6% versus year ago.
Chili's traffic has now beat the industry the past 12 quarters. I am proud of our Chili's team rolling industry-leading comps from Q1 last year and two years ago with even more very strong comps in Q1 this year. Our guest experience improvements and our everyday value leadership continue to support a powerful flywheel of traffic, sales growth, margin expansion, and reinvestment in our business. This steady approach is why the business will continue to win. Some have repeatedly said we could not possibly continue to comp on top of big comp numbers.
Our Q1 result, putting three consecutive years of double-digit comp growth driven by traffic gains, provides ample support that our strategy is sustainable, even with a difficult macro. In Q2, we feel good about our ability to not only comp positive, but deliver a mid-single digit comp for two reasons. We continue to convert new guests into regular guests, which means sustainable growth regardless of the prior year comp, and we have very strong commercial and operational plans to keep the flywheel going.
While it is clear the consumer is challenged, we feel we are positioned to continue to win in this environment through market share growth. Our experience improvements, combined with our everyday value leadership, position us to win trips. A sustainable traffic-led strategy based on the fundamentals of why a consumer goes out to eat will continue to win the day. Now let us talk about the specific food and hospitality initiatives in Q1 that help keep the momentum going.
We continued our advertising and operations focus on the Big Crispy chicken sandwich, and it was a key driver of incremental traffic throughout the quarter. Customers are responding to the size and quality of the sandwich versus fast food, as well as the price certainty of $10.99 for a large and abundant complete meal. Customer reception to the Big Crispy has been very positive, and our traffic momentum is proving the sandwich reception has been great. In Q1, we maintained the 55 sandwiches sold per restaurant per day we saw in Q4.
Customer social media comments tell the story. Quotes include, "Those commercials weren't lying. This thing is the bomb," and, "Chili's is making it affordable to go out to eat again." In addition to continued focus on the Big Crispy, we also completed the upgrade of several lower mixing menu items during the quarter. During our Investor Day, we outlined plans to renovate most of the remaining 40% of the menu that has not been touched over the next few years.
Recent menu changes included upgraded ice cream to the famous Blue Bell premium brand, the addition of sausage as a new protein to our high mixing pasta menu, the return of cheesecake, a highly requested non-chocolate dessert, and a newly renovated Kids Pepper Pals menu with the addition of ice cream floats, Shirley Temples, as well as the return of grilled chicken bites, cheese quesadillas, and Mini Molten. On the hospitality side, ongoing simplification, removing friction for our team members and managers, and North of 6 initiatives are continuing to improve the guest experience.
Q1 was the first quarter we removed GWAP from our General Manager bonus, but as planned, this does not stop our customer experience improvements. Chili's Google ratings hit an all-time best in Q1 of 4.3. Key operational initiatives this quarter focused on the fundamentals of making our existing menu items more consistently.
We had another full court press on Big Crispy execution, focusing on scratch-made batter and hand-breading perfection, as well as ensuring fillets go out freshly cooked, hot and fresh every time. With the sausage addition to our pasta menu, we took the opportunity to retrain teams on pasta perfection, which includes how to cook the pasta for optimal taste and texture, as well as retraining on all pasta menu item recipes. Our last big ops swing for the quarter was the initiative called Staff to Grow Your Business.
With all the incremental traffic coming in, we believed it was the perfect time to roll out North of 6 best practices on staffing, so restaurants can continue to take on more guests without sacrificing the customer experience. As part of this big swing, we also retrained all above restaurant leaders and managers on how to write perfect labor schedules based on North of 6 learnings, which is one of the most difficult tasks for our restaurant managers.
While our competitors were hard at work launching new items and new offers, we continued to keep operations focused on the fundamentals of delivering a great restaurant experience. We believe this focus will allow us to spend more time on what is important versus fringe limited time offers that will not have a lasting impact on the business. Marketing continues to bring guests in, and our restaurant operations continues to bring them back. Now I want to give an update on Maggiano's.
I am pleased to report the successful rollout of our new banquet operations program in Q1, where we have, one, restaffed our banquet sales managers we moved during COVID. Two, streamlined banquet execution. And three, created a single point ownership of the entire process to ensure guests receive great service through the entire banquet planning and event day experience. This cross-functional banquet team was formed back in January, and we are now seeing great results from these efforts. Banquet sales were up 11% for the quarter versus year ago.
While banquets are only 15% of the Maggiano's business, this initiative is important for two key reasons. One, it shows that we can turn around Maggiano's results with focus in deploying cross-functional resource at a single-minded goal. And two, Banquets are Maggiano's number one marketing vehicle to introduce guests to the brand as the vast majority of banquet guests have never eaten at a Maggiano's. Big congratulations to the Maggiano's team for rebuilding our banquet capability, an important part of the brand's DNA.
Before I close out my prepared remarks, I also want to provide an update on the industry check averages we shared at Investor Day. We were recently informed by our third-party data aggregator, Black Box Intelligence, that there were errors in the industry benchmarks for casual dining per person average. Importantly, they confirmed our PPA remains below the competition, though the differential is now narrower than what we previously have quoted.
The new data is expected to be included in the November update. We are confident our overall experience and price point provide the best value to guests. One last piece of quick recognition before I close out. A big thank you to our Bedford Chili's GM, Nikki Castro, and our Pinnacle Park Chili's GM, Kara Miller, and their restaurant teams for allowing me to work hourly team member roles for a week in October. I learned some really important things, including, while it's easier to work at a Chili's today than it was five years ago, there's still lots of opportunity to make it a whole lot easier.
Thank you, Nikki, and thank you, Kara, and thank you to your teams. As we discussed during our September Investor Day, the Chili's business has been rebuilt for the long-term sustainable growth, and our focus is on playing offense to keep this exceptional performance going. The powerful flywheel of traffic, sales growth, margin expansion, and reinvestment in our business supports all of the investment needed to maintain the momentum, create a new layer of growth through new restaurant development and reimages, as well as return significant capital to shareholders.
This quarter of comping double-digit sales over the past two years with double-digit growth this year is proof positive this sustainable strategy is working. I'll hand the call over to Mika to walk you through fiscal 2027 first quarter numbers. Go ahead, Mika.
Thank you, Kevin. Good morning. Brinker started the year strong with its 22nd consecutive quarter of same-store sales growth. Our momentum and consistent focus on the fundamentals continue to support sustainable long-term growth. This momentum drove strong year-over-year revenue growth, positive traffic at Chili's that meaningfully outpaced the industry, and restaurant margin expansion. Brinker reported total revenues of $1.476 billion with consolidated comp sales of positive 9.1%.
Our adjusted diluted EPS for the quarter was $2.77, up from $1.93 last year, a 44% increase. Chili's comps were positive 10.1% in the quarter, building on double-digit comp growth in both fiscal 2026 and 2025. This was driven by traffic of 6.4% and price of 3.7%, with mix coming in flat. This represents cumulative traffic growth of over 28% over the last three years, demonstrating our ability to build on the increasingly strong foundation of our business, bringing in new guests and keeping existing ones coming back.
Chili's strong everyday value platform continues to resonate with guests, led by the success of the Big Smasher, Big QP, and now the Big Crispy Chicken Sandwich. We are also focused on increasing throughput in our restaurants, allowing us to bring more guests through our doors as we reduce bottlenecks and streamline operations. We continue to have confidence in sustaining positive growth as we move through the year with our marketing brings guests in and operations brings them back approach.
For Maggiano's, the brand reported comp sales for the quarter of -3.4% with -5.1% traffic, -0.3% of mix, partially offset by price of 2%. At the Brinker level, restaurant operating margins were 17.7%, a 150 basis points improvement year-over-year, primarily driven by sales leverage, partially offset by unfavorable commodity cost as well as higher hourly labor costs. Food and beverage costs for the quarter were unfavorable by 10 basis points year-over-year due to 3.3% of commodity inflation and unfavorable menu mix, partially offset by price.
Labor for the quarter was favorable, 90 basis points year-over-year. Top line sales growth and productivity offset wage rate inflation of approximately 2.6% and additional investments in labor. Restaurant expenses were favorable by 70 basis points compared with last year. Sales leverage offset higher costs for repairs and maintenance, advertising, insurance, rent, and other inflation-related expenses. Advertising expenses for the first quarter were flat to the prior year at 2.5% of sales due to sales leverage offsetting slightly higher spend.
G&A for the quarter came in at 4.3% of total revenues, 10 basis points higher than prior year due to higher performance-based compensation and additional restaurant support center resources, partially offset by sales leverage. Depreciation and amortization for the quarter came in at 3.8% of total revenues and decreased 20 basis points year-over-year due to sales leverage offset by increased depreciation on capital spent. First quarter adjusted EBITDA was approximately $209.1 million, a 21.3% increase from prior year.
The adjusted tax rate for the quarter increased to 19%, mainly driven by the increase in income, which was partially offset by a higher FICA tax tip credit. Capital expenditures for the quarter were approximately $63.4 million, driven primarily by capital maintenance spend. Regarding our Chili's reimage program, we have completed a total of 20 reimages to date.
We have another 13 currently under construction and expect to complete a total of 60 to 80 during fiscal 2027. In fiscal 2028, we will start a planned cadence of 10% of the fleet annually. While it is still early in the program, and we will continue to evaluate and read the results as more time passes, we anticipate the cost of each remodel to be in the $500,000 to $600,000 range, with sales lifts of approximately 3% to 5%.
We are pleased with these early results, as we know it's important to preserve the fun, welcoming, and relevant atmosphere that we're known for. As we continue to refine the program, we will look for additional opportunities for cost efficiencies while retaining the quality of the reimage package. Turning to new unit growth plans, as we announced at our recent Investor Day, we'll be targeting 2% to 3% annual unit growth by fiscal 2029, supported by AUV growth from $3 to 5 million and improved four-wall unit economics.
We have visibility into a decade of new development with over 300 potential trade areas identified. The growth opportunities include capturing under-penetrated markets like Washington and the Pacific Northwest, executing infill strategies in core strongholds like Texas and Florida, expanding in high-growth secondary markets like the Carolinas, and leaning into a small town strategy. That said, our growth will be modest in fiscal 2027, but we already have ample sites in the pipeline and will ramp up significantly in fiscal 2028, with expectations for our new run rate to be in place for fiscal 2029.
Our strong free cash flow provides sufficient liquidity to maintain our disciplined capital allocation strategy, allowing us to invest in our restaurants, keep debt levels low, and return excess cash to shareholders. We continue to support this approach by repurchasing $125 million of common stock under our share purchase program during the quarter.
In this morning's press release, we shared that we are updating the fiscal 2027 targets provided on our last earnings call due to our first quarter outperformance and continued business momentum. We expect to significantly outperform the industry in sales and traffic while delivering another year of same-store sales growth in fiscal 2027.
Regarding the updated targets, we expect FY 2027 annual revenues in the range of $6.23 to 6.33 billion, adjusted diluted EPS in the range of $13.30 to 13.90, weighted average shares in the range of 42 to 43 million, and capital expenditures in the range of $265 to 285 million. The assumptions underlying our targets remained unchanged, including the expected impact of the 53rd operating week in the fourth quarter of approximately 2% increase in total revenues and $0.70 in incremental earnings per share.
We anticipate the first quarter will be our strongest on a year-over-year same-store sales basis, with more moderate gains in subsequent quarters as we lap higher prior year comparisons. Despite these tougher comparisons, Q2 is also off to a strong start with high mid-single-digit same-store sales growth, primarily led by positive traffic that continues to meaningfully outpace the industry.
While consumer sentiment is creating some pressure on check and mix, the underlying strength of the business gives us confidence in our outlook. We are optimistic about our ability to continue growing sales and traffic while maintaining a disciplined approach to our full year expectations. As we look to the rest of the year, I am confident in the direction of the business and our ability to drive consistent long-term growth.
We are executing on the fundamentals of operational improvements, marketing and value across the menu, while adding incremental growth through reimages and new units. These initiatives will continue to generate new and repeat visits and deliver solid traffic and sales growth. With our comments now complete, I will turn the call back to Joanna to moderate questions.
Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star one . We do ask if listening on speakerphone today, please pick up your handset while asking your question to provide optimal sound quality. Once again, please press *1 on your phone at this time to join the queue to ask a question. Please hold a moment while we pull for questions. First question comes from David Palmer with Evercore ISI. Please go ahead.
Great. Thank you. Thanks for your comments on the quarter today, because I know people are going to be focused on any changes that you're seeing in the industry. Maybe I could ask you a question about it, since you talked about your sales in particular. What insights can you give us about what's going on out there with the consumer?
We've heard that perhaps there was a little bit of wobbliness with the 100,000 and over consumer. Maybe you could speak to what you've seen even on a weekly basis in looking into your demographics and any other insights. We'd love to hear from you on that. I know that also, if I threw in another one, it would be on inflation. A lot of focus on freight and other costs, kind of getting into the cost picture by what would be the end of your fiscal year. I'll pass it on. Thank you.
Great.
Let me handle the consumer question, David. Good morning. Then I'll have Mika do the inflation question. We're seeing what most of you guys are all seeing, which is a consumer that is under pressure with what's happening with gas prices and the interest rates. What we've seen, and we talked about this on the prepared comments, is we still see very strong same-store sales, primarily driven by traffic. We have seen a little bit of mix slippage, which we think is the consumer being under pressure.
It's very similar to what we've talked about in the past, which is, if trips do pull back because of the macro, that consumer's going to pick places they trust, and the strong are going to get stronger, and the weak are going to get weaker. I think that's what you're seeing with us growing market share driven by traffic. We launched the chicken sandwich at $10.99 as a traffic-driving strategy for just this. This is exactly how it's playing out in the way we had hoped in terms of growing market share.
We believe as long as we continue to improve food service and atmosphere, and make us an obvious choice for consumers that might be going out a little bit less, but they know they're going to get a great value and a consistent experience. We believe we're going to continue to grow enough market share to continue to win, and that's what's reflected in our guidance.
Yeah. David, on your inflation question, specifically around the oil prices and freight. Yeah, no, we've had that pressure. The good news is all of that is built into the guidance that I gave. So we probably have about $7 million built into our numbers and our expectations. Most of that for us is going to hit in restaurant expense. So that's where that lies. It's not necessarily in food and beverage costs, but yeah, we are feeling those pressures. The inflation, I spoke about in the prepared comments, that is built through. Luckily, our sales are helping us to still have great margins and flow through.
That's kind of been job one from the start of the turnaround has been, we are going to grow faster and grow enough volume to improve our margins and to overcome any inflationary pressures, and that's exactly what's happening in the business right now.
Thank you.
Thank you. Next question comes from John Ivankoe with JP Morgan. Please go ahead.
Hi. I am going to ask a tactical question if I can. In terms of the promotion, awareness, trial, repeat of the Chicken Parm Big Crispy, hopefully I am getting that right. Do you expect to go back to traditional media and really drive awareness of it? Do you think enough people know what the product is, appreciate how it is differentiated? Just talk about, at least from your perspective, how you think that product could or should build as we move throughout the second quarter.
Yeah. So, hey John, good morning. Let me just give you a little context of what we are trying to accomplish with that, then I will give you a status update of where we think it is right now versus where it could be. This is what we call a big swing. These are swings that we take in marketing. Some of them hit, some of them do not hit. In Q1, I think the swings that we took they all pretty much landed. That is, I think, why we were up a +10 and more.
This one is a big swing, similar to the one that we had done when we launched Nashville Hot Mozz. This was a quote unquote "secret menu item." We had trained our teams on how to make Nashville Hot Mozz. We released that via social media, and we had no POP, and we had no menu presence until a few months later. It obviously worked incredibly well.
On this one, we are applying that same playbook, but the one thing I think we are learning in the first week of it being available nationwide is it is much easier to order that Nashville Hot Mozz, even if it is not on the menu, because you order a Triple Dipper, or you order mozzarella sticks, so you can just ask for it in this other flavor, versus this is an entirely new sandwich.
Some guests are more forceful and say, "Hey, do you have the sandwich I saw on social media?" Other guests are kind of like, "Hey, I do not see it on POP or on the menu. I am not going to order it." Now, that is all going to change the first of the year. Our table tents for the next three months will all have-
First of the month.
I'm sorry, first of the month.
Yeah, not year. November 1st.
1st of November. Sorry. Thank you. With the table tent merch. I think we're going to learn a lot more in the next coming week or two about how much it takes off, because they're going to be something that people can point to and say, "I want to order that." Right now, it's doing a little over 2 a day, which is a little short of what we expected it to do.
But I think the difference on this one that we're learning is it's not an easy thing to order. Once we have that merchandising in the restaurant, we would expect it to pick up again. Let me answer that in a few weeks when we see what's going on once we have some merchandising in the restaurant.
That's what I was looking for. Thank you.
Thank you. Next question comes from Dennis Geiger with UBS. Please go ahead.
Great. Thanks, guys, and congrats on the strong results. I wanted to ask a little more on the 2027 guidance. I know we can back into some of the items, but after the strong Q1 same-store sales, very good momentum still into Q2. Anything more specific on your assumption for Chili's same-store sales for the year? I guess really for the back half of the year in particular.
Yes. Dennis, what I would say is for the back half of the year, Q2, Q3, and Q4, we're back to the mid single digits same-store sales, expectation with positive traffic. October, again, we're thrilled with the start to October. We're just aware of, and you guys remember, we had a huge November last year, so we do have a big lap right in the middle of the quarter. We feel very confident in our ability to lap that with positive sales and traffic. But right now we're in that same mid single digit same-store sales. We have a lot of momentum, and we're really excited about it.
Awesome. Thanks, Mika. Just as far as value goes, can you just give us the latest update, considering the backdrop in particular on where the three for Me mix is, where that $10.99 is, and if anything incremental on the check management made that you're suggesting. I think we heard a QSR a couple weeks ago talk about number of items per order. It sounds like you're not the only one that's seeing that, but just if anything incremental as we think about value and where the consumer is. Thanks, guys.
For Q1, when we think about the three for Me platform and specifically the $10.99, the three for Me platform, it's pretty similar to what it has been. It ticked up a little bit, maybe 50 basis points. I always say we're in that 20% to 21% range, so we're a little over 21%. Really, right where we expect it to be. So a little bit of an uptick. As far as the check management goes, in Q1, like we said, our mix was flat. Kevin alluded to this. We did see in October our mix has gone a little bit negative, but our traffic has more than made up for that. Our traffic is two-thirds of our same-store sales right now. So our traffic is accelerating.
We're seeing those guests maybe do a little check management in alcohol and dessert, but they're seeing more guests come to Chili's as that's where they think the affordable choice is. So that's really working out for us.
Awesome. Thanks, Mika.
Thank you. Next question from Chris O'Cull with Baird. Please go ahead.
Thanks. Congrats on the great results, guys. Kevin, I'm just curious what you believe is driving the quarter to date strength, because I believe that's happening during a period where you weren't particularly heavy on national advertising, at least until very recently. If that's correct, what potential is there maybe for further acceleration as you do get back into some more heavier media?
Well, I don't think it's anything different than what we've been doing year after year now. This idea of marketing brings them in and then ops brings them back. We shared at Investor Day, Chris, the token data where we said, "Hey, we have anywhere from 3 to 3.5 million new tokens come in," and then we track their frequency as a monthly cohort to see, do we maintain that frequency as we continue to fill the bucket with new guests?
We don't have the data for this past quarter yet in terms of repeat from new guests, but there's no reason to believe that's changing based on the guest metrics that we have. I don't think it's anything new or different. I think it's we have great marketing. We had some big swings. We had a really good July margarita of the month. We had the Big Crispy advertising, going with that direct comparison to a large QSR's chicken sandwich, which is really before your eyes, how much value you get with $10.99 in Chili's.
Then we had a great Rhoback, Chili's golf merch thing, which is another big swing just to get into the zeitgeist and be relevant with our guests. Then we've continued to have operational improvements. We talked about the Google scores, which is an external measure. That's not something we even measure. That's just we get from Google being an all time high of 4.3. It's just kind of more of the same. I know that sounds a little boring. I wish it was more of a Merlin act where we pulled out some LTO, and it did it.
It's really just about the fundamentals of casual dining, delivering great everyday value for our guests, then executing like crazy. The guest is seeing that, and they're coming more often. I think that's why we're seeing traffic accelerate as the consumer is becoming under more pressure.
Okay. Fair enough. And Mika, can you provide some additional color on the returns you're seeing on the remodels as you ramp them up? I mean, just in terms of flow through. I understand you've given the comp lift. I'm curious what the flow through looks like, especially as a relative to the investment.
Yeah. So Chris, really what they're doing now is covering the cost of capital. Early on, right now we're at the $600,000 investment. We talked about 20% of the fleet's going to need that higher investment. The other 80%, it'll probably get closer to $500,000. Again, we're so early in this program. We think we can continue to get some cost out of those reimages while just maintaining the quality of the reimage. So I think we're going to see some efficiency there.
Also remember, these are fairly new. We need to read them over time. Again, we're getting that 3% to 5% lift even as we continue to add on new restaurants. Again, that is above and beyond all the incredible momentum that we're seeing in the business. So we're still really pleased with this because we know the reimages, they need to happen.
They need to keep as part of our pillars on the atmosphere. We got to stay relevant, and we think it's part of the overall program. More to come on specifics on returns as we continue to refine it over time, but it's just really early right now.
Okay. Thanks, guys.
Thank you. Next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.
Thanks. Mika, can you update us on the restaurant level margin expectation for the year, in the backdrop of the stronger same-store sales numbers you are seeing?
Sure. Absolutely. I am happy to. Taking a step back, if we look at the full year, what I am expecting in restaurant level margin improvement is about 70 to 90 basis points improvement year-over-year now, especially with the strong first quarter that we have had. I do want to say, I need to maybe smooth out the quarters a little bit, just thinking about some of the laps that we had in prior year.
What I would expect in the second quarter, I would expect restaurant level margins to be roughly flattish year-over-year, with maybe a little pressure on labor, because as Kevin said, we are really leaning into labor. We kind of do opposite what everybody else does. Labor is one of our secret sauces, where when those guests come in, we want to make sure that we are taking care of them and capturing all those guests.
We don't shy away from that. Quarter 3, I think you're going to see a return to the 20 to 40 basis points that I always talk about with mid-single digit same-store sales. In quarter 4, there's more upside there, particularly in the food and beverage line, because we're going to be lapping from a year ago, the tomatoes and the lettuce, we talked about that last year.
So we have a little bit more upside there. Again, full year, and that does include the 53rd week, that 70 to 90. The 53rd week is worth about 30 basis points. Hopefully that helps everyone to kind of get those quarters in line and a little more visibility on how we expect restaurant level margins to progress throughout the year.
Very helpful, and just same sort of topic area, at least on the margin front. Updated G&A guidance, I think it stood at approximately 4% of sales on the last call. Where does G&A stand right now?
Yeah. So it's going to hover around that for the full year. It may be 4.1. We do have some incremental performance-based compensation there, especially after the first quarter. It'll smooth out over time, but it's going to still be in that 4% to 4.1% range for the full year.
All right. Thank you.
Thank you. Next question comes from Andrew Strelzik with BMO. Please go ahead.
Hey, thanks for taking the questions. My first one is about the throughput initiatives, but I'm curious, as you talk to the traffic strength, if you're seeing any measurable benefit from those throughput initiatives in the first quarter or even the quarter to date period, and maybe just looking for an update on where the rollout of some of those drivers stand today.
Yeah. We've seen a slight decrease in ticket time, but it wasn't significant enough to worth reporting. I think if we see it over a few quarters and it continues to track, then we'd probably share that. But we feel very good about what's happening. Number one, as I talked about in our prepared comments, we rolled out really the best practices on how the North of 6 restaurants manage labor cards and labor productivity at peak.
We retrained all of our above restaurant leaders on how to write proper labor schedules, and have incorporated all the best thinking and best practices in the North of 6 restaurants into the business. That's kind of point one. Point two, we have a quarterly rollout going on right now on host stand, and that's a pretty big initiative for us, because just one missed four top per day, is almost a point in sales. So it's a pretty big opportunity for us. And we have nothing baked in the guidance. So anything that we can get out of here is upside.
We did four things this quarter. One, we reestablished talent standards for the host position, as well as staffing appropriately for the volume. Five years ago, there were a lot of restaurants that didn't even have a host on. Now we're talking about three, four hosts, in some of the restaurants. Number two, we trained on what we call aces in places. So defining multiple host stand roles. We call it leader, seater, and greeter.
making sure that managers are at the floor for large parties. That tends to be a bottleneck, when a party of like 8 or 12 come in and they all want to sit together, making sure managers get involved there. Three was retraining on our iPad training for host stand. This is all about how to properly use the software, with the end goal of making sure that we quote zero false waits. False waits, I think I talked about this in an earlier earnings call.
False waits are a very common thing in casual dining where, through improper preparation or lack of labor scheduling, the restaurant gets backed up, the servers are kind of pushed to put people on false waits. We want zero false waits in our restaurants, meaning we want them quoting the exact quote time that the system is quoting. All these things are rolling out right now. I would expect by November, December to start seeing some progress on host stand.
We are currently rolling out, we have talked about this for a while, it should be done by the end of the calendar year, of rolling out the new team member handheld interface, which eliminates over half of the taps that are required in order to ingest an order from a table, which would help with ordering time. We have a lot going on in terms of throughput. There is a whole host of another initiatives on to-go that we have yet to share, that is just getting started now. As we get updates, we will share them.
Feel very, very good about what we are attacking. I hope in future calls to be able to share metrics like what we talked about at Investor Day, like dine-in times and ticket times, and things that would give you some sense of in-process metrics that would let you know that productivity is happening. I will say, when we look at North of six restaurants who have nailed throughput, everything is better.
Food grade scores are better, GOP is better, productivity is better, they save on the labor line, and ticket times are lower despite having way more volume. Certainly if we can crack the nut on this productivity thing, I would expect there to be upside from it.
I would like to note on North of 6, they also continue to comp at the same rate or higher than the brand. Their ability to get even more traffic in continues to amaze us.
Okay. All right. That was super helpful. I just wanted to quickly ask, with the change to the manager bonus structure going into place, have you seen any changes in behaviors? I know you're leaning into labor more, certainly, but I guess I'm just curious if you're seeing any changes to maximize throughput or anything like that since that's gone into place. Thanks.
Yeah. There's a couple things that are going on. One is there's just a lot less distraction about the guest score. We don't see as much, for lack of a better term, obsession about the Ziosk scoring and the scores going up, and it's no longer a demotivator for our hourlies when folks are posting these scores. I think the biggest thing that I've seen so far is just a lack of a distraction or wasted time on worrying about a score versus worrying about the behaviors.
That's point one. The second thing that I think has come out of this is we rolled out a vastly simpler reporting structure in terms of the key operational metrics that we look at on a daily basis, to focus on a few ones that are incredibly important. I feel like when I go to restaurants and we have discussions with the general managers and the above restaurant leaders, I feel like they're more focused on the more important things, and we get to the fewer, bigger things faster.
I think over time, I would hope to see just continued operational improvement because of the simplification. But those are the two big areas that I've seen as a focus on what's important, and then the elimination of distraction of looking at these metrics on a daily basis by individual basis, and really just focusing on the behaviors that are going to be required to deliver improved operations over time.
Great. Thank you very much.
Thank you. Next question comes from Andrew Charles with TD Cowen. Please go ahead.
Great. Thank you. Kevin, I wanted to ask on the marketing side, we have seen you guys partner with celebrity brand fans, including Snooki most recently, and then Lizzo about five months ago. Should we think about this as a pattern that you have the opportunity to run these collaborations every six months or so, or do you expect future collabs to be further apart?
Well, I can just share with you how the marketers think about this. Typically, we sit down with a calendar, or they sit down with a calendar and they look at, okay, when are we launching things? Where are consumers seasonality-wise? What is happening in the restaurants? And they typically make the plan to try to always be on with some type of interesting thing happening in the business. So, if the food is leading the way because we are launching the Big Crispy, they let that sing.
But if we have times where it has been three or four months into the Big Crispy launch and we feel like we got to get new news to make sure that we continue to build relevancy for this brand, they will come up with ideas based on some specific strategy. Right? So, the example of the Lizzo example that you gave was, "Hey, we have these new improved ribs. There is 50% more bones from the portion size. They are fattier and meatier than the old rib that we had, so they are much better value."
How do we create excitement to get people to come into ribs, given it is not a bigger segment that we are going to go put on TV? And that is where the team came up with, "Hey, let us reboot the ribs jingle. That is something that is really part of our history, and let us get our big performer to sing that." So that is where Lizzo came in. On the Snooki one that you are referring to that is most recently, in the innovation kitchen, we tasted a lot of different chicken sandwiches to see which ones could really stand out given how big that filet is.
We talk about it is over 80% bigger than the leading QSR's chicken sandwich, and it is handmade, the batter is from scratch. This is a vastly superior chicken sandwich. We are looking for ways to create some excitement by it. The team saw Chili's way of doing Chicken Parm with the cheese pull. That is where that sandwich was invented, right? Then we said, "How do we create excitement in social media?"
That is where Snooki came from. It is not necessarily on a cadence of every six months. It has to do with what is the priority for the quarter that we want to drive? In this case, how do we continue to launch and sustain our chicken sandwich launch? How do we create new news virally? That was the idea behind it. It really just starts with what is the priority and what we want to drive with the guests, and then the marketers then use their creatives to figure out what are we going to apply to that.
That is very helpful. Then Mika, I know you gave the commodity inflation by quarter for the year that you expect for food inflation. Can you give that for labor inflation as well?
Yeah, labor is just going to be in that 3%-5%. It was a little bit less than 3% this quarter.
Yeah.
Close.
3%, closer to 3%.
Closer to 3% all year.
Got it. Thank you, guys.
Thank you. Next question comes from Sara Senatore with Bank of America. Please go ahead.
Oh, thank you very much. I guess I wanted to ask just broadly about the casual dining segment. I know it's something we've talked about before. In particular, younger users. I think, Kevin, when you and I chatted, you suggested that maybe having more casual dining brands on social media gives younger consumers maybe permission to go. Could you just talk about that cohort in particular, and
I'm trying to, I guess, figure out why it seems like just casual dining, the contrast between the comps and the casual diners we're seeing. You're obviously leading, but just broadly speaking, much greater than QSR or others. I know you talked about the relative value, but maybe you could just talk about that younger cohort in particular as a potential longer-term, maybe structural driver.
Yeah. I think we see that in our business. I think you're probably referring to one of our competitors that have done this successfully, too. What I would tell you is, I think maybe we brought some of the more modern marketing techniques to casual dining. But I think within restaurants, they're pretty well-known. I came from QSR, and if you actually look at the reports that come out about social media impressions, QSR tends to have more social media impressions than casual dining. I think the difference is what's happening is, one, it's new to casual dining.
As George and team have brought social media to our business and people see the success that we've had, they're saying, "Hey, I could probably apply this to my casual dining concept." I think the second thing, which I think is different than QSR, is there are several casual diners that operate very well. When you have a good product and it shows up in social media and then people go to replicate it, if you have that experience, that's what grows, and that's what grows your business, right? I always talk about when we had the first kind of spark in social media, this was April of 2024, so about two and a half years ago.
If people came in for the cheese pull and the cheese didn't pull and the restaurant wasn't clean and the experience wasn't good, I don't think that would have lasted more than two or three weeks, and we wouldn't be talking about this 30 months later comping a 10% on top of a 22% on top of a 14%, right? I think that's the other thing that I think, Sara, I'm not sure everybody quite understands is it's not just about going viral.
I think lots of brands go viral. What you saw with us, I think what you're seeing with one of our competitors in casual dining that's having some really good success with it is you go into their restaurant, you go into our restaurant, you have a pretty good experience. It feels like that social media experience that you saw online, and that causes you then to repost and share your experience, and then that's when it has that virality. I would anticipate everybody trying to do this.
I think the better operators are the ones that are going to really win out in this environment because you can't fake a social media post, right? That person's going to post whatever they see and experience. If it's great, you're going to feel really good about that post, and if it's not great, you're going to feel the exact opposite. As long as the brands that do this are operating well, like Chili's is, I think they're going to also win, too.
Yeah. Thank you very much for that. Then just quickly on Maggiano's. The banquet business, that's encouraging, and to your point, that's the real opportunity to market. Anything else that maybe has changed in the operating environment, whether in the Italian segment or anything that you've seen that might also be contributing, or this is really very specific to Maggiano's?
Well, there's macro factors. I always tell our team we've got to just focus on what we can control, and what we can control is speeding up service and making it more consistent. Banquets is a great example. The reason why I shared it, even though it's only 15% of the business, it's up double digits. It was kind of a big swing that we started nine months ago, and now we're seeing the fruits of our labor and our banquet bookings are ahead of year ago now when we look heading into the holiday season. To me, it was two things. One, it's a marketing tool because that's the way a lot of people are introduced to the brand.
Two, I think it showed, hey, if this cross-functional team gets together, they focus on something that is important, they work together, they're going to have big results, right? The next big thing that we're working on right now, we have it now live in one restaurant, is taking the Chili's KDS technology, which is the back-of-house system that tells cooks what to cook and QA what to send out to tables. We're taking that state-of-the-art system and putting it into Maggiano's.
The current systems they have today, it's not doing Maggiano's a service in terms of temperature of food and how fast food goes out and how it coordinates across stations. So that's an example where I think if we get that done, it's probably going to take at least another quarter to get all the kinks out.
If we get that done successfully, I would expect to see ticket times come down, total dining times come down, improved productivity on the weekends, which is where we need it. So, that's the next big swing, I think, cross-functional product that we're working on. I hope by next earnings call to be able to update that it's either been rolled out or is in process of in the majority of the system and soon to be fully rolled out because I think that's going to be the next big push in improving throughput at that concept.
Thank you.
Thank you. Next question comes from Brian Harbour with Morgan Stanley. Please go ahead.
Yeah. Thanks. Morning, guys. Could you just talk about both pieces of the off-premise business, maybe? I know you talked a little bit about kind of leveling that up at your investor day. When do you expect that would happen?
Delivery and carryout are each about 12.5% of the business, roughly. So about a quarter of our business is off-premise. We are in process of a major cross-functional effort that's going to take several years to, we think, strengthen our off-premise business. We're not really focused on delivery per se. We're focused on all of the things that impact carryout and delivery.
Even though delivery obviously has been growing from an industry standpoint, we're more focused on how do we make it easier for customers to order? How do we make it easier for both customers and drivers to pick up the food? Then how do we ensure that the food is as accurate to the order as possible and arrives in the best possible condition, given it's got to travel for a period of time?
The first things that we're working on this year are our promise time calculator. Essentially, as we've sped up our operations, the promise time calculator is a bit antiquated, so it quotes longer times than actually the food would be prepared. So you'd get a text that, "Hey, your food's going to be ready in 25 minutes." Then 10 minutes later, you'd get a text that your food is ready. We think we've got that solved with an interim solution now that's in restaurant.
We're working on a longer term solution that's going to be more reflective of ticket times and how fast your food can be ready to be ordered. The second thing that we're working on right now is improving the ease of ordering. The first project that is on the docket that hopefully we will roll out soon is just making the reorder button a whole lot easier to use. There is a decent percentage of people that just want to be able to either reorder or reorder with minor modifications on their order.
The bold goal for that team is to get people's order time to less than a minute in order to make it a kind of a routine. When you look at the better players in off-premise, they have apps that are very easy to reorder food from and make any small edits to. We are trying to copy that. Then longer term, we are looking at things like the pickup experience with order boards, additional packaging upgrades to make the food present better and hold better, as well as some improvements in terms of accuracy.
But it is going to be a multiple, Brian, it is going to be a multiple year initiative. We are still working on dine in, and we are in year five. I would not expect some magic wand and in Q3 all of a sudden to-go is fixed. I think it is going to be a long slug of looking at things in a very deep way, and then improving things over time, so that when you add it all up a couple of years later, we can be the leaders in casual dining to-go.
But I will tell you, it is a big opportunity for us because when you think about the Better Than Fast Food campaign, and that food tends to travel better. The bold goal is we want to be as easy as fast food, but have a better value than fast food. If we can do that, I think you would see our off-premise business start growing a little bit faster than our dine-in business.
Okay. Kevin, I guess since you teased it, based on your time working in a restaurant, what do you think can still get better in the back of the house?
Oh, everything. It is encouraging. I know that sounded like it was not, but it is encouraging. One of the biggest things is I spent about an hour and a half debriefing our leadership team of my experience there. The big umbrella aha was even though I think everybody and all of the managers told me, and all of the hourlies told me, "It is so much easier to work here, Kevin. Thanks for your continued partnership on this."
My observation was, it is still not easy to run a Chili's. I do not think that is unique to Chili's in casual dining. I think it is probably hard to run complex menus with table service pretty much anywhere. Especially when you have a giant concept with over 1,000 restaurants. I had two main observations on that. One was we have to be continuously improving and making this restaurant easier to run.
When we think about things like the Heart of House project, which is going to be fueled by AI. Think about almost like a completely new system that is an integrated, kind of like an ERP system, but for the Heart of House. That is going to make forecasting, ordering, inventory, prep, labor scheduling, it is going to make everything easier. That is a two to three-year project, so it is not like it is going to come this fiscal. But like that example, there is so much institutional knowledge that you need to have to run a Chili's because none of the systems are naturally connected.
We have created some integrations, but most of them are manual integrations that the managers have to do, and it requires a lot of institutional knowledge. Point 1, there is still a lot of upside to make it a whole lot easier, especially with technology. The second thing is, even when we get all this stuff installed, it is still not going to be the easiest thing to run. It instilled in me the importance of retention in this ownership model. Because when you look at north of 6 restaurants, they have longer tenured managers. It is such a clear data point.
Having done it firsthand, I can see why. Because regardless of how much automation we can put in the business with technology, it is still going to be a difficult job. The longer we can retain our managers and have them have big careers at Brinker and at Chili's, I think the better they operate, which is why the majority of north of six restaurants have long-tenured general managers. I had like 60 slides of all the improvements that we can make.
Brian, a lot came out of that. But the two big ahas were, we still have so much low-hanging fruit that we can focus on to make this operation more seamless and a better guest experience. Then two, how do we really take this ownership and retention and take it to a whole another level? Probably the guys that everybody is chasing in casual dining, that second part, they know like the back of their hand. I think now I see firsthand why that is so valuable to our business.
Thank you. Next question comes from Margaret Binshtok with Wolfe Research. Please go ahead.
Hey, guys. Thanks for taking the question. I just wanted to follow up. I know you mentioned that there is some check management that is impacting desserts. But last quarter, you guys did talk a little bit about some of the dessert innovation that is coming, and also moving up desserts in that kitchen screen to help servers sell more. I guess, how do you think about leaning into desserts while seeing the check management that is going on right now?
We saw some virality with the Molten being served on top of a cookie. I think that is what drove incidents that quarter. The mix decline has really been more recent. So this dessert incidence is more of a recent trend, post the virality of that molten cookie initiative. I will say, we are in test right now with bumping the desserts to the top of the screen.
We want to make sure that we are not inadvertently slowing down other dishes. It is more important to turn tables than to create dessert add-ons, so that is why we are testing it versus just doing it. I will say from my last three restaurant visits, floating the idea that we are testing it, that everybody got really excited by it. So my guess is it is probably going to work. But we do not really have any updates on that because it is still being tested right now.
Yeah. Still early.
Got it. Just to follow up on the Big Crispy, I know we mentioned marketing earlier, and the pace of it, but just on the Big Crispy, I know you have the Chicken Parm one coming up, but should we think about more innovation opportunity on the Big Crispy platform? Is there a cadence we should be thinking about from here? Thank you.
Well, right now we're focused on just advertising the Big Crispy, on $10.99. The majority of our marketing dollars are spent on whether linear TV or connected TV, and then digital. The majority of our marketing spend is on this value message, buying the Big Crispy. The Chicken Parm Big Crispy sandwich is mostly a PR and digital social media play.
Which is, it's not that it's not important, it's just that the investments are a lot less than when we talk about a broad-based message about value. We are continuing to look at different innovations on the Big Crispy. We have seven variants right now that we haven't talked about them all. So that's the other opportunity, is we have some very unique things like the Honey-Chipotle sandwich and the Nashville Hot sandwich. These are all very unique sandwiches within casual dining.
So, we're going to evaluate whether we think we need to update the Big Crispy message next May. Do we need to bring new product news, or do we continue to see more traffic being built with just the $10.99 message? We talk about here is if it's not broken, we don't fix it. So if we see that the traffic lifts are the same, call it in Q3, as they were in Q1 and Q2 from the Big Crispy advertising, I don't anticipate us moving off that message.
If we see that starting to wane, in terms of the traffic response to the advertising, then I think we'd likely see some type of new product news, either on chicken or on hamburger, depending on what we think is more topical for the moment. But it's more the business results are going to drive whether we bring additional innovation.
We're going to be preparing for innovation, but we're not going to be hard and fast that we are absolutely going to have to have a new chicken sandwich next May, because if the business continues to rock and roll, we would not move off that message.
Got it. Thank you.
Thank you. Next question comes from Chris Carril with KeyBanc Capital Markets. Please go ahead.
Hi. Good morning. Thanks for the question. Kevin, you mentioned big swings a few times on this call. Can you maybe talk a little bit more about the efficiency of these big swings, maybe why you think they're landing more frequently? Is this a function of the overall momentum the business is seeing, or has something changed in the process to ensure the success here?
Yeah. Just to be clear, we use big swings in two ways. Maybe it's because I always talk about fewer, bigger with our teams, so everybody adopts to the word big swings. I think you're referring to big swings in marketing. We use big swings for two things. Big swings in marketing, meaning take a couple of big swings every quarter to see what we can take off into the culture and drive relevance to the brand. Then we also talk about big swings in operations.
We pick about three big swings every quarter that we do a rollout on. They're typically based on the fundamentals of casual dining and typically tied to something commercially that we're driving, so that the business is hearing one message from us. So I think your question's about marketing and we are constantly learning about what works and what doesn't work, and we're adjusting our plans based on that.
The best example I can give you, so it's not really formulaic, it's more we think about it as on a value offer, we have large amounts of out-of-store advertising to drive the value message, because that's broadly appealing. Then we use social and digital and PR to try to go after specific groups of people that we think would have interest in learning more about Chili's and about whatever that item is. Then based on what we see in market, we adjust.
If things hit, we try to understand what are the things that made it sticky and go, and when things don't hit, we try to learn from them and say, "What did we miss out on that we could have improved more?" Like for example, on the Chicken Parm that we just launched, realizing not having something to point to in the restaurant maybe limits the amount of business that we can have on that, but we're going to find out very quickly on November 1st when we have merchandising in the restaurant.
But the best example I can share with you so you can understand at least how we approach it is when we launched the Big Smasher in May of 2024, we primarily did that with TV advertising. The next year, we layered on a bunch of social advertising behind it because we had all this great success from the social and the Triple Dipper. That social advertising was squarely on having people compare our burger versus a fast food burger, which is way more compelling when it's coming from a third party than it is from a company that's advertising on TV.
In year three, when we launched the Big Crispy, we had all of the PR we had in year two and the social, but then we had three bouts of social. We didn't just stop with the launch and social. We had a second hit with new messaging, that was briefed to the influencers a few months later. Now we have the Big Crispy Parm, which is our third hit of social.
I would tell you, it's just every year we're learning how to be more effective, and that's some of the things I really appreciate about our marketing team. George Felix and Jesse Johnson are very hungry to just how do we get better. Even though I would say they're probably the best in advertising in restaurants right now, every year they're doing a debrief on what could we have done better. I just feel like every year they just get stronger.
Right? That's why we're able to continue to bring new guests in, and then operations does their amazing job, and that's why we have this sustainable flywheel going. That's the best way I can describe it, is they're constantly looking at how they can make these things better. But there's no formula of add another 30% and get another three big swings. That's just not the way they look at it.
Got it. Thanks so much for all the detail there.
Thank you. At this time, I will turn the call back over to Kim Sanders for closing comments.
That concludes our call for today. We appreciate everyone joining us and look forward to presenting our update on our second quarter fiscal year 2027 results in January. Have a wonderful day.
Thanks, everyone.
Thanks, everyone.
Thank you.
Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.