Q4 2020 Brinker International Inc Earnings Call
And it is now my pleasure to turn the floor over to your host Microware maam the floor is yours.
Thank you Paul and good morning, everyone.
With me on todays call or Wyman Roberts, Chief Executive Officer in President and Joe Taylor, Chief Financial Officer results for the fourth quarter were released earlier. This morning in are available on our website at Brinker dotcom.
And then Joe will first make prepared comments related to our operating performance and strategic initiatives. Then we will open the call for your questions.
Before beginning our comments I must 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 statement within the meaning of the private security Litigation Reform Act of 1995.
All such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated such risks and uncertainties include factors more completely described in this mornings press release and the company's filings with the FCC and of course on the call. We may refer to certain non-GAAP financial measures that management uses in its review of the business.
And believes will provide insight into the companys ongoing operations and with that said I will turn the call over to Wyman, Hey, Thanks, Michael and thanks, everyone for joining us this morning.
John I will share highlights of our fourth quarter performance and what we're seeing quarter to date.
And by now you've heard most others in our space and despite the volatility we're all facing it's good to see the category and the industry moving in the right direction.
We'll hear some of the same themes from us like progressive improvement throughout the quarter as dining rooms reopened growth in off premise and digital expansion.
The biggest difference you will hear isn't our level of performance.
Staying true to our strategy and make an aggressive moves to grow the business. Our team has navigated this pandemic very well.
Please generated significant topline progress throughout the quarter and with our operators disciplined margin management, we delivered positive cash flow for the quarter, which we used to pay down debt our debt load is now below our pre pandemic level.
We continued this momentum into July ending the month with Chili's down just 10.9%.
And in the 84% of our company owned restaurants with open dining rooms were down just 3.8%.
And 36% of our company owned Chili's restaurants brand positive comp sales for the month.
It wasn't our quick reaction to the crisis that enabled us to deliver these results. It was our choice to stay true to the strategy. We've been working for more than two years, we had already made significant progress in the areas required to thrive in this environment off premise digital value and scale, we didnt have to scramble independent kit, we walked into it.
With seven solid quarters of performance, while we had to do a stay focused and push the accelerator a little harder.
As a result, we set the bar in casual dining lending the top spot in sales and traffic for three straight months. According to Knapp track and we're poised for continued future success.
You've heard how many restaurant companies are leaning into digital to manage through this crisis and loss and while chilis is no exception.
We were leading the way in the digital space long before the pandemic.
Over the past decade, we've made significant investments to build our digital infrastructure foster connections with guests.
And enabling us to quickly respond to their evolving dining needs.
Increasing convenience is a big component of how we leverage our digital capability.
We can lean into our 8 million member loyalty database.
Gain check level purchasing insight from our tabletop devices and continue to improve our five star App with features like one tap reorder of our guess most frequent ordered items.
And last year, we integrated door dash into our Pos system, and our E commerce experience, making it possible to shift our marketing focus from national TV spots to our digital platform, where we continuously test and learn to increase ecommerce conversions.
And as a result, our digital sales of off premise meals have grown from low teens to more than 50% in the fourth quarter with only a slight dip as dining rooms reopened.
We've also driven frequency increased frequency through our takeout and delivery channels at a fraction of the marketing expense.
Thats the beauty of a digital strategy that makes dining easier and more convenient for guess because we can meet them, where they are guests use us more.
Finally, here's something you havent heard from anyone else in our space during the last fiscal week.
Our last week of fiscal 2020, we accomplished something no other restaurant company has ever done.
In a single day, we launched its just wings are first virtual brand in 100 in 1050 chilies in maggianos across the country.
Sales continue to build every week and we clearly see the potential to exceed 150 million in the brands first year, which would secure it's just swings a spot in the top 200 restaurant brands.
Over the years casual dining has been being for being over bill.
We believe this is our opportunity to prove that maybe it isn't over bill it's just under utilized.
It's just wings leverages existing buildings equipment and labor.
Even after aggressive pricing in marketing buying quality ingredients and packaging and paying our last mile logistics partner, we're generating strong flow through.
The brands guests are highly incremental to brinker concepts and their feedback is extremely positive.
Satisfaction ratings are among the top restaurant brands on door dash and rear intent is high.
We're just getting started.
We created this business in six months and launched it overnight with minimal investment in a consumer channel where demand is growing by more than 100% annually.
Taking into account our scale the capacity of our kitchens are exclusive partnership with door Dash, we believe our ability to win in this space is unmatched.
So we're testing additional virtual concepts and learning how to drive visibility among the millions of door Dash guess looking for food delivery options.
And how to continually improve our operations to meet consumer demand for speed food quality and value.
We're pleased to have not one but two brands that rank among the most popular on the door dash platform and we're excited about the potential that lies ahead.
Obviously things aren't back to normal for any of us yet, but we see a bright future for all the Brinker brands. We promised you last quarter that no matter what came our way we would do two things.
Put the safety of our guests and team members first and continue to perform and take share.
I couldn't be more proud of how our operators in our support teams have delivered on both of those promises and how were creatively and boldly building our future together no matter. What lies ahead with the talent on our team the power of our brands and the scale at our disposal, we start from a position of strength.
And with that I'll turn the call over to Joe.
Hey, Thanks, Wyman and good morning, everyone.
Regardless of the distributor you put on the operating environment to the most recent quarter and a number of less complimentary ones come to mind, our operators quickly adjusted course, the realities of the pandemic and rose to the challenge to exceed expectations with the results delivered.
For the fourth quarter fiscal year, 20, Brinker reported consolidated net comp sales of negative 36.7%.
Although comp sales recorded material improvement as a quarter progress with the June period consolidated results down 19%.
Both brands generated a positive progression of performance through the quarter with chili's, leading the casual dining sector from a comp sales perspective.
While the reported quarterly net comp sales for the brand with a negative 32.2% performance progressed from down 51% in April at the height of the dining room closures to down only 13% for the June period.
Chili's outpaced the competition throughout the quarter with comp sales positive the casual dining sector by approximately 13% and traffic positive to the sector by approximately 18%.
More than 25% of our corporate Chili's restaurants reported positive comp sales for the June period.
As a percentage its wyman earlier stated that increased to 36% in July.
Our penal highlights for the quarter were total revenues of $563 million, a restaurant operating margin of 6.4% and an adjusted loss per diluted share as 88 cents.
Included in the 88 cents loss is a burden of approximately 18 cents due to the timing of recording expenses related to annual and long term incentive compensation plans beyond flipped would typically be recorded in the fourth quarter NRG in a expense.
Throughout this crisis, our team has done an exceptional job of taking care of our guests and team members and has proven an equal ability to effectively manage expenses in the face of meaningful sales decreases.
Our managers have been efficient and utilizing our scheduling tools to optimize the labor hours to fit the current business environment.
Hourly labor and payroll tax have a good degree of variability and were favorable year over year, Although total labor, including restaurant management was unfavorable in the quarter by 260 basis points driven by sales to leverage.
Restaurant expense margin for the quarter increased by 6.2% again, primarily due to sales to leverage despite our operators reducing year over year spend in this area by more than $29 million.
We recorded meaningful savings in advertising spend repair and maintenance and supplies related to on premise dining a portion of which we believe will be ongoing.
As to cost of sales, we were positive 30 basis points versus prior year pipe, primarily due to favorable menu mix.
My earlier comment at our restaurant operating margin from the quarter was 6.4%. However in conjunction with the progress we made topline our operating margin improved through the quarter, increasing to 12.2% for the June period.
Assuming an improving operating environment. We believe we are set up for additional margin improvement as we carry forward identified efficiencies further opened dining room capacity and leverage sales from our virtual brand. It's just wings.
Strengthening the balance sheet is an important part of our financial strategy moving forward and we are currently focusing free cash flow towards debt reduction and liquidity enhancement.
To further enhance our liquidity position, we executed in equity offering in the quarter, raising approximately $139 million, which was used to pay down revolving credit debt.
Our overall total debt balance at fiscal year end was approximately $1.2 billion a reduction of just over $220 million from the end of the third quarter revolving credit borrowings decreased from $700 million to less than $473 million.
Our liquidity, which we consider to be cash balances and revolving credit availability now exceeds $575 million.
In addition, we recently completed a 15 month extension of our revolving credit facility now maturing in December 2022.
As sales and cash flows improved we resume new restaurant development activity that had been temporarily halted early in the quarter.
We plan to open or relocate for new Chili's restaurants during this current quarter.
Now with your operating guidance, while in past years, we would typically provide annual guidance for brinker. During this earnings call potential volatility and unknowns at the current operating environment makes that exercise difficult.
Instead, we are providing some limited guidance as to our consolidated performance for the current first quarter and anticipate providing quarterly insights as we move through the year.
For Brinker in the first quarter, we expect consolidated comps store sales to be down in the low to mid teens range.
Adjusted earnings per diluted share are currently estimated to be a loss in the range of 25 cents to 40 cents.
We anticipate positive operating cash flow.
And weighted average shares is estimated to be 45 to 46 million shares.
But also like to remind everyone that fiscal year Twentytwenty. One includes the 50 Threerd week, which takes place during the fourth quarter.
Despite the difficulties experience from this pandemic our team has risen to the challenge our strategy of focusing on value convenience and safety has proven to be well received by our guests has given us the ability to outperform our competition and leaves us very well positioned to continue to take market share as we move.
Move through the fiscal year.
I greatly appreciate the hard work and commitment from our team members, especially those on the frontline serving our guests each and every day I have every confidence we will continue to demonstrate our ability to sustain our progress and return to growth on the top and bottom line for the long term.
And with that Paul let's open the call up for questions.
Certainly 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, we asked about pulls in your question you. Please pick up your handset is listening on speaker phones to provide optimum sound quality. Please hold while we pull for questions.
On your first question is coming from Brian Vaccaro, Brian. Your line is life. Please announce your affiliation and pose your question.
Thanks, and good morning, I just wanted to circle back to the it's just swings concept I think you said you believe it can generate around 150 million. This year in sales just curious I know, it's still early days, but can you just give us a sense of how that's contributed to the quarter to date comps and how you've seen that build even through the first four or five weeks and could you.
We also provide some more color on the brands margin dynamics.
Hey, Brian.
Well, we'll give you a little bit insight.
We're not going to give you know everything you're asking for but obviously you can you can kind of do the math, if it's a $150 million Brandon you know roughly 3 million plus a week in sales that's what it's pretty much incremental to our business. So it adds a that much too too.
The sales levels.
So it's you know mid low single digits mid single digits kind of in that range and we we've seen really great response to the brand and the product as Weve rolled it out now we're in week.
Seven so it's been very well received a sales have grown nicely in its and met or exceeded our expectation pretty much on every turn.
And as I mentioned, the margins and the leverage we have with this virtual brand is significant you know there's no capital.
Per se and we had it by a couple of small refrigerators and a couple of restaurants, but for a for the for the sales volume that it generates its really capital free.
And we get to leverage all of the expertise.
We have in our restaurants in terms of culinary ability, we get to leverage the equipment that we already have and things like our comedy which is a great piece of equipment that allows us to smoke. Our ribs. Now also allows us to to smoke wings.
And offer differentiated product from a lot of people in the category. So so we're very excited about the virtual brand. We're pleased with its results and we just see a potential future potential down the road to grow it.
All right and then I also wanted to just ask about initiatives that you've been working through the to optimize capacity within your restaurants, where are you on installing plastic partitions or or working to expand outdoor seating and can you remind me what percent of the seats and the typical chili's our boots.
[noise], Yeah, I don't have the number of Booth was what do you think might have about yes about 45% of our seating is booz.
Outdoor capacity is not been area of focus for us through the pandemic is as we've.
Gotten a little bit more into this a summer and now looking into fall and it looks like we may be out there a little longer in some states.
We are starting to.
Put out some additional outdoor spaces.
But the results you're seeing us deliver which you know again at top in the category or without us having to do a whole lot of X external or extraneous work.
And having to build you know patios or or tens in any major way, we're doing that off of the capacity we have in our dining rooms today, which for the most part is about 50%. So we have a lot of upside as we get.
No more and more comfortable with the with being able to see people in a in maybe closer proximity and clearly again as we meant mentioned in July getting 36% of your restaurants back into positive comp territory without having to do those those.
Incremental.
Activities.
Thanks, Brian right. Thanks, Brian.
Thank you.
Thank you and the next question is coming from John Ivankoe. John Your line is Lyons. Please announce your fleet patient I'm pose your question Hi, great. Thank you with JP Morgan <unk> first a clarification on that the 36% was a concentrated in a couple of states. Maybe you have some parts of Florida, Georgia.
Texas Cigna, if you can just kind of make a comment or where are you able to habit need a more spread out then now then the southeast.
And then yes, and secondly, it if I can and I'm going to see if I can I ask this question correctly is there a level of sales maybe percentage at previous average unit volumes were you would stack to get back you know to previous store level margins either in percent or even the dollar margins you know that you care to talk about today obviously.
And then a lot of businesses.
Running themselves much more efficiently than they were in the past and you're actually able to achieve previous percent margins are dollar margins with a lower level of sales and if you don't mine as have it I'd like to have a third question as well if I'm not being too great. Thanks I heard.
Yeah, John Iveco going threat going for the triple Yeah. So.
And remember your first question now John So the first question it was a regionality yet.
Hi, guys.
Yeah, Okay. So the first question.
The beauty of what we're seeing is it's broad based so were those 36% spread out across the country market by market. Some some in Texas, and Florida as well as other parts of the country.
On the mountains states are doing very well.
Obviously, California being close to in in restaurant dining has been a little bit of a pull back from what we saw in the fourth quarter. You know so we walked into July and and we had to kind of deal with California closing dining rooms, which was probably the biggest setback we've had and so we're very confident that as we.
Get restaurants reopened everywhere, we'll see these positive sales trends grow even more and with regard to your question.
Around you know at what level do we you know do we attain the profitability our historic profitability levels, you know as Joe mentioned, we're finding a like you're hearing from so many other folks. When you you know when you zero base have a concept and if you take out so much cost and then you get to rebuild it you find opportunities and we're finding those opportunities. So we.
I do think there probably is a a more efficient well. We believe there is a more efficient model going forward and so though the level of which.
The sales will that we've had historically would deliver better profitability. So I don't have a specific percentage, where you had enough. We want to give you that but let Joe talked to that and then obviously you add is just wings into the equation ROIC and highly leverageable sales coming on that side. So clearly the biggest opportunity and the over the course of the rest of the fiscal year is is getting cut.
Past feedback online.
Dining rooms that reopened backup into that is 90% levels.
But what we can really control again as the efficiency that the operators are finding and how to run.
The restaurants, and then adding the virtual brand into the equation. So I think theres definitely a strong built strong beliefs around our ability to increase margins.
Thank you so much for that and then secondly, obviously DNA is getting a kind of there's so many different stories DNA in fiscal 20. The question is on fiscal 21, you know just kind of thinking about you know I don't know if you would fully accrued bonuses on the current level of comp that you have in the first quarter, obviously, so much better than the fourth but you can you kind of help.
I was hoping in.
What you think could kind of be out.
Reported GE in a number.
In in 21, obviously, whether it's on I see whether it's on head count or different projects that you're doing the it's probably the number that need the most help with at this point.
Yeah, and again I think that will evolve as the year evolves to based on where we see the business trajectory I think it will be reasonable to see us get.
The number from a percentage basis should start with the for and how far we can drive that down.
Or you know is going to depend on some of the dynamics, we just talked about and some efficiencies we see on the DNA side, we will definitely spend.
Fewer dollars Angie in a in this fiscal year than we have in the past typical years.
And we'll continue to but we're going to continue also invest appropriately I included in DNA is it spend and that's an extremely important piece of business and we will invest along those lines, obviously incentive compensation programs have variable dynamics to them, depending on where the business goes you would expect and lower.
And traditional business environments to see lower spend in that regard and and I think thats away some of those programs or work as we moved as this year and as we continue to build the business hopefully we'll build some of those results also so again I don't think at the handed the Dave from a percentage basis, it's going to be.
A radically different environment.
But again Thats one of the unknowns and one of the reasons, we're kind of keeping our thought processes and these conversations to quarterly basis.
Thanks, So much guys. Thanks, John Thanks, good talking to you.
Thank you and the next question is coming from David Palmer, David Your line is life. Please announce your situation I'm pulled your question.
Thanks Evercore ISI.
Good morning, what what does your to go sales mix lately in the partly open dining room locations. I think you mentioned it dropped maybe below 50% and what is your seating capacity in your dining rooms, or the partially open dining rooms, and what percent of normal quick follow up.
Hey, David that's that's an easy question because it's got the same basic answers are almost 50%. So were you know again as more as more dining rooms open and people get a little more comfortable we see it drop a little bit below that 50%, but we're basically 50%.
In the restaurant and 50% out right at this point and for the most part where our dining rooms are open we're running 50% capacity.
And you know we're we're we've been very conservative you know again, our first promises to keep our team members in our employee safe and and we've had.
Masks on every one from the very beginning of this pandemic and and we're.
And we social distance and we really did social distance in our restaurants and so we're going to continue to do that but we're looking at ways to maybe get some additional capacity and now that we have a better sense for what we have to do to stay safe and and continue to provide that environment.
And then they have no. This is a bit of <unk> million dollar question type question, but how much do you how much higher today you these be in the out year getting beyond coal bid.
Versus pre coded.
And obviously, we're thinking about the to go sales your if your Annualizing 1.4 million and.
To go sales it does make you wonder if you discovered some of that is is gonna be sticky. After this is all over but there's so many other factors that you must be thinking about as well how do you think about that and versus other factors that you maybe you want to tell us about thanks.
Well I mean do it I don't like anyone would say this is a a robust environment for casual dining and the fact that we've got 36% of our restaurants running positive comp sales tells me that we're doing some good things and that there is upside potential and and that's with still fit.
You know 15, 16% of our restaurants that don't have dining rooms open. So I think it kind of we're optimistic that that there is a quite a bit of topside room for for our brands to grow and to leverage the capacity, we have with some virtual brands as well.
I was just getting the core business a stronger and in this post pandemic environment, we think the things that we've been doing the value proposition leveraging scale.
Lean into digital technology is going to allow us to be even more successful. So I don't have a number for you, but I, we look to grow.
Per restaurant sales and we see some significant upside potential.
Thank you very much thanks.
Thanks, David.
Thank you and the next question is coming from Nicole Miller Nicole Your line is life. Please announce your affiliation and pose your question.
Thank you good morning, hyper Sandler on two quick ones. The first there is there's a lot of excitement about it's just swings, but I'll tell you have been asked about you know what kind of human capital crime investments do you have to make could you just walk us through both you know the store level sounds pretty easy, but from an executive level just help that's for sure.
There's no disruption on your own Doug if you take off this opportunity in others.
I hand, the call. That's a great question I think so this is where another strategy of our scale comes into play right. So we have the luxury.
At Brinker to be able to put some really talented.
People in position to manage businesses and Steve Provo was was heading up innovation last year and in that process. We looked at a lot of things beyond virtual brands, including goes kitchens, and mobile kitchens, and a litany of things.
And to have somebody of that quality and caliber of leadership, taking a taking us through that journey and finding the best place for us to land is a you know it's a luxury the lot of people don't have then and so we we have the ability to take a leader and a team and keep them somewhat isolated when working a lot of.
Innovation ideas and then when it became time to roll it into the system.
We did it overnight and now its sits within our brands fairly seamlessly.
We have some talented leaders now kind of responsible for growing and building that business and Steve stepped into the Maggianos world to help us.
I'm kind of navigate maggianos through this current time period and into the future. So I feel very good that the leadership, we have isn't isn't being distracted from the core if that's the kind of that.
The.
Just key issue, you're trying to get too but.
But I also feel the great that the quality of the people working on this business and it is a significant incremental piece of business are also talented and motivated to move forward.
That's very important.
She did thank you last question you basically start up the balance sheet, you're you're obviously positive same store sales were in line of sight and happening for a good chunk of the base. What's just a holistic view of capital deployment now in terms of the traditional methods around dividends share repurchases development et cetera.
Yeah, Nicholas I think as I mentioned the comments right now were continued on a continuing to shore up that balance sheet, we will be reducing.
Our leverage position on the go forward position and as we continue through that process will give you more updates.
As late as it relates to what that looks like and what this level will be but they will be significantly reduced as we kind of go forward.
As we build a business backup we're going to get it also continued to capital to cap allocation that invest back in the business as I indicated we started back very quickly with into the development side is equation will we will bring capacity online over the course of the next several years and we're going also invest back into the fleet.
Similar to the Reimage program. So we were working on pre pandemic. So I really look at the Pan that initial pandemic period of time is just really a pause and in the activities that.
Yeah, we were doing pretty pandemic as it relates specific to the share repurchase activity and given activity more to say down the road as we kind of move through these next couple phases, but clearly returning excess cash flow to shareholders still is very much a.
Long term focus for us.
Thank you.
I just go.
Thank you on the next question is coming from Chris Ocull, a Chris Your line is life. Please announce your fleet nation I'm pose your question.
Thanks Stifel. Good morning, guys. Wyman do you think brinker has advantages to launching virtual concepts that other restaurant chains do not have or or do you expect other chains to start launching virtual concepts for delivery.
Hey, Chris.
Absolutely I mean, I think again back to the strategies of scale and company ownership.
There's a.
Your <unk> the first with regard to speed you know I don't know anyone that could.
That could do over a thousand restaurants.
With a virtual brand overnight.
And that's also.
You know the relationship ship, we have with door dashes also.
Instrumental in strategic in this whole virtual brand and delivery.
Strategy of ours. So we've chosen you know a little bit of a different path than us and some others and we think that that is an advantage for us and we were going to.
Continue to lean into that and build off that and we're just and you know we're in the first in into this game. So will there be other people that that that work on virtual branding and try and do a similar kind of stuff I've I've no doubt, it's a good idea, but do they have the capability to do what we've done and to leverage at the way we leverage it I don't think so I think our operators.
Our really the kind of on.
Kind of somewhat an unrecognized.
Source of power for US you know, we we've just got such a great operations team, we have the quality of systems in our restaurants that allow us to do some of this additional complications so in a time when people were cutting menus and simplifying the world and trying to simplify a down our operators were stepping up we didn't reduced our menu at all we've actually.
The rollout of virtual brand to the restaurants in the middle of this crisis and they embrace it and deliver a a really a home run for us I'm just kind of goes to kind of the quality of the people we have running our restaurants every day.
That's helpful. And then Joe could you give us a sense for how much of Maggianos fiscal Twoq revenue is typically attributable to banquets or large party occasions, I'm just trying to get a sense of what comps could look like if people are still avoiding group events by the holiday season, when I think a these expand meaningfully.
[music].
Yeah, I think a again.
It is a significant that's the quarter, where banquets do play and oversized ER.
Run well on don't have a specific number right here, but it's it's it's a meaningful piece of what they do within the the second quarter and there. They have a lot of work ongoing right now to try and sharp that space that is you know when you think about the Maggianos business model that is probably the weakest piece of the equation they've done a number of other great things on how to.
At abroad in their business they've seen a trajectory that is also improving you saw this negative 66 going down to a into the mid Fortys, we're continuing to see improvement as they move forward from that level.
But you know as we moved to the second quarter looking at that banquet space.
Space could be a bit of a hurdle to get over its about 3% I in the second quarter. If there are there other model drives off of the comp sales drive off of.
That banquet space, so and again they have a lot of energy devoted they know the the issue in the second quarter, but working at aggressively.
Great. Thanks, guys.
Thanks, Chris.
Thank you and the next question is coming from Alex Slagle, Alex Your line is life. Please announce your affiliation and pose your question.
Thanks Jefferies. Good morning appreciate the details on the restaurants already are driving positive comps I was wondering if you could can talk about the characteristics of those restaurants and the biggest differentiating factors.
Hey, Alex.
No there really isn't anything unique about them there. They're just a you know there there are spread out throughout the country, obviously with the with the rollout of.
It's just wings some of them are some are higher performing.
Wings restaurants, and so there those sales are helping them.
Get over prior year levels, but it really isn't any one characteristic and that's why we're kind of encouraged about what we're seeing a across the country.
And give any thoughts on narrowing down the menu SUNS to eliminate unnecessary complexity and crude speed or is that at this point that not seem like it's holding you back.
No and I know I think you're relatively new to US right. So I guess are welcome. We <unk> two years ago, we did a major menu simplification effort, where we took 40% of our of our menu items at chili's and reduced the scope of the menu. So again when I talk about strategies that weve had in play for awhile.
You know menu simplification is something we did in a significant way two years ago, a little over two years ago, now and a and so we feel very comfortable I mean comfortable enough with the complexity of our kitchen that we were able to <unk> to bring it's just wings into the to the kitchen and not see.
Any kind of a guest in negative guest impact to the guests in the dining room.
Dining and in Chile is with regard to the food or the delivery of the food or the service. So that we keep a very close watch on our guests metrics both.
Now both those that are taking it out or getting a delivered but especially those in the dining room and we don't see any need to have to deal with the complexity at this point, we keep a close eye on it there to make sure doesn't creep.
And Alex I think as you heard me mentioned, we had net positive menu mix in the second quarter.
Certain extent the guest a simplified force.
The narrowing a back to some of the tried and true favorites. When you think about Chris version burgers and things of that nature. So.
We've kind of seen a little bit of narrowing of where their choices, which does provide a little bit of simplification. If you think about it.
And Africa, where we don't have to take things off the menu, but that does focus our our operators in those areas. So.
We have the ability to follow the consumer where they want to go.
That's great. Thank you.
Great.
Thank you and the next question is coming from Gregory Francfort works Gregory Your line is life. Please announce your affiliation and pose your question.
Hey, a bank with bank of America I I two questions. The first is I think it was in response to the I don't was glasses, writing closed question I'm just margins and some the areas you guys have been able to find efficiencies through this process can you maybe talk about what some of those areas bar and or is it labor is it a food.
So just any sort of broad scopes and that would be helpful. And then my second question is on pricing power and coming out of this and I eat I'm sort of curious.
When I talk to some of the casual dining companies I'm getting very sort of mixed feelings on whether or not pricing can be pushed a little bit harder or or if you guys want to be a little bit more restrained. It I'm sure. It curious where Chile shakes out on that front. Thanks.
[noise], Greg will probably tag team the cost side of it I'll just say in general again back to operators at the at the.
Instead.
Outside of the pandemic when we've been in March when when it when we really had to address the dramatic shift in business in closing of dining rooms, the cost structure.
Leverage came from our managers you know they really just manage.
Labour extremely well they did a lot of the work to get us through some of those early tough days, which allowed us to kind of reduce our variable labor costs significantly with the reduction in sales and then as we started to build back into the dining room and build the business back up you have this very unique opportunity to say hey.
I got rid of all these costs because I didn't have my dining was opened so I'm going to build the cost backend lets him evaluate each of these investments again to make sure that what we've been doing for years really does make sense or that maybe somebody that was doing it slightly different in one part of the country <unk>, we now have better visibility into it and and while some of these things things.
Seem small when you've got over 1000 restaurants, they add up quickly and so Joe can give you some color on what some of those examples are but you know we found some very good opportunities that we think we'll stick with US yeah, Greg when I look at the main components and again, I think there'll be opportunities and labor and that's probably drive off of running our labor system.
Effectively so again as you bring the business back on line.
We're always looking at some some.
Additionally opportunities on how you use technology and we May do.
Some of that as we go for but I think it's really.
You know using the systems closely and B and effectively as we kind of build a business back up I think when I look at the progression of margins that I talked about over the quarter and into the and the improvements were saying.
You know ended this quarter the restaurant expense areas, where you see a lot of very identifiable ones strategically we've made some decisions around advertising that are going to play out very nicely from a margin standpoint, that's the digital power of.
The company that can you can shift.
You know two in more digital and more efficient strategy there.
And then you look underneath that and this is where you know theres line item. After line amass line I mean, it can be as you know knife sharpening linens RM expense you just kind of go down.
Laundry list of cost that.
Kind of perpetuate themselves in the business model until you have to look at them in this environment and take them down and then rebuild them and.
Frankly, we're identifying millions of dollars of opportunities as we.
You know as we want things back up again, so I think there will be.
Some nice opportunity within the restaurant a expense area.
As we kind of build forward and we're seeing it already and as we move you know it through that first period.
And then just quickly with pricing I think.
Right now we don't have any.
There there was no dramatic headwinds that are forcing us to consider aggressive pricing strategies and and were as we have been again for the last few years focused on driving traffic into our restaurants, whether it's now in the dining room or even through takeout and delivery and so we're we're really focused about.
You know how do we get more more bodies into the restaurants and in a little less about you know taking the checkup. So so we'll continue to keep our margins strong, but really our focus is on traffic and so our pricing strategies will probably be a little more conservative as we make sure, especially as the consumer starts to deal with you know.
Yeah, Yeah economic realities of a the pandemic here in the near future. So that's just our overall approach, which I think most exciting about those gaps to the industry is that traffic sided equation and so we're very focused on on very wide wide gaps, 18% in the quarter and.
But I think we have some abilities to strengthen steps as we move forward.
Thanks, Randy both.
Thank you and the next question is coming from James Rutherford James Your line is life. Please announce your affiliation and pose your question.
Thanks, and with Stephens, Inc. I, just wanted to start off at sort of.
Based on that last comment around sort of the consumer we know that stimulus checks provide bit of boost to the whole space. It's a portion of last quarter. So I'm just curious if you've seen anything already in terms of the week to week comp progression here quarter to date.
Given the indication that as those unemployment benefits sort of roll off on that consumer gets a little more squeeze whether it would.
Roll through to two kind of your results and what you've seen so far this quarter.
Yeah, James I'm really great question top of mind for all of US right as those $600 checks kind of disappeared, we were nervous and curious as to how is going to impact. The business. You saw our July results I'll, just say were almost two weeks now into our August and the results have gotten better our trade.
As of strengthened and so now were several weeks pass those unemployment.
Jack Rolling off and we haven't seen any indication that it's having an impact on our business that doesn't mean it won't that doesn't mean, we're not you know we're not saying that we're just saying you know line of sight now in and how we're managing our business frankly as you know, we do we quarter to quarter to some degree just because of the nature of what's going on with with the pen.
Demick, but so far so good on that front, we don't get ourselves, though that there is some tough economic times ahead for for subs first some people in and some parts of the country, and that's where having a great value proposition and having convenience and you know and data I don't know if you've looked at the it's just wings.
Product, but that the value proposition and that concept is out as really outrageous I mean, it's what we like to say as the tagline says that stupid pricing. So I think we're in good position to deal with some of the to give the consumer what they need a as things tighten up a little bit without having to.
To to revert to resort to you know some.
Limited time offer stuff for slashing prices you know, we have just a great value proposition embedded in our in our concept and it's just swings just builds on that and I think at James see.
The commentary around the consumer and particularly as we think through how we wanted to build our thought process for this quarter I wanted to be a little circumspect around the guidance. We gave you based on that issue in itself. So we need to see how that plays out over the course, the next several weeks and and we're also heading into what it would traditionally.
The that back to school period of time, and obviously this is going to be probably the most unique back to school you know in parentheses.
That I think we've we've ever seen so how that factors into what would typically be some of our lower volume periods of time will be interesting over the course of the rest of this quarter, but.
Kinda those two issues are kinda ones that kind of give a little bit.
Cloudiness to where we think this business can go in the short run.
Yeah, I mean, I'll just add on to that and then I know, it's all part of your question James but but the biggest concern we have in the country has as you know, whereas the virus go and obviously, we've seen things Spike and then get back under control and.
That's going to be the big determinant of our results I think in the short term, it's the because the country can continue to wear masks and see the socially distance and do what we do in our restaurants, which as you know.
Somewhat frustrating so now I'll just give you a little frustration, but I think we're going to be in good shape or if we start to see thing spiked in will you know, we're gonna see consumers react and pull back a little bit and and those are the the.
The variations of the business that we just don't control, but but without that we feel pretty good.
Well, that's encouraging it and it's a helpful perspective.
I just wanted to follow with one other question. If you think you all sort of tease that the virtual wings concept, maybe the first of several and just help us frame that or do you see an opportunity for multiple virtual only contest with a similar potential to this it's just when concept and whether those should we think what those is being potentially in 2021 or do something much more.
Much further down the road than that.
Yeah, I mean, obviously, we think there's more potential we're gonna be very smart about first.
Making sure. It's just wings as a is a strong brand that executed well that and that were growing at a through multiple channels and then we're you know it wasn't our first brand that we tested by the way you know we we we were in test with another brand before we decided on wing. So we continue to.
Test, a and innovate and look for ways to grow our business and the virtual brand story isn't isn't played out I won't go any deeper than that you know stay tuned and we'll see we rolled this went out fairly quickly and.
That's probably however over the next one now it hopefully it won't have a lot of fanfare, but when it hits it hits big.
Great Best of luck. Thank you. Thanks.
Yeah.
Thank you on the next question is coming from Jeff Farmer, Jeff. Your line is Lyons. Please announce your affiliation and pose your question. Thanks, Gordon Haskett actually I've a follow up on an earlier question and then one more question after that so in terms of the follow up.
For these restaurants that posted positive same store sales operating at really that very limited capacity, 50% seating capacity.
Did you guys make any aggressive efforts to shift demand to non peak day parts are weak parts. How did you do that knowing that you have some bottlenecks on the weekends and some evenings. How did you accomplished on positive comp number.
Well, Jeff I mean, the biggest where you accomplishes you're doing a lot of taken delivery.
And then you throw it you just wings, which is another delivery concept on top of that so a lot of the volume is now happening outside of the restaurant we still.
As a company with restaurants that are open are seen positive company wide average sales growth.
Early week.
It's the weekend, where the capacity issues come in that we start to give it back a little bit and that's just you know understandable. When you got 50% of your dining room tables, you know closed off.
So yeah. It wasn't anything specific to again those restaurants didn't do anything different there just are either a in areas, where there's a little bit more support for the brand and or maybe there a little bit stronger it's just wings a pickup.
And maybe just in general stronger delivery a market. So all of those things kind of go into the mix, but it really is how are we are how are we doing this we're doing it earlier, we more than last week and we're doing it through delivery and take out more than dining room, and that's enough to offset.
To get us back to positive comp sales.
That's helpful. And then just probably the third or fourth question on its she'll swings. When you were talking not what did you see in particular that gets you excited and how did you promote.
Oh got product or offering a in those tests markets. How did you actually get your customers to know that there.
It was an option to go and get wings delivered from Chili's box.
So it's an interesting story like I mentioned, we we'd already been end markets.
With that with an alternative virtual brand a into the early winter and and we were getting ready to take this wings concept and put it into a national kind of test and then cobot hit and we Didnt you know normally when we do something like that we put our cutlery people on the field and you know travel stop so we said listen let's just take it today.
Alice So we tested this thing and seven restaurants in Dallas for about two months.
And we were encouraged enough about consumer acceptance about operational ability to deliver.
That we rolled it nationally to 1050 restaurants.
Uh huh.
With that would that basis, and a and its proven out to be exactly what we thought it would do and then so and so are you know I'm not saying that I had none ideal way to test nationally rolled out concepts, but I would say in in the middle of a pandemic that are people were were excited about stepping up and not in that hold.
Came back and that that we weren't just looking to cut costs and hunker down that we were looking to grow the business and and a and and again proved to ourselves that yeah. The success for casual dining and burn grill is to get more capacity into the buildings and and.
Kitchens that we already have and not build more of those we're I mean.
I don't know where it is excited about that idea yeah.
Specifically then when you look at some things that are very encouraging yeah, we're already seeing a 30% plus reorder in the first six to seven.
Which is significantly high.
We're seeing a above expectations on the add on someone that add ons. It's the.
Add on an extra fry add on those incredible fried oreos add on extra sauces, which helps drive that check and actually gives you that that powerful incremental flow through well you know that the ratings were seeing from the consumer are right near the stronger and so what we wanted to see so and the only surprises.
I was just we've got a handful the restaurants that are doing volumes, we never anticipated cycle.
There there are the top you know three 4% of our restaurants are doing numbers that are Ah.
Really phenomenal I mean amazing.
I appreciate that Jeff and that's without putting a lot of firepower Oh, yeah from marketing standpoint, we just use door dash I mean door dashes our partner, we just get on their carousel, we've done free delivery as as a way, we put free delivery or try free in there to get you in and get some awareness levels and we just continue.
To use that.
I have a bad.
Appreciate it guys. Thank you.
Yeah keep going.
Thank you and the next question is coming from Jeffrey Bernstein Jefferies. Your line is life. Please announce your affiliation and pose your question.
Thank you Barclays two questions first one just on the.
To go business it seems like whether there's any them open or not you got to go sitting at 50% mix. So I'm just wondering how you think about retaining that to go customer maybe you're doing more one to one marketing any kind of color there.
What do you think those customers or are the same as your true customers or maybe incremental just trying to figure out where the the mix of could go could level off you know year. So from now based on your kind of read of those customers.
Yes, it's gonna be interesting, Jeff to see where it levels off obviously that you know a lot of our the increase into go came from the dining room guess it couldn't get in dining rooms, or or didn't want to come into dining rooms, as they opened and and so we know there is some of that tradeoff as weve opened dining rooms, though we haven't seen as much of a drop as we would have thought potentially and so that's why.
We're continuing to see strength.
This is where the beauty of our digital and our loyalty database come into play you know, we have 8 million growing.
Yes that talk to us on a kind of weekly basis, and we know which ones of those are coming in through the dining room, and who have shifted over to take out and so we can we can get a pretty good sense for you know how the guest is kind of shifting their behavior based on Covidien, we'll keep track of that and and then.
Opinion on what makes sense, we will make sure. We're we're giving them kind of the incentives they need to to dine with us either way. We don't you know we're not.
We're agnostic will take either one of those channels with regard to.
The whether or not you know they as long as they come in.
Got it and then just a follow up on an earlier question in terms of doing more with less.
I mean, I guess the month of June and using that as a proxy I think you said to comps were down 13% your restaurant margins, where you positive, 12%, which a 12% margin is better than some of the margins you've reported when your comps were down a whole lot less than 13. So just.
You know maybe from the prior question a different way working the margins settling sales ever returned to historical levels or maybe what's that.
Biggest line item that would achieve that are maybe there's some reason why these margins wouldn't ramp up as the sales improved from here. Thank you.
Yeah, I mean, I think Jeff were.
We don't have a specific number we don't have the model laid out exactly is there's I know people would like we just know there's a lot of room, Joe It kind of walk through some of the restaurant.
Operating expense opportunities that we're seeing marketing is another area that we're definitely of evaluating with regard to how what's the right spend there as we reinvest in is we invest more into digital and some of these other avenues I will say.
You know the sales that we've achieved right now and our role relative position in the category, which as you know number one.
Came with very little marketing spend that doesn't mean, we're not going to spend marketing in the future. Just says hey, that's an opportunity for us to continue to evaluate how we spend and how we drive traffic and what the the levers are so.
What we are very optimistic about as at the future model will be more efficient.
I can't give you a percentage I think I I think.
Jeff a lot is going to obviously depend on that that top line capacity.
Growth is the restaurants can come back what I can tell you anything again, you know speak.
Let's see a little careful about anyone given period remember in July as a five week period for us. So you get some leverage ability and into those numbers, but what I can tell you is is july's.
Flow through really isn't radically far from what we saw that the last July I mean, you're talking within tens of basis points of what we did last July so.
Achieving that on those capacity levels again, when I talked about is reopening restaurants, and adding it's just wings into the mix will have a positive so there's.
Decent upside coming from a margin standpoint, as as we kind of move forward.
Thank you.
Thanks, Jeff.
Thank you and the next question is coming from Brett Levy Brown. Your line is life. Please announce your affiliation and pose your question.
Great. Thank you MKM partners.
Now that we're hearing you talked a lot more about forward looking initiatives rather than simply your circling the wagons approach that we've seen across the industry.
How should we think about your strategic in your capital priorities not just the buckets of investments but.
What's your thinking and how you're thinking about it seems like structural changes to the box what more you need to do on the technology front and obviously.
How much time in dollars you can allocate to the newer initiatives you off premise.
The virtual brands and other areas like that thanks.
Again from a cap allocation standpoint.
Yeah, we're going to focus on on pretty much the same errors we focused on.
The net interest and take them in reverse what you said the virtual brands don't necessarily require a lot of capital investment very yeah. Again, frankly, there was really no true capital investment that went into the launching a top 200 brand in this case, that's the uniqueness and the power of using the capacity we've already established from a capital investment.
Perspective.
I think as we move forward technology is always going to be.
You know front and center from an investment standpoint, we we will typically through capital and Gionee being that $40 million to $50 million range of investment and I would see that is kind of an ongoing piece the equation.
Think theres, there will be opportunity on the new restaurant development side.
And and again, we're committed to making sure that our current existing fleet has kept a current and so will you know yeah I envision as we move into the latter half of this fiscal year and next fiscal year be reimaging again at a at a decent pace.
Yeah from a capital of dollar standpoint, I think this year will definitely be well below last year span.
It is frankly, a bit if a moving target for us as we see you know where the business goes as it comes back online and and grows we will have the opportunity to to increase some of that capital investment that you can expect.
Probably a year over year final capital payment to you know.
Meaningfully below last year, but.
On a on a trajectory of getting kind of back towards the level of capital investments you've seen.
The last couple of years pre pandemic.
Thanks, Brett.
We have time for about two more.
Tim are set to questions.
Hey, Bob Okay.
The next question is coming from Bob Derrington, Bob Your line is life.
Yes, Thank you I'm not to belabor point, but certainly we're pretty excited I think is mostar about the virtual brands I'm just wondering is [noise].
We have seen one of the major fast casual brands within the industry use free delivery as a curate to really kind of drive customer interest you know Wyman is that one of the things that you can use I guess and ebb and flow depending on the demand and and how you want to ultimately us.
Improve it spike it hold it back.
Is that a curate yeah yeah.
Sure Bob I think a again the the primary marketing tool is door dashing you know.
Getting awareness levels of a brand that you know is really coming from nowhere.
You've got to get you got to get some visibility and a real powerful way to do that is is through getting it on the right carousel and it whether it's the free delivery or try free try you know first time offer those are those are reasonable investments to make especially given the cost structure of this brand and how it fits into our portfolio.
<unk> and again as we've said a couple of times, because there's not a lot of incremental costs associated with this.
You can afford to do some of that was similar to the fast food concept I think I know you're talking about and as I had fairly good success doing that extensively. So yeah. That's how we look at it and I think that's its a key tool in the marketing.
Tool just if you will toolbox to kind of a good build awareness and drive it.
The value you offer with it doesn't mean everybody gets that.
Well it just doesn't mean everybody gets it that way that we're not it's not three forever you know that free delivery doesn't go to every offer but it's it's another if it's powerful marketing tool and why the great. Thanks, you see enough in the early stages. As this brand is the trial coming from door dash users that have not utilize chili's. So you know north of 60.
The percent of the trial.
For its just wings are we're tapping into a new door dash a user so broadening that that basin that appeal.
You know a quick follow but if I may be the check average opportunity certainly it's just wings offers a in my view a very compelling value to consumers is that the niche did you kind of focus on Wyman as you look out towards other opportunities and could you do something as we know the public isn't amber.
With spicy chicken sandwiches could you do something within spicy chicken sandwiches to create a virtual brand.
I love to innovate on the call Bob It's a very good thing [laughter] no well.
You know again, we're looking at a lot of different concepts ideas. The first priority is to get it's just wings established and growing and strong and it's off to a great start, but we think it's got a lot upside. So we're not going to get distracted too early with the with what's next but but it's not.
Necessarily the only way to go in order to virtual brand. It's just wings is it's just when it gets its statement is around a value proposition and how we go after it but we're looking at other concepts and we've again, we've tested some concepts that that don't necessarily walk in or are present themselves to the consumer on just kind of that.
The.
On a value proposition based on the same value proposition that it's just wings does and they also have shown some very encouraging opportunities with regard to sales potential so.
Answer your question I think with they don't all we don't see the whole world of virtual brands being positioned exactly like it's just wings.
Great. Thank you.
Thanks, Bob.
Thank you and final question coming from a Sara Senatore, Sir Your line is life. Please announce your affiliation and pose your question.
Thanks, I do is actually Leo Coursera from Bernstein. So I have a question too loose same store sales for restaurants that have all brand. It's only a the same store sales trend in July for this restaurants is very similar to a trend that we signed the end of April right. Before you started to reopen dining rooms. So is that because of western suit don't having the.
Any dining room capacity are the hardest hit states, where they would go read hezbollah's any calling that would be great. Thank you.
Yeah, I think the question I'm not I'm not totally sure if I got this right, but but yeah, our our restaurants.
That are not open. So that's 15, 16% that don't have dining room open are experiencing similar trends to what we saw earlier when when we were in that situation you know that down 40 ish percentage and I think you made because we don't build big patios and haven't built big patio.
Those are outdoor spaces with the typical chili's there had been the difference between.
What we what some concepts I've seen in April and what they've seen in June and July is that a in April that was shut down everything and then in the June and July if you've got big patio spaces, you can leverage those a little more and so they are seen maybe a little bit of a pickup there kind of in California, that's where you've seen at the most I think the first the first closure.
In California.
With everything and the second closure is indoor dining and so if you had bigger patio you may have gotten some better results, but but our because we don't leverage patios as much as some others, we've seen a little less of that but.
But it's all about again, 85% of the restaurants are open for dining we think these others will open sooner than later as the virus and people were masks and we get this thing under control and they realize that you can do that and still have a social distancing in restaurants, and then we're going to be back to again these low single digit.
And in a lot of restaurants positive comp sales.
Thank you.
Alright. Thank you all right. Thank you everyone and we appreciate everyone joining the call today, we look forward to updating you on our first quarter quarter cannot cover thanks, everybody play thanking I'd be say, thank you everyone.
Thank you ladies and gentlemen, 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.
[music].
[music].
[music].